There are many different ideas to management. Most people start off small with just about everyone answering to them. To make the jump from total control to a distributed management is hard to get used to from a control and productivity stand point. The person who had full control needs to understand that they are going to loose that control and can no longer have their fingers in everything. Employees need to realize that they may not be able to get a decision as quick as they might have in the past.
Good management has structure and follows it.
The point of departmentalization is to increase productivity, not decrease it. Management staff need to be empowered to make decisions, up to a certain level, without checking with the next in rank. Also, if you have employee A, Manager 1, and Manager 1's boss, it is very good to make sure that any work that Manager 1's boss wants Manager 1's employee to do, is given to employee A by Manager 1. When you look at splitting up divisions, you need to think about span of control. In most cases, it has been proven that management works best with a smaller span of control.