There are two often used methods of splitting the company when considering a divisional organizational structure: divisional by-products and divisional by geography. This article examines the two various types and the circumstances in which a corporation could structure itself using these divisional organizational structures.
Product-based divisional organizational structures: When a company is structured around various product lines, it is said to have a product-based divisional structure. A division represents one set of items, whereas a product line represents another group of products—possibly in a different industry.
A divisional structure based on products makes sense in general when there are few similarities between the product lines (and hence few possibilities to exchange resources across the lines) or when you wish to distinguish one product line from another for a particular purpose. Several instances of this include:
- The products are completely different: There might not be a need to group the items in the same division if there is no product overlap, which is typical with unconnected diversification. Having many product categories under one division may not only limit the chances to pool resources, but it may also cause further confusion or distraction.
- The products target different audiences: There may be advantages to having them as separate divisions if the items are aimed at various markets, such as perhaps a more premium and cost-conscious audience. Having the areas in one division may result in the company getting stuck in the middle, and unable to effectively compete in either area. Different routines and procedures may be required to properly compete in different market sectors.
- Different underlying resources used: Finally, if the divisions require various underlying resources, it might be advantageous to organize them independently. It may be simpler to run the various sectors as separate divisions even though the items are related from the customers’ point of view if they require different competencies.
Geography-based divisional structures: Different regions can make independent decisions when they each have their own division under a geography-based divisional organization. This can range from simple sales autonomy (with some tasks shared between divisions) to completely distinct development and production taking place per region.
When different regions have varied demands and necessitate adaptability to the distinct market needs of the regions, divisional structures based on geography may make sense. There may not be many opportunities to standardize products across regions because different regions may demand different features or services. Law companies, for instance, frequently use divisional structures based on geography because each region needs to be able to organize itself to satisfy the unique local requirements due to the various legal systems in each nation.
