Functional, Divisional and Matrix structure

Functional Structure

The functional structure groups employees together based upon the functions of specific jobs within the organization. Functional structures are useful for relatively big companies. Employees within the functional structure are differentiated to perform a specialized set of tasks. For instance, the marketing department would be staffed only with marketers responsible for the marketing of the company's products. This specialization leads to operational efficiencies where employees become specialists within their own realm of expertise. The most typical problem with a functional organizational structure is however that communication within the company can be rather rigid, making the organization slow and inflexible. Therefore, lateral communication between functions become very important, so that information is disseminated, not only vertically, but also horizontally within the organization. Functional structures are often characterized by a large degree of formalization, making each function reliant on standardized ways of operating. Decision-making power is often centralized at the top of the hierarchy.

Functional organizational structures are best suited for companies producing standardized goods and services at large volumes and low cost. Therefore, functional structures may be most effective for companies operating in rather stable environments with low rates of change and dynamism.
As apposed to e.g. a simple organizational structure, the functional structure works best when the surrounding environment is rather stable, and when customers expect a standardized range of products not subject to continuous change in e.g. taste, fashion or innovation. If the environment becomes more complex and uncertain, the functional structure may not be the best suited structure for the company, and the company may need to change their structure to be able to cope with new challenges and uncertainties.



Divisional Structure

The divisional structure is broken down into three areas: product, market, and geographic.

• Product Structure

Product structure groups employees together based upon specific products produced by the company. An example of this would be a company that produces three distinct products, "product a", "product b", and "product c". This company would have a separate division for each product.

• Market Structure

Market structure groups employees together based upon specific markets in which the company sells. When I worked at the ISP, we also used a form of market structure. We sold internet access to individual consumers and business customers. So the sales and customer service departments were organized using market structure. Consumer sales and consumer customer service worked together, and corporate sales and corporate customer service worked together.

• Geographic Structure

Geographic structure groups employees together based upon specific geographic location. This is often used by large companies that operate in many areas throughout the United States or in both the U.S. and overseas.


Matrix Structure

Matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. Matrix structure is the most complex of the different organizational structures.

Conclusion

Finding the organizational structure that works best for a particular company is very important. Using the wrong structure can result in poor communication, poor product development, poor customer service, and a myriad of other business problems. Any of these things can be detrimental to a company and could result in lost revenue or even complete failure of the company.