Multidivisional organizational structure

Multidivisional organizational structure

1. MULTIDIVISIONALORGANIZATIONAL STRUCTURE
InMultidivisionalOrganizationalStructure,eachbusinessunitisplacedina
self-containeddivisionandsuppliedwithallsupportfunctions.Thuseachpart
essentiallyoperatesseparatelyfromtheotherpartsofthecompany.Theofficeof
corporateheadquartersiscreatedtocontrolandoverseethedivisions.Headquarters
alsoprovidescorporatesupportfunctions,suchasfinanceandR&D.Divisional
managershaveoperatingresponsibility;corporatemanagershavestrategic
responsibility.Eachdivisionistreatedasaprofitcenterandcanadoptthestructure
andcontrolsystemsthatbestserveitsstrategy.
Amultidivisionalstructurehasseveraladvantages.
1.Enhancedcorporatefinancialcontrolisoneadvantageofthemultidivisional
structure.Theprofitabilityofthedifferentdivisionsisveryclear,allowingthe
corporatestafftoreadilydeterminethebestresourceallocationscheme.
2.Enhancedstrategiccontrolisanotherbenefit,becausecorporatestaffsarefreed
fromoperatingresponsibilities,andcanconcentrateoncorporatestrategy.
3.Thestructureovercomeslimitstogrowthbecauseitpermitsthecompanyto
operatemanybusinesseswithoutinformationoverloadorrequiringtoomuch
interventionfromcorporatemanagers.
4.Becausedivisionalperformancehasgreatervisibility,divisionalmanagersrealize
thatcorporatemanagerscandetectinefficiencies,andthusaremotivatedto
performatahigherlevel.

2. Implementingamultidivisionalstructurehasdrawbacksaswell,andthe
advantagesmustbebalancedagainstthem.
1.Managingthebalanceofpowerbetweencorporateanddivisionalmanagersis
difficult.Theproblemliesindecidinghowmuchauthoritytocentralizeatthe
corporatelevelandhowmuchtodecentralizeatthedivisionallevel.Toomuch
centralizingputsdivisionalmanagersinastraitjacket.Toomuchdecentralizing,
however,maycausethecompanytolosecontroloveritsstrategy,damaging
corporateperformance.
CaseStudy:GM’sMultidivisionalStructureChangesOverTime
Overtheyears,GeneralMotorshaschangeditsstructureseveraltimes,
beginningwiththe25autonomousoperatingdivisionsthatcomprisedthefirminthe
1910s.Tobettercompetewithcentralized,single-businessFordMotors,CEOAlfred
Sloaninventedthemultidivisionalstructurein1920.ThisstructureallowedGMto
benefitfromthecostsavingsthatcomefromcentralization,whilekeepingthe
flexibilityandinnovationinherentinadecentralizedstructure.Sloansawadvantages
fromthemultidivisionalstructure,includingimprovedaccountability,easierresource
allocation,andhigherautonomyandmorale.Inthe1980s,tobettercompetewiththe
cost-efficientJapaneseautomakers,GMagainre-structured,reducingthenumberof
divisionsandcentralizingdesignandengineering.AllGMvehiclesbegantolookalike,
salesdropped,andthestructurewasabandoned.Today,thefirmcontinuesto
strugglewithissuesofcentralization,experimentingtofindtherightlevel.