![]() Divisional structures are very costly to operate since cost benefits available to functional structures through shared services are not enjoyed. On the other hand, control issues are much likely to arise due to the scale of the organizations and divisional managers acting upon their own personal agendas without considering working towards a common corporate objective. Further, the divisional managers have significant autonomy to be responsive to customer demand without much influence from top management from the parent company. In this type of an organization structure, inefficiencies in one division do not affect the other divisions unlike in a functional structure since the divisions remain separate. For such organizations, they have limited choice but to adopt a divisional structure. Due to the high volume of production, it is not practical to produce all products in a single location and distribute to a number of countries. They have production plants in a number of countries to produce and sell in respective countries. Multinational organizations such as Unilever, Nestle have expanded their businesses to cover all the regions in the world. Divisional structures are also named as ‘M-form’ (Multidivisional form) and are most suitable for companies who operate with several product categories in geographically dispersed markets. Here, separate functions such as Production, HR, and finance can be seen under each division to support each product line. In that case, the products have to be shipped to the respective countries and different marketing approaches may have to be used.ĭivisional structure is a type of organizational structure where operations are grouped based on divisions or separate product categories. ![]() In the above example, assume that 2 out of the 5 product categories are sold in two different countries. However, functional structures are difficult to adopt for larger scale companies that operate in a wide geographical area, especially if the organization has overseas operations. All these categories are produced by a SDH’s production team and marketed by a sole marketing team. ![]() SDH Company operates with a divisional structure and produces 5 product categories. ![]() The most significant advantage of this type of a structure is that the company will be able to benefit from specialized functional expertise and enjoy notable cost savings by using shared services.Į.g. The functions such as finance and marketing are shared across divisions or products. Such functional areas are also referred to as ‘silos’.įunctional structures are ‘U-form’ (Unitary form) organizational structures where the operations are categorized based on common expertise and experience. Each function is managed by a departmental head that has a dual responsibility to be accountable to the top management and to direct the respective department to achieve favorable performance. Side by Side Comparison – Functional vs Divisional StructureĪ functional organization is a commonly used organizational structure in which the organization is divided into smaller groups based on specialized functional areas such as production, marketing and sales. The objective of the same is to carry out operations smoothly and efficiently.Ĥ. An organization can be arranged according to a variety of structures, which enable the organization to operate and perform. The key difference between functional and divisional structure is that functional structure is an organizational structure in which the organization is divided into smaller groups based on specialized functional areas such as production, marketing and sales whereas divisional structure is a type of organizational structure where operations are grouped based on divisions or separate product categories. Key Difference – Functional vs Divisional Structure
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