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What’s it: Organizational structure by function or functional organizational structure is an organizational structure in which a company arranges an organization based on business functions. Each function requires specific knowledge and skills. Typical business functions are operations, marketing, human resources, accounting, and finance. However, they will vary greatly between companies. In addition, some may add certain functions such as information technology and research and development.
The functional structure allows companies to achieve higher economies of scale and productivity through specialization. People in the department become more and more skilled as they have specific jobs and tasks.
However, ego problems and poor coordination are weaknesses of this structure. In addition, each department operates and has independent targets. Finally, they are more concerned with their functional areas without considering other departments.
How does an organizational structure by function work?
Functional structure is the traditional method of arranging organizations. Companies group their organizations into departments or divisions, such as operations, marketing, finance, and human resources. After establishing the department, the company organizes the positions, sorted by seniority.
The board of directors becomes the chief executive. They consist of the president director and functional director. And each department will be under a functional director.
Now, let’s take the marketing department as an example. The marketing director represents the top position in this department. He performs his specialist function by directing and coordinating the company’s marketing function. He has no authority over people outside their jurisdiction.
Within the marketing department, a manager acts as the head. He is responsible for and reports to the marketing director and oversees several positions.
How positions within the marketing department are organized will vary greatly between companies. For example, a manager might serve as the head of a department. In other companies, it may be under the vice president, who oversees several managers in marketing functions such as sales, advertising, marketing research, and product planning managers. Then, under the manager, there are assistant managers and staff.
Where is organizational structure by function common?
We will encounter functional structures in many sectors. Businesses generally adopt a functional structure, especially in large companies. They will usually divide their organization according to activities in the value chain. Thus, it allows people within the company to specialize in a particular area.
Functional structures work best in companies where they deliver products or services continuously. People specialize in their fields, and top executives will coordinate them, ensuring they are on track to achieve company goals.
Meanwhile, small companies may view this structure as too rigid. Thus, they generally adopt a flat structure rather than a functional one. It enables them to adapt to changes quickly and easily.
What are the advantages of an organizational structure by function?
Specialization is an advantage of functional structure. Companies divide roles and jobs into specifics, which require specific knowledge and skills. And specialization allows companies to make everyone more productive over time through learning from experience and training. Finally, everyone can become an expert and produce more output at a more efficient cost.
Other advantages of an organizational structure by function are:
Efficient communication. Communication can be more fluid and flow through top-down and bottom-up chains, which is more efficient.
Greater skill development. People with similar skills and knowledge work together and perform similar functions, which allows their skills to be further developed.
Accountability. Clear management lines allow each position to be responsible for its functional area.
Role clarity. Employees understand their role and what they can contribute to the company.
Faster to proficient. Specialization allows people to work on specific tasks and jobs, allowing new people to adapt quickly and become more proficient.
Guided career. Employees have a clear direction on what skills they should develop to support their professional careers.
Clear goals and targets. Each department has a specific goal, according to its functional area, enabling everyone in the department to go in the same direction.
More focused on human resource development. It is easier for companies to map and design training and development programs to support each functional area.
Clear lines of command. People in the department understand who they should take orders, report to and be responsible for.
What are the disadvantages of the organizational structure by function?
Boredom and job dissatisfaction are weaknesses of the functional structure. Everyone performs relatively monotonous tasks and work. New people may not see it as a problem. But, their routine becomes boring for people who have been working for a long time. Without new challenges, they may become dissatisfied with their role in the company.
Other disadvantages of the organizational structure by function are:
Ego. Departments have their own goals. Finally, they act in their own interests.
Organizational silos. Each department operates independently. Thus, people in one department are reluctant to share information or knowledge with people in other departments.
The conflict between departments. Each department has different and sometimes conflicting targets. For example, the marketing department targets increasing sales, which requires more budget. On the other hand, the finance department has an efficiency target, saving more budget. And often, these contradictions can lead to disharmony and conflict.
Coordination problems. Each department is often more concerned with the ego and its functional area. Eventually, it leads to poor coordination. Such problems become a danger when the business environment requires companies to change. And, coordination problems make it slow for companies to respond to changes appropriately.
More difficult priorities. Companies find it more difficult to prioritize allocating resources. Take the example related to the budget. Individual departments compete for bigger budgets to reach their targets more easily.
Concentrated decisions. Department heads and functional directors may monopolize decisions within the department. They have decision-making power and may delegate little or no autonomy to those under them. In the end, it demotivated the staff.
