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Q. Disadvantages of divisional structures?
- As the complexity and diversity of products and markets within the group increase, central coordination by a head office or holding company becomes more difficult. This requires more resources and cost e.g. administration staff, head office buildings and information systems in order to maintain increasing complexity of activities.
- Duplication of functions (or departments) within each division e.g. each division having an IT or finance department, could lose the benefits economies of scale, therefore increasing group overhead.
- Reluctance by senior management at head office to give more delegated or decentralised control therefore reducing effectiveness of the divisions management e.g. slowing down decision making and flexibility.
- Lack of goal congruence or possible "sub-optimal" decisions made by divisional managers at tactical level e.g. following personal as opposed to corporate objectives and aims.
- Other added complications to deal with such as transfer pricing issues or inter-divisional rivalry harming group performance.
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