CIMA P2 Syllabus C. Managing Performance Of Organisational Units - Behavioural Consequences In Responsibility Centres - Notes
Performance management and control in responsibility centres
DIVISIONAL STRUCTURE
A divisional structure occurs when an organisation is structured in accordance with product lines or divisions, departments or geographical areas.
Typical aspects of divisional structure
Headed by divisional managers responsible for their own resources
Division has own organisation structure
Decentralisation of decision-making process (but degree of decentralisation and freedom given to divisional managers can vary)
Some departments remain centralised (administration etc.)
Advantages of divisional structure
Better decisions due to knowledge and uderstanding of the local specifics and conditions
Quicker decision-making due to shorter chain of command
Personal motivation of divisional managers to improve division performance
Top management is not overloaded by detailed day-to-day operating
Effective delegation of authority within the organisation
Disadvantages of divisional structure
Dysfunction of decision making if goal congruence is not retain
Some costs (typically the common costs for all divisions) may be very expensive on divisional level (payroll, accounting etc.)
Top management may lose control due to poor information
Behavioural implications
Inter-departmental disputes about transfer prices are likely to arise and these may need the intervention or mediation of head office to settle the problem.
Head office management may then impose a price which maximises the profit of the company as a whole.
On the other hand, head office management might restrict their intervention to the task of keeping negotiations in progress until a transfer price is eventually settled.
The more head office has to impose its own decisions on profit centres, the less decentralisation of authority there wilI be and the less effective the profit centre system of accounting will be for motivating divisional managers.