The divisional structure, also known as the decentralized one, improves the motivation of employees and control of operations in different locations. A major feature of a divisional structure is the clarity of accountability. Managers are responsible for their own departments. Top management clearly delegates powers and managers and employees immediately know how they perform, which is an advantage over the functional structure.
Researchers have found that the performance of teams and corporations are more enhanced in divisional than functional. This structure encourages employees to work harder, for the company and for their careers. Managers have firm control of their own divisions, which encourages a competitive internal environment and business development (David, 2011). When General Motors preferred divisional over centralized form in the 1920s, it surpassed Ford Motors, which had a heavily centralized structure (Bao & Wang, 2011).
The divisional structure also has disadvantages. Firms dislike it because it is costly. Each division needs employees who are especially knowledgeable on certain functions, and employees of this caliber are highly paid. Another reason is that duplication of employee functions is possible, in which functional specialists have to coordinate their efforts to their counterparts at headquarters. Additionally, managers have to be highly qualified, and this needs more funds from headquarters (David, 2011).
References
Bao, T. & Wang, Y. (2011). Incomplete contract, bargaining, and optimal divisional structure. Journal of Economics, 107(1), 81-96. Web.
David, F. (2011). Strategic management: Concepts and cases (13th ed.). Upper Saddle River, New Jersey: Prentice Hall.