7.1 Organisational Structure – Cambridge A‑Level Business (9609)
Learning Objective
Explain how the choice of organisational structure helps a business achieve its objectives, describe the main structures required by the syllabus, and evaluate the advantages and disadvantages of each.
7.1.1 Relationship Between Business Objectives and Organisational Structure
Business objectives (cost‑leadership, market‑share growth, customer‑service excellence, innovation, international expansion, etc.) determine how a firm must organise its people, processes and resources. The structure chosen should:
- Provide the flexibility needed to respond to market change.
- Support the growth strategy (e.g., new products, new regions).
- Align decision‑making with the primary objective (cost control, speed to market, local responsiveness, etc.).
- Encourage intrapreneurship by giving employees the authority and resources to develop new ideas.
| Structure |
Key Objectives Best Supported |
Effect on Intrapreneurship |
| Functional |
Cost‑leadership, efficiency, standardisation |
Limited – specialised silos can hinder cross‑functional idea sharing, although deep expertise can generate process innovations. |
| Product / Divisional |
Market‑share growth, rapid product development, diversification |
High – each division operates as a mini‑business, giving managers and staff autonomy to experiment. |
| Geographical (Regional) |
Customer‑service excellence, local market penetration, regulatory compliance |
Moderate – regional managers can tailor innovations to local tastes, but duplication of effort may occur. |
| Flat & Narrow Hierarchy |
Speed of decision‑making, agility, low administrative cost |
Very high – few layers mean ideas reach senior management quickly. |
| Matrix |
Flexibility, simultaneous focus on product & market, complex projects |
Potentially high – dual reporting encourages collaboration, but role ambiguity can dampen initiative. |
| Line & Staff |
Clear authority for core activities, support for specialised expertise |
Variable – staff specialists can champion new ideas, but line managers may resist change. |
| Network / Virtual (optional) |
Innovation through external partners, rapid scaling, low fixed cost |
High – external partners bring fresh perspectives; internal coordination is critical. |
7.1.2 Types of Organisational Structure (Syllabus Requirement 7.1.2)
1. Functional Structure
- Definition: Departments are grouped by specialised activities (e.g., Marketing, Finance, Production, HR).
- Typical example: A small manufacturing firm where all engineers report to a Production Manager and all sales staff report to a Sales Manager.
- Why it works: Enables economies of scale, clear career paths and tight control – ideal for cost‑leadership.
2. Product / Divisional Structure
- Definition: Separate semi‑autonomous divisions are created for each product line or service.
- Typical example: A consumer‑electronics company with distinct divisions for smartphones, laptops and wearables, each with its own R&D, marketing and finance teams.
- Why it works: Gives each division profit responsibility and the freedom to respond quickly to market trends.
3. Geographical (Regional) Structure
- Definition: Units are organised around distinct geographic markets or territories.
- Typical example: A fast‑food chain that operates separate regional subsidiaries for North America, Europe and Asia‑Pacific.
- Why it works: Allows products, pricing and promotion to be adapted to local cultures, regulations and consumer preferences.
4. Flat & Narrow Hierarchical Structure
- Definition: A hierarchy with few managerial levels (flat) and a limited span of control (narrow). Decision‑making is close to the front line.
- Typical example: A start‑up tech firm where the CEO directly supervises a small team of specialists.
- Why it works: Reduces bureaucracy, speeds up communication and empowers employees.
5. Matrix Structure
- Definition: Employees have dual reporting lines – usually to a functional manager and a product or regional manager.
- Typical example: A multinational software company where a programmer reports to both the “Software Development” function and the “Mobile‑Apps” product manager.
- Why it works: Combines the expertise of functional departments with the market focus of product or regional units.
6. Line & Staff Structure
- Definition: “Line” managers have direct authority over core activities; “staff” specialists provide advice and support (e.g., legal, HR, R&D).
- Typical example: A manufacturing plant where the Production Manager (line) is supported by a Safety Officer (staff).
- Why it works: Clarifies authority for core operations while retaining specialist expertise.
7. Network / Virtual Structure (Advanced – optional)
- Definition: The core firm coordinates a web of external partners, contractors or subsidiaries that perform most of the value‑adding activities.
- Typical example: An online retailer that outsources warehousing, logistics and customer service to third‑party providers.
- Why it works: Enables rapid scaling, low fixed costs and access to external innovation.
7.1.3 Advantages & Disadvantages of Each Structure (Syllabus Requirement 7.1.3)
| Structure |
Advantages |
Disadvantages |
| Functional |
- Economies of scale → lower unit costs.
- Clear career paths and deep expertise.
