Division of labor is pretty great. You learn how to do one job well enough that you can do it for a large group of people, freeing them up to focus on their own specialized jobs. Everyone then takes advantage of each other’s labor and expertise. Neat, huh?
But what does this have to do with business structure? Well, unless you’re a one-person company, you probably rely pretty heavily on specialization. Division of labor is central to modern business organizational structure, influencing many aspects of day-to-day work (including quality of work life and engagement and retention).
In many cases, the employees are grouped around the roles they perform. But sometimes that’s not the most effective way to go. Let’s walk though consider divisional organizational structure so you can see if it’s a good fit for your organization.
What Is Divisional Structure?
As with most organizational structures, a divisional organizational structure determines how a company’s specialized employees are segmented, how work activities are delegated, and how roles are managed. But while traditional structures tend to group employees based on their specializations, a divisional organization instead groups them on factors such as markets, geographical regions, or products and service lines.
You can think of it this way: In a traditional functional organizational structure, employees are organized into different functional units — all the marketers in the marketing department, or the IT personnel in the IT department — with each unit responsible for one aspect of the products or services offered by the business.
Divisional structure organizations instead create fully-staffed teams (called divisions), bringing in specialists from marketing, sales, finance, IT, and others to create autonomous bodies capable of managing their own resources, making their own decisions, and providing complete end-to-end services.
Sound cool? It certainly can be. After all, divisional organizational structure takes the idea of specialization one step further, with entire miniature organizations specialized for individual offerings or markets. But the divisional structure may not be for everyone. Divisional organization is best suited for larger businesses with wide target audiences, that sell a range of customer-facing products, and/or are spread across multiple geographic areas. Alternatively, companies that work with high-value clients may benefit from assigning separate divisions to specific accounts.
Divisional structure is built on the idea that one-size-fits-all doesn’t always fit, so some operations require strategies beyond traditional corporate structures to do their best work. Key divisional strategies include:
Product departmentalization organizes divisions based on the products (as you might have assumed), with all activities related to the product or service under the direct authority of one manager.
For example, a software developer might apply product departmentalization to assign one division control over office-related applications, establish another division to handle home software, and create yet another for mobile apps. Each division would have its own IT, marketing, sales, and specialists on hand, rather than having to go outside the division.
Geographic departmentalization is based on the physical location of divisions within the organization. This allows companies to address regional differences (such as consumer demand or regional preferences) directly — this can be invaluable for global corporations.
So, if you have a huge multinational beverage corporation, for example, (let’s call it Coca-Cola), dividing into continental divisions makes it possible to create marketing campaigns, product offerings, and advertisements tailored to each region.
Benefits of Using a Divisional Structure
We’re all on the same page, right? Divisional organizational structure is about putting the decision-making capabilities as close to the product, service, and customer as possible — empowering divisions with the resources and authority to better meet the needs of their buyers. That looks pretty good on paper, but does it deliver in terms of business benefits?
It does! Here’s how:
Bringing specialists from different departmental backgrounds together in one division gives management groups more visibility into project statuses, workloads, and employee performance. This not only puts processes under the microscope, it creates a culture of accountability and recognition.
Improved Product Quality
Divisional structure allows dedicated teams to invest all of their efforts into the development and support of specific, individual products. By managing products independent of other products (and other areas of the organization), divisions help ensure optimal quality.
Increased Local Competitive Advantage
Markets fluctuate, businesses react. But when the fluctuating market is on the other side of the world, centralized organizations may have a hard time pivoting to meet that market’s changing needs. This isn’t a problem for divisional organizations. When divisions are geographically departmentalized, they have an insider’s understanding of regional markets. That means faster responses to changing conditions as well as an advantage over competitors who might not have their fingers on the local pulse.
Enhanced Company Culture
Company culture can be a major strategic differentiator. Unfortunately, when culture is defined at the top levels and then dispersed throughout the organization, important aspects can get lost in translation. Divisional structures allow culture to be defined on individual levels and in line with smaller, closer groups. The parent organization can still establish company values, but with the understanding that the divisions will work to uphold those values in a regionalized manner.
Drawbacks of Using a Divisional Structure
The points listed above are some pretty good arguments in favor of divisional organizational structure. So, what are some arguments against it?
Increased Danger of Siloing
Organizational structure is kind of a balancing act, and the more weight you put on the side of small, isolated teams, the less weight there is for a company-wide strategic focus. Divisions can easily become siloed, making it difficult to coordinate throughout the larger organization.
Difficulty Taking Advantage of Economies at Scale
Economies at scale describe how individual units cost less to produce when the number of units being produced increases. When product development and deployment occur in smaller arenas, divisional organizations may not be able to take advantage of this phenomenon. And that can lead to…
Although divisional structure can pay off over time, it generally comes with higher operating costs. More divisions mean an increased need to hire and onboard, which is expensive. Supplying these teams (and creating additional corporate teams to manage the business as a whole) means a larger overhead, which also costs money. This is one reason why divisional structure is sometimes better suited for larger organizations that can afford the investment.
Finally, when you take a group of specialists and bring them together on an isolated team, it’s only natural for them to develop an us vs. them mentality. Without any incentive to work together, your divisions could even try to undermine one another to improve their own numbers and secure more recognition, funding, or other advantages. In other words, if you’re considering divisional organizational structure, you’ll need to put a heavy emphasis on promoting positive employee relations.
Division of labor made it possible for our species to explore our full potential, and a divisional organizational structure may help your company do the same. But before you go hacking your departments up into regional- or product-based divisions, take a moment to consider the benefits, disadvantages, and strategies we’ve outlined above. A divisional structure isn’t right for everyone, but for those organizations that have the right size, reach, and product diversity, divide and conquer may be key to success.
And, whether you work with departments, divisions, or just a handful of superstars, give them the support they need to live their best lives. Speak to a Gympass wellbeing specialist today, and make work-life wellness a reality – no matter your organizational structure.
- Ahmadi, Hosseln et al. (July 2015). The Relation of Organizational Structure and its Dimensions with Staff’s Quality of Work Life. ResearchGate. Retrieved January 6, 2023 from https://www.researchgate.net/publication/281113105_The_Relation_of_Organizational_Structure_and_its_Dimensions_with_Staff’s_Quality_of_Work_Life.
- Divisional Organizational Structure Definition. (July 14, 2022). AccountingTools. Retrieved January 6, 2023 from https://www.accountingtools.com/articles/divisional-organizational-structure
- Pros and Cons of Implementing a Divisional Structure. (August 9, 2022). Indeed. Retrieved January 6, 2023 from https://www.indeed.com/career-advice/career-development/divisional-structure.
- Segments. The Coca Cola Company. Retrieved January 6, 2023 from https://investors.coca-colacompany.com/about/segments
- The Four Major Types of Organizational Structures in Business. (May 20, 2021). Point Park University. Retrieved January 6, 2023 from https://online.pointpark.edu/business/types-of-organizational-structures/
The Gympass Editorial Team empowers HR leaders to support worker wellbeing. Our original research, trend analyses, and helpful how-tos provide the tools they need to improve workforce wellness in today's fast-shifting professional landscape.