Functional vs. Divisional Structure

Basis

Functional Structure

Divisional Structure

Formation is based on functions.

Formation is based on product lines and is supported by functions.

Specialization

There is functional specialization.

There is product specialization.

Responsibility

In this case it is difficult to fix responsibility on a department.

It is easy to fix responsibility for performance.

Managerial Development

Difficult, as each functional manager has to report to the top management.

Easier, autonomy as well as the chance to perform multiple functions helps in managerial development.

Cost

Functions are not duplicated hence economical.

Duplication of resources in various departments, hence costly.

Coordination

Difficult for a multi-product company.

Easy, because all functions related to a particular product are integrated in one department.

Basis

Formal organization

Informal organization

Meaning

Structure of authority relationships is created by the management.

Network of social relationships arising out of interaction among employees.

Origin

It arises as a result of company rules and policies.

Arises as a result of social interaction.

Authority

It arises by virtue of position in management.

Arises out of personal qualities.

Behavior

It is directed by rules laid down by the management.

There is no set behavior pattern.

Flow of Communication

Communication takes place through the scalar chain.

Flow of communication is not through a planned route. It can take place in any direction.