The product-based organizational structure, also known as the product-oriented structure, organizes a company’s divisions or units around its product lines or offerings. Each product line becomes a distinct entity within the organization, often with its own dedicated team, resources, and decision-making authority. This structure allows companies to focus on the unique requirements, strategies, and challenges associated with each product or product group.
Key characteristics of the product-based organizational structure include:
Product Divisions: The organization is divided into divisions or units, each responsible for a specific product line or category.
Product-Centric Leadership: Each product division typically has its own leadership team, including a product manager or director.
Resource Allocation: Resources, including budgets, human resources, and assets, are allocated to product divisions based on their strategic importance and growth potential.
Cross-Functional Teams: Teams within each product division may consist of professionals from various functions, such as marketing, engineering, sales, and customer support, all focused on the success of that product.
Innovation and Responsiveness: The structure encourages innovation and responsiveness to market changes, as teams can quickly adapt strategies to address specific product needs.
Clear Accountability: Product managers or directors have clear accountability for the performance and success of their product lines.
Advantages of a Product-Based Organizational Structure
Product Focus: The structure allows for a deep product focus, ensuring that each product line receives dedicated attention and resources.
Innovation: Cross-functional teams within each product division can collaborate more effectively on product development and innovation.
Customer-Centric: It enables a customer-centric approach, as teams can tailor products and services to meet specific customer needs and preferences.
Accountability: Product managers or directors have clear accountability for their product’s performance, facilitating decision-making and strategic planning.
Market Responsiveness: The structure enhances the organization’s ability to respond quickly to market changes and evolving customer demands.
Brand Differentiation: Companies can create distinct brand identities for each product line, catering to diverse market segments and niches.
Implementing a Product-Based Organizational Structure
Product Assessment: Evaluate the organization’s product portfolio to identify product lines or categories that warrant dedicated focus and resources.
Divisional Structure: Create separate divisions or units for each product line or category, each with its own leadership team.
Resource Allocation: Allocate resources, including budgets, personnel, and technology, to each product division based on its strategic importance and growth potential.
Cross-Functional Teams: Assemble cross-functional teams within each product division, ensuring that they have the expertise and skills needed to drive the product’s success.
Leadership Roles: Appoint product managers or directors responsible for overseeing the development, marketing, and overall performance of their respective products.
Communication Channels: Establish clear communication channels between product divisions and the central management team to ensure alignment with corporate objectives.
Performance Metrics: Define key performance indicators (KPIs) that measure the success of each product line, and regularly assess and adjust strategies based on these metrics.
Real-World Examples of Product-Based Organizational Structures
Several well-known companies have successfully adopted product-based organizational structures:
Apple Inc.: Apple is famous for its product-based organizational structure. It divides the company into product divisions, such as iPhone, Mac, and Services, each with its own dedicated team and leadership. This structure allows Apple to focus on product innovation and differentiation.
General Electric (GE): GE also utilizes a product-based structure, organizing its operations around product divisions like Aviation, Healthcare, and Renewable Energy. Each division operates as a self-contained business unit with its own leadership and resources.
Procter & Gamble (P&G): P&G, a consumer goods conglomerate, uses a product-based structure to manage its diverse product portfolio. Divisions are organized around product categories like Beauty, Grooming, and Health, enabling P&G to tailor its products to specific consumer needs.
Johnson & Johnson: Johnson & Johnson’s organizational structure includes distinct divisions for Pharmaceuticals, Medical Devices, and Consumer Health. This product-based approach allows the company to address the unique demands of each product category.
Ford Motor Company: Ford employs a product-based structure, with divisions dedicated to different vehicle types, such as SUVs, trucks, and electric vehicles. This structure supports product-specific development and marketing efforts.
Challenges of a Product-Based Organizational Structure
While the product-based organizational structure offers numerous advantages, it also presents certain challenges:
Coordination: Coordinating activities and ensuring alignment between product divisions and the central management team can be complex.
Resource Allocation: Deciding how to allocate limited resources among various product divisions can lead to conflicts and resource shortages.
Duplication of Functions: There may be redundancy in functions like marketing, sales, and administration across different product divisions.
Leadership Requirements: Finding and developing effective leaders for each product division is crucial but can be resource-intensive.
Brand Management: Maintaining a consistent brand identity across multiple product lines while allowing for differentiation can be challenging.
Strategic Consistency: Ensuring that each product division’s strategy aligns with the overall corporate strategy is essential for success.
