Learning Outcomes

Differentiate between the four an easy types the departmentalization (function, product, customer, and also geography).Distinguish matrix establishments from traditional departments.Differentiate in between team-based structures, networks, and modular organizations.

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Based on an organization’s application of the typical elements—common purpose, combination effort, division of labor, power structure of authority, and also centralization/decentralization and also formalization—the resulting structure will generally exhibit among four large departmental structures: functional, product, customer, and also geographic.

Functional Structure

As sales increase, institutions generally adopt a functional structure. This structure groups employees into functional locations based on their expertise. This functional areas often exchange mail to step in the worth chain such as operations, research and development, and also marketing and sales. They likewise include support locations such as accounting, finance, and human resources. The graphics that follows shows a useful structure, v the lines indicating reporting and also authority relationships. The department head the each sensible area reports to the CEO; the CEO then coordinates and also integrates the occupational of every function.

Functional structure business chart.

A sensible structure allows for a greater degree of specialization and also deeper domain specialization than a basic structure. Greater specialization also permits for a greater department of labor, i m sorry is attached to higher productivity.<1> Although work-related in a sensible structure has tendency to be specialized, the is centrally coordinated by the CEO, together in the previously graphic. A sensible structure permits for an efficient top-down and bottom-up interaction chain between the CEO and the sensible departments, and also thus relies on a relatively tall structure. The disadvantage natural to a useful structure is the the focus on expertise can cause high level of job dissatisfaction and fewer process improvements for the business.

Product Structure

Companies v diversified product lines generally structure based upon the product or service. GE, for example, has actually structured six product-specific departments supported by six central service divisions. (1) Energy, (2) capital (3) house & business Solutions, (4) Healthcare, (5) Aviation, and also (6) Transportation. Product divisions work well where assets are an ext technical and also require more committed knowledge. These product divisions are sustained by central services, i beg your pardon include: public relations, business development, legal, worldwide research, human being resources, and also finance.

This kind of framework is appropriate for organizations with lot of products and can help shorten product development cycles. One disadvantage is that it can be daunting to scale. One more disadvantage is that the company may finish up with duplicate sources as various divisions strive because that autonomy.

Customer Structure

Companies that offer services, together as wellness care, have tendency to use a customer-based structure. While similar to the product structure, the different company segments at the bottom room each break-up into a particular customer group—for example, outpatient, urgent care, and emergency care patients. Because the customers differ significantly, it makes sense to customize the service. Employees deserve to specialize about the form of customer and be an ext productive with that type of customer. The director of every customer center would report directly to the chief medical officer and/or the hospital CEO. This is also designed to avoid overlap, confusion, and redundancies. The customer structure is proper when the organization’s product or company needs to be tailored to particular customers.

Customer structure business chart.

The customer-based structure is appropriate for an organization that has products or services distinct to details market segments, specifically if that company has advanced knowledge the those segments. However, there room disadvantages to this structure, too. If there is too lot autonomy across the divisions, incompatible systems may develop. Or departments may end up inadvertently duplicating tasks that other divisions are already managing.

Geography Structure

If an organization spans multiple geographical regions, and the product or service needs to it is in localized, it often requires organization by region. Geographical structuring entails grouping tasks based on geography, such as a Latin American division. Geographical structuring is specifically important if tastes and also brand responses differ throughout regions, as it permits for versatility in product offerings and also marketing strategies. Also, geographic structuring might be necessary since of price and access of resources, distribution strategies, and also laws in foreign countries. Coca Cola frameworks geographically due to the fact that of the price of transferring water. NetJets, a exclusive aviation company, had actually to create a separate agency in Portugal to run NetJets Europe, since the entity had actually to be owned by a europe Union carrier.

McDonald’s is popular for its geographical structure and also localization strategy for food preferences. The McDonald’s in Malaysia is certified halal (no pork products) and also you can order the McD Chicken Porridge: chicken and onions in porridge. Other examples are Brie Nuggets (fried brie) in Russia; the Ebi Filet-O (shrimp patty) in Japan; and in Canada, you can gain poutine (fries and also cheese curds smothered in gravy).

This kind of framework is finest for organizations that must be close to sources of supply and/or customers. The main disadvantage the a geographical organizational structure is that it can be basic for decision do to become decentralized; geographic departments can periodically be hundreds, if no thousands, the miles away from this firm headquarters, enabling them to have a high level of autonomy.

Matrix Organizations

Where two dimensions are critical, carriers will use a procession structure. Employees might be organized according come product and geography, for example, and have 2 bosses. The idea behind this type of matrix framework is to combine the localization services of the geography structure v those of the functional structure (responsiveness and decentralized focus).

