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Area/geographic structure

11 May, 2016 - 11:43

An area structure is often chosen by companies who want to emphasize geographically specific strategies and focus decision-making on local needs. Organizations may be divided up into regional and country structures where country managers operate rather autonomous businesses supported by an array of local functions. In this case, the country organization often operates as a fairly self-contained business with substantial local authority as well as profit and loss responsibility.

Advantages: The country organization is capable of sensing and understanding local conditions and is able to formulate strategies which effectively meet the needs of local stakeholders. Policies in areas such as human resource management can be tailored to meet the needs and expectations of local employees, product mix and design can be optimized for local conditions, and the organization can respond more quickly to changing circumstances on the ground.

Disadvantages: The disadvantages of the area structure are similar to those of the product structure. Economies of scale will be harder to achieve as different localities develop and implement very different product strategies on one hand, and invest resources in developing local functional expertise and effort which may well be duplicated unnecessarily across geographic units.

Figure 14.11 Area/geographic structure