Conclusion
The product-based organizational structure is a powerful approach for companies with diverse product portfolios or those seeking to prioritize product-focused innovation and customer satisfaction. By structuring the organization around individual product lines, companies can foster innovation, enhance responsiveness to market changes, and create a customer-centric approach. However, implementing and managing this structure require careful planning, resource allocation, and coordination to ensure that the benefits outweigh the challenges. Real-world examples like Apple, GE, P&G, Johnson & Johnson, and Ford demonstrate the effectiveness of this approach in various industries.
Product divisions, product-centric leadership, resource allocation, cross-functional teams, innovation focus, and clear accountability define this structure.
Advantages:
Product focus, innovation, customer-centricity, accountability, market responsiveness, and brand differentiation are key benefits.
Implementing a Product-Based Structure:
Product assessment, divisional structure creation, resource allocation, cross-functional teams establishment, leadership roles, communication channels, and performance metrics definition are essential steps.
Real-World Examples:
Apple, General Electric (GE), Procter & Gamble (P&G), Johnson & Johnson, and Ford exemplify successful adoption of the product-based organizational structure.
Challenges:
Coordination complexity, resource allocation dilemmas, duplication of functions, leadership requirements, brand management, and strategic consistency pose challenges.
Conclusion:
The product-based organizational structure enhances innovation and customer satisfaction but requires careful planning and coordination. Real-world examples demonstrate its effectiveness across diverse industries.
Case Study
Strategy
Outcome
Procter & Gamble
Product-Based Organization: Structured around major product categories like beauty, grooming, and health care.
Enhanced focus on product innovation and marketing, driving strong brand loyalty and market share growth.
Apple
Product-Based Organization: Divided into product lines such as iPhone, iPad, Mac, and Services.
Increased focus on product development and customer experience, driving high sales growth and market leadership.
Google (Alphabet Inc.)
Product-Based Organization: Structured into product areas like Search, YouTube, Cloud, and Hardware.
Fostered innovation and strategic focus, driving significant growth and diversification across multiple markets.
Sony
Product-Based Organization: Divided into segments like Electronics, Gaming, and Entertainment.
Enhanced focus on innovation and market-specific strategies, driving strong performance across diverse product lines.
General Electric (GE)
Product-Based Organization: Divided into business units like Aviation, Healthcare, and Renewable Energy.
Increased operational efficiency and market responsiveness, driving growth and innovation in various industries.
Microsoft
Product-Based Organization: Divided into segments like Office, Windows, Azure, and Xbox.
Enhanced product focus and innovation, driving strong market presence and revenue growth in each segment.
Johnson & Johnson
Product-Based Organization: Divided into segments like Pharmaceuticals, Medical Devices, and Consumer Health Products.
Increased innovation and market responsiveness, driving growth and maintaining high standards of quality.
Nestlé
Product-Based Organization: Structured around product categories like Beverages, Dairy, and Nutrition.
Enhanced focus on product innovation and marketing, driving strong brand loyalty and market share growth.
Samsung
Product-Based Organization: Divided into segments like Mobile Communications, Consumer Electronics, and Semiconductors.
Increased focus on product innovation and market-specific strategies, driving strong performance and market leadership.
IBM
Product-Based Organization: Divided into segments like Cloud & Cognitive Software, Global Business Services, and Systems.
Enhanced focus on product development and customer solutions, driving growth and competitiveness in technology markets.
PepsiCo
Product-Based Organization: Structured around product categories like Beverages, Snacks, and Nutrition.
Enhanced focus on product innovation and marketing, driving strong brand loyalty and market share growth.
3M
Product-Based Organization: Divided into segments like Industrial, Health Care, and Consumer Products.
Increased focus on product innovation and market-specific strategies, driving strong performance and market leadership.
Unilever
Product-Based Organization: Structured around major product categories like Foods, Home Care, and Personal Care.
Enhanced focus on product innovation and marketing, driving strong brand loyalty and market share growth.
Ford Motor Company
Product-Based Organization: Divided into segments like Trucks, SUVs, and Electric Vehicles.
Increased focus on product development and market-specific strategies, driving strong performance and market leadership.
Nike
Product-Based Organization: Divided into segments like Footwear, Apparel, and Equipment.
Enhanced focus on product innovation and marketing, driving strong brand loyalty and market share growth.
L’Oréal
Product-Based Organization: Structured around product categories like Skincare, Haircare, and Makeup.
Enhanced focus on product innovation and marketing, driving strong brand loyalty and market share growth.
