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.
Aspects
Description
Example
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?
A good example of Nestlé’sorganizational structure, thanks to a divisional organization, can handle. complex portfolio of products at scale.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
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.
Case Studies
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.
2. Microsoft:
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.
3. Amazon:
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.
4. Apple:
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.
6. Tesla:
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.
Key Highlights
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.
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.
Related Organizational Structures
Description
Implications
Divisional Organizational Structure
A Divisional Organizational Structure groups employees based on product lines, geographic regions, or customer segments. Each division operates as a self-contained unit with its own resources, goals, and decision-making authority. While divisional structures may enhance focus and accountability within divisions, they may also create silos if divisions operate independently without adequate coordination or alignment with organizational goals. Divisional structures prioritize decentralization and autonomy but may hinder integration and collaboration across divisions.
Divisional Organizational Structures may lead to silos if divisions operate independently without sufficient coordination or alignment with organizational goals. While divisional structures provide autonomy and accountability within divisions, they may inhibit collaboration and synergy across divisions, leading to duplication of efforts, conflicting priorities, and missed opportunities for organizational-wide innovation or efficiency. Organizations need to establish mechanisms for cross-divisional communication, coordination, and collaboration to mitigate silos and promote alignment with overall strategic objectives.
Functional Organizational Structure
A Functional Organizational Structure groups employees based on their specialized skills or expertise, with each department or functional area focused on specific tasks or activities. While functional structures facilitate specialization and expertise development, they may also create silos if departments operate independently without sufficient communication or coordination. Functional structures prioritize efficiency within departments but may hinder collaboration across functions.
Functional Organizational Structures share similarities with Divisional Structures in their focus on specialized functions or departments. While functional structures promote expertise development and efficiency within departments, they may also contribute to silos if communication and collaboration across functions are limited. To mitigate silos, organizations need to establish mechanisms for cross-functional communication, coordination, and collaboration to ensure alignment and synergy across departments.
Matrix Organizational Structure
A Matrix Organizational Structure is a hybrid structure that combines functional and divisional structures, allowing employees to report to both functional managers and project managers simultaneously. It enables cross-functional collaboration and resource sharing while maintaining functional expertise and accountability. Matrix structures facilitate coordination and flexibility, but they may also create complexity and ambiguity in reporting relationships.
Matrix Organizational Structures offer a blend of functional and divisional structures, enabling organizations to leverage both functional expertise and project-focused collaboration. By combining functional and divisional reporting lines, matrix structures can promote cross-functional collaboration, resource sharing, and innovation. However, matrix structures may also introduce complexity and ambiguity in reporting relationships, requiring clear communication, role clarification, and conflict resolution mechanisms to ensure alignment and effectiveness.
Network Organizational Structure
A Network Organizational Structure is a flexible and decentralized structure that connects individuals, teams, and external partners through informal networks and relationships. It involves collaboration across organizational boundaries, enabling knowledge sharing, resource mobilization, and innovation. Network organizations leverage technology and social capital to facilitate communication, collaboration, and collective problem-solving, enabling them to adapt to changing market conditions and seize new opportunities.
Network Organizational Structures share similarities with Divisional Structures in their emphasis on decentralized collaboration and knowledge sharing. By fostering open communication and relationships across organizational boundaries, network organizations can tap into diverse expertise, mobilize resources, and drive innovation. Both models promote flexibility and agility, enabling organizations to navigate complex ecosystems and thrive in a rapidly changing business landscape.
Decentralized Organization
A Decentralized Organization distributes decision-making authority and accountability across various levels or units within the organization. It empowers employees at all levels to make decisions autonomously and take ownership of their work. Decentralized organizations foster a culture of empowerment, innovation, and accountability, enabling rapid adaptation to changing market conditions and improved responsiveness to customer needs.
Decentralized Organizations share similarities with Divisional Structures in their emphasis on empowering employees and distributing decision-making authority. By enabling employees at all levels to make decisions autonomously, decentralized organizations promote agility, innovation, and responsiveness to change. Decentralized structures empower employees to take ownership of their work and contribute directly to organizational goals, leading to increased motivation, engagement, and job satisfaction. However, decentralized structures may also require robust communication channels, coordination mechanisms, and leadership support to ensure alignment with organizational objectives and prevent fragmentation or duplication of efforts.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019. The corporate structure is organized around two entities: OpenAI, Inc., which is a single-member Delaware LLC controlled by OpenAI non-profit, And OpenAI LP, which is a capped, for-profit organization. The OpenAI LP is governed by the board of OpenAI, Inc (the foundation), which acts as a General Partner. At the same time, Limited Partners comprise employees of the LP, some of the board members, and other investors like Reid Hoffman’s charitable foundation, Khosla Ventures, and Microsoft, the leading investor in the LP.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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