What is a functional organizational structure?
A functional organizational structure is a framework that groups employees based on their business functions. In simple terms, a company has unique departments, like marketing, finance, human resources, and so on. A dedicated manager or director then oversees each of these departments.
Functional Organization Structure
This article will help you understand how the functional organizational structure works, its key advantages and disadvantages, assess whether the structure makes sense for your team, and compare the functional structure to other commonly used organizational models.
Key Takeaways
- A functional organizational structure organizes teams based on their defined roles and specializations.
- This structure works best for large companies and service-based businesses, as it allows for deep expertise.
- To fully utilize this structure, a clear organizational chart and reporting structures help combat the risks of having siloed teams.
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.
- Clear reporting lines. An organizational structure clarifies who is in charge of each team, so employees report to the right people.
- 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 responsible for them.
- Every company needs a clear chain of command. If everyone is equal, it’s hard to make decisions or put necessary policies into place.
What are Some Advantages of a Functional Organizational Structure?
Below, we’ll go into some of the advantages of organizing into functional departments.
- Employees are very good at what they do: When team members with similar skill sets work alongside each other, knowledge is easily shared and learned. This means that employees can progress quickly from beginner to expert, and various business functions are fulfilled at the highest quality.
- 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.
- Training is easy: When a company works with a functional organizational structure, skill development is more straightforward, as teams can optimize for knowledge and skills that are most relevant to their work.
- Money saving: For all the reasons above, having a functional organizational structure can save money. 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, it is not without risk. Below are some of the issues teams can run into when using this type of structure, as well as tips on how to minimize their impact.
- Limited collaboration. When you have employees working in siloed groups, they risk limiting cross-functional collaboration. This can mean that individuals are not fully aware of the end goals of projects, which can lead to a lower work ethic.
This is where functional leads are important—cross-functional collaboration, with most, if not all, teams represented, helps keep the business focused on shared goals. - Reduced team spirit. Not only can a functional organizational structure lead to reduced team spirit due to employees working in silos, but it can also actively promote competition between departments. While having a competitive business is a good thing, this backfires when the competition is directed at one another, instead of working together, so the business gains an edge over external competitors.
- Slow decision-making. In a functional organizational structure, decisions are typically made by team leaders/managers. Instead of making decisions independently, team members must wait for things to be decided and approved by those above them. At a certain point, this reduces operational efficiency when poorly managed.
Which Type of Company is best Suited to a Functional Organizational Structure?
- Large companies: Bigger teams are more likely to have employees with the same expertise. Grouping team members like this helps streamline work and ensure that each team is led by someone who deeply understands the team’s functions.
On the other hand, smaller companies may find an org chart too restrictive and generally unnecessary, as their bandwidth often requires them to juggle multiple roles.
- Companies with few product lines: 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 need to have many functional groups, which can become overwhelming, as well as inefficient due to a 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 allows for deep expertise. 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?
Using the criteria above, we can illustrate an example of a growing company and how it leverages functional organizational structures for its business.
“Visibility” is a (fictional) startup that provides marketing services to various brands, specializing in social media marketing. At its core, it is comprised of the following functional areas:
- Finance
- HR
- Business Development
- Marketing/Production
Initially, the Marketing/Production team is further grouped into a number of specialized skills:
- Graphic Design
- Copywriting
- Research
As the social media landscape evolved to accommodate video, Visibility naturally needed to adapt. This then prompted the creation of a dedicated Video Editing team, which gives the team a new, unique competency it can offer to the market.
At the head of each department is a functional manager to whom team members report. 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 flat 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 a self-contained, cross-functional team 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.
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