What are the features of divisional organizational structure?

The divisional structure is a concept that has been used in businesses for many years. Though the term might sound complex, it's easy to understand once you grasp it well. 

Divisional structure is a mode of an organisation where a business is divided into several sections or branches. An assigned manager of these branches leads the team with an entrusted responsibility, which in turn is supervised by higher-level management or the CEO. 

The divisional organisational structure is a two-tier system for every enterprise ranging from medium to large scale. It means that the divisional organizational structure falls into one of the three main organisational structures. These three organizational structures include Functional, Divisional and Matrix. 

This blog explores all the key areas in which the divisional organisational structure benefits businesses. We will also look closely at the pros and cons of the divisional structure model.

Did you know? A divisional organisational structure has another name called multidivisional structure. 

What is Divisional Organisational Structure?

A divisional structure in any organisation is a method of organising a company into separate units as per operational and strategic efficiencies. The separate departments in an organisation have some specific functions to perform. A divisional team leader leads each of these units and further reports to the top-level managers of the department. 

For example, suppose a company wants to manage and distribute its resources better. In that case, it can separate its range of activities into smaller divisions like marketing, sales or technology.

This organisational structure suits businesses whose primary operations involve highly specialised skills and techniques. Moreover, such a divisional structure in organisations helps them gain an advantage over the competition.

Also Read: Understanding the Limitations of Accounting in Detail | Khatabook

Divisional Structure Example

One of the best examples of divisional organisational structure is the Reliance Jio company, a subsidiary company of Reliance Industries Limited. Reliance Jio offers many services and products, including telecom services, clothing, entertainment, and more. Each specific division is further classified into segments like Research and Development, marketing or finance. 

Each specialised division is completely independent and responsible for its actions. Like in the case of JioSaavn, it has its technology, finance, development, and accounting departments. One managerial staff will not be common to other specialised divisions. In addition, every classified department has its special equipment and unique resources.

Such structural divisions in large companies promote effective management by breaking down work into manageable tasks and assigning them to specific departments. Not only that, it ensures that the company can track its progress while managing its resources simultaneously. 

Also Read: Types of Accounting Errors - What Are the Types of Errors in Accounting

Features of Divisional Organisational Structure 

A divisional organisational structure is a business organisation system intended for companies that offer various products or services to numerous market types. Apart from the large corporate sectors, it also plays other important roles in the private sector. So, companies using a divisional structure exhibit one or all of the following features:

1. Variety of Product Lines: Businesses with specialised divisions tend to offer a diverse selection of product lines as per the needs and demands of the customers. 
2. Multi-type Client Services: These businesses provide both business-to-business and business-to-customer services.
3. Wide Advertisement: In an organisation with a divisional structure, products are advertised to a diverse range of population. 
4. Wide Geographical Reach: The businesses with a divisional organisational structure are not confined to one specific location. They expand their brand by marketing to various interest groups in various geographic regions. 
5. Specialised Services: Every business with a divisional structure intends to serve customers who need attention in a specific area.

Also Read: Fundamentals of Accounting - Learn About Accounting Process and Steps & Basic Features of Accounting

Divisional Structure Advantages

A divisional structure is a significant part of an organisation and is generally adopted by large firms or groups of related companies. Several advantages of adopting the divisional structure are highlighted in the following points below: 

1. Multiple Products and Services: For organisations with numerous products and services, adopting this type of structure would make tasks manageable with clear and specific goals set on the vision board. 
2. Division-based Profitability: The divisional structure is more concerned with each division's profitability than the organisation's overall profitability.
3. Accountability: Adopting this approach makes every division engaged in running the organisation's business accountable for their actions; thus, it improves the quality of their focus while seeking the betterment and growth of the division's interest.
4. Better Teamwork: Interaction of the team members in a divisional structure is enhanced with a smooth flow of communication with every other member. Such interaction is made much more efficient and effective with a clear awareness of their goals and a stronger drive for their department's success. 
5. Dynamic Boundary: In a divisional structure, every division is in an advantageous position to face the external world's dynamic realities beyond its current capacities. It helps to improve their focus on divisional products or services and adapt to external changes without disastrous setbacks.
6. Retention of the Culture of the Organisation: Culture is the core fundamental principle that helps any organisation's business last longer. The divisional organizational structure offers this benefit of culture to help the divisions and the team members working under it thrive, adding to the overall quality growth of the company through the achievement of preset objectives. 
7. Quality Leadership: The divisions in a divisional structure are assigned a leader in charge of setting goals and meeting the same along with the members. It ensures direct and effective communication with the person in charge of leading the division without needing to approach the company's top leader. Moreover, this approach improves the efficiency of the division's leader while the company's top leader can focus on more strategic areas for growth.

Also Read: Liabilities in Accounting - What are Accounting Liabilities? Explained in Detail

Disadvantages of Divisional Organisational Structure 

While the company can have its various tasks allocated to several divisions, it's also noteworthy that the divisional organizational structure involves a few opposing qualities. These aspects are described below:

1. Limited Scope: The divisional structure's scope and benefits are usually limited to large organisations with adequate financial and workforce resources. It means that smaller organisations are in no position to avail of such opportunities for benefits as are available to larger organisations adopting this approach. 
2. Work Duplication: This approach causes work duplication. It may lead to an increase in costs for the organisation. 
3. Severe Competition: Good fruits result from the laborious yet dynamic and healthy competition among the divisions' members and heads. Regardless of the company's main goal, if there’s severe competition within, it will hinder the overall quality function of the organisation. 
4. Related Products: The divisional structure is not very favourable for two or more companies that are not related to one another. Each of these companies can only come together as one specific division if they fall under the same category of producing goods and services. In other words, they must supplement each other rather than be complementaries.
5. Communication Lack: Lack of communication will hamper the growth of the divisions and the company as a whole. With little or no communication, there is no chance of getting to know each other's intended goals and targets. 
6. Economies of Scale: An organisation that adopts a divisional structure gets no benefits from economies of scale. This type of organisation would be unable to save on the cost of producing large quantities of goods and services. As the scope of the smaller divisions to produce larger quantities is limited, they can't take benefit from the features of the economies of scale.

Also Read: Understand Accounting Ratios – Overview, Meaning, Types and Formulas

Conclusion:

Divisional organizational structure is one of the most common organisational structures in businesses. It is one of the simplest structures and is commonly mistaken for a functional structure. The divisional structure separates the company into smaller divisions, yet each of these remains a part of the whole. The basic intention of the structure is to improve the business's efficiency and productivity. 

We hope you enjoyed reading our article about the Divisional Organisational Structure. With this knowledge, we know that you can make the most of your business strategies and decisions to thrive in the dynamic world of ours today. Hopefully, this blog was helpful!
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.