The Organization Structure of a Multinational Company

By: Subha Varadan

Updated January 26, 2019

Types of Global Organizational Structure

Multinational companies are faced with two opposing forces when designing the structure
of their organization. They are faced with the need for differentiation that allows them to be
specialized and competitive in their local markets. They are also faced with the need to
integrate. The structures adopted therefore have to find a balance between these opposing
needs and also remain in strategic alignment for the company to thrive. Multinational
companies have therefore evolved many structural permutations to suit their business needs.

Subsidiary Model

Owning foreign subsidiaries is one of the most basic structural models of a multinational
company. The subsidiaries are self-contained units with their own operations, finance and
human resource functions. Thus the foreign subsidiaries are autonomous allowing them to
respond to local competitive conditions and develop locally responsive strategies. The
major disadvantage of this model however is the decentralization of strategic decisions that
makes it difficult for a unified approach to counter global competitive attacks.

Product Division

Organizational structure of the multinational company in this case is developed on the basis
of its product portfolio. Each product has its own division that is responsible for the
production, marketing, finance and the overall strategy of that particular product globally.
The product organizational structure allows the multinational company to weed out product
divisions that are not successful. The major disadvantage of this divisional structure is the
lack of integral networks that may increase duplication of efforts across countries.

Area Division

Organization using this model is again divisional in nature, and the divisions are based on
the geographical area. Each geographical region is responsible for all the products sold
within its region. Therefore all the functional units for that particular region namely finance,
operations and human resources are under the geographical region responsibility.This
structure allows the company to evaluate the geographical markets that are most profitable.
However communication problems, internal conflicts and duplication of costs remain an
issue.

Functional Structure

Functions such as finance, operations, marketing and human resources determine the
structure of the multinational company in this model. For example, all the production
personnel globally for a company work under the parameters set by the production
department. The advantage of using this structure is that there is greater specialization
within departments and more standardized processes across the global network. The
disadvantages include the lack of inter department communication and networking that
contributes to more rigidity within the organization.

Matrix Structure

Matrix organizational structure is an overlap between the functional and divisional

structures. The structure is characterized by dual reporting relationships in which employees
report both to the functional manager and the divisional manager. Work projects involve
cross-functional teams from multiple functions such as finance, operations and marketing.
The members of teams would report both to the project manager as well as their immediate
supervisors in finance, operations and marketing. The advantage of this structure is that
there is more cross-functional communication that facilitates innovation. The decisions are
also more localized. However there can more confusion and power plays because of the
dual line of command.

Transnational network

Evolution of the matrix structure has led to the transnational network. The emphasis is more
on horizontal communication. Information is now shared centrally using new technology
such as “enterprise resource planning (ERP)” systems. This structure is focused on
establishing “knowledge pools” and information networks that allow global integration as
well local responsiveness.

Functional Vs. Matrix Organization Structure

By: Liz Gold

Reviewed by: Jayne Thompson, LLB, LLM
Updated December 15, 2018

Organizational design provides a critical framework that determines how people, processes
and operations move through a company. Good organizational design helps support
efficiency and achieve business goals. Having a clear plan from the beginning as to how the
company will operate helps different departments come together and work toward a shared
goal. Two common types of organizational structures are functional and matrix.

What Is a Functional Organization?

Functional is the most common type of organizational design. In this type of structure, the
organization is grouped into departments where people with similar skills are kept together
in forms of groups, such as the sales department, marketing department and finance
department. This helps companies ensure that each group or department performs at its
peak.
There is usually a manager or a top-level executive managing a particular department,
handling all decisions related to budget, resources, decision-making and staffing. A
functional structure works best for those companies that operate in one location with a
single product category. It also works well for small teams and small projects because
resources can be more easily controlled and managed.

Are There Any Drawbacks?

Functional organizational design tends to be difficult to adopt by larger companies that have
many geographical locations because of expense and the difficulty of containing resources.
Work also takes place in a silo, which means that sometimes team members don't have
access to people outside of their division.

