Constraints of Divisional Structure in Strategic Management
A number of organizational structures are available to modern corporations. The structure of any organization determines the allocation of responsibilities for various functions and has a major impact on its ability to act and achieve goals. Not only does organizational structure influence operating procedures and quality policies, but it also determines who will influence business priorities through their ability to impact corporate decisions. Organizational structure plays a major role in company success. This is especially true in a divisional corporate structure.
Structuring a company into divisions is a process that creates vertical silos within the organization. These silos usually function with autonomy and are treated as separate profit centers. Each division has a business plan and goals separate but complementary to the goals of the company. Divisions are typically organized by a unique group of products they manufacture, services they provide or target markets they serve.
A divisional structure offers compelling advantages. It allows management and employees to create a laser focus on the products and processes involved in meeting their specific market's needs. As a result, they are able to achieve higher levels of expertise, produce higher quality products and be more in tune with their markets and customers.
Disadvantages are also prevalent with this organizational structure. Because each division serves as a separate corporate entity, each often has little communication with the others. Conflicts can arise when it comes to prioritizing and achieving corporate vs. division objectives. Most division employees are compensated for achieving division goals, thus diluting the focus on corporate objectives.
Corporate management is responsible for overseeing the creation and management of objectives for both headquarters and divisions. This is a monumental task, especially when it involves integrating corporate and division goals in a harmonious way that creates a balance and a supported commitment to both. Corporate management must effectively deal with politics and the tendency of each division head to focus inward rather than working for the overall benefit of the corporation.
Effective management of constraints requires insightful action by corporate leadership. Division management must be involved in the creation and communication of corporate objectives. In conjunction with division goals, corporate management must ensure that vertical communication regarding the need for and benefit of achieving specific targets reaches the bottom of each division silo. Management and employee understanding and buy-in are critical at all levels.
Cross-division communication must be encouraged. One way to achieve this is to create teams comprised of members from various divisions to work on a specific corporate goal. This often builds relationships and facilitates sharing of technology and expertise. Goal communication, progress monitoring, reporting and recognition must be handled in ways that foster teamwork. When everyone in the corporation begins rowing together, the boat moves in the right direction.