Product-Based Organizational Structure: Benefits and Drawbacks

Unfiltered Take: The deal here is about businesses organizing themselves according to their product lines, also known as an organizational structure by product. Each division represents a different product, handling production, marketing, finance, and other business operations independently. This setup helps them thrive in their respective markets and swiftly adapt to market changes. However, it can lead to duplicated work, higher costs, and potential internal competition.

What's the lowdown: A product-based organizational structure allows companies to focus on each product's unique needs. It enables independent decision-making and adaptation to market conditions, leading to growth and higher profits. But it can lead to duplicated work, increased costs, competition between divisions, and loss of control.

Who does it best: You'll find this structure most often in companies with a wide array of products. Car manufacturers, tech giants, sporting goods brands, and global brands like Nike are no strangers to it.

How it works: Companies with numerous products structure themselves into separate divisions, each focusing on a single product. They take care of every aspect necessary for success, from purchasing raw materials to marketing and sales, making a profit, and more.

Pros:

Diversification: Companies can earn profits from multiple product lines, helping offset losses in one area with profits from others.
Specialization: Employees can focus on their areas of expertise, improving management effectiveness.
Knowledge Transfer: Best practices can be shared across divisions, boosting organizational success in the long run.
Flexibility: Divisions are given autonomy to make decisions and adapt strategies swiftly, allowing companies to keep pace with changing market conditions.
Positive Competition: Each division strives to achieve high profits, fostering healthy competition within the organization.

Cons:

Duplicated Resources: Divisions may require separate teams for functions like marketing, procurement, and production, leading to duplicated efforts and increased costs.
High Cost: Duplication can lead to higher costs, making economies of scale difficult to achieve.
Cannibalization: The success of one line can potentially harm another, especially if products target the same market.
Losing Control: The broad autonomy given to divisions may eventually cause them to prioritize their interests over the company's overall goals.

More info:

Organizational Chart: Importance, Features, and Types
Chain of Command: Importance, Element, Advantages
Span of Control: Importance, Types, Advantages, Disadvantages
Downsizing: Importance, Reason, Type, Pros, Cons
Project-Based Organizational Structure: Strengths and Weaknesses
Centralized Organizational Structure: Advantages, Disadvantages
Decentralized Organizational Structure: Advantages, Disadvantages
Mastering Organizational Structure: A Clear and Concise Guide
Key Terms To Understanding Organizational Structure
Sources:
Car Manufacturers: Organization by Product Lines
Organizing Software Companies by Product and Services
Puma's Organizational Structure
Nike's Matrix Organizational Structure
Product-Based Organizational Structure Definition

In the product-based organizational structure, each division handles various aspects of business operations, including finance, making it essential for financial management within each division to ensure the success of each product line.
As businesses with a wide array of products often adopt a product-based organizational structure, understanding finance and the intricacies of business operations becomes crucial for decision-makers, enabling effective management and growth in the respective markets.