Common Organizational Structures
Functional Structure
An organization with a functional structure is divided based on functional areas, such as IT, finance, or marketing.
Learning Objectives
Explain the functional structure within the larger context of organizational structures in general
Key Takeaways
Key Points
- A functional organization is a common type of organizational structure in which the organization is divided into smaller groups based on specialized functional areas, such as IT, finance, or marketing.
- Functional departmentalization arguably allows for greater operational efficiency because employees with shared skills and knowledge are grouped together by function.
- A disadvantage of this type of structure is that the different functional groups may not communicate with one another, potentially decreasing flexibility and innovation. A recent trend aimed at combating this disadvantage is the use of teams that
cross traditional departmental lines.
Key Terms
- silo: In business, a unit or department within which communication and collaboration occurs vertically, with limited cooperation outside the unit.
- departmentalization: The organization of something into groups according to function, geographic location, etc.
Overview of the Functional Structure
An organization can be arranged according to a variety of structures, which determine how the organization will operate and perform. In a functional structure, a common configuration, an organization is divided into smaller groups by areas of specialty (such as IT, finance, operations, and marketing). Some refer to these functional areas as "silos" - entities that are vertical and disconnected from each other. Correspondingly, the company's top management team typically consists of several functional heads (such as the chief financial officer and the chief operating officer). Communication generally occurs within each functional department and is transmitted across departments through the department heads.
Functional structure at FedEx: This organizational chart shows a broad functional structure at FedEx. Each different function (e.g., HR, finance, marketing) is managed from the top down via functional heads (the CFO, the CIO, various VPs, etc).
Advantages of a Functional Structure
Functional departments arguably permit greater operational efficiency because employees with shared skills and knowledge are grouped together by functions performed. Each group of specialists can therefore operate independently with management acting as the point of cross-communication between functional areas. This arrangement allows for increased specialization.
Disadvantages of a Functional Structure
A
disadvantage of this structure is that the different functional groups
may not communicate with one another, potentially decreasing flexibility
and innovation. Functional structures may also be susceptible to tunnel
vision, with each function perceiving the organization only from within
the frame of its own operation. Recent trends that aim to combat these
disadvantages include the use of teams that cross traditional
departmental lines and the promotion of cross-functional communication.
Functional
structures appear in a variety of organizations across many industries.
They may be most effective within large corporations that produce
relatively homogeneous goods. Smaller companies that require more
adaptability and creativity may feel confined by the communicative and
creative silos functional structures tend to produce.
Source: Lumen Learning, https://courses.lumenlearning.com/boundless-management/chapter/common-organizational-structures/
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