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What is the first thing people do when they are job hunting? We look at the company website to understand how an organization is structured. Without an organizational structure, you won’t be able to identify team structure and responsibilities. However, there are various types of organizational structures and two among them are functional structure and divisional structure.
People often confuse functional with divisional structures but there exists a significant difference between the two. Read on to explore the key differences and how each of them contributes to business efficiency.
The Need For Organizational Structures
Before we look at the difference between functional and divisional structures, let see why we should pay attention to how an organization is structured. Here are several factors highlighting the benefits of organizational structures:
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Efficient Decision-Making
A structured organization allows for faster communication as everyone is aware of the departments and their responsibilities. The smooth flow of information enables faster decision-making and problem-solving.
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Streamlined Operations
Structures help businesses streamline their operations. As business functions get organized into departments, employees are able to operate more efficiently and effectively. It even helps organizations avoid duplication of functions, saving time and money.
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Better Employee Performance
Organizational structures not only outline responsibilities for every department but also every employee. The more knowledge an employee has about the structure, the more confident they will be in carrying out their responsibilities.
Functional Vs. Divisional
Both functional and divisional structures are two of the most common organizational structures. Let’s understand what each of them stands for before we look at the underlying differences.
Functional Structure
It refers to a system of grouping employees by skill sets, related roles and expertise. Put simply, it divides an organization into different departments, based on their functions. These are the characteristic features of a functional organizational structure:
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Functions are distributed among various departments such as human resources, marketing and information technology
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Multiple department heads have the autonomy to make decisions
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There is a hierarchy and senior management supervises junior employees
Divisional Structure
A divisional structure uses a decentralized system to distribute functions among different departments. Every division has the autonomy to make decisions, formulate strategies, adjust operations and customize product or service specifications; they respond to the needs and demands of the markets in their area of jurisdiction. These are the underlying features of a divisional organizational structure:
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Every department is responsible for its own functions, thereby holding them accountable for their strategies and achievements
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People are split up according to their fields of specialization
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Divisional structures are ideal for competitive markets where businesses offer similar products and services
The Difference Between Functional And Divisional Structures
The difference between functional and organizational structures mainly depends on the way they are structured and how different departments are organized. Let’s look at the key differences in greater detail:
| Aspect | Functional Structure | Divisional Structure |
|---|---|---|
|
Basis |
Small groups with specialized functional areas such as production, sales and marketing |
Organizations group operations based on different market locations or product categories |
|
Decision-Making |
The top management makes and executes the majority of decisions; there exists a hierarchy |
Divisional managers and leaders have the autonomy to make decisions and there is a decentralization of power |
|
Accountability |
When the organization faces a problem, it’s difficult to trace the root cause because people engage in cross-functional teamwork |
As the divisions function independently, they are fully accountable for any strategy, decision and execution of plans; every division is accountable for its functions |
|
Cost |
It’s a cost-saving structure because every department has unique functions and there isn’t any repetition of work |
It’s expensive because an organization needs to duplicate several divisions, depending on the market demands |
|
Appropriate For |
It’s suitable for small and medium-sized enterprises |
It’s suitable for large organizations that have national as well as international operations |
Conclusion
Business owners, directors and managers are the decision-makers responsible for organizing business functions and structures. If you feel that your organizational structure needs to be revised, you have to bring it up with the decision-makers.
Harappa Education’s Navigating Workplaces course will teach you how to assess your workplace culture and identify who’s in power, instrumental to overall decision-making. The Stakeholder Map will help you identify different stakeholders and functional heads. The Power Structures framework will teach you about the different types of powers that people hold at work. Identify the forces behind important decisions and collaborate with them for the smooth functioning of your organization.
Explore topics such as What is an Organizational Structure, Types of Organizational Structure, Matrix Organizational Structure, Divisional Structure & Example of a Divisional Structure from Harappa Diaries and understand how your workplace functions.
