Multi-Divisional Structure and Matrix Structure

By: Xiaoyu Liu

Multi-Divisional Structure and Matrix Structure

Over the past 20 years, and as the economic world continues to develop, organizations have been changing over time for increasing profit. From simply one strategy, one structure, they have adapted to the more complex structures in order to better serve customers and survive in the competition among organizations (Barlett & Ghoshal, 1990). There are many organizations that have tried not to trip over into the one-dimensional structure trap, and are always trying to develop newer and more efficient forms of economic organization. The most significant successes for organizational structure innovation was recognized as multidivisional structure and matrix structure, and both of them could be abbreviated to M-form structure and MX-form structure (Barlett & Ghoshal, 1990).

In our previous posts on this blog, we have already introduced the basic knowledge and discussed organizational structures and strategy. This paper will talk about the rest of the main organizational structures that have not been discussed yet. The larger business organizations usually have more diversity than smaller business organizations. Therefore, for a better understanding of the multi-divisional structure and matrix structure in different organizational forms, business people should be familiar with what functional structure, product structure, geographic structure and client structure first are.

• Functional Structure

As you can tell from the phrase, a functional structure is when a group of people with specific area expertise get together and form the structure of function. For example, employees that have knowledge in HR worked together as a whole, which created an absolutely efficient, advantageous environment with “work specialization that’s centrally coordinated” (Colquitt et al., 2009, p. 538).

• Product Structure

Please review the previous post about on Product Structure.

• Geographic Structure

A geographic structure is responsible for a set of products on a global basis (Chi & Nystrom, 1998). For instance, an organization’s branch is located in China, and reports its performance to a command center that is responsible for all branches that are in the Asian region.

• Client Structure

A client structure is an organizational form that employees organize to serve their customers. For example, an organization may have the department of Government Contract, Direct Consumer Sales, or Internet Sales (Colquitt et al., 2009, p. 539).

Multi-Divisional Structure

Hoskisson (1987) proposed that multi-divisional structure “is a unique structural frame-work that overcomes problems of both internal and strategic control that confront large multiproduct firms,” (p. 626). The research also shows that the organizations which have the multi-divisional structure tend to have a better economic performance (Chang & Choi, 1988). Applying multi-divisional structure in organizations could help organizations decrease margin costs by reducing the transaction failure.

One can determine whether a business organization applied multi-divisional structure, by looking at the following criteria (Chang & Choi, 1988):

• ·         A general corporate planning office on the group level which can help with controlling affiliated firms
• ·         Offices are divided into groups or teams that specialize in corporate planning, human resources management, auditing, and financing

Matrix Structure

In a matrix structure, two or more layers of multidivisional structures are combined and implemented together, such as, the geographic structure plus the client structure. In the last two decades, in many of the world's leading organizations, large-scale surveys found a matrix structure being used by 28% of major US or European multinational companies, by 43% of R&D projects, and by 27% of hospitals (Chi & Nystrom, 1998). 

In a two or more dimensional matrices, as illustrated in the chart above, all the different departments interact with each other, but each performs its own functions at the same time. For example, a HR manager at the country level reports Product A to a headquarter president who manages for a continental geographic area. Moreover, Product B teams may be independent of Product C team but interrelated with Product A teams, and Product A teams might correspond with Product C teams. So the advantages of the matrix structure promote the interests of the group as a whole, and intra organization communications. In addition, since employees know each other across even different departments, this leads to positive competition among employees and each product team. In other words, matrix structures increase the productivity of an organization.

Conclusion

The adoption of the multi-divisional structure has more benefits in terms of productivity to those organizations that do not adopt a complex structure (Riahi‐Belkaoui, 1997). Furthermore, the multi-divisional organization is an effort to avoid the problems of the functional organization and increase the efficiency and capacity of an organization (Hoskisson, 1987).

Based on experimental work that has been done, the results also show that the business organizations with strategy and structure that conform to the matrix structure show a better economic performance. What’s more, matrix structures promote productive efficiency and increased profitability of an organization.

All in all, a company using multi-divisional structures and matrix structures to coordinate its activities across divisions, functions, and geography, means eliminating withholdings, improving communications, and advancing performance and productivity.

.

References

Barlett, C. A., & Ghoshal, S. (1990). Matrix management: not a structure, a frame of mind. Harvard Business Review, 68(4), 138.

Chang, S. J., & Choi, U. (1988). Strategy, structure and performance of Korean business groups: A transactions cost approach. The Journal of Industrial Economics, 141-158.

Chi, T., & Nystrom, P. (1998). An economic analysis of matrix structure, using multinational corporations as an illustration. Managerial and Decision Economics, 19(3), 141-156

Colquitt, A. J., Lepine, A.,Wesson, J. M.. (2009). Organizational Structure, Organizational Structure (p. 524-553).  Location: New York.

Hoskisson, R. E. (1987). Multidivisional Structure and Performance: The Contingency of Diversification Strategy. Academy of Management journal, 30(4), 625-644.

Riahi‐Belkaoui, A. (1997). Multidivisional structure and productivity: The contingency of diversification strategy. Journal of Business Finance & Accounting, 24(5), 615-628.