Functional and divisional structures

There are two main kinds of formal structure.

Functional structure: jobs are grouped by function: production, purchase, marketing, accounts, human resources. Each department has a head, and a coordinating head above them.

• Advantages: specialisation; better control and coordination within each department; efficiency; no duplication of effort; easy training of staff, who focus on one kind of work.
• Limitations: departments may care more about their own goals than the whole firm's (functional empires); coordination between departments is hard; conflicts of interest; inflexibility, since staff learn only one area.

Divisional structure: the firm is split into product divisions (for example, cosmetics, clothing, shoes). Each division is multifunctional: it has its own production, marketing and finance. Each is a profit centre.

• Advantages: product specialisation develops a division head's skills; accountability is easy to fix, since each division's results are clear; flexibility and fast decisions; easy expansion by adding a new division.
• Limitations: conflict between divisions over resources; duplication of functions, which is costly; division managers may become powerful and ignore the organisation as a whole.

Choose by the number of products: one product line, use a functional structure; many different products, use a divisional one.

Two points that confuse many students:

• Coordination. A functional structure gives good coordination within a department (the marketing people work well with each other), but poor coordination between departments, where production may blame marketing and marketing may blame finance.
• Flexibility. In a functional structure the departments depend on each other: you cannot close production and keep the rest running. In a divisional structure each division stands alone: a firm making garments and footwear can close one, or open a new cosmetics division, without disturbing the others.

In a case question, look for clues: if it names only functions (production, sales, finance) or only one product line, the answer is functional; if it names several products (garments, footwear, cosmetics), the answer is divisional.