In case of a multi-divisional organizational structure, there is one parent company, or head-office. And that parent owns smaller departments, under the same brand name. Dividing the firm, into several self-contained, autonomous units, provides the optimal level of centralization, in a company.
The divisions are nothing, but distinct parts, of the same business.
A division of a business or "business division" is one of the parts, into which a business, organization, or company is divided.
Divisions are self-contained units.
The divisional structure consists of self-contained divisions.
Divisions can be defined for different business areas, research units, or administrative offices.
They might have different appointed managers.
And, Divisions may have programmatic, operational, fiscal and budgetary responsibility, for a specific set of business activities, and projects
A department or division can be viewed as the intersection between a legal entity and a business unit.
In a simplistic scenario, all divisions are part of the same company.
The company itself is legally responsible, for all of the obligations and debts of the divisions.
However, this relationship, may change, in case of large organizations.
In that case, a business division may include, one or many subsidiaries as well.
Initially, in such companies, business units which are part of the same legal entity, are setup to operate in divisions.
Later with growth, these divisions become subsidiaries, and also independent legal entities.
In such cases, various parts of the business may be run by different subsidiaries.
Each subsidiary in such a case is a separate legal entity, owned by the primary business, or by another subsidiary in the hierarchy.
Divisions are also used by management, as a tool for segregation and delegation of responsibilities, to various parts of the business.
Divisions also help the management, in operational control.
Let us understand how they help management in these objectives.
In case of a multi-divisional organizational structure, there is one parent company, or head-office.
And that parent owns smaller departments, under the same brand name.
Dividing the firm, into several self-contained, autonomous units, provides the optimal level of centralization, in a company.
Although, the whole organization is controlled by central management.
But most decisions are left to autonomous divisions or departments.
Central management provides the overall direction of the firm.
While each division operates autonomously to cater to its own needs.
It is held accountable for its own profits, and can remain productive, even if the other divisions fail.
A division is a collection of functions, which manage similar types of activities, like the one which produce a product.
They are generally used as cost accumulators and also for revenue recognition.
They may have profit and loss responsibility, and may consist of a group of cost centers.
Departments can also serve as profit centers, managing their own profitability.
In that case, they utilize a budget plan to compete, and operate, as a separate business profit center.
Divisional structure could be based on, many external or internal parameters, based on the management needs.
Some commonly used parameters across industry are, product, customer segment, geographical locations etc.
For example, in case of differentiation by products, each division is responsible for certain product, and has its own resources, such as finance, marketing, warehouse, maintenance etc.
Let us look at some common methods of differentiation, for creating divisions.
First could be, By Product; For example separate divisions are created, to manage different product or service lines.
Another way is to differentiate By Geographical Location; Example is the regional offices created by companies, like Northern Division, Southern division etc.
One can also define divisions by the Type of Customer; For example in case of a bank, different divisions are created to take care of retail business, wealth management and corporate clients.
And divisions can also be created by different Processes; for example in case of a hospital, one can have a division managing admissions, another for surgery, and one for discharge processes, etc.
What Is a General Ledger? General Ledger (also known in accounting as the GL or the Nominal Ledger) is at the heart of any accounting system. A general ledger is the master set of accounts that summarize all transactions occurring within an entity. Ledger is the skillful grouping and presentation of the Journal entries. Learn the accounting fundamentals, general ledger process, and general ledger flow.
Divisional Organizational Structures
The divisional structure or product structure consists of self-contained divisions. A division is a collection of functions which produce a product. It also utilizes a plan to compete and operate as a separate business or profit center. Divisional structure is based on external or internal parameters like product /customer segment/ geographical location etc.
The purpose of the general ledger is to sort transaction information into meaningful categories and charts of accounts. The general ledger sorts information from the general journal and converts them into account balances and this process converts data into information, necessary to prepare financial statements. This article explains what a general ledger is and some of its major functionalities.
A legal entity is an artificial person having separate legal standing in the eyes of law. A Legal entity represents a legal company for which you prepare fiscal or tax reports. A legal entity is any company or organization that has legal rights and responsibilities, including tax filings.
A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. A joint venture takes place when two or more parties come together to take on one project.
In this article we will discuss various types of "Management Entities". Various types of operational units, are created by management, to effectively run, manage and control their business. Different types of functional units, and divisional units, are widely used across industry.
Global Business Services (GBS) Model
Global business services (GBS) is an integrated, scalable, and mature version of the shared services model. Global Business Services Model is a result of shared services maturing and evolving on a global scale. It is represented by the growth and maturity of the Shared services to better service the global corporations they support.
A subsidiary is a company that is completely or partly owned by another corporation that owns more than half of the subsidiary's stock, and which normally acts as a holding corporation which at least partly or wholly controls the activities and policies of the daughter corporation.
Operational Structures in Business
Large organizations grow through subsidiaries, joint ventures, multiple divisions and departments along with mergers and acquisitions. Leaders of these organizations typically want to analyze the business based on operational structures such as industries, functions, consumers, or product lines.
After reading this article the learner should be able to understand the meaning of intercompany and different types of intercompany transactions that can occur. Understand why intercompany transactions are addressed when preparing consolidated financial statements, differentiate between upstream and downstream intercompany transactions, and understand the concept of intercompany reconciliations.
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