Business organisational structure

Product organisational structure is a framework in which a business is organised in separate divisions, each focusing on a different product or service and functioning as an individual unit within the company.

What is a product-based structure?

In a product-based structure (also known as a divisional structure), you assign employees into self-contained divisions according to:

• the particular line of products or services they produce
• the customers they deal with
• the geographical area they serve

The structure may have several layers of managers and employees. Each layer (ie division) can have its own marketing team, its own sales team, and so on. A manager typically reports to the head of the company by product type. Certain key functions (eg finance or human resources) may be provided centrally.

For example, a computer software business may divide its structure according to its two distinct customer groups - home users and business users. In such an arrangement, all employees working on the development, sales or promotion of business software would be in one division, while everyone working on software for home users would be in another.

Product structure advantages and disadvantages

Product organisation may not suit everyone, but is likely to provide distinct advantages to those businesses that:

• have particular product lines that are substantially different
• require specialised expertise for production or distribution
• target a few major customers that make up most of your business

Product structure can also help your business:

• focus on specific market segments
• meet customer needs more effectively
• extend knowledge or expertise within specialised divisions
• respond to market changes more flexibly and quickly
• encourage positive competition between each department
• coordinate and measure the performance of each division directly

Product organisational structure does have certain disadvantages, including being difficult to scale and potentially:

• duplicating functions and resources, eg a different sales team for each division
• dispersing technical expertise across smaller units
• nurturing negative rivalries among divisions
• over-emphasising divisional, rather than organisational goals
• losing central control over each separate division

Product or divisional structure is mainly suitable for larger companies with two or more key product lines, strategic customers or markets.

For businesses operating in different markets or requiring distinct units, see also organisational structure by geographical area and decentralised organisational structure.