Large companies that serve a varied customer base or operate in a number of geographic regions may choose to operate with a divisional structure. This is a more decentralized type of operation where each division functions much like its own separate company. This type of operation format offers certain benefits as well as potential pitfalls.
An advantage of a divisional structure is that each division can operate as a separate, self-sufficient unit without having to rely heavily on the parent company or top management of the organization. Divisions typically have their own separate management structure that allows them to make decisions quickly, often without the need for approval from others. Divisions have their own equipment, supplies and resources, which allow for a more autonomous method of operation.
Another advantage of a divisional structure is that it allows for a high degree of specialization. Workers with similar talents and abilities can work together and focus on specific projects that help the division meet its objectives. Because the division operates autonomously, management is more likely to be familiar with the needs of the workers, which ensures they will have access to the resources they need to complete their tasks. Like-minded individuals may also find it easier to develop a sense of teamwork.
On the other hand, a divisional structure may result in too great of a sense of autonomy among each division. Each division may view itself as completely separate from the other divisions and become concerned only with meeting its own objectives instead of those of the organization as a whole. If the organization operates under weak leadership, this may result in the organization's failure to operate at peak levels of efficiency and the inability to meet its overall objectives.
Another potential disadvantage of a divisional organizational structure is that it may be more expensive to operate. Because each division operates as a separate entity, it also needs its own resources, as sharing resources among divisions may not always be practical. This can result in a duplication of resources that might not be present in a more centralized structure. Divisional organizations need to ensure that each division is allocated the resources it needs to achieve its objectives while finding ways to keep costs to a minimum.