Ever heard of Pepsi, McDonald's, or Johnson & Johnson?
Of course, you have!
Well, all these companies function on a divisional organizational structure, and for very good reason.
What is a divisional organizational structure?
Divisional structure works by organizing companies by product, customer needs, or location.
For example, a retail company may organize its team by customer segment, with separate departments for offering children’s, men’s, or women’s clothing. A music app might organize its company by market, with a department for music geared towards young people and another department geared towards music for older people. A chain restaurant may divide its organization by location because people have different tastes in different places, e.g., a McDonald's in the U.S. will be serving up different food than a McDonald's in Asia. A manufacturing company might have separate teams to fulfill a large number of complex business functions.
A key characteristic of this structure is that each division has its own management, HR, finance, and marketing teams. The divisional managers then report to the CEO. This means that each division is like its own self-contained business unit, which can be both advantageous and disadvantageous, as we’ll discuss below.
So what type of organization is well-suited for a divisional organizational structure?
Large companies that produce a wide range of goods, operate across multiple locations, or cater to diverse demographics tend to work best with a divisional organizational structure.
Key Takeaways
- A divisional organizational structure groups companies into independent business units to cater to locations, products, markets, or processes.
- Each division functions independently from the other, with their own resources for management, HR, finance, and other operations.
- A divisional structure is best for large organizations with multiple product lines, international presence, or a wide range of customer groups.
What are some divisional organizational structure advantages and disadvantages?
Here are some pros and cons of divisional organizational structure.
Pros:
- High degree of transparency: Big companies can struggle to stay on top of their employees, and both superior and poor performance can go unnoticed. A divisional structure helps solve this problem because each division has its own management to monitor and optimize individual performance.
- Creates company culture and loyalty: Another problem big companies face is a lack of culture and loyalty due to the facelessness that having so many employees creates. Again, a divisional organizational structure solves this problem with its self-enclosed nature; managers can create their own, relevant code of behavior and values and promote them within their group. Also, when employees of a particular division feel that they belong to a specific group rather than to a huge corporation, company loyalty develops. This is important because attrition rates are high when employees feel no loyalty.
- Stay on top of competition: Companies that operate with a localized business structure benefit from increased adaptability, as they have teams on the ground that can respond effectively to local competition and market changes with faster decision-making.
Cons:
- High operating costs: The decentralized nature of having separate HR, finance, and marketing teams within each division comes with a high running cost, as well as the headache of having to hire for all these roles multiple times over.
- Creates competition: The segregated nature of a divisional structure creates silos, and it encourages employees to develop close ties specifically within their own business units, but not with employees from other divisions. This can create a sense of ‘us vs. them’, with divisions each trying to get a step ahead of the other.
The good news is that this competition can be easily neutralized by organizing company events where employees from different divisions can interact and create a shared vision. Another idea would be to create opportunities for divisions to collaborate on specific projects from time to time.
What are four ways a divisional organizational structure could be set up?
There are four types of organizational structures most commonly used by companies:
1. Location
A company that serves many locations may split up its divisional structure by location. A restaurant chain, for example, would benefit from having separate, self-enclosed teams, especially if they had restaurants in geographic locations where people’s tastes differ. Then, the management of each team can respond to local changes or competition on the ground, and the HR team can easily source locals for new job openings.
2. Product
Companies with multiple product lines or services might find it worthwhile to have a divisional organizational structure, where each division works on a specific product. For example, a retail company that produces women's, men’s, and children’s clothing can organize its operations into these three categories. This would enable each team to focus on higher-quality product development for its type and stay ahead in the market.
3. Market
Sometimes, a company serves multiple customer bases. For example, a music app like Spotify can have different categories of music, e.g., some intended for youth, and some for older folks. Creating market-based divisions enables decision-making tailored to keeping different customers happy by having whole teams dedicated to providing the right music for their specific market.
4. Process
Picture a company that manufactures cars. They have a process that eventually culminates in a completed car. Because each process is complex in itself, they can have a separate business unit for each specialization, e.g., a team that produces internal car parts, a team that produces external car parts, a team that tests the car, and a team that markets the vehicle. The specific products of each team are then used to build the whole car.
What is an example of a divisional structure?
Below is an example of a divisional structure divided by location.
Here are some examples of multi-divisional companies:
- Samsung has a product-based divisional structure, with entities managing the development and sale of mobile phones, home appliances, and display technology (i.e., phone screens), among others.
- Fast-food conglomerates like McDonald’s, Jollibee, and KFC use location-based divisions because tastes and logistics vary across geographical regions. This allows the team from each region to develop new products for their respective local markets, with no effect on how teams from other territories operate. This is why you’ll find country-exclusive menu items, which feature flavors or ingredients familiar to its locals.
- Johnson & Johnson is known to adopt separate divisions to cater to the general consumer markets (Consumer Health), and more specifically to health professionals and the industry (MedTech). While those divisions cater to a specific customer type, some divisions can also be targeted at more than one segment, such as pharmaceuticals, which is relevant to both regular shoppers and healthcare professionals.
- Process-based structures are common in organizations that offer extremely varied products/services, as those require unique strategic direction. The Walt Disney Company, for example, produces and distributes media, which is an entirely different operation from their international network of parks and resorts.
Divisional vs functional structure: what’s the difference?
While learning about divisional organizations, you will likely run into the concept of a functional structure. And for good reason.
Here’s an easy way to look at it:
- Functional structures are the building blocks of a divisional organization.
- While the former groups employees into role-based teams, the latter groups these teams into self-managed business units.
A functional organizational structure is focused on cross-functional collaboration toward a single goal. In the example above, Divisions A, B, and C are individual functional structures—zoomed out, they each contribute to the larger company goals, despite working independently of one another.
A functional structure is often the stopping point for a small business, as they benefit less from the duplication of overhead costs and decentralized decision-making.
How can Workamajig help you implement an effective project organizational structure?
No matter what organizational structure you choose for your company, effective organization encompasses more than just an organizational structure.
Workamajig is one of the only project management software designed specifically for creative teams and is designed to save you time and money by organizing your company in the most streamlined way.
Forget about chasing down tasks in one tool while sifting through client emails in another.
Our all-in-one marketing project management software proactively brings everything together in one place — tasks, conversations, calendars, budgets, timelines, notifications, and more.
- Know the full story with a real-time daily feed of all updates across projects
- Budget or timeline at risk? See all items needing attention in one place with project warnings
- Create, customize & export reports plus built-in Gantt & burn charts for your visual learners
Make manual project setup (and finicky spreadsheets) a thing of the past & create fully scheduled projects with just a few clicks.
Workamajig’s powerful project templates help you kick off your creative projects with ready-to-go schedules & resourcing needs.
- Easily view & manage the exact resources, hours & budgets needed.
- Just copy from a template & edit to match your project's needs.
- Take opportunities from your pipeline and through to production, all in one tool.
- Streamline intake with the Client Portal and easily go from new request to project
- Or, just jump right in & create projects or campaigns on demand.
Check out Workamajig’s full project management suite here.
Related reads:
- Most Comprehensive All-in-One Agency Software: Top 3 Picks
- Creative Workflow Management: Best Practices + Software Tools
- Creative Resource Management for Agencies: Software + FAQs