Before we discuss the differences in organizational structure, we need understand the sense and purpose of organizational structure. Organizational structure formally determines the hierarchy within an organization. In other words, who reports to whom? Some companies refer to this as the organizational chart. Types of organizational structure include: functional structure, matrix structure, and divisional structure. Divisional structure is further subdivided into three sub-types: market structure, product structure, and geographic structure.
Product structure groups employees together based upon specific products manufactured by the company. An example of this would provide a company that produces three distinct products, ‘product b’, ‘product a’, and ‘product c’. This company would have a separate division for each product.
It will divide an organization into divisions in charge for different products. As the description suggests, this structure will be utilized by those companies which produce more than one product. For example, a car company would be divided into Small Car Division, SUV Division, Trucks Division, etc.
Market structure groups employees together based upon specific markets in which the corporation sells. When I worked at the ISP, we also used a type 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. Corporate sales and corporate customer service worked together.
Geographic structure groups employees together based upon specific geographic location. This is often used by large companies that operate in a number of areas throughout the United States or in both the U.S. and overseas.
Matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. An example would be a firm 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 complicated of the different organizational structures.
Finding the organizational structure that works best for a given company is very important. Using the wrong structure can give rise to poor communication, poor customer service, poor product development, and a host of other business problems. Any of these things can be harmful to a company and could result in lost revenue or even complete inability of the company.