Organisational structures: Functional, Divisional, Matrix, and Line and Staff

Question

Can you Identify five traditional organizational structures and the pros and cons of each?

Answer

Some definable organisational structures are commonly seen across business - there are advantages and disadvantages to each. Functional: Divides a company by splitting it based on roles. This is the most common format, and leads to the creation of functional departments, e.g. marketing, IT, fashion sales, commercial vehicle design etc. These departments interact when needed and all report to senior management. Advantages

• simple and straightforward
• allows specialisation and clear focus

Disadvantages

• reduces cooperation between departments (tribalism, silos)
• rigid and often bureaucratic communication and reporting structure

Divisional: Used (normally in large organisations) to split a company into autonomous business units that act like distinct companies. The divisional heads answer only to top executives, e.g. the CEO. Advantages

• makes very large companies more manageable
• allows focus and efficiency

Disadvantages

• lack of coordination and competition between divisions can harm the overall business
• splits possible scale economies

Matrix: The company focuses on projects or products, following each horizontally across functional groups. Project leaders are senior figures and draw from functions when necessary. Usually is accompanied by an informal culture. Advantages

• focused on the revenue generating activities
• encourages use of all functions capabilities

Disadvantages

• complex
• conflicting staff responsibility to project and function managers

Line and Staff: The ‘Line’ is formed from core revenue generating activities (e.g. sales, trading, production). The ‘Staff’ are the non-revenue generating support functions. The Line takes precedence over the Staff. Advantages

• Allows focus on core activities

Disadvantages

• May cause conflict and resentment

Geographic: Used where a company operates in different countries; for practical reasons different geographic bases are run separately. For each separate base any organisational structure can be used, but there are normally regional top managers reporting to the directors or CEO.

References