Companies sometimes use multi-divisional structures to be closer to customers or markets. This process is called decentralisation because multiple regions are established throughout the country outside the corporate office. While multi-divisional structures can help companies better serve their customers, there are certain inherent disadvantages to using a multi-divisional structure. The disadvantages are mainly related to the roles and responsibilities of various managers and their employees.
Duplication of Activities
One disadvantage of using multi-divisional structures is the duplication of activities, according to HRMGuide, an online human resource reference site. Corporate employees may duplicate the activities or efforts of divisional employees. For example, a beverage company may decentralise functions like marketing and finance. In other words, some marketing and finance mangers will work in the corporate office. Others will be assigned to regional offices. Marketing managers in the corporate office may implement certain promotional or advertising strategies that the regions are already using. Similarly, finance managers in both the corporate and regional office may be studying the company's profit and losses in a certain areas. The best way to avoid the duplication of activities is proper communication between the corporate and regional offices.
A multi-divisional structure can also minimise the flexibility in a company. For example, the corporate office may want sales reps to push certain products in their markets. However, divisional sales managers may feel their reps should focus on other products, based on customers' demands and needs. Consequently, the corporate office losses flexibility in which products their divisions are focusing. The reverse can also hold true. Strict corporate policy from the main office can limit certain divisional efforts and strategies.
Competition Among Divisions
Multi-divisional organizational structures can cause competition among divisions. This is particularly true with regard to divisions and their incentive packages. Many managers and sales reps earn bonuses or profit sharing based on their divisional performance. Additionally, bonuses may be instituted for the top division, for example. Consequently, the interests and needs of the division become top priority, even at the expense of corporate strategies at the main office. Divisions start operating like separate companies. Some may even stop cooperating with other divisions at the expense of the company, according to legal adviser Alan Gutterman's blog site "Center for Management of Emerging Companies" at Alangutterman.typepad.com.
Multi-divisional structures can be costly. Companies need to employ more managers and employees when using this type of organizational structure. Consequently, labour expenses can be higher. Additionally, companies use more financial resources for distribution, printing and other expenditures when employing a multi-divisional structure. This can lead to certain inefficiencies within the company. Companies using multi-divisional structures can alleviate some expenses by sharing certain resources. For example, a company can use the same marketing agency for customer marketing research to save money.