Divisionalization
Divisionalization
Companies who organize as divisions can do so along:
- Geographical regions
- Product lines
Why?
- Delegation and control closer to the product
- Motivation
- Quicker decisions
- Take account of regional issues
- Exploit managerial expertise
- Divisions may be in competition
- Top management loses control
- Risk avoidance - because no diversified portfolio at division level
- Increased costs - duplication, lack of scale.
Prerequisites
- Alignment and Integration
- Are divisions similar or diverse?
- Some functions could be centralized and others at Div level
Broken down into
- Cost Centers- Providing services to other divisions - focus keeop costs down
- Investment Center - provides services - maximise ROI
- Profit Center - focus on selling
Divisionalization (or Decentralization) In general a large organization can be split into divisions in accordance with the products or services. Divisional managers are responsible for all operations (production, sales and so on) relating to their product. In general, a divisional structure will lead to decentralization of the decision-making process and divisional mangers may have the freedom to set selling prices, chose suppliers, make product mix and output decisions and so on.
Advantages of divisionalization a) Divisionalization can improve the quality of decisions made because divisional managers (those taking the decisions) know local conditions and are able to make more informed judgments. b) Decisions should be taken more quickly because information does not have to pass along the chain of command to end from top management. c) The authority to act to improve performance should motivate divisional managers. d) Divisional organization frees top management involvement in day-to-day operations and allows them to devote more time to strategic planning. e) Divisions provide valuable training ground for divisional managers to become members of top management in future.
Disadvantages of divisionalizaton a) Danger with divisional accounting is that the business organization will divide in to number of self-interested segments, each acting at times against the wishes and interests of other segments. b) It is claimed that the costs of activities that are common to all divisions such as running the accounting department may be greater for a divisionalized structure than for a centralized structure. c) Top management, by delegating decision making to divisional managers, may lose control since they are not aware of what is going on in the organization as a whole
