- Employees are grouped according to categories of work activity such as marketing, human resources and production. Sub-groups exist inside functions, for example communications and market research inside marketing. Functional structures work best when the company is small- to medium-sized with a well-developed product and a stable market. Drawbacks can be communication difficulties between functions and slow decision-making due to communication lines up and down the hierarchies.
- These systems are more market-oriented structures where workers are grouped according to the market they serve, such as a product, project, client or geographical region. Such structures work well in dynamic and unpredictable markets. They are extremely focused on the market and can respond fast to changes. However, they can duplicate knowledge inside the organization and increase costs.
- With markets becoming more complex and dynamic, many companies have adopted a matrix organization to combine both the economies of scale of a centralized functional structure and the flexibility of product, customer or geographic structures. Workers report to two or more supervisors, one from their original functional area, the second from the product or project they are working on and sometimes a third from a geographical region.
Matrix organizations provide greater flexibility and faster decision-making. But they can be difficult to coordinate in the event of internal conflicts between same-level managers. - Continual search for new organizational forms is driven by basic changes in the nature of competition and the economy. Globalization is also forcing companies to revisit their organizational structures. Horizontal systems and lattice systems reduce management and focus on core processes. Alliances and modular organizations use external sources without integrating them. Virtual organizations function independently, linked only by computer technology.
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