In a divisionalized organization (see Exhibit 4.5), the bulk of the work is done in quasi-autonomous units, as with free-standing campuses in a multi-campus university, areas of expertise in a large multi-specialty hospital, or independent businesses in a Fortune 500 firm (Mintzberg, 1979). Hewlett-Packard, for example, created separate divisions organized around different products and engineering expertise. Its printer division cornered the market to become a financial success, while its computer division struggled against intense competition. But the divisionalized structure gave the computer division time, resources, and a powerful brand that it leveraged to transform itself from also-ran to market leader.
Exhibit 4.5. Divisionalized Form.
Source: Mintzberg (1979, p. 393). Copyright ©1979. Reprinted by permission of Prentice Hall, Upper Saddle River, N.J.
One of the oldest businesses in the United States, Berwind Corporation, houses divisions in business sectors as diverse as manufacturing, financial services, real estate, and land management. Each division serves a distinct market and supports its own functional units. Division presidents are accountable to the corporate office in Philadelphia for specific results: profits, sales growth, and return on investment. As long as they deliver, divisions have relatively free rein. Philadelphia manages the strategic portfolio and allocates resources on the basis of its assessment of market opportunities.
Divisionalized structure offers economies of scale, resources, and responsiveness while controlling economic risks, but it creates other tensions. One is a cat-and-mouse game between headquarters and divisions. Headquarters wants oversight, while divisional managers try to evade corporate control:
Our top management likes to make all the major decisions. They think they do, but I’ve seen one case where a division beat them. I received… a request from the division for a chimney. I couldn’t see what anyone would do with a chimney.…[But] they’ve built and equipped a whole plant on plant expense orders. The chimney is the only indivisible item that exceeded the $50,000 limit we put on plant expense orders. Apparently they learned that a new plant wouldn’t be formally received, so they built the damn thing” [Bower, 1970, p. 189].
Another risk in the divisionalized form is that headquarters may lose touch with operations. (As one manager put it, “Headquarters is where the rubber meets the air.”) Divisionalized enterprises become unwieldy unless goals are measurable and reliable vertical information systems are in place (Mintzberg, 1979).
Adhocracy is a loose, flexible, self-renewing organic form tied together mostly through lateral means (see Exhibit 4.6). Usually found in a diverse, freewheeling environment, adhocracy functions as an “organizational tent,” exploiting benefits that structural designers traditionally regarded as liabilities: “Ambiguous authority structures, unclear objectives, and contradictory assignments of responsibility can legitimize controversies and challenge traditions. Incoherence and indecision can foster exploration, self-evaluation, and learning” (Hedberg, Nystrom, and Starbuck, 1976, p. 45). Inconsistencies and contradictions in an adhocracy become paradoxes where a balance between opposites protects an organization from falling into an either-or trap.