DIVISIONAL STRUCTURE

 Divisional Structure

• As a firm, grows year after year it faces difficulty in managing different products and services in different markets. Some form of divisional structure generally becomes necessary to motivate employees, control operations, and compete successfully in diverse locations.
•  The divisional structure can be organized in one of the four ways: by geographic area, by product or service, by customer, or by process. With a divisional structure, functional activities are performed both centrally and in each division separately.
• A divisional structure has some clear advantages. First and the foremost, accountability is clear. That is, divisional managers can be held responsible for sales and profit levels. Because a divisional structure is based on extensive delegation of authority, managers and employees can easily see the results of their good or bad performances.
•  As a result, employee morale is generally higher in a divisional structure than it is in centralized structure. Other advantages of the divisional design are that it creates career development opportunities for managers, allows local control of local situations, leads to a competitive climate within an organization, and allows new businesses and products in be added easily. 
• The divisional design is not without some limitations. Perhaps the most important limitation is that a divisional structure is costly, for a number of reasons. 
• First, each division requires functional specialists who must be paid.
•  Second, there exists some duplication of staff services, facilities, and personnel; for instance, functional specialists are also needed centrally (at headquarters) to coordinate divisional activities. 
• Third, managers must be well qualified because the divisional design forces delegation of authority better-qualified individuals requires higher salaries. A divisional structure can also be costly because it requires an elaborate, headquarters-driven control system. 
• Finally, certain regions, products, or customers may sometimes receive special treatment, and It may be difficult to maintain consistent, company wide practices. Nonetheless, for most large organizations and many small firms, the advantages of a divisional structure more than offset the potential limitations. 
• A divisional structure by geographic area is appropriate for organizations whose strategies are formulated to fit the particular needs and characteristics of customers in different geographic areas. This type of structure can be most appropriate for organizations that have similar branch facilities located in widely dispersed areas. A divisional structure by geographic area allows local participation in decision making and improved coordination within a region. 
• The divisional structure by product (or services) is most effective for implementing strategies when specific products or services need special emphasis. 
• Also, this type of structure is widely used when an organization offers only a few products or services, when an organization’s products or services differ substantially. The divisional structure allows strict control over and attention to product lines, but it may also require a more skilled management force and reduced top management control. General Motors, DuPont, and Procter & Gamble use a divisional structure by product to implement strategies. 
• When a few major customers are of paramount importance and many different services are provided to these customers, then a divisional structure by customer can be the most effective way to implement strategies. 
• This structure allows an organization to cater effectively to the requirements of clearly defined customer groups. For example, book- publishing companies often organize their activities around customer groups such as colleges, secondary schools, and private commercial schools. Some airline companies have two major customer divisions: passengers and freight or cargo services. Bulks are often organised in divisions such as personal banking corporate banking, etc. 
• A divisional structure by process is similar to a functional structure, because activities are organized according to the way work is actually performed.
•  However, a key difference between these two designs is that functional departments are not accountable for profits or revenues, whereas divisional process departments are evaluated on these criteria.