Functional, Divisional and Matrix Organizational Structures

Introduction

Before we discuss the differences in organizational structure, we need understand the meaning and purpose of organizational structure. Organizational structure formally determines the hierarchy within an organization. In other words, who reports to whom? Some companies refer to this as the organizational chart. Types of organizational structure include: functional structure, divisional structure, and matrix structure. Divisional structure is further broken down into three sub-types: product structure, market structure, and geographic structure.

Functional Structure

The functional structure groups employees together based upon the functions of specific jobs within the organization. I used to work for a division of an internet service provider (ISP). The organizational structure at that division was functional. The organizational chart was as follows:

Vice President

- Sales Department (sales function)

- Customer Service Department (customer service function)

- Engineering Department (engineering function)

- Accounting Department (accounting function)

- Administration Department (administration function)

Divisional Structure

The divisional structure is broken down into three areas: product, market, and geographic.

Product Structure

Product structure groups employees together based upon specific products produced by the company. An example of this would be a company that produces three distinct products, "product a", "product b", and "product c". This company would have a separate division for each product.

Market Structure

Market structure groups employees together based upon specific markets in which the company sells. When I worked at the ISP, we also used a form of market structure. We sold internet access to individual consumers and business customers. So the sales and customer service departments were organized using market structure. Consumer sales and consumer customer service worked together, and corporate sales and corporate customer service worked together.

Geographic Structure