Tell a functional organization from a divisional structure by whether departments are divided by work function or by business unit.
Distinguish a matrix organization from a project organization by where members belong, how many bosses they have, and how long the organization lasts.
Explain how a company system, which delegates authority inside one company, differs from a holding company, which ties separate companies together through shares.
A hierarchical organization (階層型組織) is a pyramid-shaped organization with the top manager at the peak and levels stacked from top to bottom; instructions travel down and reports travel up.
Top manager
Department head (Dept. 1)
Section manager
Staff member
Staff member
Department head (Dept. 2)
Section manager
Staff member
Staff member
The path of who gives instructions to whom is called the chain of command (指揮命令系統), and in a hierarchical organization it forms a single line along the levels. How departments are divided is a separate question, and functional organizations and divisional structures are both built on these stacked levels.
AnalogyIt is like a school club where the coach's plan passes through the captain and each section leader before reaching the members.
How to rememberThink of a staircase: messages move up or down one step at a time, never skipping a level.
Exam points
Mix-upIn a hierarchical organization (階層型組織), each subordinate in principle has just one direct boss giving instructions. A matrix organization (マトリックス組織), where a person has two or more bosses, differs in the number of chains of command (指揮命令系統).
A functional organization (機能別組織) divides its departments by work function, such as development, production, sales and accounting.
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Because people with the same specialty gather in one department, knowledge and skills build up easily and the same work is not duplicated across departments. On the other hand, finishing a single product takes several departments working together, and cross-department coordination tends to land on top management.
AnalogyIt is like a restaurant kitchen split into grill, fryer and plating stations. Getting one dish out requires the stations to work together.
How to rememberIf departments named for what they do, such as Sales or Accounting, each appear only once and nothing is grouped by business, it is a functional organization.
Exam points
ExamAn organization chart in which departments for each work function sit side by side directly under the president, with no grouping by business, shows a functional organization (機能別組織, also called a job-function organization, 職能別組織).
A job-function organization (職能別組織) forms departments around job functions (specialist roles in the work) and refers to the same form as a functional organization.
The Japanese word for job function (職能) focuses on the specialist role a person plays, while the word for function (機能) focuses on what the work does. Under either name, the boundaries between departments are drawn by differences in specialty.
How to rememberPicture craftspeople, each given a separate workshop for their own trade.
Exam points
ExamA job-function organization (職能別組織) divides work by specialist role and uses each role as the unit of a department.
ExamA job-function organization suits a company with few businesses and a stable business environment. In that setting, the efficiency of grouping by specialty pays off.
A divisional structure (事業部制) sets up a division for each business unit, such as a product or region, and gives each division profit responsibility along with the functions its business needs.
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Since each division has its own development, production and sales, the division head can respond quickly to market changes on their own judgment. On the other hand, the same kinds of functions are duplicated in every division, which tends to waste people and equipment.
AnalogyIt is like a bakery and a flower shop owned by the same person, each handling everything from buying stock to keeping the books inside its own store.
How to rememberDivisions named for a product or place, such as Home Appliances Division or Kansai Division, each with their own sales and manufacturing departments, mark a divisional structure.
Exam points
ExamIn a divisional structure (事業部制), each division is responsible for its profit and has in-house the functions needed to run its business, so business activities are largely completed within the division.
ExamAn organization chart with the function-based departments that run each business placed under that business's head shows a divisional structure. Even the same function is handled by a different department when the business differs.
A matrix organization (マトリックス組織) is a grid-shaped organization that crosses a function axis with a business axis (products or projects), so that each member belongs to departments on both.
Function boss / Business boss
Product A lead
Product B lead
Head of Development
Staff (Development × Product A)
Staff (Development × Product B)
Head of Sales
Staff (Sales × Product A)
Staff (Sales × Product B)
Because one person takes instructions from both a functional boss and a business-side boss, they can keep their specialty while also working toward the business's goals. The trade-off is that when the two sets of instructions clash, deciding which comes first takes effort to coordinate.
AnalogyIt is like a student guided by both a homeroom teacher and a club adviser. When their plans overlap, the student is unsure whom to follow.
How to rememberMatrix as in math: one person sits in each cell where a row meets a column.
Exam points
ExamA matrix organization (マトリックス組織) combines, within a single member, management aligned with the business's goals and the specialist responsibility held by the functional department, so each member has two or more bosses.
A project organization (プロジェクト組織) gathers the people it needs from various departments to pursue a specific goal, is formed for a limited period, and disbands once the goal is achieved.
Set the goal and deadline
Gather people from departments
Work toward the goal
Disband and return to home departments
Once the goal is met, the organization disbands and members return to their home departments.
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Members bring the expertise of their home departments, so the team can concentrate on cross-department tasks such as developing a new product. Since people go back to their home departments when it disbands, the team works with a clear deadline and goal.
AnalogyIt is like a school festival committee. Students from each class join it, and once the festival is over, it breaks up and everyone returns to their own class.
How to rememberProject comes from Latin for "throw forward": once it lands on its target, its job is done.
Exam points
Mix-upA project organization (プロジェクト組織) is a temporary organization that disbands once its goal is achieved. It differs in how long it lasts from a functional organization (機能別組織) or divisional structure (事業部制), which continue as permanent departments.
A company system (カンパニー制) treats the organization for each business area inside one enterprise like an independent company, giving it broad authority and responsibility as a self-supporting unit.
Each in-house company is often entrusted with a wider scope than under a divisional structure, extending to decisions on investment and how funds are used. Legally, however, the whole remains a single company.
AnalogyIt is like siblings under one roof who each manage their living from their own wallet. They still share the same home address.
How to rememberAn in-house company is exactly what the name says: a company that sits inside a company.
Exam points
ExamA company system (カンパニー制) sets up highly independent organizations for each business area inside one enterprise, in order to speed up decisions and promote self-supporting accounting (独立採算).
A holding company (持株会社) controls other companies as subsidiaries by owning their shares, and brings the whole group together.
Holding company (owns shares)
Subsidiary A (separate entity)
Subsidiary B (separate entity)
Subsidiary C (separate entity)
One that runs no business of its own and concentrates on group strategy and management is a pure holding company (純粋持株会社), while one that runs its own business as well as owning subsidiaries is an operating holding company (事業持株会社). Many put "Holdings" (ホールディングス) in their company name.
AnalogyIt is like a driver holding reins made of shares, keeping several separately running carriages headed the same way.
How to rememberHolding simply means owning, which is where company names ending in Holdings come from.
Exam points
Mix-upA holding company's (持株会社) subsidiaries are separate companies in law as well. That separation goes deeper than under a company system (カンパニー制), which divides things internally while remaining one legal entity.
Company System vs. Holding Company
Aspect
Company System
Holding Company
Key differenceNumber of legal entities
One (in-house companies are internal divisions)
The holding company and each subsidiary are separate entities
How it holds things together
Delegating authority within the company
Control through share ownership
Key points
The stacked levels of a hierarchical organization also form the base of the chain of command in other organizational forms.
Functional organization and job-function organization are two names for the same form, which values efficiency by specialty.
In a divisional structure, each division is responsible for its profit and has in-house the functions its business needs.
Members of a matrix organization have two or more bosses, so their instructions have to be coordinated.
A company system gives internal business areas broad authority and responsibility as self-supporting units, yet it remains one legal entity.