OB lecture 4 divisional structure (federal decentralization)

Lecture 4
Unit 3 Organizations and Behaviour

Divisional Structure
(Federal Decentralization)


To Overcome Disadvantages
We say that there are 2 ways to overcome
The short-comings of functional structure
1.Team, or Matrix Structure (Discussed in
Lecture 3)

2. Divisional Structure


Divisional Structure
Division or Department (i.e. Function)
which is bigger ?

To avoid confusion
Peter Drucker (Mr Printer) calls it as

Federal Decentralization !
Peter Drucker


Early Development of Divisional
Structure
Early development, was
developed, crudely at

DuPont, a chemical company,
by
Pierre (Peter)S. Du Pont (Mr Bridge)

Its business had outgrown
functional structure
Pierre S. Du Pont
President, Du Pont


Origin of Divisional
Structure

Alfred Sloan at General
Motors. He reorganized GM
created by Durant in
1920s and developed 2
major
concepts we still study at
business schools today
1.Segmentation in
Chairman and President
of General Motors, 1920s
marketing
2.Divisional Structure in


I. Marketing,
Market Segmentation
Each brand can only sell at certain price

range, e.g.
Oddsmobile:USD50,00 - 100,000 (rich people)
Chevrolet : USD25,00 – 50,000 (middle class)
Pontiac:
USD20,00 – 25,00 (Lower class)


II. Organization Theory
Divisional Structure by
Product
General
Motors

Oldsmobile

Chevrolet

Pontiac

Saturn

Autonomous Business
Strategic Business Unit (SBU)
*Design Principle a SBU must be able to contribute a profit


Autonomous Business
Each autonomous business is free to do
its
own things: sales and marketing,

productions, purchasing…
The head of the autonomous is the
president
of the autonomous business – now we
usually Strategic Business Unit (SBU)


Strategic Business Unit
The design principle is that each
autonomous business:
1.must have a well defined area of
business, and
2.must be able to contribute a profit to the
corporation.
Otherwise, it is not a genuine divisional
structure


Top
Management
General
Motors
(CEO)

Oldsmobile

Chevrolet

Pontiac

Saturn


Top Management at
Headquarters controls
1. Corporate Policy – Vision, Mission, Value
2.Corporate Finance
3.Appointment of Key Personnel
(especially the President of SBU)
Others
4. Price range (e.g. GM)
5. Purchasing (e.g. WalMart)
6. Products…(e.g. Mark and Spencer)


Corporate Finance
This is a function that does not delegated to
The autonomous business unit, so that it is
big enough in
Corporate Finance:
1. Issuing of shares
2. Loan from banks
3. Issuing of bonds.


SBU

Activities in an SBU may be organized in Functional. Team is not precluded.

Chevroet

President

Purchasing

Marketing

President or Vice President of an SBU
has decision making authority

Production

Finance

Or any other structure suitable for the business of the SBU


Divisional Structure May Be
Organized by Location
DELL

USA and
Canada

Asia

EMEA

America excl.
USA and
Canada

Europe, Middle East and Africa
Page 68 – Geographic organization


Advantages of Divisional
Structure
Division structure allows, at least the top management in the
SBU, to
understand the whole business

1. Better communication and decision
2. Result orientated

3. Management Development


Disadvantages
Increasingly, not all businesses can be
organized as pure divisional structure.

Stimulated Decentralized /
Stimulated
Divisional (next lecture)