Class 12 Business Studies - Chapter Organising NCERT Solutions | What is a divisional structure? Discuss
What is a divisional structure? Discuss its advantages and limitations.
An organisation structure in which various departments are created on the basis of products, territory or region, is called divisional structure.
Each unit has a divisional manager, who is responsible for performance and has authority over their division. Each division is further divided into functional units like production, sales, finance, etc.
Advantages of divisional structure
Divisional structure has the following advantages:
- All the activities related to one type of product are grouped under one division, which brings integration and coordination in the activities.
- With more initiative and flexibility, decisions are taken much faster in divisional structure.
- Fixation of responsibility and accountability is easy, as divisional heads are responsible for the profits and losses of their division.
- It facilitates expansion and growth as new divisions can be added without interrupting the existing operations.
- It helps the managers to develop varied skills related to a product and facilitates managerial development.
Limitations of divisional structure
Divisional structure has the following limitations:
- There is a duplication of physical facilities and functions, which leads to increase in cost.
- Greater autonomy to divisional heads may lead to misuse of authority.
- Managers in each divisional focus on their own objectives, without thinking of the organisational goals.
- Conflict may arise between different divisions on allocation of funds and other resources.
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A company X limited manufacturing cosmetics, which has enjoyed a pre-eminent position in business, has grown in size. Its business was very good till 1991. But after that, new liberalised environment has seen entry of many MNC’s in the sector. With the result the market share of X limited has declined. The company had followed a very centralised business model with Directors and divisional heads making even minor decisions. Before 1991 this business model had served the company very well as consumers had no choice. But now the company is under pressure to reform. What organisation structure changes should the company bring about in order to retain its market share? How will the changes suggested by you help the firm? Keep in mind that the sector in which the company is FMCG.
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