A software company separated itself into several units by product line, such as telecommunications, engineering and financial services. Each unit keeps its own accounting books, personnel and administrative functions.
Which of the following describes each unit in such a structure?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Each unit works as a profit centre, and the head of the unit is responsible for its profit or loss.
Option (1) Each unit is a department of similar jobs, and all such departments report to a coordinating head. — Incorrect. Departments of similar jobs under a coordinating head make a functional structure. Each unit here does many different jobs for one product line.
Option (2) Each unit is a section, formed by further dividing one of the major function departments. — Incorrect. Sections come from dividing a function department further. These units are formed by product line.
Option (3) Each unit works as a profit centre, and the head of the unit is responsible for its profit or loss. — Correct. Self-contained units formed by product line make a divisional structure. Each division works as a profit centre, and its head answers for its profit or loss.
Option (4) Each unit promotes control and coordination within itself, because all its members perform similar tasks. — Incorrect. This advantage comes from similar tasks in a functional department. Each unit here has accounts, personnel and administration staff, so its members do different tasks.
Note: This company follows the Wipro story printed at the very start of the chapter. Opening stories are easy to skip, yet questions can be framed on them.
NCERT (2026-27 Edition): “Functional structure … All departments report to a coordinating head. For example, in a manufacturing concern division of work into key functions will include production, purchase, marketing, accounts and personnel. These departments may be further divided into sections. Thus, a functional structure is an organisational design that groups similar or related jobs together. “Divisional Structure … Each unit has a divisional manager responsible for performance and who has authority over the unit. Generally, manpower is grouped on the basis of different products manufactured. Each division is multifunctional because within each division functions like production, marketing, finance, purchase, etc., are performed together to achieve a common goal. Each division is self-contained as it develops expertise in all functions related to a product line. In other words, within each division, the functional structure tends to be adopted. However, functions may vary across divisions in accordance with a particular product line. Further, each division works as a profit center where the divisional head is responsible for the profit or loss of his division. …”
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