The division organization summarizes the organization of a company in similar objects. These divisions work independently and are responsible for purchasing and sales.
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Definition / explanation
If the structure of a company is divided into individual divisions, it is a division organization, also called divisional organization or division organization. This is often used in company mergers as it covers individual business areas, areas, products and product groups.
The divisional organization was introduced by General Motors and DuPont with great attention, but only gained importance after the 2nd World War in the USA, prevailed in the following years and is now known worldwide.
The divisions act independently and independently in their area when it comes to purchasing, sales and production. You use as many resources as possible in order to achieve the highest profit in this area.
The divisions are coordinated by the central departments, such as management or bookkeeping. In this way it can be found out quickly which sectors achieve good business success and are profitable.
Advantages of a division organization
- Discharge of the management
- higher motivation, flexibility and coordination among employees
- better performance and success assessment by the central departments
- Ease of buying and selling in the individual divisions
- promotes strategic thinking among employees
- no complicated bureaucracy
- Increase in product, customer and area orientation
- independent work and greater transparency
- better market orientation
- structurally and strategically adaptable
Disadvantages of a division organization
- Branch egoism or increased competition between the individual branches
- Conflicts of opinion between central units and divisions
- Loss of synergy and efficiency
- more Personnel costs due to a higher demand for management positions
- Increase in transfer pricing conflicts
- high administrative effort
A phenomenon of branch organizations is branch egoism. This occurs when employees in individual divisions use a lot of resources in order to maximize the profit of their division.
This internal competitive situation can, on the one hand, improve the company's operating result, but on the other hand, it can also jeopardize the overall success of the business. This situation occurs especially when a single division tries to improve at the expense of other divisions.
Who uses the divisional organizations?
Nowadays you can often find divisional organizations at large companies and at Company mergers (mergers), since there the risk of a conflict between the divisions is very low because of profit maximization and the customer and market orientation are of greater importance.