Divisional Structure

What is a divisional structure?

A divisional structure is a common organizational framework that groups business activities based on products, services, geographical locations, or markets. Each division within this structure operates as a semi-autonomous entity equipped with its own set of resources and functions. 

The purpose of a divisional organizational structure is to provide a targeted focus on specific products, regions, or markets – increasing efficiency and agility. Companies with a wide product range and operating in many different markets often choose this organizational framework. Some leading divisional organizational structures include:

• Procter & Gamble
• Ford Motor Company
• Nestlé
• Samsung
• Adidas.

Key characteristics of a divisional structure

Here are some common characteristics of a divisional organizational structure:

• Autonomy within divisions: Each division typically operates as its own entity with its own set of financial resources, management structure, and performance targets. They have the autonomy to make decisions based on the needs of their specific market or product areas.
• Product or market focus: There’s a specific organization around products, services, or markets. This level of specialization allows each division to tailor approaches and strategies to a particular customer base and market.
• Responsibility over profit and loss: Organizational divisions are often held accountable for their financial performance, providing them with the incentive to drive business growth and profitability.
• Team expertise: Each division is made up of teams with specific skills, backgrounds, and expertise around their particular focus area.
• Robust performance measurement: Each division is regularly evaluated on its performance with detailed metrics to track goals and targets. Measurement systems ensure that the right level of resources are allocated to different divisions.

Functional organizational structure vs. divisional structure

Divisional structure advantages and disadvantages

The advantages

• Flexibility and adaptability: Divisions can respond more quickly to market changes. Since they enjoy a high degree of autonomy, they can make swift decisions without bureaucratic processes slowing them down.
• Greater innovation: The freedom to experiment is another advantage of having autonomy. Individual divisional structures have the room to test new ideas, drive product innovation, and tailor solutions to specific markets and customers.
• Increased transparency: From a corporate level, it’s easier to have greater insight into individual divisional structures. This high-level overview enables a company to understand how well a division performs, identifying strengths and weaknesses to make more informed organizational decisions.
• Improved risk management: A company can have greater control over risks and losses when they are contained within individual divisions. This has the potential to lower the impact on the overall business.
• Targeted talent attraction and retention: Since divisional structures require a unique set of skills and capabilities, HR can focus on tailored talent acquisition and retention strategies. This allows for targeted skill development, training, and career advancement activities to attract and retain highly skilled talent.

The disadvantages

• Limited cross-functional collaboration: There is a risk of working in isolation and limited communication across divisions. This siloed approach can affect knowledge sharing, innovation, and implementing best practices across the organization.
• Duplication of resources: Typically, each division has its own administrative functions – such as sales, finance, and marketing – which can lead to inefficient use of resources and increased costs.
• Challenges in maintaining a consistent company culture: It may be harder to create a unified company culture when there are different divisions, especially those spread across multiple regions. As a result, it can negatively impact the sense of a shared culture and values across the organization.
• Unhealthy competition: The funding for resources among divisions can be quite competitive, which can cause conflicts and low morale. It’s important not to let these conflicts affect the overall performance of individual divisions.
• Limited talent mobility: Although targeted talent attraction and retention has its benefits within divisional structures, it can limit talent mobility across the organization. Employees may find it challenging to expand their careers outside their specific divisions, decreasing their career advancement opportunities.

Divisional structure example

Tree of Life, a global plant-based company, is a thriving example of a divisional organizational structure. With product-based divisions tailored to diverse markets in Europe, North America, and Asia, the company has outpaced competitors because of its agile and adaptable structure. As a result, it’s able to successfully localize its product range of almond, coconut, rice, and mung bean drinks.

Its divisional structure looks like this:

4 additional types of organizational structures 

1. Functional organizational structure

A functional organizational structure is a form of business organization that is made up of several departments based on specific skills and areas of expertise.

• Benefits: High level of expertise in specific areas by grouping employees based on their function; Clear reporting lines
• Limitations: Slow response times due to centralized decision making; Limited view of organizational goals due to departments being focused on their own objectives.

Companies that use this structure: Amazon, Apple

2. Matrix structure

A matrix structure combines elements of functional organizational structure with elements of divisional structure. Employees report to two bosses: one for their functional area (like marketing or finance) and one for their product or project.

• Benefits: Drives cross-disciplinary collaboration; Shares expertise across the organization and if managed well drives innovation.
• Limitations: Often internally focused and requires clear governance to work; Internal tensions in terms of conflicting priorities and accountability.

Companies that use this structure: Nike, Phillips

3. Flat organizational structure

A flat organizational structure has few or no levels of middle management between staff and executives. Encourages open communication and collaboration.

• Benefits: Drives ownership and accountability; Easier for collaboration.
• Limitations: Often struggles to differentiate between strategic and operational work; Resource allocation can be too thinly spread across areas; Could slow down decision-making due to the need to seek consensus.

Companies that use this structure: Hubspot, Netflix

4. Team-based or agile structure

 This structure organizes into project teams. These teams often function autonomously, working towards specific goals.

• Benefits: Leverages cross-functional capacity; More flexible in allocating resources.
• Limitations: Decision-making and allocation of resources is not always clear; Can result in fragmented work practices and lack of consistency.

Companies that use this structure: Spotify, Airbnb

FAQ