Question

What are the disadvantages of divisional structure and which ones can they lead to?

We have received negative attention lately about the environmental impact of our manufacturing processes. We have received negative attention lately about the environmental impact of our manufacturing processes.
Shipping costs across Europe have gotten out of control.Shipping costs across Europe have gotten out of control.
We struggle to share solutions to common problems across our Strategic Business Units (SBUs).We struggle to share solutions to common problems across our Strategic Business Units (SBUs).
Our basic materials suppliers, from cardboard to basic chemicals, are difficult to negotiate with. Our basic materials suppliers, from cardboard to basic chemicals, are difficult to negotiate with.
We need to increase the diversity in mid-level management to address diversity issues in upper-level management. We need to increase the diversity in mid-level management to address diversity issues in upper-level management.

Answer 1

Divisional structures can lead to diseconomies of scale, inefficiencies, and negotiation challenges with suppliers. They can also create barriers to leveraging international trade advantages and make inter-divisional knowledge sharing difficult, potentially increasing costs and environmental impact.

Step-by-step explanation:

The disadvantages of a divisional structure include potential diseconomies of scale, challenges with international trade, and difficulty in sharing solutions across divisions. When a company grows too large, the leviathan effect can set in, making the entire enterprise inefficient. Additionally, divisional structures can lead to redundancies and higher costs, impede negotiations with suppliers, create environmental issues due to increased duplication of processes, and complicate efforts to standardize or scale solutions for problems encountered by multiple divisions. This is further complicated when operating across different regions, such as Europe, where shipping costs can spiral, and maintaining diversity in management can become more challenging.

• Lack of ability to benefit from comparative advantages and economies of scale due to divisional separation.
• Negotiations with suppliers may be hindered by the presence of multiple divisions, each with their own approaches and policies.
• Diseconomies of scale can occur across an entire firm when it becomes too large and inefficient, prompting some firms to downsize operations.