What Is A Functional Structure Within An Organisation?

By Indeed Editorial Team

Published 4 November 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Most businesses follow an organisational structure that helps improve their efficiency and creates an environment conducive to growth. Organisations can choose from hierarchical, functional and divisional organisational structures, among others. Knowing more about these structures can help you understand how they contribute to the productivity and efficiency of the teams in a company. In this article, we discuss the meaning of functional structure in organisations, describe its characteristics and explain the advantages and disadvantages of this setup.

What Is A Functional Structure In Organisations?

A functional structure is an organisational structure where senior management divides a larger company into smaller homogenous groups or departments. These departments consist of employees with the same specialist backgrounds as one another. For example, senior management may break down a larger business into marketing, finance, legal and operations departments. Each department is responsible for a specific business function and reports to its respective functional managers or department heads.

All the business's functional units work towards the organisation's common objective. Functional organisations follow a vertical hierarchy, where each employee reports to someone senior. For example, a sales executive may report to a sales manager, while the sales manager may report to the company's vice president. Each of these departments works independently and follows a vertical hierarchy within them.

Related: What Is An Organisation? (Characteristics And Structures)

What Are The Characteristics Of A Functional Organisational Structure?

The characteristics of functional organisational structures are as follows:

There is a senior management team

Businesses that follow this type of organisational structure usually have a senior management team. This senior management may consist of the founders, C-suite level employees or the board of directors. Managers and department heads report to the higher-ranked senior management. The senior management is sometimes known as the top management because it is the topmost in the company hierarchy. While the functional departments execute the day-to-day operations within the organisation, the senior management focuses on strategy and planning.

Related: The Importance Of Delegation Of Authority In Management

Each department follows a vertical hierarchy

Every department in an organisation that uses a functional structure follows a vertical hierarchy. In a vertical hierarchy, every employee reports to a management figure senior to them. The associates and executives of each department report to their department head or manager. The manager, in turn, reports to their superior, usually someone who is part of the company's senior management.

While each department acts as an independent, functional unit, the department heads coordinate to communicate with each other. This helps ensure that all departments work together towards the company's larger objectives. For example, the marketing manager is responsible for communicating with the heads of the finance department and the sales department and vice versa.

Related: What Is Organisational Culture?

Every employee pursues a specialisation

In functional organisations, every functional unit consists of employees with similar skill sets and expertise in a particular business function. For example, the accounting department comprises all employees who specialise in business finance and have accounting skills. This helps employees achieve business functions and unit goals collectively in teams. Every employee who joins a functional organisation pursues a specialisation so that management can allocate them to the respective functional unit. It also helps them learn from the collective expertise of the department.

Advantages And Disadvantages Of Functional Organisational Structure In The Workplace

Here are the advantages and disadvantages of this type of organisational structure:

Advantages

Companies with a functional organisational structure can gain the following advantages:

Improves employee skill sets

Functional organisations group their employees based on their common skill sets. This ensures that employees with the same specialisations combine their efforts in achieving the company's business goals. Functional teams usually consist of employees with different levels of expertise. Every functional team has either a manager, a department head or a team leader who ideally has more experience than their team members.

Managers can use their learnings and knowledge to guide their team members and help improve their individual and collective capabilities. Employees can also improve and develop their skills while working with other colleagues in their teams, such as their communication and interpersonal skills and conflict resolution.

Increases organisational efficiency

By following this structure, managers can ensure that they allocate only relevant and interesting tasks to the team members. This helps them allocate a company's resources and their team members' time effectively. It also ensures that employees are able to make valuable contributions to the company's growth.

Each department is responsible for its own success because each functional unit works independently, which creates a sense of competition and encourages all teams to perform well. When every department strives to boost its productivity, they collectively help improve the efficiency of the whole organisation. The independent nature of each functional department also helps ensure that conflicts within one unit do not affect the performance of another within the company.

Related: How To Improve Work Efficiency And Become More Productive

Offers a stable work environment

As functional units within an organisation, each comprises its own unique specialisations and skills. Every department is aware of its key responsibilities. There is a structure within each department, and employees know who they can approach for each concern. Each functional department is also aware of the roles of other units, which can enable them to direct relevant concerns for a smooth workflow.

Employees are likely to have clarity on the scope of their work because each unit knows its precise functions and roles. It also can ensure accountability at all times within the organisation. For example, when marketing teams encounter customers who have problems with post-purchase support of the company's products, the marketing team can route the concerns to the customer service department. The customer service team is also aware of their responsibilities within the organisation and can then take responsibility for improving customers' experience post-purchase.

Related: SMART Goals: Definition And Examples

Disadvantages

Here are the disadvantages that companies with a functional organisational structure may encounter:

Weakens communication

There may be a lack of communication within teams because each department in a functional organisation works independently. Employees may prefer to socialise strictly within their departments, creating smaller social groups within the company. Often, employees who work in isolation or in small groups can lose their focus on the organisation's larger objectives and direct their focus only on the task they are completing.

In companies with a functional organisational structure, there is the potential for each unit to have limited exposure to other business functions, and they may have little understanding of what other departments do. This may require additional efforts from the department heads to ensure that teams sufficiently interact with each other. It is also important to ensure that every department knows about the progress and contributions of all other departments. For this, department heads can take specific measures, such as organising interdepartmental gatherings and company-wide memos or meetings.

Related: 12 Communication Benefits For The Workplace (Plus Tips)

Creates competition between departments

Having functional departments in an organisation can often lead to competition between units. This can affect interdepartmental collaboration and reduce the effectiveness of teams working towards the company's objectives. As this type of organisational structure restricts teams to just their departments, it may also further create a sense of competitiveness within the department. These competitions can often affect the department's productivity as team members try to outperform each other rather than work together to complete specific tasks.

Increases the chances of missing business growth opportunities

Often, organisations may find interesting opportunities for growth when different departments work together. When different departments work together on a problem, they can identify better solutions rather than what they could when working in isolation. It can help them evaluate problems from different perspectives. For example, if the sales numbers have reduced, causing a decline in company profits, different departments, such as sales, marketing and customer support, can work closely to identify the cause of the problem and create customer acquisition campaigns together.

Related: How To Demonstrate Leadership Skills At Work: A Guide

Causes delays due to operational inefficiency

The pace of operations within the organisation may often be slow because this organisational structure follows a vertical hierarchy. All decisions require the approval of senior management, which is what causes this drop in work speed. Consequently, every step may often go through several layers of approval before its final implementation. The entire process may experience a setback if there is any delay in feedback from the higher level of management. It can delay the overall progress of the department and the company.

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