Functional Organizational Structure

Functional Organizational Structure

For a business to reach its maximum performance levels, all its parts have to be aligned in a well-organized structure. The type of structure a company adopts can define its success or failure.

Depending on your type of company, a functional organizational structure can be the perfect tool to achieve this. However, before you delve into applying it to your business, you must understand its basic principles.

In this article, you will be given a comprehensive overview of the functional structure definition, how a functional organizational structure works and its advantages and disadvantages.

What Is Functional Organizational Structure?

The organizational structure of a company refers to the way tasks flow through its entire chain of command. If the organization works effectively, it allows the different departments to excel within their individual capacities and manage tasks on a company level.

Depending on their goal, organizational structures can be either traditional or non-traditional. The latter are boundary-less and more flexible. Due to their ability to work on virtual, modular and cellular levels, they can react to any issue quickly.

Traditional organizational structures work by formalizing employee groups based on strict requirements. These methods include vertical structures, like the divisional and the functional organization, and a matrix, which represents the combination of vertical and horizontal approaches.

Every organizational structure has a different approach to establishing an uninterrupted workflow, which is crucial for a thriving company. Functional organizational structure groups the teams inside a company, helping them work together towards a common goal.

It defines the part each group plays in shaping the future of the entire organization. Based on a complex hierarchical system, a functional organizational structure establishes a clear line of authority, starting from the individual supervisors, going upwards to higher management, and ending with the CEO.

How Does a Functional Organizational Structure Work?

At the base of every functional organizational structure are the workers employed by the company. When it comes to functional structure, each of them has a specific skill set, and by grouping these experts together, this organizational structure creates a complex yet effective business system.

These teams have their own management structures that function independently. Ultimately, all of them answer to one clearly defined authority figure. The employee responsible for a specific product reports to the leaders of the company's marketing, research, IT and other teams, while these are held accountable by the top management.

The ultimate goal of a functional structure is to put together all the companies’ resources necessary for conducting every single one of its activities flawlessly. This is made possible by dividing the company into its different functional units, which allow for more extensive control over the workflow.

It's important to note that in this vertical management structure, employees of each department only communicate with each other and their leaders.

If there is an issue between the different departments, their leaders will resolve this between each other. This enables creating a stable environment where the business can operate continuously and conquer even larger market shares.

Compared to other organizational structures, a functional method has some significant differences. For example, a matrix structure enables employees to report two managers instead of one, as they do in a functional one.

Whereas the flat organization is devoid of any titles, and employees have a distinguished authority figure they report to in the functional organization.

There are, however, similarities between functional and divisional organizations, as they both rely on grouping employees into different sectors.

Examples of a Functional Structure

Functional organizational structures are typically employed by companies that operate on a global level and have a wide variety of specific divisions to overview. They often combine the functional approach with other organizational structures, such as the matrix or the divisional structure.

For example, a telecommunication company that employs different directors for its marketing, supply chain, human resources, customer support, IT and legal sectors typically has a well-established functional structure.

While each division director is responsible for controlling their team's functionality, they usually report to a board of directors, on top of which is the CEO. The different sectors also work for a unified goal to improve the telecommunication services and satisfy the needs of their customers.

Advantages of Functional Organizational Structure

Developing Employees’ Specialization

A functional organizational structure relies on groups of workers with similar skill sets. These are small teams that are responsible for very specific tasks. However, for this system to maintain maximum efficiency, these skills need to be honed.

Professional development includes honing soft skills, which refer to interpersonal connections, and developing hard skills. These represent the technical aspect of their knowledge. Both skill sets are necessary for overcoming professional challenges.

By showing that higher expertise is valued more, this system encourages professionals to keep learning. Team managers are responsible for helping the workers under their supervision improve their skills and gain even more in-depth knowledge of the subject.

Long-term professional development creates security and job satisfaction for the employees, as it leads to promotions and recognition. Furthermore, they will come up with even more innovative solutions in the future, which will gain more profit for the company.

Higher Operational Efficiency

The more knowledge a specialist has in their field of work, the faster they will get the tasks done. Since a functional organization employs only skilled workers, their operational efficiency is raised higher by default.

Not only are the employees more confident about their approach, but every accomplished task further raises their performance levels.

This allows the company to achieve its goals much faster, which means staying ahead of the competition. It also keeps your employees happy and motivates them to help develop the company even further.

Functional Organizational Structure: Everything You Need to Know
Functional Organizational Structure: Everything You Need to Know

Creating a Clear Hierarchy

A well-established functional organizational structure creates a clear chart of hierarchy. Everyone has an individual role in the company and is responsible for very specific tasks.

Many companies even make computerized maps to help their employees understand how their company hierarchy works.