Some naysayers of functional organizational design say a big problem is incoherence. Most
functional teams are good at many things but great at nothing. These teams often struggle to
meet the needs and demands of their clients and managers, juggling an endless, and
sometimes conflicting list of demands from various departments. As a result, they find it
difficult to build the type of advantage or differentiation that is required for long-term
success.

How Do Matrix Organizations Work?

A combination of two or more types of organizational structures, the matrix organization

can help companies improve efficiency, readiness and market adaptation. This type of
structure works best for startups and other companies operating in a dynamic environment
since they often can respond faster to market or customer demand while decreasing the lead
time to create a new product.

The authority of a functional manager moves vertically downwards, and the authority of the
project manager moves sideways. Since these authorities flow downward and sideways, this
structure is called the matrix organization structure. A manager in a matrix organization has
two or more upward reporting lines to bosses who each represent a different business
dimension, such as product, region, customer, capability or function. It’s often a response to
corporate silos.

Skills are better utilized under a matrix structure, so companies can select the most capable
employees in order to deliver projects. In addition, matrix structures can serve global
customers by integrating business functions and responding to customer demands quickly.

Potential Downsides of Matrix Structures

Managing a matrix structure can be complicated and challenging. A common complaint

about this business model is that it increases upward reporting and slows decision making.
The opposite should be true in a well-functioning matrix because it pushes down operational
decision-making in a controlled way.

Furthermore, the blurred authority that characterizes this organizational structure may lead
to conflicts and slow things down. Managers at opposite ends of the matrix may find it
difficult to reach an agreement, creating confusion among employees. Additionally, the
workload tends to be high and the resources scarce.
Another drawback is that work responsibilities are not always clear. The sales manager, for
example, is often responsible for various operations, such as customer relations and digital
marketing. He may or may not be specialized in each area. Wearing multiple hats is
common in small companies, but it can affect day-to-day operations and overall
performance in larger organizations.

Business Division Structure

By: Chirantan Basu

Updated September 26, 2017

A division is a collection of functions, such as research and development, accounting,

marketing and customer support, working together to develop and sell a product or service.
The divisions in a company are headed by mid- to senior-level executives who report to
corporate-level vice presidents or directly to the chief executive officer. Divisional
structures can be based on product, geography and market.

Product

In the product structure, the divisions are organized by products. For example, a tools
manufacturer may set up divisions for hand tools, power tools and custom tools. A software
manufacturer may set up divisions for operating system products and office productivity
solutions. A financial consulting firm may set up divisions for accounting services, tax
planning services and investor relations services. Corporate-level executives must track the
sales and profits of these divisions and coordinate their business strategies to optimize
profitability for the entire company.

Geography

In the geography structure, the divisions are organized by the company's geographic
operating areas. The product design and manufacturing in these structures could be
centralized, or they could be functional units within each geographic division. The
geographies could be within one country or they could be global regions. The geographic
structure may be layered: for example, one set of divisions for regions within a country, and
an outer set for the Americas, Asia-Pacific and Africa.

Market

In the market structure, the divisions are organized by the customer segments served by the
company. For example, if an office products manufacturer sells its goods to individuals,
small businesses and medium-sized businesses, it may set up a separate division for each
one of those customer markets. This would allow them to design marketing and support
strategies appropriate for their customer needs. For example, a self-employed consultant is
likely to either buy online or from a physical store. However, small and medium-sized
businesses may need to be served by one or more dedicated account managers.
Hybrid

Divisions may also be a hybrid of one or more of the product, geography and market
structures. For example, an automobile manufacturer could have geographic divisions for
the Americas, Asia-Pacific and other regions in addition to product divisions for each of its
models. A software manufacturer may have divisions for its products in addition to
divisions to serve its customer markets, such as home offices and large businesses.

Advantages

Divisional structures are more flexible and can react faster to changes in business conditions
because decision making is decentralized to the division heads. Customers and suppliers
usually have one point of contact to resolve problems, which usually means fewer hassles
for them. International units can tailor their products and services for local cultures and
preferences.

