These types of organizations divide the functional areas of the organization to divisions. Each division is equipped with its own resources in order to function independently. There can be many bases to define divisions. Divisions can be defined based on the geographical basis, products / services basis, or any other measurement.
This type of structure is well suited for large enterprise. It works effectively to those large enterprises that deal in multiple products serving many distinct markets. The division of organization takes place into small business units that are entrusted with business related to difficult products or different market territories. All the divisional managers are given authority and autonomy to run all function relating to their respective products or marketing segments or regional markets. Each division contributes planned profits to the organization but works as independent business. Managers head the functional units while divisional managers take the final authority. In this type of arrangement, top management determines the organizational goals and formulates policies. This type of structure is characterized by the decentralization of authority. It enables managers to take decision promptly and helps them resolve problems that are related to their respective divisions. Divisional managers are provided with opportunities to take initiative in matters that are within their jurisdiction. Its demerits are that it involves heavy financial costs due to the duplication of supporting functional u nits for the divisions. It also demands adequate number of potential managers taking charge of their respective divisions and their respective functional units.
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