A company makes only school notebooks. It has separate departments for production, purchase, marketing and finance. It now plans to add office furniture and school bags, each made with different productive resources.
Which structure should the company adopt after this change, and why?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Divisional structure, because new divisions can be added without interrupting the existing operations.
Option (1) Divisional structure, because new divisions can be added without interrupting the existing operations. — Correct. The company will make three products using different productive resources. A divisional structure suits a large variety of products made with different resources. It also facilitates expansion: a division with its own head and staff is added for each new line, while notebook work goes on.
Option (2) Functional structure, because it leads to minimal duplication of effort, which lowers cost. — Incorrect. The merit is real, but it fits a firm with one product line. With three products made from different resources, one set of function departments finds coordination across products difficult.
Option (3) Divisional structure, because functions are not duplicated across products, which makes it economical. — Incorrect. The structure is right but the reason is reversed. Divisions duplicate functions, which makes the divisional structure costly. Being economical is a feature of the functional structure.
Option (4) Functional structure, because responsibility for performance is easy to fix on each department. — Incorrect. The feature is reversed. In a functional structure responsibility is difficult to fix on a department; easy fixing of responsibility is a divisional merit.
NCERT (2026-27 Edition): “Divisional Structure … (d) It facilitates expansion and growth as new divisions can be added without interrupting the existing operations by merely adding another divisional head and staff for the new product line.” “Divisional Structure … Suitability: Divisional structure is suitable for those business enterprises where a large variety of products are manufactured using different productive resources. When an organisation grows and needs to add more employees, create more departments and introduce new levels of management, it will decide to adopt a divisional structure. …” |