Disadvantages

There is overlap in the divisional structure because multiple divisions may have the same
functional units, such as human resources, accounting and finance. Turf battles over
financial and human resource allocation can lead to poor coordination among divisions,
which can make integration and standardization difficult across the company.

Functional vs. Product Departmentation

By: Neil Kokemuller

Updated September 26, 2017

Business function and product or service output are two of the common ways in which
companies establish organizational departments. Functional departmentalization is one of
the more common and familiar types as it means establishing departments for each common
business function, such as manufacturing, purchasing, marketing and sales. Production
departmentalization means departments are established based on the product or service on
which employees work.

Basis

A key difference between functional and product departmentalization is the basic ways in
how departments are set. Some companies incorporate both functional and product
departments. Functional departmentalization is commonly used to divide employees based
on the common work process in which they engage. Product departmentalization often
occurs in companies that divide manufacturing, marketing, sales or other processes into
certain categories, giving each an important focus on core operations. Thus, employees
within a broader functional area may also be divided into product categories, or
departments.
Organization Types

Another significant difference between functional and product departments is the type of
organizations that typically use them. Smaller organizations, assembly-line producers and
well-established professional organizations such as colleges and hospitals usually have
functional departments, partly due to tradition. Larger organizations, multinational
companies and companies that have operations spread out across many locations may
employ product departments to allow employees in certain locations to focus on the
production or output of a key product.

Strengths

Functional and product departmentalization approaches each have distinct strengths.

Functional departments are often more economical because each core function has one
group of employees focused entirely on that work process or function. Product
departmentalization is used, in part, to break up a larger organization into smaller, product-
specific work units. This allows for more teamwork and better communication among a
smaller group of employees focused specifically on one product.

Weaknesses

A main criticism of functional departmentalization is that it inherently causes division by

function. Employees are more likely to separate their work processes from others, making it
difficult to achieve alignment with corporate objectives and strategies. A major drawback of
the product departmentalization approach is that it can lead to duplication of effort since
employees in each product category often perform similar functions. For instance, each
product might have its own marketing and sales team that operates independently of other
marketing and sales groups within the company.

The Organizational Structure of International Marketing

By: Jan Wondra

Updated September 26, 2017

There is no right way to tackle global markets. When deciding upon a structure that best
matches your international needs, the objective should be to create the most efficient system
based on the needs of your company, your shareholders, and your products and services.
Ultimately, the structure must be strong enough to achieve corporate goals and flexible
enough to withstand market pressures.

Definition

By definition, international marketing is the performance of business activities that direct a

flow of goods and services to consumers or users in more than one nation for a profit.
Depending upon your source, there are four or five basic marketing structures that can
support these activities and several operational factors that can impact your decision of
which structure will work best for your organization.

Operational Underpinnings

While the exact descriptions vary somewhat, marketing structures should be developed
based upon the operational arrangement of a company. Begin by identifying with which
operational arrangement you are dealing. The company may be a multinational organization
with primarily overseas operation and a portfolio of independent, often country-specific,
product brands. Or, it may be arranged as an international company in name, but function
primarily as a domestic operation with overseas sales operations viewed as profit
appendages. A third operational arrangement is more global, consisting of overseas
manufacturing and a sales pipeline delivery to a unified global market. A fourth operational
structure is the most complex: an organized, integrated network in which overseas
operations may manufacture product components in one country, assemble in another,
distribute globally, but manage product sales people, or information among geographically-
dispersed, but interdependent units.

The Basic Decision: Centralized versus Decentralized

Once the underlying operation has been identified, consider how it functions. The first basic
marketing structure decision that must be made is whether marketing will be conducted
from a centralized location where decisions are made at headquarters (HQ) and simply
executed in the field, or if decision-making will be decentralized; made independently in the
regions or countries where the manufacturing, distribution and sales are occurring.
rnrnCentralized marketing requires strong communications and solid organizational
processes to be successful; otherwise, the lack of communication of company policies and
goals will slow marketing to a crawl. It also demands a more uniform approach to
everything from messaging to pricing and promotional activities. rnrnDecentralized
marketing allows for localized, or at least country-specific, decision-making and message
modification based on cultural attributes like affluence or literacy. While it facilitates rapid
decision-making, it can also lead to a fragmented brand.

