Identify the disadvantage of Divisional structure from the following:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → It may lead to increase in costs since there may be a duplication of activities across products.
Option (1) It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision making. — Incorrect. This is an advantage of the divisional structure. Each division is run as a separate unit, so it can decide quickly.
Option (2) It may lead to increase in costs since there may be a duplication of activities across products. — Correct. In a divisional structure each product division has its own set of functions: its own production, marketing, finance and personnel. The same functions are repeated in every division. This duplication makes the structure costly.
Option (3) It provides a proper basis for performance measurement. — Incorrect. This is an advantage. The revenue and cost of each division are known separately, so its performance can be measured and responsibility fixed.
Option (4) It prepares the divisional heads for higher positions. — Incorrect. This is also an advantage. A divisional head looks after all the functions of his product, and this experience develops him for top posts.
NCERT (2026-27 Edition): “Divisional Structure … (b) Divisional heads are accountable for profits, as revenues and costs related to different departments can be easily identified and assigned to them. This provides a proper basis for performance measurement. …” “(c) It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision making.” “Disadvantages: The divisional structure has certain disadvantages. Some of them are as follows: |