Question

Kiran Industries is a company manufacturing office furniture. The company chose to diversify its operations to improve its growth potential and increase market share. As the project was important many alternatives were generated for the purpose and were thoroughly discussed amongst the members of the organisation. After evaluating the various alternatives Sukhvinder, the Managing Director of the company decided that they should add ‘Home Interiors and Furnishings’ as a new line of business activity. 

(a) Name the framework, which the diversified organisation should adopt, to enable it to cope with the emerging complexity? Give one reason in support of your answer. 

(b) State any two limitations of this framework.

Answer 1

(a). Divisional StructureReason in support of the answer 

1. Product Specialisation helps in the development of varied skills in a divisional head and this prepares him for higher positions. 

2. Divisional heads are accountable for profits, as revenues and costs related to different departments can be easily identified and assigned to them. 

3. It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision making. 

4. It facilitates expansion and growth as new divisions can be added without interrupting existing operations by merely adding another divisional head and staff for the new product line. 

(b) Limitations of the Divisional Structure: 

1. Conflict may arise among different divisions with reference to allocation of funds. 

2. It may lead to increase in costs since there may be a duplication of activities across products. 

3. Divisional interests may supersede organisational interests.