A division is a collection of functions, such as research and development, accounting, marketing and customer support, working together to develop and sell a product or service. The divisions in a company are headed by mid- to senior-level executives who report to corporate-level vice presidents or directly to the chief executive officer. Divisional structures can be based on product, geography and market.
In the product structure, the divisions are organized by products. For example, a tools manufacturer may set up divisions for hand tools, power tools and custom tools. A software manufacturer may set up divisions for operating system products and office productivity solutions. A financial consulting firm may set up divisions for accounting services, tax planning services and investor relations services. Corporate-level executives must track the sales and profits of these divisions and coordinate their business strategies to optimize profitability for the entire company.
In the geography structure, the divisions are organized by the company's geographic operating areas. The product design and manufacturing in these structures could be centralized, or they could be functional units within each geographic division. The geographies could be within one country or they could be global regions. The geographic structure may be layered: for example, one set of divisions for regions within a country, and an outer set for the Americas, Asia-Pacific and Africa.
In the market structure, the divisions are organized by the customer segments served by the company. For example, if an office products manufacturer sells its goods to individuals, small businesses and medium-sized businesses, it may set up a separate division for each one of those customer markets. This would allow them to design marketing and support strategies appropriate for their customer needs. For example, a self-employed consultant is likely to either buy online or from a physical store. However, small and medium-sized businesses may need to be served by one or more dedicated account managers.
Divisions may also be a hybrid of one or more of the product, geography and market structures. For example, an automobile manufacturer could have geographic divisions for the Americas, Asia-Pacific and other regions in addition to product divisions for each of its models. A software manufacturer may have divisions for its products in addition to divisions to serve its customer markets, such as home offices and large businesses.
Divisional structures are more flexible and can react faster to changes in business conditions because decision making is decentralized to the division heads. Customers and suppliers usually have one point of contact to resolve problems, which usually means fewer hassles for them. International units can tailor their products and services for local cultures and preferences.
There is overlap in the divisional structure because multiple divisions may have the same functional units, such as human resources, accounting and finance. Turf battles over financial and human resource allocation can lead to poor coordination among divisions, which can make integration and standardization difficult across the company.