why some organisations are structured by product and others by function or geographical area
7.1 Organisational Structure – Types of Structure
Why Organisations Choose Different Structures
Think of a company as a big, busy kitchen. Some kitchens organise by what they cook (product), others by who does the chopping, sautéing, or plating (function), and some by where the food is served (geography). Each layout has its own strengths and challenges.
Product‑Based Structure
Organises teams around the different products or product lines a company offers. Each product team is almost a mini‑company with its own marketing, sales, and production.
Function‑Based Structure
Groups employees by specialised functions such as marketing, finance, or production. This allows deep expertise but can create silos.
Geographical (Regional) Structure
Divides the organisation by location – e.g., North America, Europe, Asia. Useful for global firms that need to adapt to local markets.
| Structure Type | When to Use | Pros | Cons |
|---|---|---|---|
| Product | Multiple distinct products, need quick response to market changes. | Clear focus, faster decision‑making, customer‑centric. | Duplication of resources, potential internal competition. |
| Function | Large, mature companies with specialised roles. | Deep expertise, economies of scale, clear career paths. | Siloed communication, slower response to market shifts. |
| Geographical | Global firms with diverse local markets. | Local responsiveness, cultural fit, easier compliance. | Duplication of functions, inconsistent brand message. |
Analogy: The School System
Imagine a school:
- 🏫 Product structure = separate classes for each subject (Math, Science, Art). Each class runs its own projects.
- 🏫 Function structure = separate departments (Teaching, Administration, IT). Each department handles its own tasks.
- 🏫 Geographical structure = different campuses in each city, each campus adapts to local student needs.
Mathematical Insight (Optional)
When deciding on a structure, firms often balance fixed costs (FC) and variable costs (VC):
$$\text{Total Cost} = \text{FC} + \text{VC}$$
Product structures may increase FC due to duplicated teams, but can reduce VC by tailoring production to demand.
Key Takeaway for Exams
When answering questions, structure your answer with:
- Define the structure type.
- Give a real‑world example.
- List at least two pros and two cons.
- Explain why a particular type suits a specific business context.
Good luck, and remember: the right structure is like the right tool for the right job – choose wisely! 🚀
Revision
Log in to practice.