Marketing Structure: Aligned Around Products

Marketing structures aligned around products are focused on the delivery of the products for
specific customer groups. These dedicated cross-functional teams tend to include product-
expert vertical teams, such as a cross-functional group including product management,
manufacturing facilities, call centers, direct sales teams, and customer service groups, all
focusing on a specific product or group of products and a global customer base. This
marketing structure is aligned around product expertise and is focused on providing the best
product to meet the needs of the most customers. While there is usually a company
headquarters and management staff, the group is often multi-national with offices dispersed
around the globe.

Marketing Structure: Aligned Around Geographic Areas

In other international marketing structures, teams are organized around geographic areas of
the world: North Africa, the Caribbean/South America, Asia, North America, etc. They may
all deliver the same group of products, but the team adjusts the product attributes,
positioning, pricing and messaging based upon the geographic area of the globe they serve.
Marketing expertise is not in the products, but knowledge of the audience to which the
products are to be offered. These teams may be cross-functional groups, and may or may
not be overseen directly from the company's headquarters. Typically, they revolve around a
geographic, regional office.

Marketing Structure: Aligned Around Processes and Activities

Another marketing organizational structure is one closely aligned to distribution channels or

the company's physical, in-country manufacturing capability. With this structure, marketing
is designed to focus on key accounts and global direct sales, or big ticket, multi-million
dollar sales with long lead times. This is common in manufacturing and technology
industries. Another marketing structure more common in wholesale/retail sales revolves
around seasonal product lines. This includes short lead-time distribution and activities with
set market schedules, showrooms, and both major and minor accounts. The global fashion
industry is an example of this structure.

Product Based Organizational Structure

By: Anam Ahmed

Reviewed by: Jayne Thompson, LL.B., LL.M.
Updated September 20, 2019

The organizational structure of your business helps your employees achieve company goals.
When developing your organizational structure, consider how you can make it easy for your
team to work together while removing any obstacles they may encounter. For businesses
with several product lines or divisions, the product-based organizational structure — in
which employees are grouped based on the product they work on, rather than individual
roles or other attributes — may be the most effective approach. Consider the advantages and
disadvantages of this organizational model when deciding whether it will help your business
to achieve its overall objectives.

Understanding Product Organization in Business

A common organizational model is the functional structure, in which employees are

grouped by the main tasks they're responsible for. For example, all sales employees are in
the sales department, which is headed by the sales manager and sales director. They are
grouped because they share the same functional role of selling goods to the company’s
customers. Likewise, marketing employees are in the marketing department, and
manufacturing employees are in the manufacturing department.

The product organization utilizes the functional approach but creates large business units
within the company for each major product the company offers. As such, each of
those product division units consists of functional departments required to support that
product.
For example, if a company has a bakery division and clothing division, each of those
product-based divisions will have its own sales department, marketing department,
manufacturing department and other functional groups. The product-based organizational
structure is best for businesses that have distinct product groups that
require specialized functional teams to support each product.

Looking at Product Division Structure Advantages

There are several benefits, both for employees and businesses, to utilizing a product-based
organizational structure. From a business standpoint, one of the key advantages is that with
a product model, failure in one division doesn’t necessarily affect other company divisions.
If the bakery division of the company is losing sales, the clothing division can still be
successful and have the resources it needs to grow. This can help businesses  manage
overall risk for the company.

The product-based organizational model also enables businesses to operate with  more
flexibility, as each business division can follow the unique processes they need for each
product without having to accommodate processes for the other divisions. This can enable
the company to shorten their development and manufacturing cycles and bring  products to
market faster to beat the competition.

