Question

A company, which manufactures a popular brand of toys, has been enjoying good market reputation. It has a functional organisational structure with separate departments for Production, Marketing, Finance, Human Resources and Research and Development.
Lately to use its brand name and also to cash on to new business opportunities it is thinking to diversify into manufacture of new range of electronic toys for which a new market is emerging.

Which organisation structure should be adopted in this situation? Give concrete reasons with regard to benefits the company will derive from the steps it should take.

Answer 1

As the company is now diversifying into new products it must follow a divisional organisational structure. Divisional structure refers to an arrangement where activities are separated on the basis of products. There are different units and divisions which deal with varied products. In the given situation different units can be for simple toys and electronic toys. Each division would have its own divisional manager who would supervise the whole unit and would have the authority for it. Each of the divisions can then have further functional departments such as under electronic toys there will be resource inputs, advertising, production, sales, etc. The same will be under simple toys.

The benefits that the company would derive from following a divisional structure are as follows.

1. Under divisional structure each head is responsible for the profit and loss of his own division. This helps in clear identification of the performances by each department separately. Once the head is accountable for the revenues and costs of their own department, it becomes easier to gauge the actions of each. This also helps in taking corrective actions in case of poor performance.

2. As under divisional structure, each division functions independently, decision making becomes quick. Once the departments are divided, the heads have the authority to take their own decisions whenever needed.

3. Under divisional structure expansion of an organisation becomes easier as new divisions can be easily added without affecting the functioning of other divisions.