Market-Focused Divisional Structures

In addition to the product-focus and geographic-focused divisional structures that I have been discussing companies may select a market-focused structure that organizes operations—functional skills and activities—by reference to the specific requirements of particular customer groups (i.e., markets).  For example, a market-based organizational structure might have different business units for marketing and sales of products to customers in the following general categories: commercial, consumer, government and corporate.  The primary distinguishing focus of these business units is marketing rather than manufacturing, and managers within each division will be responsible for identifying, developing, selling and supporting products that provide the highest level of functionality and utility to customers in the particular market.  Each market-based business unit will have access to the resources of centralized support functions such as engineering and manufacturing—engineering will be responsible for customizing the company’s products to suit specific market requirements and manufacturing will build products to meet the customer-specific specifications provided by each division.  The success of a market-based structure depends on the company’s ongoing ability to recognize changes in customer requirements and quickly deploy the organizational resources necessary to cope with changing conditions.

Companies often shift from a product structure to a market structure in order to introduce customers to a broader line of products and services, increase sales by offering customers a wider array of solutions to their problems and build stronger relationships with customers.  In product structures the primary focus of each division is commercialization of its own products and maximizing sales of those products.  In many cases, however, the relatively narrow product focus causes companies to miss, or simply ignore, opportunities to generate additional business with customers by introducing them to products offered by other divisions that might fill a different need for those customers.  Moreover, since managers of product divisions are generally rewarded solely based on the performance of their product lines there is little incentive for cooperation between divisions and often real fear that introducing a customer to another division will lead to loss of control of that customer and ultimately a reduction in sales revenue for the division that had the original relationship with the customer. A market structure overcomes the inherent limitations of a product structure by focusing the efforts of everyone involved in marketing and sales in understanding all of the requirements of the customer and making sure each customer has knowledge of, and offered the opportunity to purchase, the full line of the company’s products and services.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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