starbucks-organizational-structure

Understanding Starbucks Organizational Structure

Starbucks has grown significantly in years and is an exemplary model for others to follow. Starbucks has been facing difficulties throughout its growth. They have been able to tackle all its problems and come out swinging, each time better than before. The major part of Starbucks’ success depends upon Starbucks organizational structure.

Amongst the several different types of organizational structures, Starbucks follows the one which is the best for them.

 

Starbucks: A Global Power Brand

Starbucks, a very popular American brand that came into being in 1971 and has been serving coffee at more than 28000 locations. These locations have no geographical limitation. The brand is present across 75 countries all over the world. Currently, they are selling personalized coffees.

The merchandise that includes books, mugs, bottles, accessories, coffee and tea brewing equipment and Verismo system by Starbucks.

They also sell fresh food that includes sandwiches, pastries, oatmeal, salads and so on. Starbucks slogans have also played a big part in brand building.

Learn about Starbucks Mission and Vision Statements

 

The Starbucks Organizational Structure

Starbucks organizational structure is a matrix structure and is one of the best successful organizational structure examples. A matrix structure is the combination of more than one organizational structures. The authority in matrix structure flows from more than one ways.

We’ve discussed Starbucks SWOT (Strengths, Weaknesses, Opportunities, and Threats) in an earlier post.

The employees answer to more than one managers and transfer of messages takes place in more than one ways. The other different types of organizational structures that combine to from Starbucks organizational structure are geographic divisional structure, functional structure, team structure and product based divisional structure.

In the functional structure part of Starbucks organizational structure, Starbucks has different groups of employees taking care of different functions. The human resource department, finance department, marketing department, sales department and so on. This structure is followed at the top hierarchy of the firm. The policies they make are applicable to all Starbucks cafes.

 

Divisional structure based on Geography and Product

The geographical divisional structure forms three main regional divisions including China and Asia-Pacific,America, and Europe, Middle East, Russia, and Africa. Moreover, in the United States, the divisions are Western, Northwest, Southeast and Northeast.

Each division of Starbucks organizational structure has its own senior vice president who controls things in that division and is answerable to central management. This way, each lower level manager reports to two heads, the geographical head, and the functional head. Each geographical division is flexible enough to design the products according to the preferences of people in that area. Therefore, different countries offer different product line.

Product based divisional structure is also a part of Starbucks organizational structure. This structure divides employees into different groups in a way that each group works for a different product. For example, Starbucks has divisions for merchandise goods such as mugs and books, bakery items such as sandwiches and a division for coffee & other beverages.

Starbucks organizational structure also includes brand based divisional structure.

 

Starbucks Brands

There are several brands owned by Starbucks: Starbucks and Seattle’s best coffee which produce coffee and other beverages. Teavana that produces a variety of teas, La Boulange that produces French baked items, Evolution Fresh which produces juices and Tazo tea which produces teas, herbs, and spices. With the help of this structure, each division can focus on different products to make them better.

Starbucks organizational structure plays a big role in its products’ development and innovation.

Team structure is mostly followed on the lower levels of the organization, for example in the café’s cooking and delivery systems. This team structure of the Starbucks organizational structure helps provide customers with better and specialized service.

Check out our compilation of catch coffee slogans.

 

Starbucks growth

At the time of the rapid growth of the company is 2007, the management’s focus changed from customer satisfaction to global expansion. Starbucks’ sales took a drop in 2007 because their focus went away from customer satisfaction.

However, after Howard Schultz resumed as the CEO in 2008, he changed the organizational structure to make customer satisfaction their priority again. Employees’ teams were given better training, functional divisions were formed, and product based & geographic divisional structure was introduced.

 

Advantages of Starbucks Organizational Structure

The matrix structure followed by Starbucks has advantages of all other organizational structures that come under it. First, the geographic divisions make it possible for the firm to meet the specialized needs of different customers in different countries.

For example, people in some countries like strong coffee while those in other countries like the lighter version. Secondly, team working makes employees motivated and more productive as they get a sense of ownership and belonging. Third, the product-based division makes it possible for each division to focus on their product and work on their development and innovation.

The functional divisions make the working smoother, faster and reliable, as specialists people are doing the jobs, and the chances of them making errors are minimal. Finally, the matrix structure allows the firm to utilize its human resources efficiently by hiring them for more than one tasks.

 

 

Disadvantages of Starbucks Organizational Structure

Just like the advantages, the matrix structure of Starbucks also accumulates the disadvantages of all other organizational structures under it. First, the matrix structure creates a situation where an employee has to answer to two bosses at the same time, functional and geographic heads here.

