Q. Divisional structures – product organisation?
The functional structure is normally adopted by an entrepreneurial structure e.g. small business, because the organisation grows and requires more specialisation and control. Overtime as the organisation becomes larger, more complex and more diversified in terms of its products and markets, the next step is often to adopt a divisional structure. When companies become really diverse andlarge and they are frequently composed of some independent divisions orsubsidiaries, these often established as separate legal entities within a group.
A division is a distinct business set up within a larger company to make sere a certain market or product is handled and promoted as though it were a separate business. A divisional structure requires strategic business units (SBUs) or divisions to manage an organisations diverse products, brands or markets. This leads to the creation of separate business units to address each market in which the company is operating. The phrase 'Strategic Business Unit' came into use in 1960s.
Each division or SBU of a group will normally have their own autonomous and separate functions e.g. marketing, sales and production departments. A group holding company or head office may retain some functions (or departments) centrally often at e.g. IT, legal, finance and human resource (HR) functions, to assist centrally and support the different divisions. This enables a group to standardise processes and lower overhead within the group by avoiding the duplication of functions within divisions.