Question

When would a company decide to change from a functional to a multidivisional structure? How does the multidivisional structure solve the problems associated with the functional structure?

Answer 1

The organizational structure of a company reinforces its culture, that supports the owner's vision for the strategy and direction that enables the company to compete in its markets successfully. In functional structure an organization is divided into smaller groups based on specialized functional areas, such as finance, IT, or marketing. Although it allows for greater operational efficiency as employees with shared knowledge and skills are grouped together by function. However the different functional groups may not communicate with one another thus eventually decreasing flexibility and innovation.

To overcome these concerns company may decide to change from a functional to a multidivisional structure. A multidivisional organizational structure aligns an organisation according to individual divisions that are based on geographic locations, products or services. Due to the demands that exist in bigger organizations, usually leadership will elect to transition from a functional structure to a multidivisional structure as they expand and become more mature. This helps in managing the complexity surrounding its several divisions and products and provides the company the ability to execute the several demands its numerous products demand quickly and efficiently based on its multidimensional design. This approach is capable of resolving the issue with functional structure and helps the organization to become more competitive in it's expansion and entering into new dimensions