(d) Divisional Organisation
Divisional structure, also called profit decentralization by Newman and others,2 is built around business units. In this form, the organisation is divided into several fairly autonomous units. Each unit is relatively self-contained in that It has the resources to operate independently of other divisions. For example, each division has Its own manufacturing, engineering, marketing, etc. Each unit is headed by a manager who is responsible for the organisation’s investment in facilities, capital, and people as well as for unit’s development and performance. Divisional structure is similar to dividing an organisation into several smaller organisations but it Is not quite the same, since each smaller organisation is not completely independent. Each unit is not a separate legal entity; it is still part of the organisation. Each unit is directly accountable to the organisation.
Basis of Divisionalisation
There are different bases on which various divisions in an organisation can be created. The two traditional bases are product and territory. Later, many organisations have moved from these bases to create divisions on the basis of strategic business units. In each of these bases, functions involved and, therefore, departments created are different.
In this form, each major product or product line is organised as a separate Unit. Each unit has its own functional structure for various activities necessary for the product. Multi-product organisations use this as basis for divisionalisation. This is appropriate specially when each product is relatively complex and large amount of capital is required for each product. The product requires different type of efforts as compared to others in terms of marketing and/or production. For example. Century Mills has separate divisions for textiles, cement, and shipping. Reliance Industries Limited has six product divisions: textiles, polyster, fibre intermediates, polymers, chemical, and oil and gas. Each division caters to different customers and has different types of competition.
In this form, regional offices are established as separate units. Each regional office has its own set of functional departments and operates under the strategic policies and guidelines established by corporate management. This is useful for those organisations whose activities are geographically spread such as banking, transport. Insurance, etc. For example, Life Insurance Corporation of India runs Its life insurance business on the basis of territorial divisionalisation in which the entire geographical area of the country has been divided into five zones—eastern, central, northern, southern, and western. Each zone has further been divided into appropriate number of divisions, for example, northern zone into four divisions located at Jalandhar, Chandigarh, New Delhi, and Ajmer. Each division has a number of branches at different places covered by the division concerned.
Strategic Business Unit
In multi-product or multi-geographical area companies, divisions are created in the form of various strategic business units (SBUs). SBU concept was evolved by General Electric Company (GEC) of USA to manage its multi-product business. The fundamental concept in SBU is to identify the independent product/market segments served by an organisation. Since each independent product/market has a distinct environment, a SBU should be created for each such segment. Thus, different SBUs are involved In distinct strategic business areas with each area serving the distinct segment of the environment. For example, GEC was earlier having nine product groups and forty-eight divisions which were reorganised into forty-three strategic business units, many of which crossed group, division, and profit centre lines. For instance, three separate divisions in food preparation appliances were merged in a single SBU to serve houseware market.
In India, many companies have organised their businesses on the concept of SBU. In fact, most of the companies in information technology sector which are engaged in development of software for different purposes and for different customer segments have adopted this approach.
Design of Divisional Organization Structure
In designing divisional structure, there are several issues, besides the basis of divisionalisation which should be adequately taken care of it. These are determination of number of divisions, provision of corporate staff activities, and relationship between corporate and divisional management.
1. Number of Divisions
Determination of number of divisions is quite related with the problem of basis of divisionalisation. The basic guiding principle in this context is that a separate division should be able to generate revenue enough to contribute to organizational objectives after meeting its expenses. The number of divisions will be determined on the basis of diversity in the base which has been selected for divisionalisation. Thus, higher the diversity, more will be number of divisions. However, apart from this, cost factor should also be taken into account.
2. Provisions of Corporate Staff Activities
The provisions should be made for corporate staff activities because regardless of the degree of divisionalisation, certain activities are likely to be centralised as part of corporate staff. The basic problem in this context is what activities should be retained at the corporate level to make maximum use of resources. Some activities which can be shared easily by all divisions can be centralised at the corporate level like legal activities, research and development, etc. Further, some activities which may not fall within the purview of any division can be taken at the corporate level, for example, company law matters, determination of distribution pattern of earnings, etc.
3. Relationship between Corporate and Divisional Management
The relationship between corporate and divisional management will depend on the degree of autonomy granted to divisions. On the one hand, strong corporate management may be constantly involved in divisional affairs; on the other hand, divisions may be allowed to operate independently, only being monitored through control system. The resolution of this dilemma depends on the respective corporate and divisional strategies and working and the abilities of corporate and divisional managers.
Organisation chart of a divisional structure is shown in the following figure. At the corporate level, some departments will be created to look after the activities which do not strictly fall within the purview of any division. These departments often provide services to divisional management.
1. Divisional structure emphasises the end result, that is, product or customer through which revenue is generated in the organisation.
2. Since a division focuses its attention on a particular product or service, its performance measurement is easier as the performance can be measured in the light of contributions made by the division.
3. There is higher level of managerial motivation because managers work In the environment of autonomy.
4. Through divisional structure, more managers with general outlook can be developed who can easily take up the job at the corporate level. Thus, there Is no problem in managerial succession.
5. Organisational size can be increased without any problem as new divisions can be opened without disturbing the existing system.
6. Each product or customer Is able to get specialised service because the attention is focused by a division exclusively for It.
1. Divisional structure is quite costly because all the facilities have to be arranged for each division. Therefore, unless a division justifies its cost, it should not be opened but its activities should be carried out by another division.
2. Since there is lack of emphasis of functional specialisation, many professionals do not feel satisfied with this structure.
3. Often there is a lack of managerial personnel when a new division is opened because managers working within a division cannot work with same efficiency in other division as they must have acquired the technical competence of that division.
4. Control system is a major problem of divisionalisation. Though each unit is measured in terms of its contributions to the organisation, this system does not work properly specially if information monitoring system is not suitable.