CIMA P2 Syllabus C. Managing Performance Of Organisational Units - Divisionalisation - Notes ^{1 / 10}

An organisation can be structured in one of two ways:

Functionally
All activities of a similar type within a company, such as:
- production,
- sales,
- research
are under the control of the appropriate departmental head
Divisionally
- split into divisions in accordance with the products or services made or provided

are responsible for all operations (production, sales and so on) relating to their product.

It is possible, that only part of a company is divisionalised and activities such as administration are structured centrally.

A divisional structure will lead to decentralisation of the decision-making process and divisional managers may have the freedom:

to set selling prices
to choose suppliers
to make product mix and output decisions
Decentralisation is depending on how much freedom divisional managers are given.

Divisionalisation can improve the quality of decisions made because divisional managers (those taking the decisions) know local conditions and are able to make more informed judgments. It leads to more empowerment for the tactical and operational level.
Decisions should be taken more quickly because information does not have to pass along the chain of command to and from top management.
Divisional organisation frees top management from detailed involvement in day-to-day operations and allows them to devote more time to strategic planning.
Greater focus and specialisation of activities
Good training ground for ‘grooming’ future strategic managers

A danger with divisional accounting is that the business organisation will divide into a number of self-interested segments, each acting at times against the wishes and interests of other segments.
The costs of activities that are common to all divisions, such as running the accounting department, may be greater for a divisionalised structure than for a centralised structure.
Top management, by delegating decision making to divisional managers, may lose control, since they are not aware of what is going on in the organisation as a whole.