This duplication of authority can be harmful and confusing for employees.  As they have to decide about whose orders to follow and whose work should be given priority. The functional structure means each department is working for a different function.

A lack of co-ordination amongst them can be harmful to the firm as one would not know what the other is up to and what the other needs.

 

The Leadership Threat

The geographic divisional structure can make the heads in divisions so powerful that they might start making big decisions according to their will. They might start threatening the central control too, if there exists a conflict between the divisions and central control.

Moreover, the team structure might create unhealthy competition amongst firms. The teams might want other teams to do bad instead of doing better themselves. The competition amongst teams is beneficial for the firm till it is healthy, but after that, it can prove to be detrimental for the firm.

matrix-structure

Matrix Structure: Examples, Definition, Advantages and Disadvantages

What is a matrix organization? An organization will be known as matrix organization when it follows the matrix structure.

During a project, an organization usually follows the matrix structure. In a matrix structure, the employees report to two different managers at one time. One of the bosses is the manager who has authority due to vertical hierarchy. The second boss is the one who gets the authority due to flat hierarchy.

Due to this divided flow of horizontal and vertical authority, this type of organization is said to have a ‘matrix’ structure. The matrix organizational structure is a mix of two other organizational structures, the project system, and the functional system.

The matrix structure cancels out the extremes of the two structures to balance them somewhere in between. For example, if you are a software engineer at a firm and that firm receives a project that requires a software engineer, so they hire you instead of a new candidate.

Now, you will be reporting to your primary boss as well as the new project manager. On the other hand, if the firm transfers you to the project permanently, you will not be reporting to two managers.

 

The Matrix Structure: An overview

matrix-organizational-structure

The figure above displays the fundamentals of a matrix organizational structure.

The manufacturing manager, sales manager, finance manager and human resource manager are under the top management in the vertical hierarchy. Moreover, the manufacturing unit, the sales unit, finance unit and human resource unit work under each manager, respectively.

On the other hand, you can also see that each of these units is also receiving horizontal orders. The horizontal orders will be from the manager of project A, manager project B and manager project C.

Each project has a manufacturing unit, sales unit, the finance unit, and human resource unit. Unlike the vertical managers who have a single type of units working under them. The scenario will be; manufacturing unit working under the manufacturing manager, sales unit working under the sales manager, finance unit working under the finance manager and human resource unit working under the human resource manager.

This is an ideal example of a matrix structure where authority is flowing vertically as well as horizontally.

 

Advantages of a matrix structure

A matrix structure has its pros and cons.

Fewer people, more work

Following the matrix structure, the employees are given more tasks instead of hiring new people. The company can use the existing workforce to get tasks done. This way, people can move freely and can do the work more efficiently as there are lesser distractions.

Giving new additional jobs to existing employees is also beneficial in a way that they already know the workplace and everyone there knows them too. There is no need for orientations, inductive training, and similar activities.

Existing employees are also more trustworthy. Moreover, when the project is complete, no need of laying off; everyone will go back to their primary jobs without causing any disturbance.

 

Choose from experts

Following the matrix organizational structure, allows you to choose people for a project from within the organization. You can choose the best people there are in each department.

For example, you can choose the best software engineer from the software engineering department, you can choose the best finance employee from the finance department and you can choose the best salesperson from the sales department. This way, you can get the best team for your project from within the organization.

These people are familiar with the organizational culture and know how things work around here.

 

The efficient flow of information

When information flows vertically as well as horizontally in a matrix structure, it is much efficient. The vertical flow provides information to follow from project to project while the horizontal flow provides information to go from functional units to functional units.

 

Disadvantages of matrix structure

Manager vs Manager

Functional managers and project managers may have grudges against each other. This may cause harm to the organization and the employees working for them. For example, one manager may deliberately keep an employee busy in unimportant work to prevent him from working for the other manager.

Managers might also keep dumping more and more work on the employees. This happens mostly in law firms where associates are working for several partners.

The junior lawyers have to do whatever any partner tells them to do.

 

Too complex a system

Several people working for several people and answerable to several people for several jobs. Too complicated! Controlling and monitoring such a system can get an irksome job.

Moreover, chances of faults, misplacements, and accidents increase too when the system is so widespread and complex. When a structure has a two-way flow, an important decision might get delayed too.

The delay can be due to the fear that any wrong decision can distort the entire system.

 

One man, two jobs

In a matrix organizational structure, when employees are doing multiple jobs, organizations can become more dependent on them and they get the liberty to perform badly, take days off and even ask for increased pay. Moreover, due to the absence or departure of one employee due to any reason, more than one job will be affected which will, in turn, affect more than one system.

