Organizational Structures of Companies
Companies often choose its organizational structure based on business goals or the size of the firms. Newer firms typically start out with flat organizational structures since fewer levels of management are necessary. However, companies may need to develop more specific organizational structures as they grow. Key elements of organizational structure include authority and span of control where all employees report to a higher authority such as a department head.
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Functional Structure
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In a functional organizational structure, a company divides key duties and responsibilities by various functions such as marketing, research and development or accounting. A vice president or director may be in charge of each department, with managers, analysts and clerical workers comprising the rest of the department. An advantage of using a functional organizational structure is that people can specialize in certain fields and have well-defined career paths, according to HRM Guide. However, functional organizational structures can cause conflict between functional areas, especially when it comes to budgeting or planning. Each functional area may be more concerned with its department goals than the company goals, for example.
Customer Structure
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Some companies use customer-oriented structures where they build its organization upon different types of customers. For example, a credit card company may service consumer, corporate, financial and retail customers. Procedures may vary greatly among the various customer types. Thus, a customer structure may make the most sense as it allows employees to specialize by customer type. Customers may also receive the most efficient type of customer service. Conversely, there may be some duplication of resources in a customer organization. For example, multiple finance managers may be required to service each customer group, when one or two may be more economical.
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Matrix Structure
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A matrix structure is a hybrid of several types of organizational structures. For example, a company may combine both functional and customer organizational structures. Another company may use a combination of a product structure, another type of organizational structure and a customer structure. Matrix structures tend to be used for important projects. Consequently, employees of different skills and expertise are brought together to complete major projects. For example, a consumer products company may use a matrix structure to introduce a new line of hair care products. Matrix organizations bring expertise to the forefront. However, matrix organizations can sometimes lead to dual reporting or multiple bosses for employees.
Strategic Business Units
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Strategic business units are sometimes used in very large companies. An SBU is usually set up as a separate company, with separate budgets, sales and profit accountability and unit officers. For example, a company may assign presidents or senior vice presidents to run operations in different countries. That way, each unit can focus on the differences in customer tastes and preferences as well as cultural disparities. SBUs may be highly efficient with respect to efficiency, customer focus and overall production. However, SBUs can be expensive to run, especially early in the formation process. Companies must have highly specialized managers for each business unit.
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