What are Divisional Organizational Structures?

Businesses rely on organizational structures to shape and define the way in which responsibility and seniority is delegated within the organization. There are three main types of organizational structures that organizations commonly use, but there are many more that we hear about less. In this guide we will dive into the divisional structure that is adopted most frequently by very large corporations but has benefits that every business can learn from.

What is a divisional organizational structure?

A divisional organizational structure is a system in which the business is divided into segments by product, market or geographies, whereas organizations are typically grouped by departments and job roles. Companies organized divisionally might have a U.S. segment and a European segment, and each division would be able to fully operate on its own. Each would contain all business functions meaning, marketing, sales, engineering and other functions within each segmented team. Visually, a divisional organizational structure is linear and parallel, as opposed to a pyramid shape, which is associated with a common corporate hierarchy, or horizontal, such as the flat organizational structure.

Types of divisional structures:

Divisional structures can be segmented by product, market or location and usually an organization will only divide their structure by one of these operations.

Product-based divisional org structure

A product based divisional structure is when a structure is departmentalized by product line. This is useful when the products don’t overlap and are designed, marketed, sold and managed completely differently. For example, this could work for a company like Apple, which sells physical electronics but also digital products such as Apple Music and Apple TV.

Geographic-based divisional org structure

A geographical organizational structure splits employees by their geographic location and each division functions as their own company. This division allows businesses to better serve their customer base because they can adhere to specific local preferences and improve logistics.

Market-based divisional org structure

A market based divisional structure refers to an organization segmented according to industry or customer type. This is often useful for large consumer goods corporations such as Target, which has many departments such as clothing, electronics, home and food. Markets can also be segmented by whether products are sold via retail, e-commerce or catalog.

Why are divisional structures used?

Divisional structures are more commonly used by large organizations because the silos allow each large segment of the business to be successfully organized, operated and autonomous. This is extremely useful when a business is spread out geographically or has multiple core products and services. This enables each section to have a dedicated team that can focus all their efforts on their core area of the business and not have to depend upon teams across the world with opposing focuses.

Like with any organizational structure, there can be many benefits and drawbacks that come with implementing one into an organization. They each serve different purposes and work best for companies of different sizes, industries and cultures.

Advantages of a divisional structure

Efficiency

Separating an organization into branches allows for faster decision making, problem solving and more effective teamwork. Because each segment of the company has a dedicated leadership team, it guarantees that objectives will be supported and the needs of the team will be addressed more quickly. This approach enables communication to not have to pass through several departments for strategic decisions to be made and resources to be allotted.

Clear direction

Working in divisions leads to improved focus and alignment because the direction of the team is made unified and explicit. When a team is operating with shared knowledge and mission it allows for greater transparency and a stronger work ethic within the group. Additionally, divisions that solely focus on their core competency enables every aspect of the product to be optimized for the ideal market and customer. Teams are able to hone in on what solutions and offerings are best suited for their customer base and respond quickly to demands.

Flexibility

A divisional structure works best for companies with multiple product offerings or locations because it affords the organization greater operational agility. When a company contains several independent business units it is able to expand further to different locations and markets without affecting the rest of the organization.

Disadvantages of a divisional structure

Cost

Creating multiple autonomous divisions can be a costly endeavor. It is similar to running several small companies under one umbrella. Each segment requires duplicates of teams that need the same positions and supplies. Additionally, each division does its own research, development and acquisition of resources and ends up duplicating efforts, when each division could otherwise be helping one another. Thus, divisional organizations typically have more employees and locations than other organizational structures leading to higher operating costs.

Encourages silo working

The core purpose of the divisional structure is to divide the team and this fosters a silo mentality. When businesses are siloed they lose a lot of the advantages that cross-functional teams are provided such as improved innovation, alignment and communication. Instead, working in silos could lead to a lack of consistency across the products and internal conflict.

Poor strategic focus

Operating separately incentivizes teams to feel more affiliated with their team rather than with the overarching company mission which can lead to misalignment and even competition between divisions. Divided organizations will hinder communication across departments and from the headquarters and the result is opposing objectives, agendas and opinions.

Example of a divisional structure:

One of the leading fast-food chains in the world, McDonald’s, opts for a divisional organizational structure. According to Panmore, Mcdonalds originally used a geographic-based divisional structure, separating its business into the U.S., Asia/Pacific, Middle East and Africa and Other Countries. However, in 2015 McDonald’s reorganized its company structure and implemented a market-based structure according to performance. This new divide looks like: (a) United States, (b) International Lead Markets, (c) High Growth Markets and (d) Foundational Markets and Corporate. The United States remains to be its own market because it is their leading regional source of revenue.

The divisional organizational structure may not work for every business but it is imperative that every company determine what structure will work best for their team. One way to map out the design of your organization is by creating a public org chart on The Org so employees can stay abreast of their own team functions and foster alignment.

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