Corporate
structure
A company’s structure—the way in which it is organized—can have a major
impact on the way it performs. There are several models of corporate structure
typically used in the business world, and they continue to evolve. The first
consideration is whether power should be centralized at the top, with decision-
making in the hands of a few key senior employees, or decentralized, with more
power in the hands of staff, and with fewer people to go through for approval.
Choosing a structure
Most start-ups have a centralized structure. More complex structures either evolve or are designed
as the company grows, depending on the nature and size of the business, the complexity of the work,
any requirement for instant expertise, and the geographical location of parts of the business.
Good for strict
control and formal
relationships, as in
the military.
See pp.68–69.
Suits companies with
many global offices
or product lines.
See pp.70–71.
Good for large
corporations with
complex projects in
different locations.
See pp.76–77.
Power rests in the hands of a
few people, with a long chain
of command.
Power at the top
Rigid
Conventional
Inflexible
Slow response to change
CEO COOrdinatEs
CEO COOrdinatEs
and EaCh divisiOn
rEspOnsiblE fOr
gEnErating prOfit
divisiOnal and
funCtiOnal
managErs
COOrdinatE
Centralized
Functional
Divisional
Matrix
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HOW COMPANIES WORK
Corporate structure
78%
of groups reach
solutions to
simple tasks
faster in
centralized
structures
100%
of groups reach
solutions to
complex tasks
faster in
decentralized
structures
When change is needed
Signs that a structure is not working
include low morale and high staff
turnover, no new products being
developed, and profit suddenly
accelerating or decelerating. Tools
to amend poor structure include:
Business process reengineering
(BPR) Analyzing and redesigning
the workflow within a company.
Altering the reporting line
In a traditional solid-line reporting
relationship, one line manager
oversees goals and performance.
It can be beneficial to switch to
the weaker chain of a dotted-line
reporting relationship, in which
a manager sets some but not all
the objectives.
WARNING
Suits creative
and technology
companies in which
everyone is online.
See pp.72–73.
For companies that
rely on innovation
and are customer
focused. See
pp.74–75.
Power is spread through the company,
and staff make their own decisions.
Power shared
Organic
Experimental
Flexible
Fast response to change
CORE COMPANY
COLLABORATES
WITH VIRTUAL
COMMUNITY
STAFF SELF-
COORDINATE
Decentralized
Network Team-based
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HOW COMPANIES WORK
Corporate structure
78%
of groups reach
solutions to
simple tasks
faster in
centralized
structures
100%
of groups reach
solutions to
complex tasks
faster in
decentralized
structures
When change is needed
Signs that a structure is not working
include low morale and high staff
turnover, no new products being
developed, and profit suddenly
accelerating or decelerating. Tools
to amend poor structure include:
Business process reengineering
(BPR) Analyzing and redesigning
the workflow within a company.
Altering the reporting line
In a traditional solid-line reporting
relationship, one line manager
oversees goals and performance.
It can be beneficial to switch to
the weaker chain of a dotted-line
reporting relationship, in which
a manager sets some but not all
the objectives.
WARNING
Suits creative
and technology
companies in which
everyone is online.
See pp.72–73.
For companies that
rely on innovation
and are customer
focused. See
pp.74–75.
Power is spread through the company,
and staff make their own decisions.
Power shared
Organic
Experimental
Flexible
Fast response to change
CORE COMPANY
COLLABORATES
WITH VIRTUAL
COMMUNITY
STAFF SELF-
COORDINATE
Decentralized
Network Team-based
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How it works
The chain of command is straightforward. The
business typically consists of a chief executive
officer (CEO) or president at the top, with the
various specialist departments or divisions, such
as marketing and finance, aligned below.
Each department operates as an independent
unit, with its own budget, and reports directly to
the CEO, who takes responsibility for the operation
of all the departments. A functional structure is the
most common type of organization.
Functional structure
Typical departmental hierarchy
The departments operate independently, with the
managers reporting to the CEO or president, who has
overall command. The sales and marketing department
usually takes responsibility for managing product lines.
The classic way to organize a company is by dividing it into
departments that reflect the main functions of the business,
each headed by a director or manager.
Production/
operations
manager
Research and
development
manager
Finance
manager
PRODUCT A
Dangers of silo mentality
Silo mentality describes a scenario in which each
department has a different, closed view of its role within
the overall scheme and information does not get shared.
WARNING
2 for 1
1 Sales and marketing
decides to launch a special
online two-for-one offer.
2 Finance is not briefed and
processes the order for one
item only.
3 Operations is not briefed
and sends customers one item
instead of two.
4 Customer services is not
briefed and is unprepared for
calls from angry shoppers.
