Organization by product means structuring a workforce according to the goods or services sold. Each department focuses on a different product within the organization’s overall product portfolio. For example, a major publisher might organize its workers according to the types of books it publishes. For instance, Hodder Education, a large multinational publisher based in London, UK, organizes staff into different product groups, including international education (such as IGCSE and IB publications) as well as resources for UK qualifications (such as A Levels, BTEC and GCSE courses).

It is suitable for large organizations with a broad product portfolio. Large carmakers, such as Ford and Volkswagen, use organization by product based on their various products, e.g. commercial vans, family vehicles, SUVs (sport utility vehicle) and sports cars. Each product group or team has its own internal organizational structure, specifically related to the product line.

An example of organization by product for a large car manufacturer:

Organization by product enables specialisation as workers focus on a specific market segment related to the product. This helps to ensure the business meets the needs of its customers more effectively, such as improved product knowledge and marketing activities. It can also encourage healthy internal competition between departments to produce ever-more appealing products.

A drawback of organization by product is the duplication of work done by each department, such as different marketing and sales personnel in the various departments. Organization by product is associated with decentralized decision-making, so it can be difficult for the senior executives to maintain overall control of the various separate divisions of the business.

Organization by function means structuring a workforce according business functions, i.e. specialised roles or tasks. Typically, this will involve staff working together but from different departments, such as marketing, human resources, production (operations), and finance. Each department has a manager or director who is in charge of the assigned functional area of the business. Departmental staff report to the respective manager or director, who has overall responsibility for the functional area (a department or division of the overall business).

It is an ideal organizational structure for organizations that focus on one product or a small number of related goods or services.

The main advantage of organization by function is that roles and tasks are carried out by experts and specialists. Hence, productivity and output are both higher. However, departments tend to work in isolation by focusing only on their area of responsibility.

Organization by function:

Organization by region means structuring a workforce according to different geographical areas based on where the firm’s operations are. It is suitable for large businesses with operations in different geographical locations, such as global multinational companies. This form of organization enables businesses to focus better on the specific needs and wants of their customers in markets in indifferent geographical regions of the country or the world.

A real-world example is the International Baccalaureate Organization (IBO), which operates on a regional basis, with its founding office in Geneva, Switzerland and three regional offices: the Americas (IBA), Asia-Pacific (IBAP), and Africa, Europe and the Middle East (IBAEM).

It is likely to be used with other organizational structures, such as by function or product, but across multiple locations. The organization’s regional offices operates individually, within the policies and values of the business as a whole. Each location is overseen and managed by a regional director or executive.

This type of organization is suitable for large businesses that operate across the globe. Whilst most multinational companies have their headquarters in a single location, having regional offices helps the organization to adapt to regional differences in demand and exploit local knowledge, despite the benefits of globalization. However, the main drawback of organization by region is the difficulty in controlling a decentralised organization that operates across numerous regions of the country or the world.

The choice of organizational structure (such as centralized, decentralized, hierarchical or bureaucratic) depends on several factors, such as:

• The corporate culture – organizations such as Google rely on creativity and autonomy, so a flatter structure might be more suitable.

• The size of the workforce – the larger the number of workers in an organization, the more formal it needs to be in order to maintain order and control. Businesses with more employees, such as Walmart, usually require taller structures as more levels of managers are needed.

• The skills, qualifications, experiences, and talents of the workforce – organizations such as fast-food restaurant will have more formal structures and protocols, whereas organizations that rely on innovations, such as Apple or Tesla, will have more adaptive and flexible structures.

• The nature of the decisions (whether they are strategic or routine decisions).