From an employee perspective, the product-based organizational structure allows employees

to specialize in their function for a specific industry. This enables employees to learn new
skills and gain expertise in niche areas, which can help them further their career goals
within the company so they can take on leadership roles. The unique experience can also
provide employees with new opportunities in their product industry.

Avoiding the Pitfalls of Product Organizational Structure

Like any organizational structures, there are disadvantages to consider. This particular
structure is only useful for larger businesses with diversified product lines. Otherwise, this
organizational model can cause problems. One of the key disadvantages to avoid
are operational inefficiencies. Because each division functions independently, there may be
several employees or whole departments that perform duplicate functions, causing a loss of
profitability and productivity.

As a result of the product-based organizational structure, there may not be any effective
lines of communication between divisions. This makes it difficult for employees to share
information on important lessons to keep in mind or specific training and learning materials.
When one marketing department learns something important, they may have no process in
place for sharing it with the other marketing department.

It can be difficult for a product-based organizational structure to scale without  increasing

redundancy within the organization. If each product division requires a functional
department for marketing, sales, production and accounting, the company needs to find
efficiencies so as not to lose profitability.

Is Product Organization Right for Your Business?

 Consider the product organizational structure advantages and disadvantages before deciding
whether or not this model is right for you. There are several factors to research and
investigate if you’re thinking about implementing this model for your business:

 Diversity of products: Are the products you offer different enough to warrant their
own divisions? Are they manufactured using the same process? Do they have the same
target market? Be sure to establish just how different your products are. If they're too
similar, you may end up with many operational inefficiencies in your processes.

 Structure of each division: Will your product divisions require unique functional

structures or will they all be structured the same way? Does one product require a
manufacturing department while another product requires a research and development arm?
You may be a good contender for a product division.

 Employee expertise: Does your company already have employees who specialize in

one product or will you need to staff your new divisions with new employees? Keep in mind
that hiring and ramping up employees takes time and resources.

 Communicate strategies: How will your product divisions share information? Poor

communication between product groups can cause companies to lose profitability and
productivity. Be sure to have a process in place so functional counterparts can share
information as necessary.

 Scaling opportunities: Will your product divisions be able to scale without causing

additional redundancies? Establish how much redundancy your company can handle before
it becomes a problem. Would you consider sharing resources between divisions if that
improved profitability?

While there are many benefits to utilizing a product-based organizational structure in

business, it’s best to be aware of the disadvantages so that you can actively avoid them.

Other Types of Organizational Structures to Consider

If the product-based organizational structure isn’t right for your business, there are many
other types of organizational structures you can utilize. Each structure comes with its own
advantages and disadvantages, so it’s critical to understand which organizational model can
best help your company to reach its objectives.

Consider these other organizational models:

 Pyramid: The business leader is at the top of the hierarchy and oversees a small
number of directors and managers. Those employees then oversee a large number of
employees who are at the bottom of the hierarchy. Depending on the size of the company,
there may be several layers of management.

 Flat: There are no hierarchies in this model. All employees are on an equal level,
and they have the processes to self-manage themselves to help the company reach its goals.

 Functional: Employees are grouped by their main tasks and are led by a business
leader who oversees those tasks. For example, all customer service employees are in a
 customer service department that's overseen by a customer service manager.

 Project: Employees from different functional teams are grouped into a project

department that's overseen by a project manager. They work together to complete the
project successfully.

 Matrix: Two or more organizational models are combined in this structure based on

initiatives the company is working on. It’s most common to combine functional and product
structures on a project basis.

 Market: If a company serves multiple distinct consumer bases, it's beneficial to

organize divisions based on the kinds of customers it serves, such as wholesalers, end
consumers and corporate businesses.

 Flatarchy: A combination of flat and pyramid structures, this model is dynamic.

Employees can shift from being in a hierarchy to a flat model for the purposes of a project
and vice versa.

