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Divisional Organizational Structure

Updated on October 1, 2012

Is divisionalisation a good idea?

There are several advantages claimed for dividing business operations into divisions and for allowing divisional managers a measure of autonomy.The following reasons that cause the organizations to divide their business operations

l Market information.

Divisional managers will gather an enormous amount of information concerning customers, markets, sources of supply and so on, which may be difficult and costly to transmit to top management. In some cases, they might find it impossible to pass on to management at head office all of the knowledge and experience gathered. Furthermore, as divisional managers are ‘in the front line’ they can often use this information to best advantage.

l Management motivation.

Divisional managers are likely to have a greater commitment to their work if they feel they have a significant influence over divisional decisions. Research evidence suggests that participation in decision making encourages a sense of responsibility towards seeing those decisions through. There is a danger that divisional managers will simply lose motivation if decisions concerning the division are made by top management and then imposed on them.

l Management development.

Allowing divisional managers a degree of autonomy should help in their development. They will become exposed to marketing, production, financial problems and so on. This should help them to gain valuable specialist skills. In addition, the opportunity to run a division more or less as a separate business should develop their ability to think in strategic terms. This can be of great benefit to the business when it is looking for successors to the current generation of top managers.

l Specialist knowledge.

Where a business offers a wide range of products and services, it would be difficult for top management to have the expertise to make operating decisions concerning each product and service. It is more practical to give divisional managers, with the detailed knowledge of the products and services, responsibility for such matters.

l Allowing a strategic role for top managers.

If top managers were required to take detailed responsibility for the day-to-day operations of each division, they could become bogged down with making a huge number of relatively small decisions. Even if they were capable of making better operating decisions than the divisional managers, this is unlikely to be the best use of their time. Managers operating at a senior level should develop a strategic role. They must look to the future to identify the opportunities and threats facing the business and make appropriate plans. By taking a broader view of the business and plotting a course to be followed, top managers will be making the most valuable use of their time.

l Timely decisions.

If information concerning a local division has to be gathered, shaped into a report and then passed up the hierarchy before a decision is made, it is unlikely that the business will be able to act quickly when dealing with changing conditions or emerging issues. In a highly competitive or turbulent environment, the speed of response to market changes can be critical. Divisional managers can usually formulate a response much more quickly than top managers.


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