Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following is a disadvantage of divisionalization?

1. Increased independence of products and markets

2. Fair senior management level is required

3. Unrestricted discretion at division level

4. Enhanced resource availability

The correct answer is: Fair senior management level is required

Divisionalization refers to the organizational structure where a company is split into semi-autonomous units or divisions, each focused on a specific product line or market. While divisionalization offers several advantages such as increased focus and accountability for specific products or markets, it also has its challenges. The correct answer highlights that a fair level of senior management is required in this structure. This is because each division operates independently, necessitating strong oversight from senior management to ensure that all divisions align with the overall strategic goals of the organization. Senior management is responsible for setting performance standards, monitoring outcomes, and providing support where needed. Without this fair involvement of senior management, divisions may operate in silos, leading to misalignment with the company’s broader objectives and inefficiencies. The other choices reflect characteristics that may be misconstrued as disadvantages but do not capture the core issue effectively. Increased independence can lead to a lack of coordination between divisions, which may actually be a disadvantage, but it does not inherently represent a challenge in terms of management requirements. Unrestricted discretion at the division level might indicate a need for guided governance rather than a disadvantage in senior management levels. Enhanced resource availability is generally considered an advantage of divisionalization, as divisions can often utilize resources more efficiently