Organizational Structure of Management

By: Rick Suttle

Updated September 26, 2017

Companies must structure their management to make it as efficient as possible. This allows
companies to better respond to their customers' needs and the ever-changing dynamics of
the marketplace. However, a number of things should be consideed when developing an
organizational structure. Size is one factor, as is experience of the management team. Other
determining factors are the types of products the company sells and customers. Different
types of organizational structures work best in certain types of companies.

Company Size

Small companies usually have more horizontal or flat organizational structures. Companies
do not really need to consider an organizational structure when they have less than 15
employees, according to The-Business-Plan.com, an online business reference site. With
less than 15 employees, most managers likely have diverse functions. For example, you may
have accounting, finance, marketing and research and development managers or directors
all on the same level, one step down from the top executive or company owner. Each
manager or director may be performing work himself or doling projects out to vendors.
Hence, they have no employees reporting to them. Therefore, there is no need for an
organizational structure. Everyone knows their responsibilities and reports to the top
executive.
Functional Organizational Structure

In a functional organizational structure, management teams are divided into various

functions like marketing research, product management, business development and sales.
Heads of these functional areas, such as directors, have managers, associates and clerical
people reporting to them in a department setting. That way work can be dispersed and
shared based on people's expertise. Departments with shared skills and expertise to varying
degrees enable companies to work more efficiently. The synergism of the department
management team can make better management decisions and get more done. A
disadvantage of the functional organization structure is that company goals may be
sacrificed somewhat for department goals.

Sales Organizational Structure

In some companies, many functional areas report to the sales department. For example, the
marketing manager may report to the senior vice president of sales. Additionally,
accounting, finance and other managers may also report to the senior vice president of sales.
Sales organizational structures are used when a company's sales department is the major
thrust of the company. Companies using sales organizational structure often have hundreds
of salespeople working for them. Additionally, sales representatives report to sales
managers. And sales managers may, in turn, report to area sales managers. A regional sales
manager may oversee each division. An advantage of a sales organizational structure is that
all managers and employees support the selling efforts of the company. On the downside,
creativity and talents of other functional areas can be sacrificed to some degree.

Matrix Organizational Structure

A matrix organizational structure is a type of hybrid organizational structure. For example, a

company that uses a functional organizational structure may temporarily create a product
organizational structure, another type of structure that emphasizes products. Hence,
managers from different functional areas may work together to research, develop and
introduce a new line of products to the market. Companies that use matrix organizational
structures take advantage of the efficiencies of functional teams and the product expertise of
product teams. However, matrix structures are more ad hoc in nature. They may last six
months to a year or two. Companies will then disassemble them once the project is
completed.

Geographic Organization Structure

By: Jayne Thompson

Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
Updated June 13, 2019

Functional, product based, process based, matrix, circular – there are so many options for
structuring your organization, division or team that it can be hard to know where to begin.
Businesses of all sizes can use anything from markets and location to hierarchies and
processes as a guide for deciding to whom employees report, who is responsible for
decision making and whether they want a long or short chain of command. One option is the
geographical organizational structure, which organizes its divisions based on – you guessed
it – geography.

Geographical Organizational Structure Explained

As the name implies, a business that is structured geographically will organize its activities
according to geographical area or location. Specifically, the company will split its
operations into different regions or territories such as the "North America Division" or the
"Europe, Middle East and Africa (EMEA) Division."

Each site will have its own management, marketing, sales and product teams and so on
and can be operated according to local customs and demand. On the ground, each
division might look like a standalone business. However, the overall direction of each
division is still directed by the central business policy. There's usually a global CEO and top
management suite who sit in the organization's headquarters and have oversight over all the
regional divisions.

Geographical Structure Company Example

The geographical organizational structure is common in large, multinational companies, but

it may also suit some medium-sized businesses. For instance, a midsized retail chain or fast-
food chain with multiple outlets across the state may organize on a geographic basis. This
type of structure is well-suited to businesses like hospitality, retail and transportation that
need to be near customers or sources of supply.

For a more immediate example, take a multinational organization like Starbucks.