 

Too much authority

Matrix structure becomes too autocratic when it comes to the number of managers. The current era favors democratic culture more than the autocratic culture and when there are many managers ordering their own work on employees, motivation level would fall drastically. Although authority is compulsory, too much of it is undesirable and can adversely affect the employees as well as the system.

People are becoming more and more aware of the motivational phenomena lately and managers are becoming ever more careful, so they tend not to be too harsh on employees. Moreover, the modern era and advantages of technology make it possible to process and deliver tons of data/information in a matter of seconds.

The complexity of the system is not quite under question. So, matrix organizational structure can be extremely fruitful if pursued with special care and when the managers put in their best to not act as bosses, but as leaders.

 

importance-of-teamwork-in-the-workplace

Importance of Teamwork in the Workplace

We all love Hollywood and we watch movies every now and then, but some movies leave an imperishable impression on our minds by teaching us a worthy lesson. One such movie that outperformed many others in relaying the importance of teamwork and the true value of leadership, in my experience, was none other than 300.

King Leonidas led 300 Spartans against a million Persians for days because they were strong, well-trained and powerful. Have they be able to achieve what they achieved in those days if they became myriads of a strength of their own and walked an individual path! The movie showed that they were destined to unite and work in coherence to take down the enemy. But, here’s the thing, if you see the combat mode of the 300 Spartan in the movie, you will realize that they attack the enemy in successions.

And that’s what made them increasingly powerful and strong, so strong that none could ever pierce through their shields of Sparta and break their ranks down!   

But we often ponder at the very thought on what made these Spartans so confident and brutal? Although these men were highly trained to go into battle, one lesson they were strongly educated upon was teamwork can help them overthrow any obstacle that comes into their path.  

 

 

Great Benefits of Teamwork That Create Powerful Teams

Don’t we all just want to be like Leonidas at our workplace? Don’t you want to lead a team that trusts each other and has faith among themselves so strong that they could achieve anything?

Here are some life-changing lessons that can help you understand what competent teams do differently and win like Spartans every now and then.

 

Strong Teams Don’t Panic

When things aren’t working your way, all you have to do is accept the fact that this is not meant to be your day. Maybe, your agitation can lead your team astray and make them more frustrated than you already are. If the tides are against you, set the sails in the direction of the wind, let your boat sway in the midst of the ocean.

Have you ever seen pirates trapped in sea storms in the oceans, they are always cackling their breath away by challenging the tides or whatever comes their way. It gives hope to the crew and gives them the confidence they need to battle the storm. Even if it’s the wrath of God, they just won’t sway.

If you ever see an uneasiness growing within your team, lighten the mood up by becoming proactive and reset them by taking them outside the work environments. Give them a chance to take a breather and then help them recompose themselves. You don’t want them to reach the level where they lose all their motivation, inspiration and focus.

Keep them calm and it will help them to anticipate the unexpected. Who knows maybe next time when they find themselves in a pickle, they just might find a way out of it.  

 

Strong Teams Always Move Forward

Competitive corporate environments are political and toxic. If you let your teammates put their guard down, they can easily fall victim to it. One thing you need to make sure of is that whatever happens, you make sure that your team always move forward. And, the only way of doing it is by educating them to cancel out the external noise and keep their head in the game.

Teams that are proficient in performance are extremely elastic and are all prepped up for any sudden change in the processes. They do not allow changes to disrupt their mental mindset; in fact, they keep it away from their focus set towards execution.

Strong leaders know everything about their team and they value it. Therefore, they make sure that their individuals spend more time in doing what they do best. It empowers the team to unleash a passion pursuit which is more likely inclined at delivering results by overcoming every adversity.

 

Strong Teams Trust Each Other

If your teammates value what every member brings to the table, it shows that they have faith in each other. It is a value proposition that don’t come easy as more employees are yet, figureless to reach a conclusion as per where they belong to. However, teams which are based on trust always watch each other’s back.


Some of the best selling authors including Patrick Lencioni connects trust with productive teamwork in his book, The 5 Dysfunctions of a Team. But, he is not the only that has brewed that connection… Stephen R. Covey of the 7 Habits of Highly Effective People introduced another perception by linking trust to credibility in his book The Speed of Trust. Also, Yoram Solomon, in his book Un-kill Creativity links team creativity to trust and respect.

Great teams hold a sense of humility for each other and their team success highly depends on how they endorse their support for one another. It’s what makes them so special, after all!

