In the functional structure, above, the employees are working in departments based on what they are doing i.e. we have engineering department, maintenance department, finance department, research department, Warehouse department, purchasing department. This structure enhances the experience of each function. For example, all the maintenance engineers are working in the same department and thus they will exchange knowledge and support each other. This structure saves us money because of the economies of scale. This structure makes the coordination between different department more difficult than other structures. It also does not allow for flexibility because of the centralization.
Divisional structure divides, shown above, the employees based on the product/customer segment/geographical location. For example, each division is responsible for certain product and has its own resources such as finance, marketing, warehouse, maintnenace..etc. Accordingly, this structures is a decentralized structure and thus allows for flexibility and quick response to environmental changes. It also enhances innovation and differentiation strategies. On the other hand, this structure results in duplication of resources because, for ex., we need to have warehouse for each division. obviously, it does not support the exchange of knowledge between people working in the same profession because part of them are working in one division and the others are working in other divisions.
Matrix structure, shown above, combines both structures. For example, we can have a functional structure and then assign a manager for each product. Some employees will have two managers: functional manager and product manager. This type of structure tries to get the benefits of functional structure and also of divisional structure; however, it is not easy to implement because of the dual authority. This structure is very useful for multinational companies.
It is important to keep in mind that each managerial decision has its pros and cons. Sometimes, writers will convince you that divisional or matrix structure are the recent trends and that you need to re-engineer your structure tomorrow morning. obviously, this is not true. Many organizations still has functional structure and is doing very well. It is very important to select the structure that best service your condition. What is your strategy? How many products do you have? What type of technology are you using? How big is your company/organization?
Management should take necessary actions to decrease the disadvantages of the chosen structure and to enhance its the positive effects. For example, if we think the divisional structure is the best type for our condition then we should have tools to exchange knowledge between engineers working in different divisions. These tools can include forums on the LAN and conferences to exchange knowledge. Conversely, if we adopt functional structure, we can form teams from different functions to solve problems and develop our products.
Developing countries suffer from the lack of research. Most of research on organization structure based on studying Japanese, American and European companies but it is rare to find a research based on a sample of African companies. That is a challenge for managers working in developing countries because the research does not really tell them what to do and what to expect. The differences in cultures can affect the results of adopting certain structure in certain part of the world. Sometimes, you deal with the same organization in different parts of the world and get very different standard of service. This shows that this multinational organization failed to reach the same results in the developing country.
Management should not think they are going to double their profits because they adopted flat structure (less number of management layers). If this structure re-engineering is not part of a certain strategy, it will not work. For example, if we adopt flat structure and then transfer the authorities of the middle management to the top management then we are increasing centralization and decreasing our flexibility. Similarly, if we adopt functional structure and allow for the duplication of resources, then we will get the disadvantages of the functional structure and will lose one of its main advantages which is economies of scale.
Many companies have combination between functional, divisional and matrix structure. Many of the decentralized companies will have one or two department centralized such as human resources or marketing.
Whatever structure you have, the results are the most important. The results are not your perception that you are the best. Measure yourself compared with similar companies. Do you need one week to take a decision that they make in one hour? Are your employees motivated more than those in other companies? Are you developing new products and services faster than other companies? Are you achieving your main strategy?