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CA Intermediate · Financial Management and Strategic Management · Strategy Implementation and Evaluation

Kaveri Textiles has a functional organisational structure and is entering several unrelated product markets. Managers report that coordination across products is poor and top management is overloaded with operating decisions. Which structural change best suits the situation?

A divisional structure with product-based profit centres fits best. When a firm diversifies into varied product markets, grouping activities by product gives better coordination, clear accountability and relieves top management from daily operating decisions, unlike a functional or simple structure.

  1. AMove to a divisional structure with product-based profit centresCorrect
  2. BRetain the functional structure and centralise decisions further
  3. CAdopt a simple structure under the owner
  4. DReduce the number of managerial levels to zero

Explanation

A divisional structure suits diversified firms because each product division handles its own operations and is accountable for results, freeing top management for strategic matters. Centralising further would worsen the overload. A simple structure suits small single-business firms and does not fit a diversified company.

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