BUS603: Managing People

As a small organization grows, the one in charge often finds that a simple structure is no longer adequate to meet the organization's needs. Organizations become more complex as they grow, and this can require more formal division of labor and a strong emphasis on hierarchy and vertical links. In many cases, these firms evolve from using a simple structure to relying on a functional structure.

Grocery Store Functions

Spa Functions

Grocery stockers often work at night to make sure shelves stay full during the day. Pharmacists' specialized training allows them to command pay that can exceed $50 an hour. Bakers wake up early to give shoppers their daily bread. Bagging groceries requires a friendly personality as well as knowing that eggs should not go on the bottom. Folks that work checkout aisles should be trusted to handle cash. The creation of produce, deli, and butcher departments provides an efficient way to divide a grocery store physically as well as functionally.

Some spa employees manicure fingernails, a practice that is over four thousand years old. Many also provide pedicures, a service whose popularity has nearly doubled in the past decade. Compared to other spa functions, little training is required of a tanning bed operator–although the ability to tell time may help. Almost anyone can buy a shotgun or parent a child without any training, but every state requires a license in order to cut hair. Cucumber masks are usually applied by a skincare specialist who has taken a professional training program. The license required of massage therapists in many states ensures that spa visits end happily.

 
Table 3 Functional Structure. Functional structures rely on a division of labor whereby groups of people handle activities related to a specific function of the overall business. We illustrate functional structures in action within two types of organizations that commonly use them.

Within a functional structure, employees are divided into departments that each handle activities related to a functional area of the business, such as marketing, production, human resources, information technology, and customer service. Each of these five areas would be headed up by a manager who coordinates all activities related to her functional area. Everyone in a company that works on marketing the company's products, for example, would report to the manager of the marketing department. The marketing managers and the managers in charge of the other four areas in turn would report to the chief executive officer.

Using a functional structure creates advantages and disadvantages. An important benefit is that each person tends to learn a great deal about their particular function. When placed in a department that consists entirely of marketing professionals, an individual has a great opportunity to become an expert in marketing. Thus a functional structure tends to create highly skilled specialists. Second, grouping everyone that serves a particular function into one department tends to keep costs low and to create efficiency. Conflicts are rare in departments because everyone generally shares the same background training so they tend to get along with one another.

Using a functional structure also has a significant downside: executing strategic changes can be very slow when compared with other structures. Suppose, for example, that a textbook publisher decides to introduce a new form of textbook that includes "scratch and sniff" photos that let students smell various products in addition to reading about them. If the publisher relies on a simple structure, the leader of the firm can simply assign someone to shepherd this unique new product through all aspects of the publication process.

If the publisher is organized using a functional structure, every department in the organization will have to be involved in the creation of the textbooks. Because the new product lies outside each department's routines, it may become lost in the proverbial shuffle. Unfortunately, the publication process may be halted whenever a functional area does not live up to its responsibilities. More generally, because functional structures are slow to execute change, they tend to work best for organizations that offer narrow and stable product lines.

The specific functional departments that appear in an organizational chart vary across organizations that use functional structures. In the example offered earlier in this section, the firm was divided into five functional areas: (1) marketing, (2) production, (3) human resources, (4) information technology, and (5) customer service. In the TV show The Office, a different approach to a functional structure is used at the Scranton, Pennsylvania, branch of Dunder Mifflin. As of 2009, the branch was divided into six functional areas: (1) sales, (2) warehouse, (3) quality control, (4) customer service, (5) human resources, and (6) accounting. A functional structure was a good fit for the branch at the time because its product line was limited to just selling office paper.