Deciding what to sell
The marketing department is closest to the
market and is best able to analyze which
product lines may do well. The sales and
marketing manager can suggest what new
products the company could make.
$
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FUNCTIONAL: PROS
AND CONS
41%
of UK companies
say the structure of
their organization is a
barrier to improving
customer experience
Pros
Allows for the development of
specialization and expertise
Enables efficient use of resources
and potential economies of scale
Offers obvious career path for
employees in each department
Simple, efficient structure for
manufacturers producing a
limited range of goods for sale
Cons
Formal lines of communication;
stifles innovation and creativity
Departments fail to coordinate
efficiently with one another
Response time on problems
and queries between different
departments slow
Many decisions referred up
to the top, creating a backlog
Line relationship Chain of
command down the structure
Reporting structure Who
reports to whom
Silo Pejorative term for a
department that works in
isolation: a vertical, closed
structure like a grain silo
NEED TO KNOW
Sales and
marketing
manager
Information
technology
manager
CEO
Human
resources
manager
Customer
services
manager
PRODUCT B
how companies work
Corporate structure
PRODUCT C
PRODUCT D
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FUNCTIONAL: PROS
AND CONS
41%
of UK companies
say the structure of
their organization is a
barrier to improving
customer experience
Pros
Allows for the development of
specialization and expertise
Enables efficient use of resources
and potential economies of scale
Offers obvious career path for
employees in each department
Simple, efficient structure for
manufacturers producing a
limited range of goods for sale
Cons
Formal lines of communication;
stifles innovation and creativity
Departments fail to coordinate
efficiently with one another
Response time on problems
and queries between different
departments slow
Many decisions referred up
to the top, creating a backlog
Line relationship Chain of
command down the structure
Reporting structure Who
reports to whom
Silo Pejorative term for a
department that works in
isolation: a vertical, closed
structure like a grain silo
NEED TO KNOW
Sales and
marketing
manager
Information
technology
manager
CEO
Human
resources
manager
Customer
services
manager
PRODUCT B
how companies work
Corporate structure
PRODUCT C
PRODUCT D
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How it works
Under the overall control of a CEO
or president, several divisions work
alongside one another to design,
research, produce, and sell a
particular product, or to service
a specific market. Each division
runs its own specialized functions,
such as operations and production,
sales and marketing, and finance.
A company may arrange its divisions
according to the types of product
it makes, the regions in which it
operates, or the customers to whom
it sells. Large companies may adopt
hybrid structures—by product and
geography, for example.
Divisional structure
Some companies arrange their staff into divisions devoted to a
specific product or market. Each division is a self-sufficient team
employing the personnel for the various functions within it.
DIVISIONAL: PROS
AND CONS
Pros
If one division fails, there is no
threat to the rest of the business
Can respond quickly to changes in
the market
Focused on customer needs
Performance of each division
clearly measurable
Cons
Duplicating resources—for
example, each division employing
finance personnel
Lack of expertise-sharing between
divisions
Career path for staff restricted
Heightened sense of competition
among divisions
Division by geography
For businesses with products that need to
be adapted to local markets, an organization
can be structured according to each of the
regional markets it serves. These may be
domestic or international. Print technology
and services company Xerox has successfully
adopted this structure (see case study, right).
Fast-Food
products
Burgers and fries
restaurant
supplies
Tableware
Beverages
Unbranded
drinks mixes
Division by product
Businesses selling different
types of products may pick
a structure by which each
division handles one category.
Fast-food chain McDonald’s
has been organized by
product division.
CEO
North America
The company’s
main market
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how companies work
Corporate structure
Printer technology and services
company Xerox has restructured
several times to align the business
with the main markets that buy its
products. In 1992, Xerox’s high-
profile change from a functional
to a new divisional structure, with
nine self-contained divisions each
serving a particular customer type,
hit the headlines. This also allowed
the company to focus on its core
business—digital publishing, color
copying, and printing.
Dividing the company by market
location is another strategy Xerox
has used successfully. In 2006, each
division was organized once again,
geographically, to ensure that those
making the decisions were closest
to the customers in each market.
CASE STUDY
7%
the increase in
Xerox’s share
value when
it announced
its move from
a functional
to a divisional
structure
in 1992
CONSUMER
Typically the
original market
BUSINESS
Products adapted or
favorably priced
INSTITUTIONAL
Large-scale provision
to a single client
Division by customer type
Businesses with distinct customer
markets may be organized by
customer division. For example,
the financial institution Bank of
America Merrill Lynch caters to
individuals, small businesses, and
corporate and institutional clients.
CEO
Europe
The second-largest
region for sales
Developing
markets
All other markets
Global services
Additional division
consulting across regions
CEO
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