What’s it: An organizational structure by customers is an organizational structure in which the company structures the organization based on the customer groups it handles. It is similar to an organizational structure by products. However, the company divides operations based on the type of customer. For example, a retail company might divide its customers into online and offline customers.
How does an organizational structure by customers work?
Companies can adopt various alternative organizational structures. It depends on factors such as size, function, and preferences of the management. An organizational structure by customers is one of them.
Why do companies choose an organizational structure by customers? That’s because this structure allows the company to provide better customer service. The company divides employees, roles, and tasks within the company according to the customer groups they handle. So, they focus on meeting the needs and desires of their customers.
People in the organization understand the expectations for their roles. Management and employees know how they should perform their roles in the organization. Finally, it helps build a strong and successful team in satisfying customer needs and generating an inflow of money.
Why do companies adopt this organizational structure?
An organizational structure by customers is ideal for companies where their customers have specific needs. Each customer group has significantly different needs. So, since their needs differ significantly, it makes sense for companies to customize services.
The company then divides its operations according to the existing customer groups. Thus, they can provide a focused service.
In addition, the customer group is also large enough to handle and commercialize. Why is size important? That’s because it determines long-term profits. When the customer group is large, the company can generate higher economies of scale and sustainable profits.
Finally, the company has advanced knowledge of each group. Thus, they can offer unique products for each customer group or segment.
Example of an organizational structure by customers
Now take the health care provider company as an example. The company divides its services based on customer needs. For example, the company divides its services into the following different segments or customer centers:
- Emergency patient
Employees will specialize in each segment. So they can provide the best service to customers. And the manager or head in each customer center will report and be responsible to a Chief Medical Officer, who will report to the hospital’s CEO.
What are the advantages of an organizational structure by customers?
Focused service is among the main advantages of a customer-based organizational structure. Everyone in each division specializes in serving a specific customer group. It allows them to become more and more skilled and provide the best for their customers.
Finally, with such focused service, customers will feel satisfied. The company caters to their needs well. As a result, it encourages them to be loyal, which is another advantage of this structure.
Other advantages of a customer based organizational structure are:
More responsive. Customer needs change frequently. And by providing a focused service, companies can be more responsive to these changes. Finally, the company can adapt well and continue to satisfy customers.
Improve customer experience. By being customer-focused, companies set clear expectations and standards on how they can satisfy customers to the fullest and retain them over time. For example, companies create proper hierarchies, allowing employees to understand their job duties. They also know who to call when they need help.
More job opportunities. Companies with customer-based organizational structures often offer more job opportunities. They don’t just have positions vertically, from entry-level positions to management roles. However, they also offer horizontal, inter-divisional positions where customer groups are handled.
Smooth operation. Every employee understands what their responsibilities are. As a result, employees in the division can focus on key aspects to satisfy their target customer group.
What are the disadvantages of an organizational structure by customers?
Duplicated work and resources are a major drawback of customer-based organizational structures. Each division or business unit has a complete business function or activity, from production to marketing, but works separately and independently. For example, the company must hire a marketing person for each division.
Finally, duplication carries more costs. And, without an adequate income stream, the losses can be substantial.
Other disadvantages of a customer-based organizational structure are:
Incompatibility. Operational independence across divisions leads to incompatibility. They cannot synergize with each other but pursue their respective goals. Thus, it is difficult to share expertise and resources across divisions.
Cannibalization. Between divisions compete, which may lead to market cannibalization between them. The success of one division results in the failure of another (they eat each other to succeed).
What to read next
- Organizational Structure: Why It Matters and What are the types
- Tall Organizational Structure: Characteristics, Advantages, Disadvantages
- Flat Organizational Structure: Characteristics, Advantages, Disadvantages
- Organizational Structure By Hierarchy: Advantages, Disadvantages
- Organizational Structure by Function: Advantages and Disadvantages
- Organizational Structure By Product: Advantages and Disadvantages
- Organizational Structure by Region: Advantages and Disadvantages
- Organizational Structure by Customers: How It Works, Advantages, Disadvantages
- Matrix Structure: How It Works, Advantages, Disadvantages
- Horizontal Organizational Structure: Characteristics, Advantages, Disadvantages
- Vertical Organizational Structure: Characteristics, Advantages, Disadvantages
- Shamrock Organization: How it Works, Advantages and Disadvantages
- Project-Based Organizational Structure: Strengths and Weaknesses
- Centralized Organizational Structure: Advantages, Disadvantages
- Decentralized Organizational Structure: Advantages, Disadvantages
- Formal Organizational Structure: Characteristics, Advantages, Disadvantages
- Informal Organizational Structure: Characteristics, Advantages, Disadvantages
- Multidivisional Structure: Importance, How it Works, Pros, Cons