 

Strong Teams Adjust to Each Other’s Strength

If you spend more time with your family, you realize that they have certain flaws and certain strengths. How do you make things work when you find yourself in a real-life adversity, you allow them to move on their own so they can put their strengths to test? It’s pretty much how everywhere works! Whether you are in a corporate environment or a personal one, you can only become a great team if your teammates recognize the strengths of each other and let them play along on their own accord.

Your end-goal is to achieve the conclusion successfully and generate a productive outcome. And for that, you need to keep every member aligned to the strength of the other. One of the best traits about a strong leader is that it builds the foundation of its team on members who recognize the strength of each other. It’s one of the reasons why you often find some team members always changing the course of their activities in order to gain the best resulting outcome of a situation. It’s how they have fine-tuned themselves to be.

If you want your executions to be flawless and if you want them to result in creating results that far outweigh any competitors within your corporate block, it’s time you build a team that gets the world talking. Always remember, great teams are a by-product of a great leader; Leaders such as the Leonidas, Alexander the Great, Marcus Aurelius Maximus, Julius Caesar and Prophet Muhammad.

So that’s all folks, I hope you enjoyed this read. It is time we move on to the next; stay tuned for more.

network-organizational-structure

Network Organizational Structure: Examples, Definition, Advantages & Disadvantages

A network structure is the one in which more than one organization combine to produce a good or provide a service.

These organizations can either get into a partnership for a particular venture, or one organization can hire others to handle one or more of its functions (outsourcing), for example, marketing, production, sales and so on.

Outsourcing is done by organizations pursuing network structure.

We also covered Functional Organizational Structure or Divisional Organizational Structure. if you’re interested to read about different types of organizational structures.

 

Network Organizational Structure Examples

An organization that has been using network structure is H&M (Hennes & Mauritz), a very popular brand that has followers world over.  H&M has outsourced the production and processing of their goods to different countries majorly Asian and South East Asian countries.


The figure above explains the fundamentals of a network organizational structure. In the middle, there is a blue circle with ‘core company’ written on it. A core company is a company that outsources or initiates the partnership in a network.

H&M is the core company in its case. As it can be seen, the core company distributes its functions to different companies which, in this case, are present in different countries: product development company in Australia, Call center company in New Zealand, the Accounting company in Australia, Distribution company in Singapore and Manufacturing company in Malaysia.

However, it is not at all binding to outsource work in different countries; companies do this usually to reduce costs. For example, to benefit from the cheap labor in China, companies move their production there.

Managers in the network structure play a vital role. They control the internal as well as external relationships. The network structure is less hierarchical; it is flatter because many layers of management are cut from between and their functions are passed on to other organizations.

This flat nature of network structure makes its span of control wider, leading to a possibility of a bottom to up communication. A network structure has its pros and cons.

 

Benefits of Network Structure

 

Clearer Focus

If a firm lets go all other functions except its own core competency, it can have a clearer focus on what it does the best. A network organizational structure allows doing so.

For example, if a firm specializes in clothes’ designing, it will not go in a hassle of manufacturing the fabric or stitching the clothes; it would just design clothes.

Chances of overall firm’s success are greater if the firm can utilize most or all of its time in doing what it does the best.

 

Lower Costs

Setting up a department and running it is much more expensive than outsourcing that function. Moreover, when a firm is setting up a functional department, there might also be many sunk costs which are not recovered.

Using network organizational structure, work can be outsourced to other firms which specialize in that particular work. This way, the firm will not only face lower costs but will also receive a better quality service than if it had done it itself.

 

Flexibility

Flexibility is one of the main reasons why firms pursue network organizational structure in the first place. By outsourcing work, an organization is in a flexible position. This allows them to change its production techniques, quantity, products’ designs or stop the production completely without facing any major problems.

On the other hand, if the firm owns all of the departments, it would be extremely difficult for it to change things. Changing things around will not only be costly but will create a hassle all around the organization.

Firms being responsive to changes in demand is also beneficial for customers. As they get what they want in a short span. Moreover, even the firm that performs a particular job for other firms will not be taking from their earnings. They will be getting work from other firms as well. So, it is a win-win situation for all.

 

 

Drawbacks of Network Structure

 

Control and Reliability

When a firm indulges in a network structure, it gets more spread out. As the network of an organization grows, it gets more and more difficult to control such a widespread network.

On top of that, some of the firm’s partners may be in other countries. This makes it more difficult to communicate and deliver things around. Moreover, some of the firms that delegate work, might not be reliable enough.

This delays in meeting the deadlines and commitments, so the entire system would suffer due to them.

