Functional structure gives the benefits of economies of scale, in-depth expertise and resource utilization efficiencies, whereas, divisional structure gives the benefits of specialization of products, services and markets. In India, the most of the public sector units and departmental undertaking like railways, etc., follow this structure. A typical hybrid structure of an organization is illustrated below:
Hybrid structure gives the benefit of specialized expertise and economies of scale in prime functional areas. It facilitates adaptability and flexibility in handling diverse product or service lines, territories, differing needs of customers, alignment of divisional and corporate goals, etc., because of the partial divisional nature.
However, this structure requires hiring of huge staff members both at the corporate level and functional (operational level). Control is also difficult because of the huge organizational structure and it also leads to conflict. Coordination between a division and a corporate functional department is time consuming, which further creates organizational imbalance.
This type of departmentalization superimposes horizontal set of divisional reporting relationships on hierarchical functional structure. It is also known as grid organization or project or product management organization. It is a combination of both functional and a divisional organization at the same time. Therefore, it enjoys two chains of command—vertical and horizontal. A typical matrix structure is illustrated below:
Decentralized decision making, better project or product coordination, improved environment monitoring and resultant response to change, flexible utilization of manpower and other resources (including support services) are some of the advantages of matrix structure. On the other hand, this structure requires high administrative costs, creates confusion over authority and responsibility, enhances interpersonal conflicts and overemphasizes group decision making.
Despite potential disadvantages, the matrix structure is now widely used to cope up with the increased environmental pressure and to develop competitive strategies. Unless the whole process is efficiently managed, it is not likely to benefit an organization.
Recently, we are also observing that organizations are following the concept of Strategic Business Units (SBU) or Independent Business Units (IBU). SBUs/IBUs are set up as distinct business units to ensure that some products or product lines are promoted as independent business. The General Electric Company for the first time used this method of structuring. We have illustrated a SBU structure below: