Organizational Structure Problems

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Organizational structure is a consideration of every company. The breadth of products/services offered, the range of markets targeted and the methods by which those markets are targeted are important considerations. A narrow focus can turn out to be a make-or-break venture, while too broad of a focus can erode competencies and brand image. Either extreme can lead to problems for the company.

Functions

  • The organizational structure of a company has many functions. The organizational structure determines the breadth of focus, the range of product/service offerings, the number of niches targeted and the variety of ways in which the market is targeted. Problems can arise at various points concerning organizational structure; these problems range from the appropriateness of markets targeted to whether certain products or services should actually be offered. Younger companies especially have a tendency to shift focus narrowly, which is a big issue if they miss the mark.

Market

  • Problems arise regarding the organizational structure and the market. It is common for a company--younger companies especially--to pursue the market too broadly, trying to be all things to all people. Companies that have adopted an overly broad approach tend to lose continuity in brand image and product advertisement, which can erode customer confidence and, thus, loyalty. Take, for example, Pepsi and Coca-Cola. Coke targeted adults (for example, jack-and-coke, images of Santa handing Cokes to adults) whereas Pepsi targeted youth (such as Mountain Dew and Pepsi points); neither company went after the same market and both profited.

Product or Service Offerings

  • It is important to consider the breadth of product or service offerings as well. Imagine walking into two restaurants and looking at their respective menus. In the first restaurant, the menu is seven pages long, offering everything from pizza and burgers to steak and lobster. In the second restaurant, the menu is two pages long and includes a third of specials; it is centered on wood-fired pizza, salads and appetizers. The diner is likely to choose the second restaurant, as it is indicating that it specializes (via the focused menu) and that it uses fresh ingredients (via the specials insert). Another example is an accounting firm. Imagine Bob is looking for a firm to handle his payroll; is he likely to choose the firm that specializes in payroll or one that includes payroll services in a page-long list of service offerings?

    Keeping a relatively narrow focus on product or service offerings increases brand power by increasing perceived expertise. It also frequently lowers certain costs because of the commonality of parts required, it has a lower learning curve, and familiarity with the product or service builds efficiency.

Niches

  • Niches, although related to the market at large, represent those subsets of the population that are targeted through marketing; a niche is generally based on a demographic. The most common problem regarding organizational structure and niches is price points. When targeting a niche, a full demographic is imagined: double-earner household, corporate, yearly income > $100k, no children, owns home. The problem arises when a company tries to fit a wide range of these niches.

    An example of this is a retail clothing store where they sell $500 suits and $30 jeans. This combination does not go over well. Shoppers want to feel special. Higher price points eliminate certain customers, as does selective purchasing. While the general customer base may go down, the remaining customers will likely continue to shop at the same pricing level. This is why Gap offers Banana Republic, Gap and Old Navy or Ann Taylor offers Ann Taylor, Ann Taylor LOFT and Ann Taylor Outlet.

    Keep offerings within consistent price ranges. If a person in the targeted niche walks in, what is that person willing to spend (the range) and what standards qualify that price range?

Misconceptions

  • Although diversification can help increase company longevity, diversification for the sake of diversification is a recipe for disaster; projects should only be undertaken if they are seen as having a higher return. Also, it is unwise for a company to develop too broad of an organizational structure. Doing so risks a loss of focus necessary to perform each service or create each product to the best possible standard. It is also possible that a broad organizational structure may affect the company's target market; there are some benefits to having a more narrow focus. This is particularly evident in the effects of specialization on brand image and product innovation.

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