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.
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?
A good example of Nestlé’s organizational structure, thanks to a divisional organization, can handle. complex portfolio of products at scale.
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.
Read Next: Organizational Structure.
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