The whole company is organized around its products in a divisional organizational structure. This is usually a siloed organizational structure, where the flow of information within different product teams is not that smooth. It works for scaled-up organizations with consolidated products.
|Organizational Segmentation||A divisional structure divides the organization into smaller units or divisions based on specific criteria, such as products, geographic regions, or customer segments.||Procter & Gamble (P&G) operates with divisions focused on categories like beauty, healthcare, and home care. General Electric (GE) has divisions for aviation, healthcare, and renewable energy.|
|Clear Division Heads||Each division has its own designated leader or manager responsible for its operations and performance.||Apple has divisional heads for products like iPhone, Mac, and Services. Johnson & Johnson has divisional presidents overseeing pharmaceuticals, consumer health, and medical devices.|
|Autonomy and Decision-Making||Divisions often have a significant degree of autonomy in decision-making, allowing them to respond quickly to market changes and customer needs.||McDonald’s empowers regional divisions to make menu and marketing decisions based on local preferences. Toyota allows regional divisions to adjust manufacturing and marketing strategies for different markets.|
|Resource Allocation||Divisions typically have control over their resources, budgets, and functional teams, enabling them to allocate resources based on their unique needs and priorities.||Amazon allocates resources differently to its e-commerce, cloud computing, and digital streaming divisions. Ford allocates resources for its passenger vehicle, commercial vehicle, and electric vehicle divisions.|
|Specialized Expertise||Divisions may develop specialized expertise and capabilities specific to their market or product area, fostering innovation and competitiveness.||Microsoft has specialized divisions for Windows, Office, and Azure, each with its own development teams. Nike has divisions for running, basketball, and soccer, each with dedicated designers and engineers.|
|Goal Alignment||Each division sets its own goals and objectives aligned with the overall strategic goals of the organization.||Coca-Cola has regional divisions aligning their goals with the company’s global brand strategy. IBM has divisions aligning their goals with the company’s focus on hybrid cloud and AI.|
|Accountability||Divisional leaders are accountable for the performance of their respective divisions, including financial results, market share, and customer satisfaction.||Walmart holds divisional CEOs accountable for the performance of Walmart U.S., Walmart International, and Sam’s Club divisions. AT&T holds divisional presidents accountable for the performance of mobility, entertainment, and business divisions.|
|Efficient Scaling||The divisional structure allows organizations to scale efficiently by replicating successful divisions or entering new markets with tailored divisions.||Starbucks scaled globally by establishing divisions for different regions, adapting menus and store designs. Nestlé enters new markets with divisions specializing in food, beverages, and healthcare nutrition.|
|Potential for Competition||Divisions may compete with each other for resources, market share, and recognition, which can stimulate innovation and drive performance.||PepsiCo encourages competition between its divisions, including Frito-Lay and Quaker Foods, to foster innovation in snacks and beverages. Samsung has divisions for mobile, semiconductor, and display, which compete for resources and technological advancements.|
|Coordination Challenges||Ensuring coordination and collaboration between divisions can be challenging, especially in cases where divisions have conflicting priorities.||Google established cross-divisional teams to coordinate efforts across its various products and services. Volkswagen faces coordination challenges between its passenger cars, commercial vehicles, and premium brands divisions.|
|Strategic Focus||Divisional structures allow organizations to focus strategically on different markets or product lines, adapting their strategies to local or industry-specific factors.||Pfizer has divisions for innovative health, established products, and consumer healthcare, each with distinct strategic priorities. Ford focuses on electric vehicles in its Ford Smart Mobility division while maintaining its traditional automotive division.|
When does a divisional organizational structure make sense?
A divisional structure is extremely effective for larger organizations with a more complex product portfolio, where a flatter structure won’t be feasible to handle that complexity.
Indeed, a larger organization usually operates in a more extensive and established market, with a more complex product line and a bundle of products.
Product teams, thus, will be much slower in experimenting and testing new things, and the number of iterations will also be slower.
That is fine for an organization with consolidated products, as fast iterations in that context might result in massive failures, which the company cannot afford on the core product.
What’s an example of a divisional organizational structure?
Establish product innovation units to balance out the effect of centralization
Those innovation units should not look at the product’s profitability or broad markets.
They should focus on niches with high potential and have the freedom to explore various commercial use cases.
In short, in a divisional organization, core product teams are focused on keeping the main product as profitable as possible and tackling as much of a larger market as possible.
On the product innovation units, you should have the opposite approach.
This is critical to balance the centralization and top-down decision-making that comes from a divisional organizational structure.
1. Google (Alphabet Inc.):
- Divisional Structure: Google’s parent company, Alphabet Inc., operates with a divisional structure.
- Product Portfolio: Alphabet Inc. includes several divisions such as Google, Waymo (self-driving cars), Verily (life sciences), and more.
- Rationale: The divisional structure allows Alphabet to manage diverse products and moonshot projects efficiently. Each division focuses on specific product areas while benefiting from the resources and expertise of the larger organization.
- Divisional Structure: Microsoft operates with multiple divisions, including Windows, Office, Azure (cloud services), and more.
- Product Portfolio: Microsoft offers a wide range of software, hardware, and cloud-based services.
- Rationale: Microsoft’s divisional structure helps manage its extensive product portfolio. Each division can concentrate on product development, innovation, and market-specific strategies while contributing to Microsoft’s overall growth.
- Divisional Structure: Amazon has distinct business segments, including Amazon Web Services (AWS), Amazon Prime, Amazon Retail, and more.
- Product Portfolio: Amazon provides e-commerce, cloud computing, digital streaming, and retail services.
