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Functional vs. Multidivisional Structure

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1. Why does a company change from a functional to a multidivisional structure?

2. How do the product division structure and the multidivisional structure differ?

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Ans. 1) A company changes from a functional to a multidivisional structure in view of the facts mentioned below-
 Business processes are central to the functioning of an organization. Yet, they have been neglected for a long time in managerial studies mainly due to the fact departments in companies are structured in a functional or product oriented way. Several companies are breaking away from this type of organizations and intend to establish process-based organizations in order to cope with the increasing complexity and dynamics of the economic environment. This shift has clear implications for the organizational structure.
 Processes cannot become the only basis for organizational structure: Functional skills as well as product management remain important to a process orientation. A purely process-based organization gets into problems with activities crossing different processes and cross-process integration might be necessary. Therefore, a multidimensional structure with process ownership as a key dimension seems to more interesting than a purely process-based organization
 There are two key ideas underpinning a viable process-based organization. First, a company is divided into basic organizational units which are organized around core processes. Second, other type of processes are added to these units so that they can operate in a effective and efficient way. This way of working has been proven successfully in practice.
 Modern organizations have been organized according to the idea of specialization of labor of Adam Smith. This idea argues that processes have to be fragmented into simple tasks which are normally performed by one person. Accordingly, organizational structure reflected this functional approach and the management had to coordinate the functional operations. This functional organization has been reshaped into a multidivisional corporate structure for large firms since the experiments of General Motors and Du Pont in the inter bellum period. In the postwar period, most studies focused on the strategy-structure linkage, and, in particular, there was strong emphasis on the way in which the multidivisional model facilitated inter-industry and geographic diversification (Chandler, 1962).
 These diversification possibilities also changed the management roles. The divisionalized structure facilitated the diversification strategy by supporting expansion into new markets and products. Consequently, capital became a critical strategic resource and strategic planning was crucial as a management practice. The sophistication of capital budgeting systems and the growing influence of the headquarters stifled individual initiative and creativity at the SBU level.
 The predominance of the strategy-structure linkage has also brought multidivisional structure and charts into prominence as management instruments. The multidivisional structural design accomplishes basically three tasks; designating the formal reporting relationships, identifying the grouping together of individuals into ...

Solution Summary

Over 1500 words explaining why a company would change structures from functional to multidivisional as well as how product division differ between those structures.