Three Kinds of Product-Focused Organizational Structures

As the number of the company increases the number and type of its products it becomes necessary for the activities of the company to be organized by product rather than by function.  As such, growing companies will eventually transition from a functional structure to a product structure, which is a divisional structure in which separate divisions are created and maintained for each group of similar products.  There are several different types of product structure that may be selected based on the decisions made regarding how the activities of the product divisions are to be coordinated with those functions that are traditionally categorized as “support” (i.e., research and development, accounting/finance and marketing/sales).  One alternative is the “product division” structure in which the various support functions are centralized at the top of the organizational structure—at “headquarters”—and are expected to provide their supporting functional services to all of the different product divisions, which in turn focus on the operational activities (i.e., manufacturing and distribution) for their specific products.  This method may be viable in cases where the similarity among all the products and each of the product divisions are focusing their activities on essentially the same markets.  The second alternative is “multidivisional” structure in which each product division has its own dedicated set of functional resources which need not be shared with other divisions.  This approach should be considered in situations where the products, and the markets and industries in which the divisions are operating, are very different.  A third alternative, which may be used in cases where the technology underlying the product line is complex and/or rapidly changing, is a “product team” structure.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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