Functional, product based, process based, matrix, circular – there are so many options for structuring your organization, division or team that it can be hard to know where to begin. Businesses of all sizes can use anything from markets and location to hierarchies and processes as a guide for deciding to whom employees report, who is responsible for decision making and whether they want a long or short chain of command. One option is the geographical organizational structure, which organizes its divisions based on – you guessed it – geography.
As the name implies, a business that is structured geographically will organize its activities according to geographical area or location. Specifically, the company will split its operations into different regions or territories such as the "North America Division" or the "Europe, Middle East and Africa (EMEA) Division."
Each site will have its own management, marketing, sales and product teams and so on and can be operated according to local customs and demand. On the ground, each division might look like a standalone business. However, the overall direction of each division is still directed by the central business policy. There's usually a global CEO and top management suite who sit in the organization's headquarters and have oversight over all the regional divisions.
The geographical organizational structure is common in large, multinational companies, but it may also suit some medium-sized businesses. For instance, a midsized retail chain or fast-food chain with multiple outlets across the state may organize on a geographic basis. This type of structure is well-suited to businesses like hospitality, retail and transportation that need to be near customers or sources of supply.
For a more immediate example, take a multinational organization like Starbucks. Starbucks's organizational stack has many characteristics, including a geographic division based on the physical location of its operations. The company splits its operations into three core territories – Americas, EMEA and China/Asia-Pacific – with a geographic head for each territory (for instance, the president of EMEA operations).
Within North America, the geography is further broken down into Western, Northwest, Southeast and Northeast regions. Each region has its own senior executive who sets the operating strategy for the stores within the region. These executives have the flexibility to adjust policies to suit the particular needs of the local market. Ultimately, though, they report to the territory head for their wider geographic area and follow the corporate objectives set by HQ.
For certain types of business, it just makes sense that the organization is structured this way. For example, if you operate three retail stores – one in Houston, one in Oklahoma City and one in Santa Fe – it could be easier logistically and for state filing and regulation purposes to divide your operations by geography. This would allow each store to have a high degree of freedom of choice as well as the responsibility to achieve good results within its own operation. Other advantages of the geographic division structure include:
Strong Local Base
The geographical structure allows for close communication with local customers. It makes sense to divide an organization by geography if different customer preferences, languages, cultures and ways of doing business exist in the areas where the business operates. That's because you can tailor your approach to the local market.
Flexible Market Response
If the market in a particular geography changes, then the local division can react swiftly. For instance, if the mood on a specific product suddenly changes, the division can order more (or less) of that product or switch its marketing direction in light of local needs. The division's deep knowledge of local conditions helps in decision making, and the autonomy afforded to each geographic unit means management needs to coordinate less with HQ before making decisions based on local factors about which HQ may know very little.
Where different geographies have different needs in terms of resources, staff and shipping, it makes sense to organize geographically rather than centralizing these functions. Many multinationals organize geographically so that each location can manage its own salaries, employee hours, customer data, supplies and finances based on local norms and markets.
Good Training Ground for Managers
The geographical structure provides a good training ground for future leaders who are coming up through the ranks. Multinational corporations frequently place their brightest talent in leadership roles in a divisional office so they can learn the leadership ropes before moving to an executive role within corporate HQ.
The main downside of a geographical organizational structure is the potential duplication of resources. The organization may miss out on economies of scale if each geography is duplicating jobs, supplies, resources, know-how and functions.
There's also the potential for conflict between local and central management, as the corporate HQ could impose protocols and take away much of the autonomy that was previously enjoyed by a geographic unit. The impact of this depends on how much decision-making freedom the geographic division is allowed. One one hand, you want to give each region enough freedom to react to local market conditions. On the other hand, you do not want to give it so much freedom that it deviates from the organization's strategic goals and acts independently.
A geographic structure can also be problematic in terms of company culture. Coordination and communication are much harder to get right when different cultures exist between the various geographic divisions, and some information may get lost in translation. The head office might have an especially hard time in developing a unified organizational culture if each region is busy doing its own thing.
The geographic structure is not the only (or necessarily best) organizational structure for a business. In fact, there are at least four common structures besides the geographic structure, and there are dozens of variations on each theme.
The most common type of organizational structure, the functional structure, is your classic departmental arrangement where the business is organized according to job functions. So, you'd have a marketing department, HR department, finance department and so on where all the marketers or salespeople are grouped together in a single team.
The geographic structure features characteristics of the functional structure, as each geographic division typically will arrange its people and resources in functional teams.
With product-based structure, the organization is structured around particular product lines. So, you might have a technology division, an aerospace division and a manufacturing division, all operated as separate cost centers. There's a variation on this structure called the market-based structure, which bases operations around markets, customer segments or industries.
With this type of structure, the business is organized around specific steps in the end-to-end workflow: for example, research and development, customer acquisition and project management. Process structures must be managed carefully, as there could be serious disruptions in the workflow if the teams are not communicating with each other and handing off work efficiently.
The matrix structure is a flexible structure that does not follow a traditional hierarchy. Instead, employees will report to a functional team (for example, the sales department) as well as to a product team (for example, the manufacturing division). It's a complex system, but if done properly, it can promote information sharing and more balanced decision making.
While most small businesses use the functional structure, it's up to you to figure out which structure best fits your organization. You can also cherry pick the best parts of each system to develop a customized approach.