Demystifying Functional Divisionalization: A Comprehensive Guide

 An organization comprises various divisions and can be distinguished or separated based on their functions or the tasks assigned. This is what functional divisionalization is? Let’s explore further regarding the concept of divisionalization.

What about its characteristics, advantages & drawbacks? Do you comprehend all these aspects? No, correct? Well! Let's converse about all these & grasp precisely what this type of divisionalization signifies.

Functional Divisionalization:

The divisionalization of any organization (small or large) becomes functional when categorized into several divisions. Each of those divisions carries out its specialized & distinct tasks that differ from the other divisions of the same organization.

Being the most pragmatic & unassuming form of divisionalization, it constructs organizational units based on the pivotal actions of the firm. So, each division under functional divisionalization varies functionally from the others. But, what are those divisions that fall under this divisionalization?

Well! This divisionalization can be split into Production division, Human Resource division, Finance division & Marketing division. And the originator of these divisions is none other than the manufacturing company or organization itself. In each division, correlated activities are performed by a group of individuals at a single point within the organization. And this group of individuals is the most adept at performing such activities.

Different companies may possess diverse functional divisions. For example, the primary functional sectors of a transport company encompass sales, finance & operations. Similarly, public utility companies like electricity, banking, hospitals, transport & insurance maintain their distinct functional sectors. In the case of a large organization, its significant divisions have subdivisions known as derivative divisions.

In the design of functional divisionalization, the head of the organization serves as the chairman & their second-in-command is the Managing Director of the company. The Managing Director can branch into Manager Marketing, Manager Production & Manager Finance. Manager Marketing covers both Advertising & Selling, and Manager Production oversees both manufacturing & procurement.

Also, Manager Finance includes accounting & taxes. In the case of non-manufacturing concerns, a distinction exists between the organization’s primary activities.

Functional divisionalization is one of the most entrenched forms of divisionalization. The function in functional divisionalization signifies tasks such as governing & strategizing for the organization, rather than essential managerial processes. As per a renowned economist, Oliver Williamson, it resembles the structure of a unitary design & thus termed it U-form design.

We must acknowledge that Functional divisionalization is implemented in every organization. It enables the organization to consult with functional experts &, with their collaboration, hire staff in its various pivotal positions. Additionally, it promotes coordination & integration within the organization because, without substantial coordination among multiple divisions, the organization will fail to operate efficiently. So, this divisionalization tends to emphasize centralization.

Most companies have some fundamental functions that they execute. They are marketing, finance, production & engineering. Oh, wait! Some other significant functions are also there that almost all organizations undertake! They encompass the selection of candidates for roles within the organization, their recruitment, their training, their remuneration, their well-being, their security & labor associations.

Usefulness Of Functional Divisionalization:

• This kind of divisionalization logically mirrors the functions carried out to sustain the superiority & prestige of various primary functions.
• It follows the principle of occupational specialization.
• It simplifies the training & supervision of subordinates.

In functional divisionalization, an organization is structured into divisions based on the respective functions each division performs for the organization. For instance, a manufacturing company might establish a production division, sales and marketing division, an accounting division, and a human resources division. Functional divisionalization can be advantageous as it can enhance efficiency and expertise, given that all related activities are conducted in one location by a group of individuals specialized in that activity.

Geographic Divisionalization:

In geographic divisionalization, an organization is arranged along geographical lines. This is often a prudent strategy for large multinational corporations with global offices. Each region's activities related to the organization's operations are overseen by a division within that region. One advantage of this approach is that it fosters the development of region-specific expertise, considering the political, social, and cultural needs of each area. Moreover, assigning managers to work in each region provides valuable training for upper-level management roles where a broad perspective is essential for success.

Product Divisionalization:

In product divisionalization, an organization is segmented by product lines. It establishes a division for each product, and that division manages all aspects related to the product, including development, production, marketing, sales, and distribution. This structure offers the organization the advantage of cultivating personnel with a high level of expertise and specialization for each of its products.

Customer/Market Divisionalization:

Lastly, we have customer/market divisionalization. Each type of customer typically possesses distinct needs, prompting organizations to divide along different customer types, such as consumers, businesses, and governments. Consider an aerospace engineering firm and the distinct requirements of their consumer, business, and government clients. This structure can be advantageous because it allows personnel to specialize in product development and catering to the specific demands of particular markets.

Advantages and Drawbacks:

Functional divisionalization boasts efficiency, as all employees within each division specialize in the same or closely related skills. However, it has the potential drawback of rigidity, as any issues involving more than one skill set require communication and collaboration between divisions. This is less likely to be a concern for smaller organizations, where different divisions may already be in frequent contact.

Product divisionalization offers flexibility but can lead to unintended competition among divisions. For instance, because each product line operates as an autonomous division, the actions or strategies of one division may clash with those of another division within the same company.

A Unified Approach:

Matrix divisionalization blends the organizational structures of product and functional divisionalization by employing parallel management structures, as reported by management consultancy McKinsey and Company. Employees are grouped into functional divisions based on skill sets but also collaborate with project managers overseeing all employees involved in a specific product line.

This organizational structure aims to amalgamate the advantages of product and functional divisionalization. Nevertheless, it carries the potential drawback that employees must report to two separate supervisors, who may issue conflicting directives. Smaller companies can often maintain flexibility while using the functional divisionalization structure alone, given the relatively small number of products and employees, which facilitates smoother communication between various functions.