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Policy & Strategy
There are five traditional organizational structures. The functional structure results in-depth expertise of a singular function. This generates enhanced operational efficiency. This structure also allows for strong, centralized control. However, a functional structure can hinder creativity and adaptation to change, since the operations are typically static. This structure inhibits managerial growth, as managers are do not develop cross-functional expertise.
A geographic structure breaks out corporate units by geographical region. This allows the company to tailor its strategy to each region individually. In addition, concentrating all functions within a geographical unit aids in the development of managers with strong cross-functional and coordination skills. However, conflicts may arise between the corporate-wide need for product/service uniformity and the desire of regional managers to tailor individualized programs for their localities. The geographic structure also creates an additional layer of management - the regional management - which complicates coordination of global operations.
The strategic business unit (SBU) structure breaks out corporate units into strategic business units. This helps the company allocate resources away from areas with low growth potential towards ones with high growth potential. It also allows for strategic planning to be done at the unit level, which is the most meaningful level. Cons are that SBUs add a layer of management, the SBU executive. This gives rise to organizational complexity at high levels, including potential conflicts with regards to senior management roles and performance recognition.
A line of business structure has the benefit of being very product-focused. This allows decisions to be made at a level much closer to the day-to-day operating environment of each product. This structure, however, encourages duplication of staff functions. Moreover, each business line is removed that much further from the corporate objectives, and corporate executives risk losing touch with individual lines of business, leaving them unable to respond or react to problems quickly.
Matrix structures combine two or more other structures. This encourages cooperation across business and functional units, and refocuses everybody on what is best for the company as a whole, rather than their individual area. This in turn creates a system of balances. However, matrix structures are very complex and difficult to manage. Furthermore, it is hard to move efficiently through multiple channels of authority.
References no author listed) (2008). Five Formal Organization Structures. Family Business Institute. Retrieved May 15, 2008 at http://www.family-business-experts.com/organization-structures.html
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