Organizational Structure: Breathing New Life into Allyte Section 1 SBUs Current Org Chart The growing shipping costs across the SBUs. Alison Why does a divisional structure increase our shiping costs? Your SBUs are shipping across several countries, so they are running into currency exchange issues. Each of your SBUs has to send product to the same stores, but they can't coordinate to reap the economies of scale. The mid-level managers in the SBUs only care about pleasing their bosses so they don't communicate with other SBUs. In a divisional structure, you have redundancies like multiple finance departments or multiple marketing groups, which increase costs. CEO VP of Laundry VP of Hair Care VP of Bath Products Accounting Accounting Accounting Marketing Marketing Marketing Product Development Product Development Product Development Operations Operations Operations Image of an organization where the VPs of Laundry, Hair Care, and Bath Products Bath Products have their own directors of accounting, marketing, product develop
The Correct Answer and Explanation is:
Correct Answer:
A divisional structure increases shipping and operational costs because it creates duplication of functions, hampers coordination, and prevents economies of scale.
Explanation
In a divisional organizational structure, each Strategic Business Unit (SBU)—such as Laundry, Hair Care, and Bath Products—operates as its own mini-company. Each has its own accounting, marketing, product development, and operations teams. While this can provide greater focus and responsiveness within each product line, it also leads to redundancy and inefficiency, especially in functions that could otherwise be centralized.
One of the major cost issues in this structure is logistics and shipping. Since each SBU manages its own distribution, they often ship products independently to the same retailers or regions. This prevents the organization from consolidating shipments, which would allow bulk transportation discounts and optimized delivery routes. As a result, shipping costs increase due to the lack of coordination and underutilization of economies of scale.
Additionally, currency exchange complications arise when multiple SBUs ship to international markets without centralized oversight. This can lead to inconsistent pricing, exchange losses, and higher financial risk.
Another critical issue is poor communication and collaboration across SBUs. Mid-level managers are incentivized to focus on their individual division’s performance rather than the company as a whole. This siloed thinking discourages cross-functional cooperation, preventing the company from leveraging shared resources or strategic alignment across divisions.
Lastly, having duplicated support functions—like three separate accounting or marketing departments—increases overhead costs. These departments could be more efficiently run as centralized shared services, which would reduce personnel costs and create standard processes.
In summary, while a divisional structure can promote specialization and market responsiveness, it often leads to higher costs and inefficiencies, especially in logistics, support services, and cross-unit collaboration. A more integrated or matrixed approach may better support growth and cost management in such a company.