- Strong central control and coordination.
|
- Slow decision‑making – information must travel up and down the hierarchy.
- “Silo” mentality can hinder communication and innovation.
- Limited focus on external market changes.
|
| Product / Divisional |
- Profit accountability for each product line.
- Fast response to market trends and customer needs.
- Encourages entrepreneurial behaviour within divisions.
|
- Duplication of support functions (HR, finance, IT) across divisions.
- Higher overall operating costs.
- Risk of internal rivalry between divisions.
|
| Geographical (Regional) |
- Local market responsiveness – products, pricing and promotion can be adapted.
- Better compliance with regional regulations and cultural norms.
- Improved customer service through proximity.
|
- Duplication of functional resources across regions.
- Coordination between regions can be difficult.
- Risk of inconsistent brand image.
|
| Flat & Narrow Hierarchy |
- Quick decision‑making and communication.
- Lower overhead – fewer managerial layers.
- Greater employee empowerment and motivation.
|
- Limited career progression → possible turnover.
- Can become unmanageable as the organisation grows.
- Risk of overload for the few managers.
|
| Matrix |
- Flexibility to focus on two (or more) dimensions simultaneously.
- Efficient use of specialist resources across projects.
- Promotes teamwork, knowledge sharing and innovation.
|
- Complex reporting – can cause confusion and conflict.
- Requires strong interpersonal and negotiation skills.
- Higher administrative overhead.
|
| Line & Staff |
- Clear authority for core (line) activities.
- Specialist staff add expertise without diluting line control.
- Facilitates coordination of complex operations.
|
- Potential tension between line managers (who want control) and staff specialists (who advise).
- Decision‑making may be slowed if staff input is required for every action.
|
| Network / Virtual (optional) |
- Very low fixed costs – core firm focuses on coordination.
- Access to external expertise and rapid scaling.
- Encourages open innovation through partners.
|
- Reliance on external partners creates vulnerability.
- Control over quality and brand consistency is harder.
- Requires sophisticated IT, contract management and trust.
|
7.1.4 Why Choose a Product, Functional or Geographical Structure?
When deciding between product, functional and geographical structures, managers weigh three key considerations:
- Nature of the business’s offering
- Single, homogeneous product line → functional structure is efficient.
- Multiple, distinct product lines (or services) → product/divisional structure provides clear profit centres and rapid market response.
- Geographic spread of markets
- Operations confined to one country or region → functional or product structures are sufficient.
- Significant presence in different continents, each with unique regulations, cultures or consumer preferences → geographical (regional) structure enables local adaptation.
- Strategic priority
- Cost‑leadership and standardisation → functional.
- Innovation, speed to market and product diversification → product/divisional.
- Customer‑service excellence and local responsiveness → geographical.
In practice, many large firms combine elements (e.g., a product‑divisional structure that is further split into regional subsidiaries) to capture the benefits of more than one approach.
7.1.5 Factors Influencing the Choice of Structure (Recap)
- Product diversity – Wide range → product/divisional; single line → functional.
- Geographic spread – International markets → regional or matrix.
- Size & growth stage – Start‑up → flat; mature multi‑product firm → matrix, network or product/divisional.
- Strategic priority – Cost‑leadership → functional; innovation/market growth → product or matrix.
- Technology & communication systems – Advanced IT enables complex structures (matrix, network).
- Culture & leadership style – Centralised control favours functional; decentralised empowerment favours flat, product or matrix.
- Regulatory & cultural environment – Highly localised requirements push firms toward geographical structures.
7.1.6 Suggested Classroom Diagram (visual summary)
Draw a side‑by‑side layout on the board or slide. Each diagram should be simple, labelled and include a brief caption.
- Functional: Vertical columns (Marketing, Finance, Production, HR) all reporting to the CEO.
- Product/Divisional: Separate boxes for each product line; each box contains its own functional sub‑units.
- Geographical: Regional boxes (North America, Europe, Asia‑Pacific) each containing the same functional groups.
- Matrix: Overlay of product and functional lines forming a grid; show dual reporting arrows.
Summary
The organisational structure a business adopts is a strategic tool that aligns internal processes with external objectives. A functional structure maximises efficiency and cost control, a product/divisional structure drives market responsiveness and profit accountability, a geographical structure tailors operations to local demands, a flat hierarchical structure provides speed and agility, a matrix structure offers flexibility across multiple dimensions, a line & staff structure clarifies authority while retaining specialist support, and a network/virtual model leverages external expertise. Understanding the advantages, disadvantages and the link to business objectives enables managers to choose, adapt, or combine structures so that the firm can achieve its goals and foster intrapreneurial activity.