Divisions are likely to be seen as profit centres and may be seen as strategic business units for planning and control purposes. It helps in the development of varied skills in a divisional … The direct control from the top leadership of the firm is no longer a necessity. Economies of scale are the cost savings when an organization produces goods or services in a large quantity. Grouping activities on the basis of location. For example, a smart phone manufacturer that also manufactures accessories for smartphones might find it difficult for their mobile phones and accessories divisions to stay on the same ground and integrate on their future prospects. This can result in a duplication of resources that might not be present in a more centralized structure. the car industry. To be successful, divisions must be well managed. Common in organisations that operate over a wide geographic area. As a single division does not produce enough to take great benefits out of the economies of scale. The role of the general manger has less concentration upon specialisation. Divisional structure is not a possibility in small organizations. Divisional organisations need to ensure that each division is allocated the resources it needs to achieve its objectives while finding way… If an organisation wants to grow and diversify, the functional structure cannot cope, so instead the divisional structure should be adopted. Advantages of a Matrix Structure It allows team to share information across task boundaries. Another advantage of a divisional structure is that it allows for a high degree of specialization. Product-Based Divisional Structure. The divisional structure tends to ease the tasks of each level of management. Divisional structure prevents organizations from getting the most out of economies of scale. Though small businesses rarely use a divisional structure, it can work for such firms as advertising agencies which have dedicated staff and budgets that focus on major clients or industries. One person, alone, can start and run a small business, but when two or more people come together to accomplish a business goal, an organization is formed. Generally speaking, divisions work best for companies with wide variance in product offerings or regions of geographic operation. In the case of divisional structure, companies make separate divisions or business units headed by the division manager who is responsible and accountable for the performance of employees under his or her unit. The group of the function is not communicating with each other. Copyright 2020. As a single division does not produce enough to take great benefits out of the economies of scale. Disadvantages of a Divisional Structure operational inefficiencies from separating specialized functions increased accounting and tax implications. Also, divisions can bring compartmentalization that can lead to incompatibilities. This can result in a duplication of resources that might not be present in a more centralised structure. It becomes easier for them to evaluate staff and divisional performances and base their compensations on their success rate. The first and foremost limitation of divisional structure is that it can create animosity between divisional head due to inappropriate allocation of funds to divisions or inappropriate allocation of resources between divisions by the company apart from divisions trying to take advantage of other divisions by snatching business from other divisions which we all know does not benefit the company as a whole as aim of the divisional heads should be to maximize profits of the company and not divisions. What is a Triple Net Lease? If this is the case, the cost of the centralised function could be recharged to those divisions using e.g. The upper leadership can indulge in strategic decisions.