Some businesses organise their activity according to geographical area or location. This is common in large multinational companies, but it may also suit medium-sized businesses. For example, a group of taxi firms, a small retail chain or a fast-food chain with several branches.
What is a geographical organisational structure?
Geographical organisational structure suits businesses that have offices or units in different regions or geographical areas. This form of structure enables businesses to:
- have a reporting and functional system across multiple locations
- operate separate sites according to local demand but still be directed by business policy
Depending on the size of the business, each geographic unit may report to an executive who oversees several locations. Alternatively, it may report directly to top management located at the business' headquarters. The reporting structure can adapt to the size and industry of the business.
The advantages of a geographical structure
A geographical structure can offer a number of operational and strategic advantages, including:
- close communication with local customers
- strong collaborative teams at each location
- the ability to better serve local needs and tailor their approach to the local market
- the ability to encourage positive competition between different departments
It makes sense to divide an organisation by region if different cultures, rules, languages and customer preferences exist in the area where the business operates. Logistics relating to shipping, resources and staff also sometimes make geographical structure a good choice.
The disadvantages of a geographical structure
The main downside of a geographical organisational structure is the potential conflict between local and central management, as individual divisions often take on a great deal of autonomy. Other disadvantages include:
- potential duplication of jobs, resources and functions
- some economies of scale may be lost
Geographic organisational structure suits mainly industries like retail and hospitality, transportation and other businesses that need to be near sources of supply and customers (eg for deliveries, production or on-site support).
There are other ways of structuring a multi-national business. For example, a suitable alternative can be a decentralised organisational structure or organisational structure by function. Both of these function as hierarchical organisational structures. For a simpler arrangement, see flat organisational structure.