Horizontal differentiation refers to how the firm divides into sub-units
usually based on function, type of business, or geographical area
Most firms begin with no formal structure, but as they grow, the organization is split into functions reflecting the firm’s value creation activities - functional structure
functions are coordinated and controlled by top management
decision-making is centralized
product line diversification requires further horizontal differentiation
Firms may switch to a product divisional structure where each division is responsible for a distinct product line