Functional Organizational structure: Full guide

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What does a useful organizational system entail?

An organizational structure that organizes people based on their knowledge, aptitude, or roles that are linked to them is called a functional organizational structure. It is set up in layers of hierarchy, each of which is headed by an authorized leader and includes several divisions. Functional structures are frequently used by businesses because they bring together people with similar expertise and, when used in a team environment, aid in the achievement of organizational objectives.

It’s a type of organizational structure in which the company is split up into more manageable units according to particular functional domains like information technology, finance, human resources, or marketing.

Functional Organizational Structure

Functional departmentalization may enable greater operational effectiveness because people with comparable skills and knowledge are grouped by function. The numerous functional groups may not interact in this structure, which would limit flexibility and creativity. The creation of cross-functional teams is a recent development meant to address this problem.

These operational areas are referred to as “silos” by some individuals. Similar to this, the senior management team of the business frequently consists of numerous functional heads. (such as the chief financial officer and the chief operating officer). Each functional area communicates with one another, and the department leaders relay information between departments.

Organizations with a wide range of activities frequently use useful organizational structures. People with similar and complementary knowledge and skills are brought together by the functional organizational framework. Additionally, it promotes target achievement and improved teamwork among workers. 

Product development, sales, marketing, and other specialized skill areas are typically divided into functional groups. They can also be separated into groups based on various products, services, and places, as done by Amazon and Disney. Because they function separately and have their management structures, these components are referred to as “silos.”

Related: Organizational Structures: Everything you need to know

Functional Organizational Structure Example

Functional Organizational Structure Example

Features of a functional framework

A business with a functional structure typically possesses the following traits and qualities:

  • Vertical hierarchy characterizes a functional group.
  • The business is split up into various functional departments, each with staff members with specialized job duties.
  • Due to the independent vertical management structures that each organization has, functional departments frequently work in isolation.
  • Workers answer to a manager who is in charge of their area.
  • The majority of the time, employees in one section only interact with other employees in that department. 
  • In most cases, managers answer to another functional executive position.
  • Coordinating with other managers in other areas is the responsibility of managers.

Related: Matrix organizational Structure

Benefits of a Functional Structure

Increased productivity:

People in a functional structure setting have specialized skills that allow them to work more quickly and efficiently than those who may be unfamiliar with specific subjects, which leads to greater productivity. Employees within this system of the hierarchy who demonstrate high levels of productivity often receive promotions to other positions.

Skill development:

 Within each team, experienced managers have the chance to teach their team members the same skills they possess, resulting in an enhanced skill set for all involved. Both soft and hard skills may develop over time as people work together to find unique solutions and overcome work-related challenges.


Employees within the business are always aware of where to turn for high-level information on marketing, human resources, customer service, or operations. Additionally, the functional structure’s hierarchical character makes the precise roles and responsibilities of each individual within a department clear.

Reduced operational costs:

Departments can lessen the likelihood that work will be completed by multiple departments that is comparable by organizing their staff by business functions. Giving tasks to people with the necessary abilities also results in cost savings because work is completed more effectively.

Disadvantages of Functional Organizational Structures


When departments are populated by individuals who specialize in particular job areas, teams become siloed. Separate teams prevent employees from interacting and exchanging ideas, which may be harmful to the long-term success of the company.

Deterioration of Common Bonds

A common organizational goal is a major indicator of an organization’s success and improves employee morale and productivity. The common thread highlighting a single overarching organizational goal is almost always weaker in a functional organization where each group of experts is largely isolated than in one where diverse personnel frequently collaborate. 

Related: Importance of organizational culture

Not Enough Coordination

Each functional group’s actions in a perfect functional organization wouldn’t need any input from other functional groups, but this isn’t always the case. As communication becomes more commonplace in companies, isolated groups may perform poorly or even fail because they lack a formalized way to communicate their needs and challenges to other functional groups that could have helped. 

In some instances, managers from other functional groups might not respond quickly or constructively because “it’s not our problem.” By the time the need for cooperation has been recognized, the moment when it would have been most beneficial may have passed. 

Related: 7 Most Effective Employee Engagement Strategies for 2023

Territorial disputes

Territorial conflicts are another drawback of a functional structure, which is frequently caused by the inability of functional groups to work together. Arguments over goals, budgetary competition, or a variety of other issues can result from ego conflicts that happen when each section has its distinct functional structure or when there is a weak sense of a single, overarching purpose.


The working of the functional organizational structure is challenging to comprehend due to its many intricate details. A barrage of instructions from different functional heads stuns the workforce.

Viewpoint Is Limited

Instead of concentrating on the entire organization, a functional manager tends to establish boundaries around himself and prioritize their department.

Delay in Making Decisions

Decision-making is slowed down by a general absence of coordination among the functional executives.

7 other types of organizational structures

Besides the functional organizational structure, other types of organizational structures help businesses achieve their goals, such as:

  • Divisional: Organizations are split into divisions based on specific products, services, or geographies. For this reason, this structure is typically used by large companies that operate in wide geographic areas or own separate, smaller companies.
  • Flat or horizontal: Most levels of middle management are removed so there is little separating staff-level employees from upper management. Employees are given more responsibility and decision-making power without the usual hierarchical pressures or supervision and can often be more productive.
  • Flatarchy: Companies practice elements of both a hierarchy structure and a flat structure. As businesses develop new products and services, they typically seek guidance from different departments within the organization while maintaining a hierarchical structure.
  • Hierarchical: Employees are grouped and assigned a supervisor. This structure is often depicted as a pyramid because there are multiple levels of authority with the highest level of leadership at the top, their direct employees below them, and so forth.
  • Matrix: This structure resembles a grid in which employees with similar skills are grouped and report to more than one manager. The matrix structure is typically used by large, multinational organizations and promotes the sharing of skills and knowledge across departments to complete goals.
  • Network: Managers coordinate relationships with both internal and external entities to deliver their products or services. This structure focuses more on open communication and relationships than hierarchy.
  • Team-based: Employees are grouped into skills-based teams to work on specific tasks while all working toward a common goal. This is a flexible structure that often allows employees to move from team to team as they complete projects.

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