1. Different kind of organizational structures & the advantage of Matrix
Structure for an MNC
Different Types of Organizational Structure
Organizations are set up in specific ways to accomplish different goals, and the structure
of an organization can help or hinder its progress toward accomplishing these goals.
Organizations large and small can achieve higher sales and other profit by properly
matching their needs with the structure they use to operate. There are three main types of
organizational structure: functional, divisional and matrix structure.
Functional Structure
Functional structure is set up so that each portion of the organization is grouped according to its
purpose. In this type of organization, for example, there may be a marketing department, a sales
department and a production department. The functional structure works very well for small
businesses in which each department can rely on the talent and knowledge of its workers and
support itself. However, one of the drawbacks to a functional structure is that the coordination
and communication between departments can be restricted by the organizational boundaries of
having the various departments working separately.
Divisional Structure
Divisional structure typically is used in larger companies that operate in a wide geographic area
or that have separate smaller organizations within the umbrella group to cover different types of
products or market areas. For example, the now-defunct Tecumseh Products Company was
organized divisionally--with a small engine division, a compressor division, a parts division and
divisions for each geographic area to handle specific needs. The benefit of this structure is that its
needs can be met more rapidly and more specifically; however, communication is inhibited
because employees in different divisions are not working together. Divisional structure is costly
because of its size and scope. Small businesses can use a divisional structure on a smaller scale,
having different offices in different parts of the city, for example, or assigning different sales
teams to handle different geographic areas.
Matrix
The third main type of organizational structure, called the matrix structure, is a hybrid of
divisional and functional structure. Typically used in large multinational companies, the matrix
structure allows for the benefits of functional and divisional structures to exist in one
organization. This can create power struggles because most areas of the company will have a dual
management--a functional manager and a product or divisional manager working at the same
level and covering some of the same managerial territory.
Matrix management structures combine functional and product departmentalization. They
simultaneously organize part of a company along product or project lines and part of it around
functional lines to get the advantages of both. For example, a diagram of a matrix model might
show divisions, such as different product groups, along the top of a table. Along the left side of

2. the same table would be different functional departments, such as finance, marketing, and
production. Within the matrix, each of the product groups would intersect with each of the
functional groups, signifying a direct relationship between product teams and administrative
divisions. In other words, each team of people assigned to manage a product group might have an
individual(s) who also belonged to each of the functional departments, and vice-versa.
Managers of project groups and managers of functional groups have roughly equal authority
within the company. As indicated by the matrix, many employees report to at least two managers.
For instance, a member of the accounting department might be assigned to work with the
consumer products division, and would report to managers of both departments. Generally,
however, managers of functional areas and divisions report to a single authority, such as a
president or vice president.
The cardinal advantage of a matrix structure is that it facilitates rapid response to change in two
or more environments. For instance, a telecommunications company might be extremely
concerned about both unforeseen geographic opportunities and limited capital. By
departmentalizing its company with the financial function on one axis and the geographic areas
on the other, it might benefit from having each of its geographic units intertwined with its finance
department. For example, suppose that an opportunity to purchase the cellular telephone rights for
a specific area arose. The matrix structure would allow the company to quickly determine if it had
the capital necessary to purchase the license and develop the area, or if it should take advantage
of an opportunity in another region.
Matrix structures are flatter and more responsive than other types of structures because they
permit more efficient exchanges of information. Because people from different departments are
cooperating so closely, they are eager to share data that will help them achieve common goals. In
effect, the entire organization becomes an information web; data is channeled both vertically and
horizontally as people exchange technical knowledge, marketing data, product ideas, financial
information to make decisions.
In addition to speed and flexibility, matrix organization may result in a more efficient use of
resources than other organic structures. This occurs because highly specialized employees and
equipment are shared by departments. For example, if the expertise of a computer programmer is
needed in another department, he or she can move to that department to solve its problems, rather
than languishing on tasks of low priority as might happen in a no matrix setting.
Other benefits of matrix management include improved motivation and more adept managers.
Improved motivation results from decision-making within groups becoming more democratic and
participatory because each member brings specialized knowledge to the tabled since employees
have a direct impact on day-to-day decisions, they are more likely to experience higher levels of
motivation and commitment to the goals of the departments to which they belong. More adept
management is the result of top decision makers becoming more involved in, and thus better
informed about, the day-to-day operations of the company.