OB lecture 4 divisional structure (federal decentralization)

Alfred Sloan at General Motors. He reorganized GM created by Durant in 1920s and developed 2 major concepts we still study at business schools today Segmentation in marketing Divisional Structure in organization theory Autonomous Business Strategic Business Unit Top Management at Headquarters controls: 1. Corporate Policy – Vision, Mission, Value Corporate Finance Appointment of Key Personnel (especially the President of SBU) Others 4. Price range (e.g. GM) 5. Purchasing (e.g. WalMart) 6. Products…(e.g. Mark and Spencer)

Divisional Structure

(Federal Decentralization)

Lecture 4

Unit 3 Organizations and Behaviour

To Overcome Disadvantages

We say that there are 2 ways to overcome The short-comings of functional structure

1.Team, or Matrix Structure (Discussed in

Lecture 3)

2 Divisional Structure

Divisional Structure

To avoid confusion

Peter Drucker (Mr Printer) calls it as

Federal Decentralization !

Division or Department (i.e Function)

which is bigger ?

Peter Drucker

Early Development of Divisional

Structure

Early development, was

developed, crudely at

DuPont, a chemical company,

by

Pierre (Peter)S Du Pont (Mr Bridge)

Its business had outgrown

functional structure

Pierre S Du Pont President, Du Pont

Origin of Divisional

Structure

Alfred Sloan at General

Motors He reorganized GM

created by Durant in

1920s and developed 2

major

concepts we still study at

business schools today

1.Segmentation in

marketing

2.Divisional Structure in

organization theory

Chairman and President

of General Motors, 1920s

I Marketing,

Market Segmentation

Each brand can only sell at certain price

range, e.g

Oddsmobile:USD50,00 - 100,000 (rich people) Chevrolet : USD25,00 – 50,000 (middle class)

Pontiac: USD20,00 – 25,00 (Lower class)

II Organization Theory

Divisional Structure by

Product General

Motors

Oldsmobile Chevrolet Pontiac Saturn

Autonomous Business

Strategic Business Unit (SBU)

*Design Principle a SBU must be able to contribute a profit

Autonomous Business

Each autonomous business is free to do

its

own things: sales and marketing,

productions, purchasing…

The head of the autonomous is the

president

of the autonomous business – now we

usually Strategic Business Unit (SBU)

Strategic Business Unit

The design principle is that each

autonomous business:

1.must have a well defined area of

business, and

2.must be able to contribute a profit to the

corporation

Otherwise, it is not a genuine divisional

structure

Top Management General

Motors (CEO)

Oldsmobile Chevrolet Pontiac Saturn

Top Management at Headquarters controls

1 Corporate Policy – Vision, Mission, Value 2.Corporate Finance

3.Appointment of Key Personnel

(especially the President of SBU)

Others

4 Price range (e.g GM)

5 Purchasing (e.g WalMart)

6 Products…(e.g Mark and Spencer)

Corporate Finance

This is a function that does not delegated to The autonomous business unit, so that it is

big enough in

Corporate Finance:

1 Issuing of shares

2 Loan from banks

3 Issuing of bonds

SBU Activities in an SBU may be organized in Functional Team is not precluded

Chevroet President

Marketing Production Finance Purchasing

Or any other structure suitable for the business of the SBU

President or Vice President of an SBU has decision making authority

Divisional Structure May Be Organized by Location

DELL

USA and

Canada Asia EMEA

America excl USA and Canada

Page 68 – Geographic organization

Europe, Middle East and Africa

Advantages of Divisional

Structure

Division structure allows, at least the top management in the

SBU, to

understand the whole business

2 Result orientated

3 Management Development

Disadvantages

Increasingly, not all businesses can be organized as pure divisional structure.

Stimulated Decentralized /

Stimulated

Divisional (next lecture)