Association of Chartered Certified Accountants (ACCA) Certification Practice Test

One of the advantages of divisionalisation is that it reduces the likelihood of which issue?

1. Excessive management levels

2. Unprofitable products and activities

3. Increased authority for junior managers

4. Employee dissatisfaction

The correct answer is: Unprofitable products and activities

Divisionalisation in an organization involves structuring the company into semi-autonomous divisions, each responsible for its own operations, products, and profits. This structure enhances accountability and allows divisions to focus on their specific markets or product lines. One of the significant advantages of this approach is its ability to reduce the likelihood of unprofitable products and activities. When divisions operate independently, they can analyze their performance more closely. Each division has the autonomy to make decisions regarding its product offerings, pricing, and operational strategies. This focus helps in identifying unprofitable products or activities promptly, allowing management to take corrective actions, such as cutting losses or restructuring operations effectively. By having dedicated resources and management concentrated on specific areas, divisionalisation promotes a culture of profitability and efficiency that might be overlooked in a more centralized structure. Other potential issues, like excessive management levels or employee dissatisfaction, may exist in various organizational structures but are not uniquely mitigated through divisionalisation in the way that unprofitable products are. Each division’s autonomy can often lead to more motivated and empowered managers and employees, which may help address employee dissatisfaction rather than reducing it through divisionalisation. Similarly, while divisionalisation might simplify management layers, it isn't specifically designed to eliminate excessive levels