In organizational theory there is a selection of structural archetypes that are frequently put into practice. But keep in mind that many companies prefer to use hybrid models that combine the characteristics of different organizational structures.
Functional organizational structure
The oldest and most widespread form of organizational structure divides a company into general and strictly separate job functions. This means, for example, that all marketers are brought together in one marketing department, all human resources managers in the HR department, and so on.
The benefits of this easily scalable concept come from the fact that employees can qualify in their respective fields of specialization and thus work more efficiently. Clear areas of expertise and responsibility prevent duplication of activities such as accounting across departments (so-called “redundancies”). At the same time the functional structure allows for quick decisions making it particularly suitable for small companies that produce a rather narrow range of standardized products in large quantities and at low cost.
One drawback is the potential barriers that can arise between various functional areas in such a rigid departmental structure. The more a department works for itself, the worse its ability to communicate and its understanding of other departments. In this case we also speak of “sectoral selfishness “, which can manifest itself in conflicts, even of interests, and in the long term even in inhibited productivity. The lack of orientation to a specific market, target or product and the high degree of standardization and formalization also limit any potential for innovation.
Divisional organizational structure
Divisional organizational structures, also called “divisional organization” or “business area organization”, are always relevant when a company is growing and must therefore be structured in a more differentiated way. The division takes place according to the following work areas:
- products / services
- target / markets
- regions / sales areas
These elements, also known as “divisions”, each have separate functional areas, i.e. their own production, marketing and sales departments.
In this highly adaptable structure, each department can focus on their field of activity and therefore work faster, in a more coordinated and more strategic way. The autonomy associated with this way of operating leads to greater employee motivation. At the same time, a more differentiated subdivision makes it possible to make individual commercial activities more transparent and to measure and accurately evaluate their performance.
For these reasons, divisional organizational structures are mostly found in larger companies offering a wide range of specialized products and services for various sales markets. A breakdown by region is particularly suitable for internationally active companies. In these cases, the decision-making process is generally decentralized.
The fact that divisional structures are more differentiated and therefore require more specialized managers is one of the reasons why their implementation is associated with higher costs and greater coordination effort. If individual departments work very autonomously or are geographically distant, there is the threat of sectoral selfishness and duplication of business activities. At worst it can lead to a mismatch between the goals of the divisions and the core goals of the company.