How to Organize a Business ?

How to Organize a Business ? A person involve in organizing a business should identify the business objectives, the types of people working for the business, the technology, and the environment in which the business operates. There has five organization structure of business. People making decisions about structure need to examine the functions before selecting a form (that is, the structure). Numerous forms, or designs, of structure are available to managers. Each way of organizing a business has advantage and disadvantage. A manager has to weigh all of these in making a selection. When a decision is made without considering disadvantages, the resulting choice may be the least effective or east suitable structure. The ones we present here are the most popular and widely used in business organizations.

How to Organize a Business ? Five structures are mentioned Below for Organize a Business :

Now we are discuss about structure for How to Organize a Business properly. There has 5 main structure for organize a business. Below How to Organize a Business & structure

  • Functional Structure
  • Product Structure
  • Territorial Structure
  • Matrix Structure
  • Multiple Structure

Functional Structure – How to Organize a Business :

Each department in the functional structure has different set of activities and responsibilities. In a manufacturing firm, this means that engineering, manufacturing, and marketing would be separate departments. In a hospital, functional structure would include departments of nursing, housekeeping, medical records, and radiology.

Advantage of Functional Structure:

The functional structure orients workers toward a specific set of activities. The engineer focuses on product design and improvement, and the sales person works on selling. These functional experts become even more skilled in their areas. 


The functional structure de-emphasizes the exchange of ideas and cooperation with other departments. The boundary between, say marketing and engineering is imaginary, but it seems like Great Wall of China. This happens because each department is evaluated on the basis of its own performance. Knowing they will be evaluated this way, managers concentrate on departmental matters instead of overall organizational objectives.

Product Structure – How to Organize a Business :

Businesses producing a wide variety of products often establish a product structure. Product structure is an organization structure in which a manager is placed in charge of and has responsibility for a product or product line.  The product structure was used as early as 1927 by Procter & Gamble. Today many firms, especially those in the food, chemical, and toiletries industries, use product structures. General foods use a product structure in its post division, in which separate product managers are in charge of cereals, pet foods, and beverages.

Advantages of Product Structure:

The product structure places responsibility for a product or product line with the managers. Product managers devote all their energy and skill toward the objectives of containing product costs, meeting schedules, and earning a profit. Instead of a department orientation, as with the functional structure, the focus is on product.

In addition the product structure encourages creativity. One study found that businesses with product structures were more successful in creating and selling new products than were businesses without product structures.


The price of the product structure can be high. Product managers often are not given enough authority to carry out responsibilities. They have to spend a lot of time coordinating activities so that people work together efficiently. This means less time for planning. Managers have also found that, compared to employees in functional structures, employees in product structures are more insecure and anxious about unemployment and personal development. Perhaps this results from using product structures in relatively unstable, unpredictable environments.

Territorial Structure – How to Organize a Business:

Businesses that divide units on the basis of location are using territorial structure. Territorial structure is an organization structure in which units are divided on the basis of territory or geographical region. When adjustments to local conditions, markets, or resources are important, responsibility affixed on the basis of territory has advantages. Merchandising organizations and federated department stores have found territorial structure attractive.

Transportation companies may also be structured by territory. Low cost airline prices have eaten into long distance bus travel. Today the average bus trip has decreased from about 500 miles to 200 miles. This type of competition encouraged Greyhound lines management to change the company from a functional to a territorial structure. The territorial structure helps Greyhound be more responsive to consumer needs and better able to coordinate schedules, maintenance, replacement, and employee preference in each region.

Advantages of Territorial Structure:

The main advantage of the territorial structure is that it allows coordination at the point of sake. This coordination can lead to more personalized and speedier service. In a territorial arrangement, customer needs can be better addressed.


Some duplication of effort occurs in the territorial structure. Also, the corporation needs to hire, train, and develop managers with the broad based ability and technical knowledge required to manage multiple functions such as sales, production, and marketing.

Matrix Structure – How to Organize a Business :

Occasionally a company utilizes a functional structure and either a product or a project structure simultaneously; that is, it combines functional structure and a second management arrangement into a matrix structure. The employee assigned to both a functional department and a particular product or project. Matrix structures have been used in diverse organizational types:

Manufacturing – chemicals, electronics

Service – banking, insurance, retailing

Professional- accounting, consulting, law

Nonprofit- hospital, United Nations, universities

Advantages of Matrix Structure:

The matrix structure responds effectively to three conditions. First, a matrix can handle a dual focus. The dual focus of technical and cost interest is possible in the matrix structure.

Second, requirements for communication among employees may exceed the capacity of a traditional functional structure. Environmental uncertainty, work complexity, and interdependence of departments increase as a business grows and diversifies its product and markets. The functional structure does not encourage cooperation and a total team spirit. What is needed is a structure that encourages the sharing of information. The matrix gives the cross functional benefits of a product structure while keeping the administrative controls of the functional structure.

Third, performance, cost, and time pressure require greater sharing and use of resources. Placing limited resources in only one department results in a monopolization of the resources, when talented engineers, physicists, computer specialist, and other skilled professionals are in scarce supply, several groups, projects, or units must share the talent and resources. In the matrix structure, talent and resources can be moved from project to project. Priorities for the use of the limited resources are measured against the overall business objectives and interests. The matrix makes this shifting of resources easier.


If the matrix always worked for every business, it would always be used. There are however, problems with the matrix. Some of the most frequently cited include:

  • Confusion about who reports to whom, and when.
  • Power struggles between functional and product managers.
  • Too much group decision making.
  • Just too much time wasted in one meeting after another.
  • Excessive costs of having more managers to compensate.

Multiple structure:

We have been discussing forms of structure as if they were an either or choice. In fact a business is free to use any firm or combination of structures. An example of a multiple structure appears.. Sun petroleum products structure shows three product divisions: fuel, lubricants, and chemicals. Each division has its own functional departments of marketing, planning, and economics, supply and distribution, and manufacturing. Sun also has a number of centralized functions, such as human resources, technology, public affairs, and facilities. The multiple organization structure enables the refineries to produce products for the three product division.


Companies use multiple structures to gain the benefits of each arrangement. Perhaps the biggest advantage of the multiple structures is that it encourages management to look at the total picture of organizing. This overall view stimulates a total company enthusiasm and realization that each part or unit is important in accomplishing corporate objectives.


Potential drawback to multiple structures. Such as the one used by Sun Petroleum, are increased management overhead expenses, duplication of resources, and conflict between headquarters and product divisions. Problems in coordination of policies, programs, and resources arise often. Finally, a successful move from a single structure arrangement to a multiple structure system may take significantly time and resources.