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Organizational Divisional Structure: Advantages, Disadvantages & Example

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Lesson Transcript
Instructor: Shawn Grimsley
A divisional structure is a common organizational form used in business. In this lesson, you'll learn about divisional structures, including their advantages and disadvantages. You'll also have an opportunity to take a short quiz after the lesson.

What is a Divisional Structure?

A divisional structure is a manner of designing an organization so that it is split up into semi-autonomous units called divisions. While the divisions have control over their day-to-day operations, they still are answerable to a central authority that provides the overall strategy for the organization and coordinates its implementation among the divisions. Large corporations, especially large multinational corporations, utilize a divisional structure. For example, General Motors was one of the first companies to implement the divisional structure. This type of structure is also referred to as a multidivisional structure, or M-form, organization.

Advantages of a Divisional Structure

A divisional structure provides some distinct advantages for large organizations. Each division can specialize and focus its efforts on its particular product, service or market and not be distracted by competing interests. For example, if you manufacture automobiles, you may create a car division, a truck division, a minivan division and a SUV division. Alternatively, you may decide to create different divisions for different geographic markets, such as North America, Europe and Asia.

Since each division is semi-autonomous, operational decisions that you need to make are made by employees closest to the specific issues and problems. Not only are these employees closer to the problem, they also tend to have the specialized knowledge and skills best suited to resolve the problem. For example, the engineers at our car company's SUV division are experts at dealing with SUVs and are the best choice to handle problems with them. If the company wasn't divided into divisions, you may not have engineers that specialize in SUVs.

The divisional structure also provides a great deal of flexibility for the overall organization because each division operates separately and focuses on the most pressing issues facing it rather than being triaged by a central authority. In other words, the leader of each division can focus on the specific goals of his division and leave the overall strategic management of the company to the folks at the corporate headquarters.

Additionally, it's easier to pinpoint problems in the overall organization and hold specific divisions, and their leadership, accountable. For our automobile example, if there is a problem with sales in the European market, you know where to look - the European division.

Finally, a hierarchy is still maintained by a central authority, but it is limited to providing the strategy for the entire organization and coordinating its implementation across divisions. In other words, your corporate headquarters will generally let you do what you have to do to achieve your divisional goals, but will work with you to implement general corporate strategy and help you work with other divisions as necessary.

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