Starbucks's organizational stack has many characteristics, including a geographic division
based on the physical location of its operations. The company splits its operations into three
core territories – Americas, EMEA and China/Asia-Pacific – with a geographic head for
each territory (for instance, the president of EMEA operations).

Within North America, the geography is further broken down into Western, Northwest,
Southeast and Northeast regions. Each region has its own senior executive who sets the
operating strategy for the stores within the region. These executives have the flexibility to
adjust policies to suit the particular needs of the local market. Ultimately, though, they
report to the territory head for their wider geographic area and follow the corporate
objectives set by HQ.

The Advantages of a Geographical Structure

For certain types of business, it just makes sense that the organization is structured this way.
For example, if you operate three retail stores – one in Houston, one in Oklahoma City and
one in Santa Fe – it could be easier logistically and for state filing and regulation purposes
to divide your operations by geography. This would allow each store to have a high degree
of freedom of choice as well as the responsibility to achieve good results within its own
operation. Other advantages of the geographic division structure include:

Strong Local Base

The geographical structure allows for close communication with local customers. It makes
sense to divide an organization by geography if different customer preferences, languages,
cultures and ways of doing business exist in the areas where the business operates. That's
because you can tailor your approach to the local market.

Flexible Market Response

If the market in a particular geography changes, then the local division can react
swiftly. For instance, if the mood on a specific product suddenly changes, the division can
order more (or less) of that product or switch its marketing direction in light of local needs.
The division's deep knowledge of local conditions helps in decision making, and the
autonomy afforded to each geographic unit means management needs to coordinate less
with HQ before making decisions based on local factors about which HQ may know very
little.

Logistical Efficiencies

Where different geographies have different needs in terms of  resources, staff and
shipping, it makes sense to organize geographically rather than centralizing these functions.
Many multinationals organize geographically so that each location can manage its own
salaries, employee hours, customer data, supplies and finances based on local norms and
markets.

Good Training Ground for Managers

The geographical structure provides a good training ground for future leaders who are
coming up through the ranks. Multinational corporations frequently place their brightest
talent in leadership roles in a divisional office so they can learn the leadership ropes before
moving to an executive role within corporate HQ.

The Disadvantages of a Geographical Structure

The main downside of a geographical organizational structure is the  potential duplication

of resources. The organization may miss out on economies of scale if each geography is
duplicating jobs, supplies, resources, know-how and functions.

There's also the potential for conflict between local and central management, as the
corporate HQ could impose protocols and take away much of the autonomy that was
previously enjoyed by a geographic unit. The impact of this depends on how much decision-
making freedom the geographic division is allowed. One one hand, you want to give each
region enough freedom to react to local market conditions. On the other hand, you do not
want to give it so much freedom that it deviates from the organization's strategic goals and
acts independently.

A geographic structure can also be problematic in terms of company culture. Coordination

and communication are much harder to get right when different cultures exist between the
various geographic divisions, and some information may get lost in translation. The head
office might have an especially hard time in developing a unified organizational culture if
each region is busy doing its own thing.
Alternatives to the Geographic Division Structure

The geographic structure is not the only (or necessarily best) organizational structure for a
business. In fact, there are at least four common structures besides the geographic structure,
and there are dozens of variations on each theme.

Functional Structure

The most common type of organizational structure, the functional structure, is your classic
departmental arrangement where the business is organized according to job functions. So,
you'd have a marketing department, HR department, finance department and so on where all
the marketers or salespeople are grouped together in a single team.

The geographic structure features characteristics of the functional structure, as each

geographic division typically will arrange its people and resources in functional teams.

Product-Based Structure

With product-based structure, the organization is structured around particular product

lines. So, you might have a technology division, an aerospace division and a manufacturing
division, all operated as separate cost centers. There's a variation on this structure called
the market-based structure, which bases operations around markets, customer segments or
industries.

Process-Based Structure

With this type of structure, the business is organized around specific steps in the end-to-
end workflow: for example, research and development, customer acquisition and project
management. Process structures must be managed carefully, as there could be serious
disruptions in the workflow if the teams are not communicating with each other and handing
off work efficiently.

