Horizontal differentiation

The term refers to the way in which a company’s activities are divided into distinct units. The most popular forms of horizontal differentiation are shown below.

Organization by function.

The top management of Computercorp might decide that the company should be structured according to the functions it performs. The main function of the company are research and development, manufacturing, marketing, and finance. If the company chooses a functional structure, the result will look like this:

Organization by product

Computercorp makes two kinds of products, hardware and software. Top management may think that these products are so different to each other that it is better to organize the company on the basis of the different products it makes. If the company chooses a product structure, the result will look like this:

Organization by location

A third alternative is to structure the company on the basis of location. Computercorp’s headquarters are in London, but it has offices around the world. If the company chooses a location structure, the result will look like this:

Organization by customer

Another way to structure the company is by reference to the kind of customer that it serves. Computercorp sells its products to business users and consumers, so this kind of organizational structure will look like this: