14.7 Organizational structure and human resource management  (Page 3/6)

Advantages : The main advantage of a product structure is that it focuses attention and resources toward a single product and the customers toward which that product is targeted. Decisions are optimized for the success of the product and distractions are minimized.

Disadvantages : Redundancies often exist across product organizations as functional responsibilities are duplicated under each product organization. Economies of scale and scope are more difficult to achieve as this organization structure encourages less cooperation and coordination across the product units.

Exhibit

Area/geographic structure:

An area structure is often chosen by companies who want to emphasize geographically specific strategies and focus decision-making on local needs. Organizations may be divided up into regional and country structures where country managers operate rather autonomous businesses supported by an array of local functions. In this case, the country organization often operates as a fairly self-contained business with substantial local authority as well as profit and loss responsibility.

Advantages : The country organization is capable of sensing and understanding local conditions and is able to formulate strategies which effectively meet the needs of local stakeholders. Policies in areas such as human resource management can be tailored to meet the needs and expectations of local employees, product mix and design can be optimized for local conditions, and the organization can respond more quickly to changing circumstances on the ground.

Disadvantages : The disadvantages of the area structure are similar to those of the product structure. Economies of scale will be harder to achieve as different localities develop and implement very different product strategies on one hand, and invest resources in developing local functional expertise and effort which may well be duplicated unnecessarily across geographic units.

Exhibit

Matrix structure:

A matrix structure is often adopted in organizations that would like to optimize decisions across multiple organization dimensions. In other words, they would like to achieve economies of scale where appropriate, but do not want to lose the ability to respond to product/customer and geographic needs more effectively.

A matrix organization simultaneously utilizes two or more dimensions (product, geographic, function, etc.) to organize the company’s work. In this case, two or more dimensions may have direct links to the head of the organization (see [link] ) and key individuals throughout the organization may actually report to more than one dimension. As can be seen in [link] , the orange juice product manager reports to the head of the organization, as does the head of the finance function. In this example, the finance officer in the orange juice product group reports to two individuals: the head of finance and the head of the orange juice group. At the same time, a geographic dimension may require that the function and product heads interact as coequals with any number of country managers or regional heads as well.