 

Lack of secrecy

While pursuing a network organizational structure, when you outsource some work to another firm, that firm may also be doing work for your competitors. Your firm’s secret information may get leaked to your competitors by the firm working for you.

The reasons for information leaking might vary and can be bribed for information, leakage by accident, speculating about the work happening in the firm that’s working for you and so on.

 

Loss of control

When you outsource important work to external firms, you lose significant control over your operations. This way, you get dependent on the outside entities who can have a significant power over you, instead.

They can lag behind in work, stop meeting deadlines, start getting slow deliberately and deteriorate the quality. There can also arise a conflict of interest amongst internal and external entities. It is important to understand the entire process of conflict, and this conflict can hinder the system.

 

Sacrificing of profit

When you outsource work, you might also be sacrificing profit that you could have earned by yourself if you had done that outsourced work yourself. For example, if you manufacture your goods yourself instead of buying it from outside, there might be an increase in the potential profits of your firm.

The cost of outsourcing itself can be higher than if you do that work yourself.

 

Is a Network Structure Work It?

Network structure has its pros and cons, but weighing them, we can get on a stance that the benefits. This can help in outweighing the drawbacks and network structure. Firstly, if a firm can keep control over other firms that are being given the work responsibility.

Secondly, an agreement signing should take place so as to prevent a leak of any personal information. Moreover, it should be made sure that buying from outside, or outsourcing work is cheaper than doing that work yourself.

Work distribution takes place if the conditions are met.

horizontal-integration-examples

Horizontal Integration Examples to Help Drive Business Efficiencies

We’re going to illustrate some horizontal integration examples to help you understand why it is used, and how it helps business to win against competing companies.

In a nutshell, horizontal integration refers to the acquisition of a company operating at the same level of the value chain. The acquired business can belong to either a similar industry or different one. Unlike in the case of vertical integration, whereby a company either expands upstream or downstream.

A few horizontal integration examples will enable us to clarify what it means in a better way. You can refer to some below, in this post.

 

Why is Horizontal Integration Used?

A horizontal integration is a business growth strategy (or a competitive strategy) that could be implemented for a number of reasons varying from:

  1. Diversification and pursuit of increased product offerings, increasing product differentiation
  2. Achieving economies of scale
  3. Trying to curb down the competition
  4. Gaining market power over suppliers and distributors
  5. Pursuing new markets through market development
  6. Expanding customer base

Horizontal integration thus helps create a competitive advantage over other players in the market. With the help of horizontal mergers, a small group of companies can gain a collective market share thereby creating an oligopoly.

Likewise, if the company is able to gain dominant market share then it can turn in to a monopoly.

 

Examples of Horizontal Integration

  1. Facebook acquiring Instagram: Facebook acquired Instagram in 2012 for $1 billion. Instagram is a photo sharing platform that uses 11 filters, before the acquisition it didn’t have any monetizing strategy, yet had a lot of potential. Both Facebook and Instagram have been known to belong to the same social media industry and had been in similar production stages. For Facebook, this acquisition meant gaining more market share and thus being able to strengthen its positioning in the social sharing space. Eventually, the opportunity also helped access new audience for Facebook and reduce competition thus resulting in higher synergy.
  1. Walt Disney acquiring Pixar Animation Studios: The Walt Disney Company acquired Pixar Animation Studios in 2006 for $7.4 billion. Before this acquisition, Walt Disney that started off as an animation studio had been facing creative stagnation and market saturation. Pixar which had contemporary technology when it comes of digitally animated movies appeared more innovative and also the right company to acquire knowing that it was in the same animation space and the right fit for horizontal integration. This deal led to an increased market share and amplified profits.
  1. Marriott International acquiring Starwood Hotels: In 2015, Marriott International acquired Starwood Hotels for a whopping $13.6 billion thus being able to create the world’s largest hotel chain. This helped the hotel chain gain a strong hold for market share in the international market.
  1. Exxon acquiring Mobil in 1998: In 1998, the two major oil companies merged and it turned out to be the biggest merger in corporate history. Exxon bought Mobil for $73.7 billion thus being able to have complete access to Mobil’s gas stations and reserves. This enabled operational efficiency and now ExxonMobil is the biggest oil company in the world and also the 10th largest in terms of revenue.

