Functional Organizational Structure: Everything You Need to Know (2024)

What Is a Functional Organizational Structure?

A functional organizational structure is a structure used to organize workers. They are grouped based on their specific skills and knowledge. It vertically structures each department with roles from the president to finance and sales departments, to customer service, to employees assigned to one product or service. Functional organizations contain specialized units that report to a single authority, usually called top management.

Each functional unit handles one aspect of the product or service provided such as:

• information technology
• marketing
• development
• research, etc.

They are referred to as "silos" because the function independently and have their own vertical management structure. Workers within each functional department communicate with each other exclusively, and then department heads communicate with each other. This structure works well in a stable environment that has continuous operations. The goal of a functional structure is to put together every informational and human resource necessary for one activity in a single place. The functional organizational structure helps organizations run their business and earn a profit.

Advantages of a Functional Structure

When employees who have similar skills and experiences are grouped together, it makes production more efficient and of a higher quality. Roles and tasks do not change very much so there is little time spent learning, and accountability is clear. Since the hierarchy is simple, employees know the one manager they are to answer to, instead of multiple people. This streamlines communication and reduces confusion among employees. Employees can feel confident about what they're doing because it is standardized. They are more likely to feel a loyalty to their department and the organization as a whole. This increases morale and work ethic, as there is more job security. There is a clear path of growth for employees which provides motivation, and they are more likely to be corporative with people in their department. A functional organizational structureprovides a perfect environment for learning for new employees (especially new college graduates) to be taught the real-world application of theoretical information.

Disadvantages of the Functional Organizational Structure

Employees may find it boring to repeat the same task over and over, and become less enthusiastic over time. If promotions are not handled well, an employee may be discouraged if a lower-performing peer is promoted over them. Problems may arise among management if department heads are only focused on their department and do not communicate effectively with other departments. This can cause poor communication and "silos" that are too independent from one another. If employees and management are only loyal to their teams, there will be a lack of teamwork and coordination.

It is a rigid structure where changes, innovations, and flexibility can be difficult to implement. An employee in any department may lack knowledge of information about all other departments. Managers tend to make decisions without consulting the department first, which can lead to problems. A department can become too autocratic and put its goals above those of the organization as a whole. With so many specialists involved in a process, it is difficult to pin the blame for a specific product or service malfunction on any individual.

Who Is Best Suited for a Functional Organizational Structure?

Larger companies are better suited to use the functional organizational structure, especially ones that produce just a few types of goods or services. Smaller companies may not need the structure or may find it too constraining. For projects in which the depth of knowledge is more important than the breadth of information, a functional organizational structure is appropriate. For instance, a fundamental research and development program is well-suited to a functional organizational structure since the project can capitalize on the expertise of the department.

The functional organizational structure helps organizations run their business and earn a profit by grouping employees based on their skills and expertise. It provides a clear hierarchy and minimizes confusion among employees who may be unsure who they are to report to. It is an efficient way to run a business but can have drawbacks as it can lead to a lack of communication between departments and unenthusiastic employees.

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