Our Guide to Functional Organizational Structures

An organization cannot be successful without a strong org structure at its core. This is because organizational structures help to ensure that information flows and that operations run smoothly.

Having a clear organizational structure enables employees to understand their roles, responsibilities, and where they fit in internally. It’s therefore important that you choose the right one for your business.


What is an Organizational Structure?

An organizational structure, also known as an “org structure”, “org chart”, or “organogram”, illustrates the hierarchy within a business and defines everyone’s roles, responsibilities, and lines of authority.

Many organizations opt for the old-fashioned hierarchical structure where employees are grouped and assigned a supervisor. This structure often takes the shape of a pyramid because of the many different levels of authority, with the highest level typically being the C-suite and the chairman and/or chief executive officer (CEO).

There are many other different types of org structures available, however, and in recent years there’s been a trend among more organizations, especially the more “modern” start-up firms, to opt for alternative structures that better suit their operational needs and reflect their values.

One of the most common alternative structures is the functional organizational structure.


What is a Functional Organizational Structure?

A functional organizational structure is a type of knowledge-led org structure that’s used to organize and group employees based on their specific skills. It is loosely based on a typical hierarchy and includes different departments under the direction of defined leaders.

Organizations with very broad operations tend to use functional org structures because it makes the management of different business functions much easier and more efficient. It also helps employees achieve their goals and work together more cohesively because the functional org structure groups people together with similar and complementary knowledge and skills.

Functional organizations are typically segmented into specialist skill areas such as product development, sales, marketing, etcetera. However, they can also be grouped based on different products, services, and/or geographies as is the case with both Amazon and Disney.

These segments are commonly referred to as “silos” because they function independently and have their own management structures.

Related: 5 Types of Org Structures [Plus Pros & Cons]


Advantages of a Functional Org Structure

There are many advantages to using a functional org structure, including:

  • Better productivity levels
  • Promotes operational efficiency
  • Helps employees develop


Better Productivity Levels

When employees with similar skills and experience are grouped together, it often leads to better productivity. People’s roles and tasks don’t change, so there’s very little time spent on learning, and responsibility and accountability are kept clear.

Employees have one manager to whom they answer instead of multiple people, and this streamlines communication and reduces confusion. Furthermore, employees are more likely to feel loyalty towards their department and the business because they feel confident in their roles and can see how their work contributes to the organization’s success.


Promotes Operational Efficiency

Employees with specialist skills can carry out their tasks more quickly, efficiently, and confidently in a functional organization.

This naturally lends a boost to the achievement of organizational goals, and it also helps to keep employees motivated and encourages them to stick with the organization and develop internally. All these factors help to promote operational efficiency because employees are better equipped to remain on task, focused, and motivated.


Helps Employees Develop

Functional organizations have siloed departments that are staffed and managed by small, highly skilled, and specialist teams. Within each team, experienced managers have more opportunities to pass on their skills and knowledge to their team members.

This naturally helps employees develop their own interpersonal and technical skills over time as they work together to apply their knowledge and find new ways to overcome their day-to-day work-related challenges. The in-depth knowledge held by these employees can also help a company achieve its long-term functional goals.


Disadvantages of a Functional Org Structure

Some of the disadvantages of a functional org structure include:

  • Slower decision making
  • A siloed working environment
  • Internal competition


Slower Decision Making

While a functional org structure can improve productivity and efficiency, it can be a hindrance in other areas such as flexibility and creativity.

Organizational structures such as functional and hierarchical ones usually require employees to seek approval from managers or other authority figures before making decisions. When the organization is separated into functional groups, this can slow down the decision-making process and delay progress.


A Siloed Working Environment

Employees that work in siloes with little input from other departments may find that they’re working with limited knowledge as to what’s happening elsewhere within the organization. Employees may also find it harder to understand how their work fits in with teams from other departments and how it relates to the organization’s goals.

Organizations that have a functional structure must therefore take steps to ensure that each functional department is kept in the loop about how the organization is running on the whole. This can be done through efforts like email blasts, webinars, and company-wide meetings.


Internal Competition

Another downside to siloed working is that it can lead to internal competition. Teams that work together almost exclusively begin to develop their own goals and a goal-orientated mindset as a result. While this is positive, it can prompt competition between departments.

While there’s nothing wrong with a little competition, if not kept in check it can lead to disharmony with the general working environment and cause relationships between teams to break down. To maintain harmony, functional managers should work together to solve problems as they arise and ensure everyone’s working towards the organization’s needs.


Who Should Use a Functional Structure?

The functional organizational structure helps organizations operate better by grouping employees based on their specialist skills and experience.

It provides a clear hierarchy, minimizes confusion among employees, and gives specialists the room to focus on their work and develop internally. However, it can lead to drawbacks if not managed properly as it can lead to a breakdown in communication and promote siloed working.

Functional org structures are better suited to large companies, especially those that have distinct products and services or those that operate in different geographies around the world. For smaller companies with a smaller talent pool, a functional structure might be unnecessary and constraining.