Divisionalized organizational structure is a structural scheme in which company output is managed by several distinct divisions. This scheme offers unique advantages but can be detrimental to small businesses, and can actually bring productivity down, if poorly managed. If you’re considering restructuring, read on to learn about these potential pitfalls. Forewarned is forearmed.

Divisional Organizational Structure Explained

A divisional organizational structure consists of parallel teams, or divisions, working on their own projects. Typically, each division works on its own product line. For instance, a large software company may have one division that creates tax filing software; another that maintains word processing software; and yet another that creates photo-manipulation applications. For a service-oriented example, you might consider a large bank that offers commercial, retail, investing and asset management services. Each of these services would very likely be headed up by a different division, managed by a single division head.

Unlike with departments, divisions are quite autonomous. Division heads often manage their own budgeting, advertising and hiring. This organizational structure is most often utilized by large, established companies, but it is possible for small businesses to use it effectively.

The Advantages of Divisional Organizational Structure

Divisions are effective because they allow a team to focus on one product or service. Because division heads have a vested interest in building the best teams they possibly can, talent tends to be sorted efficiently. Put another way, specialists are rarely found in departments where their abilities would best be used elsewhere.

What’s more, this structure allows small teams to build a culture independent of the primary company culture. This can be a powerful adhesive force that spurs teams to work efficiently and to come up with out-of-the-box solutions. The close-knit team is also a great morale booster.

Additionally, division heads know what resources their team truly needs and will fight took and nail to get them. This approach can lead to efficient resource allocation overall.

Potential Pitfalls of Divisional Organizational Structure

However, there are several potential disadvantages of this organizational structure, especially for small businesses. You should carefully consider these if considering this structure for your startup. First off, division heads may come into conflict with one another. It may be difficult for you to allocate resources if all of your division heads insist they need the lion’s share. What’s more, office politics between divisions can lead to inefficiencies that can impact your bottom line. Finally, it isn’t unheard of for one department to try to undermine another.

Another thing to consider is that divisions encourage employees to interact primarily with their immediate supervisors, and division heads might not like it when you interact with team members directly often. Because having multiple divisions creates a steep organizational hierarchy, you may not have a strong one-on-one relationship with everyone in your employ. This may or may not be an issue for you, but it’s something to consider. This is a potential drawback of a strong culture that develops within divisions.

Note that it’s possible for divisions to be poorly structured, and this will surely lead to conflict. For instance, a division should have one clear leader. Any circumstance in which two people give conflicting orders to a team will cost you money in the short-term; and, it can cost you long-term, too - if talented employees give up and go elsewhere.

It’s also possible for divisions to have their own procedures and guidelines, and this can cause massive inefficiencies, if personnel need to be transferred from one division to another, even temporarily. While divisions are somewhat autonomous, your company as a whole should have cohesive procedural guidelines.

One way to get started on this early is to draft a company-wide mission statement. In addition, make it clear to your recruits that you are serious about creating a cohesive company culture. All divisions are equal—none is more important than another.

Make it Work for You

For this organizational structure to work, you must manage your divisions well. Executive leadership is the primary factor in whether divisions will be a boon or a curse. Cultivate strong working relationships with your division heads and trust them to manage their staff well. The top leaders in the organization should be ready to offer guidance to division heads on how to explore new strategic directions and how to partner with other divisions, but at the end of the day, division heads should be trusted to keep their houses in order.

That said, as the CEO or business owner, division heads should take their cues from you. You communicate the overall strategy, and let them know how aggressive you want to be this quarter or year. This will inform the projects that division heads will tackle. For instance, if you lay out a plan for each division to introduce a new product each year, you must step back and wait for the division head to present you with his plan. Knowing when to step back is crucial.

Getting your division managers to work together can be tough, but coordination is essential. For instance, if your sales division is planning a new advertising campaign, and the division anticipates great success, the production division must be ready to meet the new demand. This may include strategies to efficiently recruit and train new workers, if necessary, or form concrete strategies to increase overall production efficiency.

In addition, you will want to lay out a clear accountability protocol. Division managers are responsible for the implementation of their strategies, and if they perform well, they should be rewarded. Usually, this takes the form of a year-end bonus. Offering a large reward to a division head gives them an additional incentive to keep their team on track.

Part of accountability is checking to see that your divisions come in at or under budget. Division managers should be able to explain any major deviations from expectations. While you’re giving your divisions some leeway, they should know that they will be held accountable for meeting the goals they set.

A divisionalized organizational structure can be a powerful tool to develop a stellar product line, but it is also full of potential pitfalls. Smaller businesses would be well advised to think carefully before transitioning to this structure. While overall increases in productivity can be had, there is potential for interdepartmental conflict that could bring productivity to a halt. But if your company has grown too big for you to effectively manage, you may consider establishing divisions.