Intel
Product-Based Organization: Divided into segments like Client Computing, Data Center, and Internet of Things.
Increased focus on product development and market-specific strategies, driving strong performance and market leadership.
Cisco Systems
Product-Based Organization: Divided into segments like Networking, Security, and Collaboration.
Enhanced focus on product innovation and market-specific strategies, driving strong performance and market leadership.
Philips
Product-Based Organization: Structured around segments like Personal Health, Diagnosis & Treatment, and Connected Care.
Increased focus on product development and customer solutions, driving growth and competitiveness in health technology markets.
Amazon
Product-Based Organization: Divided into segments like E-commerce, AWS (Amazon Web Services), and Devices.
Enhanced focus on product innovation and customer experience, driving strong market presence and revenue growth across diverse segments.
Related Organizational Structures
Description
Implications
Product-Based Organizational Structure
A Product-Based Organizational Structure organizes the organization around its products or product lines. In this structure, each product or product line has its own dedicated team, resources, and decision-making authority, allowing for focused attention on product development, marketing, and sales. Product-based structures enable organizations to prioritize product innovation, differentiation, and market penetration effectively. They foster accountability, ownership, and alignment within product teams, enabling organizations to optimize product performance and competitiveness.
Product-Based Organizational Structures offer several benefits, including product focus, innovation, and alignment. By organizing the organization around its products or product lines, product-based structures enable organizations to prioritize product development, marketing, and sales effectively. Product-based structures foster accountability, ownership, and alignment within product teams, empowering them to optimize product performance and competitiveness. However, product-based structures may also pose challenges related to coordination, integration, and resource allocation. To maximize the benefits of product-based structures, organizations need to establish clear product strategies, communication channels, and cross-functional collaboration mechanisms, ensuring alignment and collaboration across different product teams and functions to deliver innovative and competitive products to the market.
Divisional Organizational Structure
A Divisional Organizational Structure divides the organization into semi-autonomous divisions, each responsible for its own products, services, or markets. In a divisional structure, each division operates as a separate profit center, with its own resources, goals, and decision-making authority, tailored to its specific business needs and objectives. Divisional structures enable organizations to focus on different products, markets, or customer segments effectively, fostering specialization, innovation, and market responsiveness within each division.
Divisional Organizational Structures share similarities with Product-Based Structures in their focus on divisional autonomy and market specialization. By organizing the organization into semi-autonomous divisions, divisional structures enable organizations to focus on different products, markets, or customer segments effectively. Both models foster specialization, innovation, and market responsiveness within each division while still benefiting from centralized resources, expertise, and governance. However, divisional structures may also require effective coordination, communication, and alignment to ensure consistency and effectiveness across different divisions and products. To maximize the benefits of divisional structures, organizations need to establish clear divisional goals, performance metrics, and communication channels, ensuring alignment and collaboration across different divisions and products to deliver value to customers and stakeholders.
Brand-Centric Organizational Structure
A Brand-Centric Organizational Structure is similar to a product-based structure but focuses specifically on brands or brand portfolios. In a brand-centric structure, each brand or brand portfolio has its own dedicated team, resources, and decision-making authority, allowing for focused attention on brand development, marketing, and management. Brand-centric structures enable organizations to prioritize brand differentiation, positioning, and equity effectively, fostering brand loyalty and customer engagement across different markets and segments.
Brand-Centric Organizational Structures share similarities with Product-Based Structures in their focus on brand specialization and market differentiation. By organizing the organization around brands or brand portfolios, brand-centric structures enable organizations to prioritize brand development, marketing, and management effectively. Both models foster accountability, ownership, and alignment within brand teams, empowering them to optimize brand performance and competitiveness. However, brand-centric structures may also pose challenges related to coordination, integration, and resource allocation. To maximize the benefits of brand-centric structures, organizations need to establish clear brand strategies, communication channels, and cross-functional collaboration mechanisms, ensuring alignment and collaboration across different brand teams and functions to build strong and differentiated brands in the market.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019. The corporate structure is organized around two entities: OpenAI, Inc., which is a single-member Delaware LLC controlled by OpenAI non-profit, And OpenAI LP, which is a capped, for-profit organization. The OpenAI LP is governed by the board of OpenAI, Inc (the foundation), which acts as a General Partner. At the same time, Limited Partners comprise employees of the LP, some of the board members, and other investors like Reid Hoffman’s charitable foundation, Khosla Ventures, and Microsoft, the leading investor in the LP.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