Matrix Structure

The matrix structure is a flexible structure that does not follow a traditional hierarchy.
Instead, employees will report to a functional team (for example, the sales department) as
well as to a product team (for example, the manufacturing division). It's a complex system,
but if done properly, it can promote information sharing and more balanced decision
making.

While most small businesses use the functional structure, it's up to you to figure out which
structure best fits your organization. You can also cherry pick the best parts of each system
to develop a customized approach.

What Type of Organizational Structure Does Pepsico Have?

 By: Jill Harness
Reviewed by: Jayne Thompson, LLB, LLM
Updated June 25, 2019

Long, long ago, PepsiCo was once a single division with a hierarchical structure where
power ran from the top down. As the company has grown and purchased an increasing
number of brands over the years, it has had to break up into multiple divisions based both
on geographical considerations as well as product lines.

TL;DR (Too Long; Didn't Read)

The current Pepsi organizational structure is particularly complex as it's broken into six
divisions, each with their own divisional CEO. Company operations are then handled in
functional corporate group offices divided by function.

Pepsi Organizational Structure

As the over 120-year-old company has continued to expand and add additional product
offerings, such as Pepsi, Quaker, Gatorade, Tropicana, Frito-Lay and more, the Pepsi
company structure has been reorganized multiple times. In 2008, it was broken into three
divisions, one covering the company's North American food offerings, one covering its
North American beverage offerings and one that handled its international operations. Now
that it has over 22 brands and operates in over 200 countries and territories, it has been
broken into three divisions to cover its product offerings in North America and three
divisions covering specific geographic regions:

 PepsiCo Beverages North America (PBNA): Manages all North American beverage
offerings including Gatorade, Tropicana, SoBe, Pure Leaf Iced Tea, Naked Juice, Aquafina,
Dole Juice and more.
 Frito-Lay North America (FLNA): Handles all Frito-Lay foods available in North
America, such as Cheetos, Doritos, Lay's and Ruffles.
 Quaker Foods North America (QFNA): Oversees all Quaker Foods products
available in North America.
 Latin America: Handles operations in over 34 countries for international brands from
Pepsi, Frito-Lay and Quaker as well as local brands such as Toddy, H2OH!, Tortrix and
Kero Coco.
 PepsiCo Europe and Sub-Saharan Africa (ESSA): Manages international offerings
from Pepsi, Frito-Lay and Quaker as well as local brands such as Alvalle soups, Walkers
crisps, Duyvis Nuts and Copella juice.
 PepsiCo Asia, Middle East and North Africa (AMENA): Distributes international
products from Pepsi, Frito-Lay and Quaker and local brands such as Kurkure and Chipsy.

Functional Corporate Group

A PepsiCo organizational structure chart wouldn't be complete if it didn't include the

company's basic business functions, which are handled by specific corporate offices. The
objective of using these functional corporate groups is to help ensure the company is in full
 control of its offerings around the globe and that its policies and strategies are properly and
rapidly implemented throughout the global company. Each group is headed by an executive
vice president or senior vice president.

The seven main functional corporate groups at PepsiCo are:

 Global Categories and Operations.

 Global Research and Development.
 Government Affairs and Legal.
 Finance.
 Human Resources.
 Talent Management, Training and Development.
 Communications.

Global Hierarchy of PepsiCo

The final feature of the PepsiCo organizational structure is the hierarchy that covers the
entire corporation. This hierarchy applies to every aspect of the company, including the
six product and geographical divisions, as well as its seven functional corporate groups. It
involves monitoring, control and governance from the very top of the company to the
bottom, utilizing a top-down structure for communications, monitoring and control at every
level of the business.

This is how Pepsi ensures that everything and everyone working for the company upholds
the company's policies, standards and strategies, whether it involves the financials of
Ruffles products in Egypt, product quality in a bottle of Kero Coco in Brazil or a beverage
distributor handling Naked Juice in Los Angeles.

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