Driving Business Efficiency through Divisions and Departments
In case of a multi-divisional organizational structure, there is one parent company, or head-office. And that parent owns smaller departments, under the same brand name. Dividing the firm, into several self-contained, autonomous units, provides the optimal level of centralization, in a company.
What do we mean by a department or a division, in context of organizational structures?
The divisions are nothing, but distinct parts, of the same business.
A division of a business or "business division" is one of the parts, into which a business, organization, or company is divided.
Divisions are self-contained units.
The divisional structure consists of self-contained divisions.
Divisions can be defined for different business areas, research units, or administrative offices.
They might have different appointed managers.
And, Divisions may have programmatic, operational, fiscal and budgetary responsibility, for a specific set of business activities, and projects
What is the Relationship between, legal entity and divisions?
A department or division can be viewed as the intersection between a legal entity and a business unit.
In a simplistic scenario, all divisions are part of the same company.
The company itself is legally responsible, for all of the obligations and debts of the divisions.
However, this relationship, may change, in case of large organizations.
In that case, a business division may include, one or many subsidiaries as well.
Initially, in such companies, business units which are part of the same legal entity, are setup to operate in divisions.
Later with growth, these divisions become subsidiaries, and also independent legal entities.
In such cases, various parts of the business may be run by different subsidiaries.
Each subsidiary in such a case is a separate legal entity, owned by the primary business, or by another subsidiary in the hierarchy.
Divisions are also used by management, as a tool for segregation and delegation of responsibilities, to various parts of the business.
Divisions also help the management, in operational control.
Let us understand how they help management in these objectives.
Department as a tool for, Segregation & Delegation.
In case of a multi-divisional organizational structure, there is one parent company, or head-office.
And that parent owns smaller departments, under the same brand name.
Dividing the firm, into several self-contained, autonomous units, provides the optimal level of centralization, in a company.
Although, the whole organization is controlled by central management.
But most decisions are left to autonomous divisions or departments.
Central management provides the overall direction of the firm.
While each division operates autonomously to cater to its own needs.
It is held accountable for its own profits, and can remain productive, even if the other divisions fail.
Divisions as a tool for operational control
A division is a collection of functions, which manage similar types of activities, like the one which produce a product.
They are generally used as cost accumulators and also for revenue recognition.
They may have profit and loss responsibility, and may consist of a group of cost centers.
Departments can also serve as profit centers, managing their own profitability.
In that case, they utilize a budget plan to compete, and operate, as a separate business profit center.
What are some of the basis for creating divisions?
Divisional structure could be based on, many external or internal parameters, based on the management needs.
Some commonly used parameters across industry are, product, customer segment, geographical locations etc.
For example, in case of differentiation by products, each division is responsible for certain product, and has its own resources, such as finance, marketing, warehouse, maintenance etc.
Let us look at some common methods of differentiation, for creating divisions.
First could be, By Product; For example separate divisions are created, to manage different product or service lines.
Another way is to differentiate By Geographical Location; Example is the regional offices created by companies, like Northern Division, Southern division etc.
One can also define divisions by the Type of Customer; For example in case of a bank, different divisions are created to take care of retail business, wealth management and corporate clients.
And divisions can also be created by different Processes; for example in case of a hospital, one can have a division managing admissions, another for surgery, and one for discharge processes, etc.
Related Links
You May Also Like
-
In this article, we explain some commonly used subsidiary ledgers like accounts receivable subsidiary ledger, accounts payable subsidiary ledger or creditors' subsidiary ledger, inventory subsidiary ledger, fixed assets subsidiary ledger, projects subsidiary ledger, work in progress subsidiary ledger, and cash receipts or payments subsidiary ledger.
-
GL - Recurring Journal Entries
A “Recurring Journal” is a journal that needs to be repeated and processed periodically. Recurring Entries are business transactions that are repeated regularly, such as fixed rent or insurance to be paid every month. Learn the various methods that can be used to generate recurring journals. See some examples and explore the generic process to create recurring journals in any automated system.
-
GL - Different Accounting Methods
The accounting method refers to the rules a company follows in reporting revenues and expenses. Understand the two common systems of bookkeeping, single, and double-entry accounting systems. Learners will also understand the two most common accounting methods; cash and accrual methods of accounting and the advantages and disadvantages of using them.
-
There are two commonly used methods of accounting - Cash Basis and the Accruals Basis. Understand the difference between accruals and reversals. Recap the earlier discussion we had on accruals and reversals and see the comparison between these two different but related accounting concepts. Understand how the action of accruing results in reversals subsequently in the accounting cycle.
-
The sole trader organization (also called proprietorship) is the oldest form of organization and the most common form of organization for small businesses even today. In a proprietorship the enterprise is owned and controlled only by one person. This form is one of the most popular forms because of the advantages it offers. It is the simplest and easiest to form.
-
GL - Different Type of Journals
Two basic types of journals exist: general and special. In this article, the learner will understand the meaning of journalizing and the steps required to create a journal entry. This article will also discuss the types of journals and will help you understand general journals & special journals. In the end, we will explain the impact of automated ERPs on the Journalizing Process.
-
What Is a General Ledger? General Ledger (also known in accounting as the GL or the Nominal Ledger) is at the heart of any accounting system. A general ledger is the master set of accounts that summarize all transactions occurring within an entity. Ledger is the skillful grouping and presentation of the Journal entries. Learn the accounting fundamentals, general ledger process, and general ledger flow.
-
Matrix Organizational Structures
In recent times the two types of organization structures which have evolved are the matrix organization and the network organization. Rigid departmentalization is being complemented by the use of teams that cross over traditional departmental lines.
-
Network Organizational Structures
The newest, and most divergent, team structure is commonly known as a Network Structure (also called "lean" structure) has central, core functions that operate the strategic business. It outsources or subcontracts non-core functions. When an organization needs to control other organizations or agencies whose participation is essential to the success, a network structure is organized.
-
An account inquiry is a review of any type of financial account, whether it be a depository account or a credit account. In this tutorial, you learn what we mean by drill through functionality in the context of the general ledger system. We will explain the concept of drill-down and how it enables users to perform account and transaction inquiry at a granular level and the benefits of using this functionality.