 

Advantages of Horizontal Integration

  1. As a result of a horizontal merger, the number of companies in an industry is reduced which mean less competition to deal with and utilizing time to focus on core competencies and enhancing operational or production efficiency. The company can then offer the customer a cost-effective product.
  2. It also enables economies of scale as a result of the reduction in per unit cost of production and there can be an increase in bargaining power as well as far as suppliers are concerned. This is made possible because of the resultant huge size and impact of the company resulting from the merger.
  3. Managing the target company becomes convenient for the top management because of it being in the same business rather than being a new business category altogether.

 

Disadvantages of Horizontal Integration

  1. The customers could be at the losing end if the company as a result of this kind of merger utilizes its monopoly power to keep demand for its products inelastic. This could also turn out to be a means of customer exploitation.
  2. The deal could later pave the way for a lack of corporate synergy between the parent company and that acquired hence the anticipated gain may fail to get materialized. Management restructuring could also backfire leading to a major HR issue within the company.
  3. This may also lead to a reduction of the firm’s overall value, meanwhile, it is implied that the firm would focus its entire attention on the integration including costs and manpower. If the technology becomes obsolete or futile because of the change in government policy then the firm would be at the losing end despite all the effort put in.

 

 

 

divisional-structure

Divisional Structure: Examples, Advantages & Disadvantages

The literal meaning of division is ‘an action performed to separate certain things into a number of parts’. We often see organizations divided into several groups on different grounds such as regional, product or service. Any organization that divides its employees and other resources into different groups based on regional and product differences, such that each group is responsible and answerable for its own actions, has a divisional structure.

For example, the electronics department of Samsung is completely responsible for its own actions. The smartphones department is responsible for its own actions. Moreover, a firm’s city division might be completely independent of its other city’s division. Each division would have its own advertising, sales, production, clerical, accounting, and development staff. The divisional structure tends to ease the tasks of each level of management. It becomes easier for them to evaluate staff and divisional performances and base their compensations on their success rate.

The picture above shows the model of a firm which is in the divisional structure. Its division is on the grounds of the type of product that is, consumer products, industrial products, and healthcare products. As it can clearly be seen, each division has its own marketing director, operations director, and finance director. None of the managerial staff is common among any divisions. Apart from the staff, each department has its own machinery, finance and all other resources required to run the process smoothly. A real-life example of the divisional structure is PepsiCo’s structure. There are several global divisions including North America Beverages (NAB), Frito-Lay North America (FLNA), Quaker Foods North America, Latin America, Europe Sub-Saharan Africa (ESSA) and Asia, Middle East & North Africa (AMENA). (“Global Divisions- PepsiCo”, 2018)

Advantages of Divisional Structure

Accountability

The divisional organizational structure allows each division of a firm to be accounted for in isolation. It can easily be seen which department is successful in making profits while which are bearing losses. Loss bearing divisions can be shut down completely while more investments can be made in profit earning divisions. This analysis is not possible when a firm is working in any other structures such as functional structures.

Team working

The divisional organizational structure allows people in a single division to interact with each other. When all of them are working towards a single goal, the success of their division, the motivation is higher than ever. The communication is much efficient, and everyone knows what the other person needs from them. For example, a finance department would know how much money is needed for a division’s research and development.

Responsiveness to external changes

When in a divisional organizational structure, a division focuses just on its own product, service or region. This helps them focus better on external factors that can affect their operations. Divisions become quicker in responding to external changes such as weather change, natural disasters, financial crisis, trade union matters and so on.

Organizational culture

Organizational culture is the values and the practices that persist in an organization. The divisional structure allows this type of culture to persist in a division. The organizational culture can help people interact better with each other. It also helps create bonds between them. A better understanding of each other helps in achieving the pre-set goals and targets, no matter how difficult they are.

Leadership

In the divisional structure, each division has its own leader. The leader sets goals along with his/her employees and works alongside them to achieve those goals. The direct control from the top leadership of the firm is no longer a necessity. The upper leadership can indulge in strategic decisions. Divisional leaders also become experts in their areas of work and work very efficiently.

Disadvantages of divisional structure

Small organizations

Divisional structure is not a possibility in small organizations. The organization may produce a variety of goods and services, and they might be operating in several regions, but they still do not have the resources to run so many different divisions and have the employees of same level in each division. This also causes duplication of work. All of this would increase the organization’s costs, and if the organization is small, it will not be able to bear the high costs and may go out of business.

Competition: healthy or not?

Competition is good until it becomes cruel. Healthy competition among divisions is good and bears good fruit for the entire organization, but when the competition becomes so severe that division heads start holding grudges against each other, it can be extremely harmful for the organization as a whole. Divisions would want other divisions to perform badly, instead of performing better themselves, in order to get past them and get the reward. The employees think themselves as a part of a certain division, but they forget that they are still a part of a much bigger organization.

