product-based structure

Product-based structureclick for a larger image
Fig. 65 Product-based structure. A typical example.

product-based structure

an ORGANIZATION structure where activities are grouped according to product or service, and formal COORDINATION of management functions occurs separately for each. See Fig. 65.

Although this structure duplicates management functions, potentially losing some economies of scale, it enables their activities to be tailored to the requirements of a particular product and its market. It is, therefore, said to be an appropriate structure for a diversified organization. The locus of AUTHORITY and coordination occurs at a relatively decentralized level (compared with FUNCTIONAL STRUCTURES), thereby facilitating swift adjustment to changing market conditions. The geographically based structure takes a similar form: each unit is based on a particular geographical area.

Mixed geographical-product-based structures are quite common.

An extension of this form is the multi-divisional or M-form company. Here the units are organized as separate divisions or profit centres, with considerable autonomy in operational decision-making. Questions of strategy, i.e. which markets to be in and hence what divisions to have, are reserved to a head office. This also acts as a banker, setting profit targets for the divisions, receiving surpluses from them and providing capital. In practice this separation of responsibilities is not so clear cut: head offices often interfere in operational decisions which they perceive to be of great importance. This multi-divisional form is the predominant structure amongst large companies in the UK. See STRATEGIC BUSINESS UNIT, PROFIT CENTRE, FUNCTIONAL STRUCTURE, CRITICAL FUNCTION STRUCTURE, MATRIX STRUCTURE.

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