When a company expands to supply goods or services to a variety of customers, offers a variety of different products or are engaged in business in several different markets, the company could adopt a divisional organizational structure.
A divisional structure groups its divisions according to the specific demands of products, markets or customers. Unlike the functional organizational structure, where the different organizational functions of the company conduct activities satisfying all customers, markets and products, the divisional structure focuses on a higher degree of specialization within a specific division, so that each division is given the resources, and autonomy, to swiftly react to changes in their specific business environment. Therefore, each division often has all the necessary resources and functions within it to satisfy the demands put on the division
Each division will likely be structured as a functional structure. A company with a divisional structure therefore has a subset of different and specialized SBU's satisfying the demands of different customers, markets or products.
The benefit of this organizational structure is that companies are able to specialize its activities into self-reliant divisions, each capable of satisfying e.g. customer demands and changes within the business environment.