Related products

Organizations producing products that are relation with each other might find it difficult to integrate divisions producing those complementary (related) products. For example, a smart phone manufacturer that also manufactures accessories for smartphones might find it difficult for their mobile phones and accessories divisions to stay on the same ground and integrate on their future prospects. As a result, organizations may bear heavy losses if the products in relation to each other are not effectively syncing.

Lack of communication amongst divisions

When divisions would not communicate amongst each other, they would not know each other’s objectives and goals. This lack of knowledge might hamper the organization in the form of extra taxes, fines, lack of finance available because a division might have spent extra on CSR (corporate social responsibility) and so on.

Economies of scale

Economies of scale are the cost savings when an organization produces goods or services in a large quantity. Divisional structure prevents organizations from getting the most out of economies of scale. As a single division does not produce enough to take great benefits out of the economies of scale.

Now that we have seen the advantages and disadvantages of the divisional structure, it is time that we evaluate whether to use it or not. A divisional structure can be extremely efficient and successful if practiced in a large organization. The communication barriers amongst divisions are low or non-existent and the need to react to external environment changes is high.

functional-organizational-structure

Functional Organizational Structure: The nitty gritty you need to know!

Organizations formulate your role! The kind of structure of an organization that you are working with determines whether your role as an employee is dynamic or static (like in a functional organizational structure). A general opinion that exists is that people working in a functional organization have static roles.

Therefore a very safe assumption is that the kind of career growth that you may see and the style of your work is highly dependent on the kind of structure in the organization you are working with.

The strength and the talent pool of the human resource of any company is the key performance indicator for any organization and therefore management strives to strategize their policies and framework to maximize the productivity and proficiency of their employees.

 

Different types of organizational structure

There are basically four types of organizational structure, though these categories have also been subdivided into a variety of subtypes for organizational structures. The basic types of structures are:

Functional Organizational Structure:

In this organizational structure, the employees are divided based on their specialties. There is hardly any interaction between each department. All departments are responsible for their own functioning and management of resources.

Divisional Structure:

The divisional organizational structure has employees where the division is according to projects or product categories. This way there may be a number of brands working under a single parent company.

Matrix Structure:

One of the most flexible forms of organizational structure, the Matrix form of organization has multiple reporting lines. An employee is responsible for reporting to his immediate manager and at the same time he might also be reporting to a project manager for a certain task.

Flat-archy Structure:

This structure of an organization is most commonly found in smaller organizations usually startups. The structure has open communication between the senior employees and the junior employees. This allows for a better and healthier albeit informal relationships between the management and the employees.

 

What is a Functional organizational structure?

The basis of organizational structure for any company is to understand the lines of reporting and specify lines of communication so that there are no problems. It defines who reports to whom and thus eradicate all possibilities of confusions. A functional organization is one of the most common types of organizational structure.

In a functional organizational structure, the organizations the division is according to their fields or specialties. A Functional organization is likely to have departments like, IT, Finance, Marketing, Human resource, Production, and Procurement.

Each of the departments has employees that have been hired on the basis of their skills sets and qualifications that is in accordance with the departmental requirements. There are managers in each department and each employee reports to his manager.

 

Pros and Cons of Functional Organizational Structure

Like everything, there are advantages and disadvantages of the Functional Organizational Structure.

Advantages of Functional Organizational Structure

  • The employees are made into groups according to their skills, and thus the overall effectiveness and efficiency of the tasks increase.
  • There is easy accountability for each employee and thus employees get their reward through a fair and just practice.
  • The hierarchy is out in the open, there is no surpassing of authority as employees report according to their line of communication.
  • The job roles distribution is according to a different field of study and therefore there is no replication of responsibilities or duplication of efforts from the employees.
  • Every employee performs according to their job role. This creates a sense of job security which allows employees to work in a more productive way.
  • Communication is two way within each department which allows for a friendly environment within each department.

Disadvantages of a Functional Organizational Structure

  • In the long term, employees tend to feel bored and the monotony of the job can be off-putting. This decreases the overall efficiency of the employee.
  • The inter-department communication is very poor this creates an overall lack of growth as an organization.
  • The functional structure is bureaucratic in nature and this leads to rigidity and inflexibility to changes. This may overall demoralize the organization.
  • The growth of an employee has a limitation. After acquiring skills and specialization in their field of work, there comes a certain point when there is no possibility of further job improvement. It is then the employee becomes expensive for the organization and they usually leave.

