4. Divisional organisation

The divisional organisation is arranged according to the products or groups of products produced in the company. Each product area, called division, has its own functional areas, such as purchase, production or sales but the products are the focus of the structure. In addition, specialised advising central departments are at the disposal of the divisions. In business practice divisions are organised in the form of profit-centres. A profit-centre is as a business unit within a business that generates its own revenues and profits or losses. The division manager is autonomous in operational decision-making and has control over the revenues and expenses of his or her division.

The advantages of the divisional organisation are that there exists a high degree of identification of the division managers with their division. Flexible adjustments to changing market conditions can be made and decisions are taken faster. The assignment of responsibility is clear.[1] There are also advantages in terms of specialist expertise. For example, the purchasing staff of a division have detailed knowledge of the products of their division.

The main disadvantages are that due to the independence of the division managers, their ideas may differ from the aims of the managing director. This can lead to friction. It is likely that there is some duplication of work and more employees are required.