why some organisations are structured by product and others by function or geographical area

7.1 Organisational Structure – Types of Structure

Why Organisations Choose Different Structures

Think of a company as a big, busy kitchen. Some kitchens organise by what they cook (product), others by who does the chopping, sautéing, or plating (function), and some by where the food is served (geography). Each layout has its own strengths and challenges.

Exam Tip: Remember that exam questions often ask you to compare the advantages and disadvantages of each structure. Use the table below as a quick reference.

Product‑Based Structure

Organises teams around the different products or product lines a company offers. Each product team is almost a mini‑company with its own marketing, sales, and production.

Function‑Based Structure

Groups employees by specialised functions such as marketing, finance, or production. This allows deep expertise but can create silos.

Geographical (Regional) Structure

Divides the organisation by location – e.g., North America, Europe, Asia. Useful for global firms that need to adapt to local markets.

Structure TypeWhen to UseProsCons
ProductMultiple distinct products, need quick response to market changes.Clear focus, faster decision‑making, customer‑centric.Duplication of resources, potential internal competition.
FunctionLarge, mature companies with specialised roles.Deep expertise, economies of scale, clear career paths.Siloed communication, slower response to market shifts.
GeographicalGlobal firms with diverse local markets.Local responsiveness, cultural fit, easier compliance.Duplication of functions, inconsistent brand message.

Analogy: The School System

Imagine a school:

  • 🏫 Product structure = separate classes for each subject (Math, Science, Art). Each class runs its own projects.

  • 🏫 Function structure = separate departments (Teaching, Administration, IT). Each department handles its own tasks.

  • 🏫 Geographical structure = different campuses in each city, each campus adapts to local student needs.

Mathematical Insight (Optional)

When deciding on a structure, firms often balance fixed costs (FC) and variable costs (VC):

\$\text{Total Cost} = \text{FC} + \text{VC}\$

Product structures may increase FC due to duplicated teams, but can reduce VC by tailoring production to demand.

Exam Tip: Use the formula above to explain how a product structure can affect cost efficiency. Highlight that higher FC can be offset by better market responsiveness.

Key Takeaway for Exams

When answering questions, structure your answer with:

  1. Define the structure type.

  2. Give a real‑world example.

  3. List at least two pros and two cons.

  4. Explain why a particular type suits a specific business context.

Good luck, and remember: the right structure is like the right tool for the right job – choose wisely! 🚀