Functional Organizational Structure: Everything You Need to Know

December 14, 2023
4 minute read

What is a functional organizational structure?

Just the way it sounds, a functional organizational structure definition is when a team is organized by function. So if you have 5 designers, they will be grouped together because they have the same function. Leading the design team will be a functional leader. Similarly, anyone involved in finance will be grouped together, and anyone involved in HR will be grouped together. Usually, a functional organizational structure means limited communication between functional groups. However, leaders of each department will communicate with each other.


Functional Organization Structure

Functional Organization Structure


Why have a team structure in the first place?

Before we go on to the details of functional organizational structures, let’s just clarify why having some sort of team structure is necessary in the first place. 

  1. Team members need to know who is involved in what and who is in charge of what to know who to communicate with and who to direct questions to.

  2. When a company is structured, individuals feel a responsibility to do their job well because there is more accountability. If there is no official structure, tasks can fall by the wayside because no one group feels responsibility for them.

  3. Every company needs some kind of hierarchy of authority. If everyone is equal, it isn’t easy to make decisions or put necessary policies into place. 


What are some functional organizational structure advantages?

Below, we’ll go into some of the advantages and disadvantages of a functional organizational structure.

  1. Employees are very good at what they do. When team members of a certain expertise work alongside each other, knowledge is easily shared and learned. This means that employees can progress quickly from beginner to expert. 

  2. Things get done quickly. Following on from the above point, having a concentration of expertise allows tasks to be completed quickly. If team members are mixed together, tasks take longer as there is less collaboration.

  3. Training is easy. When a company works with a functional organizational structure, only a limited amount of training is necessary because employees only need to be trained in their specific area.

  4. Money saving. For all the reasons above, having a functional organizational structure can be money-saving. Work gets done faster and less time is wasted on training and trying to get answers to questions.


What are the disadvantages of a functional organizational structure?

Whilst a functional organizational structure can be ideal for certain companies, some disadvantages come along with it. So, what problems can result from the use of a functional organizational structure?

  1. Limited collaboration. When you have employees working in siloed groups, there is limited cross-departmental communication. This can mean that individuals are not fully aware of the end goals of projects, which can lead to a lower work ethic.

  2. Reduced team spirit. Not only can a functional organizational structure mean a reduced team spirit due to employees working in silos, it can actively promote competition across different departments. Whilst having a generally competitive team is a good thing, when there is competition within your company, you end up with negative feelings instead of the team spirit you are aiming for.

  3. Delayed decision-making. In a functional organizational structure, decisions typically have to be made by team leaders/managers. Instead of making decisions independently, team members have to wait to get things decided and approved by those above them. This can create bottlenecks and waste time.


Which type of company is best suited to a functional organizational structure?

  • Large companies. Large companies consist of many people with the same expertise. Grouping team members by expertise streamlines and focuses larger companies, and the managerial aspect of the functional organizational structure means that there is someone for team members to direct questions to.

On the other hand, smaller companies may find a functional organizational structure too restrictive and generally unnecessary.

  • Companies that produce a limited amount of goods/services. This type of company has a narrow focus, so it makes sense for them to concentrate their workers on their areas of expertise. A company that offers a whole range of services/goods would have to have many functional groups and this can become overwhelming, as well as be inefficient due to lack of communication between groups.

  • Companies that focus on providing expert services. As we mentioned above, a major advantage of a functional organizational structure is that it concentrates the expertise of team members. This is very useful if you offer expert services as your clients mostly care about the level of expertise you can offer them and having the united power of a functional group’s expertise will give you a big leg up.

What is an example of a functional organizational structure?

Makeover is a (fictional) company that sells makeup and consists of about 400 employees. Makeover uses a functional organizational structure to organize employees into the following functional groups:

  • Research
  • Design
  • Development
  • Marketing
  • Finance
  • HR

At the head of the department is a functional manager to whom team members report to. These functional managers then report to their managers, who then report to the CEO.



What are some other types of organizational structures?

Some other functional organizational structure examples include:

  • Hierarchical: This structure is heavily focused on authority levels and works well for big corporations.
  • Flatarchy: The opposite of hierarchical, the flatarchy structure has only a very basic hierarchy of authority. Usually, team members all have the same authority level and report directly to the CEO. This type of structure works well for smaller companies, the advantage of it being that less time is wasted as decisions are processed through different hierarchical levels and collaboration is increased.
  • Divisional: This type of organization is similar to the functional structure, the difference being that in a divisional structure, employees are organized by department rather than by function. For example, in a company that sells men’s suits, there will be a division for jackets, a division for pants, a division for shirts, etc. Each division is self-contained with its own HR, finance, and marketing department. A divisional structure works well for companies that produce many goods or work across many locations.
  • Matrix: The matrix structure arranges team members so that there are two, cross-functional leaders for team members of different project groups to report to; their functional manager and their project manager. This setup is ideal for companies that have many projects running at once.


How can you be more organized with Workamajig?

No matter what organizational structure you choose for your company, an organizational structure is only one aspect of having things, well, organized!

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