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)

Lecture Unit Organizations and Behaviour Divisional Structure (Federal Decentralization) To Overcome Disadvantages We say that there are ways to overcome The short-comings of functional structure 1.Team, or Matrix Structure (Discussed in Lecture 3) Divisional Structure Divisional Structure Division or Department (i.e Function) which is bigger ? To avoid confusion Peter Drucker (Mr Printer) calls it as Federal Decentralization ! 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 major concepts we still study at business schools today 1.Segmentation in Chairman and President of General Motors, 1920s marketing 2.Divisional Structure in 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 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 Corporate Policy – Vision, Mission, Value 2.Corporate Finance 3.Appointment of Key Personnel (especially the President of SBU) Others Price range (e.g GM) Purchasing (e.g WalMart) 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: Issuing of shares Loan from banks Issuing of bonds SBU Activities in an SBU may be organized in Functional Team is not precluded Chevroet President Purchasing Marketing President or Vice President of an SBU has decision making authority Production Finance Or any other structure suitable for the business of the SBU Divisional Structure May Be Organized by Location DELL USA and Canada Asia EMEA America excl USA and Canada Europe, Middle East and Africa Page 68 – Geographic organization Advantages of Divisional Structure Division structure allows, at least the top management in the SBU, to understand the whole business Better communication and decision Result orientated Management Development Disadvantages Increasingly, not all businesses can be organized as pure divisional structure Stimulated Decentralized / Stimulated Divisional (next lecture) ... ways to overcome The short-comings of functional structure 1.Team, or Matrix Structure (Discussed in Lecture 3) Divisional Structure Divisional Structure Division or Department (i.e Function)... Increasingly, not all businesses can be organized as pure divisional structure Stimulated Decentralized / Stimulated Divisional (next lecture) ... President of General Motors, 1920s marketing 2 .Divisional Structure in I Marketing, Market Segmentation Each brand can only sell at certain price range, e.g Oddsmobile:USD50,00 - 100,000 (rich people)