Matrix structure with geographic and also product (SBU) structure.

The advantage of the matrix structure is the it can carry out both adaptability and much more balanced decision do (because two chains of command exist instead of simply one). Its primary disadvantage: complexity, which can lead to perplexed employees.

Team-based Structures, Networks, and Modular Organizations

The reality is that if an organization is successful sufficient to survive and also grow, the will ultimately need some type of integration. Poor communication between siloed departments frequently leads to a dilemm that inspires efforts to integrate—efforts such together teams, networks, and also modular structures.

Team-based Structure

Over the last numerous decades, team-based structures of part variation have come to be common in practically every industry. Lockheed Martin aircraft Corporation started its “Skunk Works” task in 1943 in solution to the U.S. Army’s need for a jet fighter. Based upon a handshake, a little team of designers worked secretly in a time to design and build the XP-80 shoot Star Jet Fighter in 143 days—seven days less than was required. The level that secrecy essential for this type of a job team is very rare in most organizations, however it did generate the modern-day project team.


In general, a team is made up of civilization with complementary an abilities who room working toward a typical purpose. Organizations develop teams by grouping employees in a means that generates a variety of expertise and also addresses a particular operational component of the organization. Teams that encompass members from different functions are known as cross-functional teams. Due to the fact that of the success of early project teams, the belief is the a team will certainly be a more creative and abundant structure to face brand-new challenges. The is essential to remember, however, that every team is a group yet not every group is a team. A team structure must be less hierarchical, share the leadership, and also be an ext fluid than timeless structures (such as useful or divisional). True teams perform not disband ~ a project. Rather, they proceed to adjust and it is adapted to meet group and also organizational goals over several years.

The adhering to table lists few of the differences in between teams and also groups.

Differences between Teams and also GroupsTeamsGroupsPurposeWorkPerformanceSkillsLeadershipAccountabilityCommunication
Distinct, specific to the team charterIndistinguishable from, or parallels the of, the organization
Interdependent through a cumulative work productIndependent jobs with individual job-related products
Synergy – collectively we achieve much more than the sum of separation, personal, instance effortsAdditive – the sum of the individual efforts
SharedOne leader
Mutual accountability, responsibility for the cumulative work productIndividuals: because that their very own productsLeader: For group product
Performance conversationsHierarchical

Source: Information acquired from Katzenbach and also Smith (1993)

Team structures can remove layers the management, which enables employees to make decisions without obtaining multiple approvals. This streamlines processes and also lowers bureaucratic costs. However, motivating individuals in a team-based organization have the right to be more an overwhelming as team success are rewarded quite than individual achievements.

Network Structure

The newest, and most divergent, team framework is generally known as a network structure. A network framework has little bureaucracy and features decentralized decision making. Managers coordinate and control connections both internal and also external come the firm. A social framework of interaction is fostered to build and manage formal and informal relationships. The score of this structure is to accomplish rapid business evolution and also adaptation to constantly an altering external and also internal environments.

Zappos has taken on this model and labeled the holacracy. Quite than relying ~ above a classic top-down hierarchical management structure, holacracy attempts to attain control and coordination by distributing power and also authority to self-organizing teams (so-called circles) of employees. Circles of employees room meant come self-organize and own a details task, such as confirming virtual orders or authorizing a customer’s credit transaction card. Bespeak is claimed to arise from the bottom up, fairly than rely on top-down command and also control as in traditional organizational structures. Rules space explicit in a so-called constitution, which defines the power and authority of each circle. Because that coordination, the employee one overlap horizontally and also without upright hierarchy. As soon as the teams space in place, the CEO efficiently relinquishes all executive powers.

A network framework is expected to encourage communication and also the totally free flow that information in between different components of the company as needed. However, the circular structure have the right to be confusing, especially for brand-new employees.<2>

The following video explores Zappos’ work culture and business structure.

You deserve to view the transcript because that “Zappos is a weird agency — and it’s happy that way” below (opens in brand-new window).

Modular Organizations

A company that has areas or department that deserve to be conveniently separated indigenous the company without dangerous the company are taken into consideration to have actually a modular organizational structure. The an essential lies in the capability to recognize which modules, or departments, that a organization are effective and also which have the right to be outsourced to create a tighter organization.

See more: Centripetal Force Worksheets & Teaching Resources, Lesson Worksheet:Centripetal Force

Organizations that desire to continue to be flexible and streamlined must understand when it is time to eliminate a module and permit the job to be done external the company. For example, a small specialty T-Shirt agency may identify that the design, production, and also customer company modules room at peak form and functioning well together however that that is website design and maintenance room is slowing the down. The shop may externalize that module and also send the work to an external business.<3>