Organizational structure defines who is responsible for decision-making, establishes how various tasks and responsibilities are grouped, and outlines the roles of people and departments within the organization. Two common types of organizational structures are functional and divisional structures.
Functional organizational structure consists of an executive officer and his staff, along with functional managers and their respective departments, such as: sales, accounting, manufacturing, service, delivery and others.
In a divisional organizational structure, various departments are grouped in order to produce a given product or service. There are three types of divisional structures: product structures, geographic structures and customer structures.
Functional structure works best for organizations that only produce a few products. One of its main advantages is that employees within functional departments are highly specialized and thus are very skilled and knowledgeable. Another advantage is that with functional structure, it's easy to accomplish functional goals specific to certain departments, such as: reach $2 million in sales, increase production speed by 5 percent, or allocate resources more effectively.
The main strength of the divisional structure is that it is very adaptable to fast changes and to differences between products, geographic locations or customers. Also, it involves collaboration between various functions, which leads to innovation.
There are two main weaknesses in the functional organizational structure: it responds very slowly to change, and it may take too long for decisions to be made because of the hierarchy of various managers. Among other weaknesses is the lack of coordination between departments and lack of innovation.
The lack of specialization, along with integration and standardization difficulties, are the primary disadvantages of the divisional structure.
A functional organization usually has the chief executive officer (CEO) as its head. Some organizations have one or more vice presidents who report to the CEO. Various department managers, such as the finance manager, sales manager, production manager, and marketing manager report to the CEO or to a vice president. The staff within the functional departments report to their managers.
A divisional organization is usually divided into departments that produce specific products or services. The chief executive officer is usually at the head of the organization, but each product department has its own manager. For example, a food company with a divisional structure may have the following department managers: dry foods production manager, preservatives production manager, dairy production manager and so forth. Each of these departments has its own finance, marketing and manufacturing sub-departments with separate managers and staff.