Organisational structure by geographical area

Some businesses organise their work by geographical area or location. This is common in large multinational companies, but it can also suit medium-sized businesses. For example, it may work well for a group of taxi firms, a small retail chain or a fast-food chain with several branches.

What is a geographical organisational structure?

A geographical organisational structure suits businesses with offices or units in different regions or geographical areas. This type of structure helps businesses:

• manage reporting and business functions across several locations
• operate separate sites according to local demand but still be directed by business policy

Depending on the size of the business, each location may report to an executive who oversees several sites. In some cases, it may report directly to senior management at the company headquarters. The reporting structure can vary depending on the size and type of business.

The advantages of a geographical structure

A geographical structure can offer several 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

A geographical structure can work well if a business operates in areas with different cultures, laws, languages or customer needs. It can also be useful where shipping, staffing or access to resources varies by location.

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

A geographical structure is often most suitable for sectors such as retail, hospitality and transport, as well as businesses that need to be close to suppliers or customers for deliveries, production or on-site support.

There are other ways to structure a multi-national business. For example, you could use a decentralised structure or a functional structure. Both are types of hierarchical structures. For a simpler arrangement, see flat organisational structure.