Organizational Structures Challenges for Retail Industry

30 Apr 2016

The organizational structure could be described as the human body skeleton. The validity and health of the organizational structure is an indication of its status and vice versa. According to many studies and scientific research, numerous forms of organizational structures are developed in order to improve performance, communication and management process as a whole.

The lack or even the weakness of organizational structures for some retail companies is considered a big challenge for this important and vital sector. This weakness is noted by the lack of formal organizational structure for some of the retail companies between authorities, responsibilities and the communication lines between company’s departments. Even in the cases they exist, they don’t reflect the operational reality for the company, and that’s indeed will lead to powers overlapping and to the lack of clarity of the authorities and responsibilities associated with the functional centers.

When we talk about the retail companies, we are talking about a variety of operations in multiple geographical locations and working teams from different disciplines.

  To understand this problem we have to clarify some important concepts:

  • Retail trade concept: "in the past and nowadays", it’s a very important economic process for all people whether the seller or the buyer, where they provide all kinds of goods and products.

Retail trade is considered the "Last step in circle” from the producer to the consumer chain, and it’s one of the most important stages of commodity marketing because it’s the place that the consumer will receive commodity and thus it require attention, in normal circumstances, we can say that the flow of goods series from the first manufactured to consumption would be as following:

Retail trade concept

Here is not necessarily the availability of all the links in the chain until the consumption of the commodity for example there is no need for the importer if we are talking about trade in the country which produces the good by itself.

The foregoing reflected the growing importance of retail trade and with it increases the need to have an organizational structure that takes into account all elements of operations in retail and in a manner consistent with the basic strategy of the company and its activities and to ensure the safety of operations in accordance to the rules of corporate governance and good governance.


To stand a close eye on the types of organizational structures that can be followed by retail companies, according to the nature of their activities and to achieve a better sustainable return:

Functional structure

It is a compilation of all the functional specializations in one department, which contains financial director, production director, marketing director and the director of the human resources...etc.

The advantages of this structure that it is economic and everything is centrally located, and each employee will benefit from the expertise of colleagues in the same field because they work in the same department or sector.

However, this structure is not without flaws, stands on top the lack of flexibility and poor relationship between the various disciplines, as well as the length of the functional hierarchy and that means many levels of management. "


  Product-based organizational structure

In this method the activity divided by profession or commodity, for example, a factory producing the commodity (a) the commodity (b) every activity in a group, one of the benefits of this Division is to take advantage of specialized commodity expertise also features a full coordination between the various operations, such as procurement, production, storage and sale and can easily identify the special responsibility for each product. The disadvantage of this division is the difficulty of obtaining qualified staff capable of managing all operations within the property and the difficulty of coordination between the multiple purchases operations.



The Geographical organizational structure: Departmentalization by Territory

The need arises to apply the geographical basis when the organization dealing with multiple regions and markets in matter of tastes and needs, so each unit represents a geographical and organizational self-contained unit. According to this division financing, production and marketing careers established in each geographic area.

This reorganization is used by multinational companies which have activities in several countries, such as this Organization help firms branches to interact efficiently with tastes, preferences and different cultural levels. for the advantages of this division , it would be possible to take quick decisions and easy for the coordination of the various operations of specific site because managers concerns will be focused on their local areas which fall within the scope of their competence , also this Division will allow to take advantage of the features of the lower operational cost in some areas and open wider window for training, skill acquisition and the possibility of evasion of the strict roles in some countries.

Perhaps the most important disadvantage of this division is in the presence of potential misuse of administrators in areas of the authorities granted to them and they may follows policies contrary to the policies of the main center, it also shows the need for managerial competencies leadership as well as the policies and administrative supervisory effective on different sites.

Sales Manager  

Matrix Organizational Structures

This system involves the division of workers according to a system of tasks. Also, a person in charge is appointed to supervise the workers of the different tasks and he/she becomes responsible for every single product. Thus, it is normal for workers to have to superiors.

For example, it is possible to have a career structure and then a director of each product is appointed. Therefore, workers will have two managers: the Administrator and the director of the production. This system succeeds in obtaining the benefits of the functional and the geographical structure, however; it becomes difficult to be applied because of duplication of power. This figure is still very useful for multinational companies taking into consideration the pros and cons of each administrative decision taken.

One of the most important advantages of this division that it combines many of the advantages of both the Organization and geographical organization, but it might be difficult for workers with two superiors in terms of work organization.



It is also important to mention that there are many other divisions that take into account the customer and work teams... etc. of new structures which are developed to meet the needs of firms, their visions and strategies .

  A fundamental issue

Therefore, it is important to emphasize once again the essential point related to retail companies which must be taken into account. This importance is related to the organizational structure which should be accompanied by job description for all of the main internal tasks. This becomes effective through a careful description of the departments of the chairperson, the Governing Council, and the internal audit by the Executive Director to the executive departments of the Chairperson of the various units of the marketing of human resources. If companies do not follow these steps, that may lead to perennial problem affecting the companies regardless of its size or its legal status. This problem is represented by confusion between the functions of the Governing Council and the functions of the executive departments, especially the Executive Director. This leads also to the lack of separation between the strategic tasks for planning and operational functions.

The lack of clarity of the general and detailed tasks of the board of directors and the executive departments including the executive director leads to the overlapping of functions which is considered one of the most common problems facing companies.

  In conclusion

Finally, it is remarkable to say that one of the main reasons for the weakness of organizational structure, retail companies and companies in general is the lack of these companies specialized competencies capable of preparing these structures and the adoption of senior management. Though, this is not a enough justification in the sense that this problem might be avoided by using of the Advisory companies specialized in human resources management. Bakkah Inc. is one of those consulting firms that helped retail companies improve their structures which positively influenced the performance.


Bakkah team for training and consulting

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