This way, everyone understands who they are answering to. Knowing who they may turn to with their ideas or possible issues can be reassuring for employees on all levels.

There is no ambiguity about who communicates with whom, only employees who work on the same level communicate with each other, with any serious issues escalated to their supervisors.

Because of this, the number of communication channels is reduced to the bare minimum. Besides saving money in the budget, this also facilitates information flow from one level to another.

In addition to gaining information within a division, if someone in one team needs a piece of information about another team's work, they will know where they can get it.

In most companies, the same principles are applied to requests coming from outside the company as well. If a potential business partner or investor is interested to learn more about a particular sector, they know who to contact.

Minimizing Operation Costs

Functional structures are one of the best ways to save money. Grouping teams based on specific functions reduces the chance of wasting resources for completing similar work. Due to their collective expertise, these teams complete their tasks much more efficiently, diminishing expenses for additional materials.

When different department heads are supervising a team of experts, the owners don't have to worry about wasting resources on individual tasks. They can develop business plans that will yield even more success, and they will have more funds for accomplishing these plans.

Disadvantages of Functional Organizational Structure

Cooperation Issues

Despite the allure of higher efficiency a functional organizational structure presents, achieving this can be challenging. The main reason for this is that the teams are not in direct contact with each other, just their leaders are.

This makes collaboration between different teams troublesome and can even compromise company goals. Since each group of specialists has their own little circle, they can even inadvertently cause misunderstandings with other teams.

Functional structures offer very little supervision and guidance, making it very easy for employees to lose track of how their work relates to the other divisions.

Without regular company meetings, they may even fail to understand the company's goals. Several of these incidents can cause serious rifts between the different divisions, causing the parties to be reluctant to cooperate.

The company can waste a lot of time and effort trying to persuade their teams to pick up their part of a project. Ultimately, the business will lose money too, which has a further demotivational effect and decreases production efficiency.

Management Concerns

As the cooperation and the communication between individual sectors deteriorate, this can cause serious headaches for the management. Since each team has its own manager, the communication issues often work their way up to these levels.

The managers often make decisions based on what they consider best for their team, and this rigidity can cause further arguments.

The team leaders can’t hold each other accountable but might change their decision if ordered by the board of directors. However, until the issue gets there and the directors respond, the company can lose valuable time.

Unhealthy Competition

The easiest way for a team to lose track of company goals is by focusing only on their results. Since they work in their own little bubble, the members of each team learn to depend solely on each other and disregard others.

While a dose of healthy competition may spruce up the efficiency, if it's not handled properly, the teams will soon try to outperform each other. It's the managers' responsibility to cooperate with other department leaders and discourage unhealthy competition among their workers.

If they fail to do so, the workers can disregard company priorities and their goal will be to beat the other teams, not the competition.

Difficult Decision-Making

One of the reasons functional organization structures don’t work for every business is that, in some cases, it may affect the company's ability to make decisions efficiently.

Regardless of its size, if a business thrives on creativity, it will need much more flexibility than a functional structure can offer.

This method requires a specialist to look at a task, find the best approach, contact their supervisor and wait for their approval before proceeding with a project. While managers can avoid wasting time by keeping in touch with their team members, in a functional structure, this isn't always possible to do.

If an issue arises, and due to the manager's unavailability, a worker can't react as quickly as they should, the lack of action can have dire consequences for the company.

Where Does A Functional Organizational Structure Work?

The functional organization structure works perfectly in companies focusing on specific operations, providing a limited assortment of products or services. Typically, these are larger businesses involved in logistics, manufacturing, e-commerce or any other area that employs skilled experts to fill specific roles.

For these companies, it's crucial that each of their employees has in-depth knowledge in the field they are working in.

After all, this is what allows for a great functional organization. Every company that emphasizes developing a fundamental research program is well-suited to a functional organizational structure.

These kinds of projects usually capitalize on the expertise of their specific departments, allowing them to use their knowledge to improve the functionality of the entire company.

On the other hand, smaller companies focus more on the scope of the information their employees can process, which means they aren't suitable for a functional structure.

They are limited to having their workers deal with various issues simultaneously, and they would find employing experts that work only in one field too restraining.

Final Thoughts

Functional organizational structures help companies operate their teams as a whole, regardless of their complexity. By grouping the staff based on their expertise, this structure established a clear hierarchy, making everything run smoothly and efficiently.

Every company that wishes to minimize wasting time and resolve potential authority issues between employees can benefit from a well-established functional organizational structure.

That being said, this method isn't without fault, either. The lack of clear lines of communication between certain levels of the hierarchy can represent a problem that may lead to a drop in performance on a company level.


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