 

Strengths and Weaknesses of a Functional  Organizational Structure

The functional organizational structure has its own strengths and weaknesses that it provides the organization with. When an organization is able to analyze the strengths and weaknesses of the various structures they can utilize it for improving their company. This analysis allows them to use it to their advantage and make it profitable. In case of weaknesses, these weaknesses can be taken control of to ensure that their effects are mitigated and counter-effective techniques made so as to minimize the negative impact.

Strengths of Functional Organizations

  • Employees usually have specialization and this gives the company an edge over other companies. Using the specialized skills the companies can create their own USP and rule their particular industry.
  • The functional structure allows productivity enhancement as each department is responsible for their own results and this allows better and superior performance.

Weaknesses of Functional Organizations

  • Employees feel that they do not have the perfect grounds for growth and career switch is the only option for further growth. In this case, the company loses talent at higher levels, as people move on to better opportunities.
  • The decision-making process is very slow as the organization tends to have departments. It takes time for the decisions to reach higher levels of management. The delay in the process can be quite painstaking considering the current the trends in the business world.
vertical-integration-examples

Vertical Integration Examples that Show How the Consumer World is Evolving

Vertical integration refers to the business strategy where the company acquires or merges with other companies at different stages of production or distribution channel in the same industry. In other words, it acquires business operations within the same production vertical. This could be forward or backward in nature.

It is the merging together of two businesses that may be at different stages of production, for instance, an oil exploration company and a retail chain of gas stations.

In a three-tier model, it refers to the manufacturer, wholesaler, and retailer. A company that acquires or expands into a manufacturing facility is called to have integrated backward whereas; one that expands forward, thus establishing its presence into distribution is known to have conducted forward integration.

The most popular and relevant examples are from the oil industry dating back to the 70s and 80s when many of the oil exploration companies that dealt with the extraction of crude petroleum started acquiring downstream refineries and distribution networks. This meant being in complete control of bringing oil from Alaska or North Sea all the way to the vehicle’s fuel tank.

 

Best Vertical Integration Examples

A vertical integration is a type of growth strategy for businesses. Here are some of the best examples of vertically integrated firms are:

 

1. Apple:

Apple uses an integration software and hardware approach and has excelled the vertical integration model over the years. The company designs the hardware and software of both the iPhone and the iPad including the device processors.

Eventually, mobile computing continues being streamlined through various competencies being employed in areas of procurement, manufacturing, and supply chain.

 

 

2. Dell Computers:

The idea was taken a notch ahead in the 90s when Michael Dell, the founder of Dell Computers coined and implemented the term ‘virtual integration’ using the concept of technology and vertical integration.

He combined the characteristics of the virtual organization with the traditional vertical integration of the supply chain in doing so. It started assembling computers using parts acquired from other firms and maintained a relationship with firms through exchanges of information which Dell described as a ‘tightly coordinated supply chain’.

Thus, it went beyond the traditional sense of links established between the buyer and supplier.

 

3. Carnegie Steel:

This has been another example of vertical integration of the 19th century. It controlled the manufacturing end for steel factories and owned mines that extracted iron ore and coal from mines other than the railroads that managed distribution all the way to the factories.

Furthermore, it also owned the ships that transported iron ore as well as the mills that produced steel. The company was renowned to be a very efficient entity.

 

Advantages of Vertical Integration

Vertical integration leads to several advantages such as:

  1. It creates avenues for economies of scale by reducing the production cost,
  2. The access to inputs can be controlled other than quality,
  3. Times of delivery of the raw material can be managed well and with absolute accuracy, leading to well-timed stock turnover rates,
  4. The after sales service and distribution channels can be made for an efficient creating room for achieving excellence in facilitating great customer service,
  5. Having less competition through increasing barriers to entry for new entrants by being able to control cost as a result of reducing it because of a total control on suppliers and distributors,
  6. Profit repatriation and crowdsourcing in various business operations to leverage what can be referred to as ‘question marks’ in the Boston Matrix for instance.

 

Disadvantages of Vertical Integration

At the same time, there could be several disadvantages too of vertical integration:

  1. Flexibility could be greatly reduced by business ventures previously involved in downstream or upstream investments,
  2. Product variety could become stagnant in case of significant development being needed within the company,
  3. Monopoly power through market entry barriers that could lead to a slack in product quality as a result of limited or no competitors as all thereby significantly resulting in anti-trust as well,
  4. Inelastic demand for products that could make consumers pay high prices.

 

 

Vertical integration implies that a particular company controls the component parts as well as the finished good. However, market conditions and the economy also determine whether it would be beneficial or not or even beneficial in the long run for which extrapolation must be done.