- Rationale: Amazon’s divisional structure allows it to excel in various markets, from e-commerce to cloud computing. Each division can focus on optimizing its products and services while contributing to Amazon’s overall market presence.
- Divisional Structure: Apple’s organizational structure comprises multiple divisions, including iPhone, Mac, Services, and Wearables.
- Product Portfolio: Apple offers a range of consumer electronics, software, and services.
- Rationale: Apple’s divisional structure aligns with its product-centric approach. Each division is responsible for product development and innovation within its category, ensuring a strong focus on product excellence.
5. Facebook (Meta Platforms, Inc.):
- Divisional Structure: Meta Platforms, Inc. (formerly Facebook, Inc.) operates with distinct divisions, including Facebook, Instagram, WhatsApp, and Oculus (virtual reality).
- Product Portfolio: Meta Platforms offers social media platforms, messaging apps, virtual reality hardware, and augmented reality technologies.
- Rationale: The divisional structure enables Meta Platforms to manage its diverse product offerings effectively. Each division focuses on enhancing its product’s user experience and features.
- Divisional Structure: Tesla has separate divisions for electric vehicles, energy (solar and batteries), and autonomous driving.
- Product Portfolio: Tesla produces electric cars, solar products, energy storage solutions, and self-driving technology.
- Rationale: Tesla’s divisional structure allows it to address various aspects of the sustainable energy and transportation industry. Each division concentrates on product innovation and advancement.
7. IBM (International Business Machines Corporation):
- Divisional Structure: IBM organizes its business into multiple divisions, including Cloud & Cognitive Software, Global Business Services, Systems, and Global Technology Services.
- Product Portfolio: IBM offers a broad range of technology solutions, including cloud computing, artificial intelligence, data analytics, and enterprise services.
- Rationale: IBM’s divisional structure allows it to serve various industries and markets with specialized technology solutions. Each division focuses on delivering cutting-edge products and services to clients worldwide.
8. Intel Corporation:
- Divisional Structure: Intel operates with divisions focused on different product categories, such as Data Center, Client Computing, Internet of Things (IoT), and Memory Solutions.
- Product Portfolio: Intel is a leader in semiconductor manufacturing, providing processors, memory, and connectivity solutions.
- Rationale: Intel’s divisional structure enables it to address the diverse needs of technology markets. Each division concentrates on product innovation and optimization to maintain a competitive edge.
9. Cisco Systems, Inc.:
- Divisional Structure: Cisco has divisions specializing in areas like Networking, Security, Collaboration, and Cloud.
- Product Portfolio: Cisco offers networking hardware, software, security solutions, and communication and collaboration tools.
- Rationale: Cisco’s divisional structure supports its role as a global technology leader. Each division focuses on delivering products and services that cater to specific technology domains and customer requirements.
10. Adobe Inc.:
- Divisional Structure: Adobe operates with divisions that include Digital Media (Creative Cloud and Document Cloud) and Digital Experience.
- Product Portfolio: Adobe provides software solutions for content creation, design, document management, and digital marketing.
- Rationale: Adobe’s divisional structure aligns with its focus on digital media and marketing. Each division works on enhancing products and services in its domain while contributing to Adobe’s overall leadership in the creative and digital experience industry.
11. Qualcomm Incorporated:
- Divisional Structure: Qualcomm has divisions focused on Chipsets, Licensing, and Internet of Things (IoT).
- Product Portfolio: Qualcomm is a leading provider of semiconductor solutions, wireless technologies, and patent licensing.
- Rationale: Qualcomm’s divisional structure allows it to excel in various technology sectors. Each division concentrates on product innovation, chipset development, and wireless communication solutions.
12. Oracle Corporation:
- Divisional Structure: Oracle operates with divisions specializing in Cloud Services, Database, Applications, and Hardware.
- Product Portfolio: Oracle offers a wide range of software, cloud services, and hardware solutions for businesses.
- Rationale: Oracle’s divisional structure supports its comprehensive enterprise technology offerings. Each division focuses on delivering products and services tailored to diverse business needs.
- Divisional Organizational Structure Explanation:
- A divisional organizational structure is effective for larger organizations with complex product portfolios.
- It’s suitable when a flatter structure wouldn’t handle the complexity efficiently.
- Larger organizations often operate in established markets with intricate product lines and multiple products.
- Benefits for Consolidated Products:
- Larger organizations using divisional structures might have slower experimentation and fewer iterations for their products.
- This approach is appropriate for consolidated products, where rapid iterations could risk major failures that the company can’t afford.
- Example: Nestlé’s Divisional Structure:
- Nestlé, a multinational food and drink company, employs a divisional organizational structure.
- The structure helps Nestlé manage its diverse portfolio of products across different geographical regions.
- Balancing Centralization and Innovation:
- Innovation units can be established within a divisional organization to counterbalance centralization.
- These units should focus on niches with high potential and explore various commercial use cases, prioritizing innovation over profitability.
- Product Innovation Units:
- The purpose of product innovation units is to explore opportunities that core product teams might overlook.
- These units should prioritize creativity, niche markets, and disruptive solutions.
- Balancing Strategies for Core Products and Innovation:
- Core product teams in a divisional structure aim to maximize profitability and capture a larger market share.
- Product innovation units have an opposite approach, focusing on novel ideas, niche markets, and experimentation.
Read Next: Organizational Structure.
Types of Organizational Structures
Siloed Organizational Structures
Open Organizational Structures
Connected Business Frameworks
Organizational Structure Case Studies
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