Global organizations in the 21st century must compete with a much wider array of companies than their domestic counterparts do, and have therefore evolved several strategies to become as efficient and cost-effective as possible. The choice of organizational structure reflects where decisions are made, how work gets completed, and ultimately how quickly and cheaply the firm’s products can be made.
A functional structure is one in which type of work is performed in a different department. For instance, all the company’s accountants work in Accounting, Accounts Receivable or Accounts payable, whereas all the marketers work in Marketing. Each product line or geographic region then makes use of these centralized resources as if the other department were a different company. This allows the company to benefit from having very standardized processes for each of its functions, and from having economies of scale such as being able to place a single, centralized order for a commonly used widget that it can then distribute worldwide. However, it can be challenging and inefficient to shepherd a single product through all the steps and departments it needs to go through. These firms focus on specialization of job skills, and are more centralized.
Companies with divisional structures assign small groups of each type of function to a single division, making each self-sufficient. They may be divided by product line, such as the Shoe division, the Shirt division, and the Hat division. Or they might be divided geographically, such as the European or Asian divisions, or even further into France or Thailand divisions. Alternatively, they may be divided by customer group, such as Consumers, Small Business, and Government. In most cases, every division will have its own accounting, marketing, product development, manufacturing and executive staffs. This structure allows each specialty to become intimately familiar with the product or market the division serves, and reduces inter-departmental delays. The down side is that each division may be duplicating the efforts of several other divisions, or may be unknowingly working at cross purposes. These companies are concerned with specialization of products or markets, and are more decentralized.
Due to the difficulty of working globally with a centralized functional structure, and the communication gaps that come from working in divisional silos, most modern companies employ a hybrid structure that combines elements of each. There is no single “hybrid” structure, but rather a range from mostly-functional to mostly-divisional, which varies between companies. They often have central headquarters that set strategy and high-level policy, combined with product or geographic divisions that determine their operational methods, and may even have internal functional departments within the division. These companies are attempting to balance economies of scale with local efficiency.