Organisational structures - Functional divisional and matrix

Learning Outcomes

By the end of this article, you should be able to explain the essential forms of organisational structure—functional, divisional, and matrix—and identify their key features. You will be able to evaluate the advantages and disadvantages of each structure, choose suitable structures for different business contexts, and explain why organisations may transition between these forms as they grow. You will also learn the impact of structure on coordination, communication, and business performance.

ACCA Business and Technology (BT) Syllabus

For ACCA Business and Technology (BT), you are required to understand the different ways organisations may be structured and how these forms affect business operations. Focus your revision on:

• The features and purposes of functional, divisional (including geographical and product forms), and matrix structures
• The strengths and weaknesses of each organisational structure
• The circumstances where each structure is appropriate
• The impact of structure on efficiency, communication, and control
• How organisational growth or diversification may lead to structural change

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the primary purpose of a functional structure, and when is it most effective?
2. Which structure is best suited for an organisation managing several unrelated product lines across multiple regions?
3. In the matrix structure, who does an employee typically report to, and what challenge can arise from this arrangement?
4. State one key advantage and one key disadvantage of the divisional structure.

Introduction

Organisational structure determines how roles, responsibilities, and authority are arranged in a business. The structure affects how work is managed, decisions are made, and how information flows. Organisations must shape their structure to fit their size, strategy, and environment, often shifting from one form to another as they expand or diversify.

Choosing the right structure impacts not only efficiency but also staff motivation and response to changing market needs. The most common forms are functional, divisional (by product, region, or customer), and matrix structures. Each offers specific benefits and challenges, and knowing their features is essential for decision making and ACCA exam success.

Key Term: organisational structure
The formal system determining how activities are coordinated, controlled, and grouped within an organisation to achieve objectives.

Functional Structure

Functional structure groups employees according to specialisation, such as marketing, production, finance, or HR. Each function is supervised by a departmental manager experienced in that area.

Key Features

• Clear chain of command based on specialist knowledge
• Staff grouped by similar skills and tasks
• Standardised processes within departments
• Direct reporting lines to function heads

Typical Departments

• Marketing
• Finance
• Production
• Human Resources
• IT

Advantages of Functional Structure

• Efficient use of resources and specialist knowledge
• Professional development within specialities
• Consistent procedures and policies

Disadvantages of Functional Structure

• Slow response to market or customer changes
• Poor coordination between functions; risk of silos
• Not flexible for diversified products or geographic locations

Worked Example 1.1

A single-product electronics manufacturer divides staff into production, marketing, and finance departments. Each manager oversees their functional area and reports to the managing director.

Answer:
This is a classic functional structure—most suitable for small to medium businesses with a narrow product range.

Key Term: functional structure
An organisational form where staff are grouped by professional function—such as sales, operations, or accounting—each managed separately.

Divisional Structure

Divisional structures divide the organisation into self-contained units, each responsible for specific products, customer groups, or geographic areas. Each division operates as its own entity, typically with its own functional departments.

Types of Divisionalisation

• By product: Each major product line forms its own division.
• By geography: Separate divisions manage business in different regions or countries.
• By customer: Divisions are created for distinct customer types (e.g., retail, corporate).

Key Term: divisional structure
A form of organisation where semi-autonomous units manage specific products, services, markets, or regions, each with their own internal resources.

Advantages of Divisional Structure

• Focused attention on products, customers, or regions
• Faster local decision making
• Suitable for diversification or expansion
• Senior management can focus on overall strategy

Disadvantages of Divisional Structure

• Duplication of functions in each division
• Higher administrative costs
• Potential for rivalry or lack of coordination between divisions
• Difficulty sharing knowledge or resources across divisions

Worked Example 1.2

A global food company operates separate divisions for snacks, beverages, and frozen foods. Each division has its own marketing and production teams. The corporate centre oversees group strategy and finance.

Answer:
This company uses a product-based divisional structure, suited to managing varied product lines and enabling quick market responses.

Divisional or Functional Structure?

Functional structures work best when products and markets are similar and efficiency is critical. Divisional is better for organisations with multiple products, markets, or regions that require rapid, tailored decisions.

Matrix Structure

Matrix structure overlays two forms of structure, usually functional and divisional. Employees report simultaneously to both a function manager (such as head of marketing) and a project, product, or regional manager.

Key Term: matrix structure
An arrangement where staff have dual reporting lines, typically both to a functional and a project or product manager.

Features

• Dual authority and accountability
• Cross-functional teams form for projects, products, or clients
• Shared resources between functions and projects

Advantages of Matrix Structure

• Combines benefits of specialisation and project focus
• Improved flexibility and innovation
• Promotes teamwork and efficient resource use
• Responsive to dynamic market needs

Disadvantages of Matrix Structure

• Risk of confusion over authority or priorities
• Potential for conflict between function and project managers
• More meetings and communication overhead
• Requires strong coordination and communication skills

Worked Example 1.3

A construction firm organises staff into functional departments (finance, HR, procurement) and also assigns them to project teams for each large building contract. An engineer reports to both the engineering manager and the project manager for a specific site.

Answer:
The matrix structure allows the engineer to use departmental specialist knowledge while focusing on project results. However, it demands careful coordination to avoid confusion.

Exam Warning

Dual reporting lines in a matrix can create ambiguity. For exams, be able to explain how clear communication and defined responsibilities are essential to avoid conflict.

Comparison of Structures

Revision Tip

If unsure which structure fits a scenario, first identify whether the business is product-focused (divisional), process-focused (functional), or manages multiple priorities/projects (matrix).

Summary

Organisational structure determines how tasks are grouped and managed. Functional structures prioritise specialist knowledge and standardisation, divisional structures provide focus and autonomy for growth and complexity, and matrix structures merge two approaches for flexibility but with greater coordination demands. Selecting the right structure depends on business size, diversity, market needs, and decision-making requirements. Understanding these differences is essential for ACCA BT exam questions on business organisation.

Key Point Checklist

This article has covered the following key knowledge points:

• Define and describe functional, divisional, and matrix structures
• Identify the advantages and disadvantages of each structure
• Explain when to use each structure based on business size and needs
• Contrast reporting relationships and communication in each structure
• Recognise typical business scenarios for each structure in exam settings
• Understand structural impact on efficiency, coordination, and control

Key Terms and Concepts

• organisational structure
• functional structure
• divisional structure
• matrix structure