Which of the following is a benefit of function structure of organization?

Have you ever wondered what are the key functional areas of a business and how each department interacts towards a seamless business operation?

All businesses, regardless of size, need some sort of organisational structure to operate properly. Businesses without a set organisational structure have problems implementing company policies and operating at efficient production levels. Whether a company is software sales or investment management, certain departments are key to basic operations.

An organisational structure defines who works for who. Companies choose an organisational structure based on many factors which include the size of the firm, their geographic locations, the variety of products and services they offer etc.

In a functional organisational structure, an organisation's reporting relationships are grouped based on specialty, or functional area (business unit). Generally, there will be Human Resource, Sales/Marketing, Accounting/Finance, R&D, Operations, IT, Legal/Compliance. Functional heads of each business unit will report directly to the company president or CEO.

So, what are the 5 key benefits of having a functional organisational structure?

Specialisation - Employees are grouped by their knowledge and skills, which helps achieve the highest degree of performance

Productivity - Employees understand their own and others' roles and potentially eliminates duplication in the performance of management functions

Accountability - Roles and responsibilities are fixed, which facilitates easy accountability for work as well as clear lines management

Clarity - A clear chain of command which simplifies decision-making and provides clarity around roles and responsibilities and lays out the path for growth

Efficiency - Employees are very skilled. Efficiency is gained because they are experienced in the same work and they perform very well

Functional organisational structures typically work best within large companies, especially those that produce products or services, such as in manufacturing. Smaller companies may find functional organisational structure too rigid, preventing them to adapt to changes quickly and easily. In this case, a project-based management or a flat organisation structure may be a better option. 

All of the companies define its organizational structure to determine the reporting relationships that will exist in the company. It simply states who works for who. Organizations choose their organizational structure based on many factors like: size, its geographic location, the manner of delivering different products and services that they will offer.

A functional organization is the most common type of organizational structure. This is where the organization is divided into smaller groups based on its special functions such as IT, finance or marketing. This departmentalization allows greater operational efficiency because the employees have their skills and knowledge to be shared within the group. The basis of this functional organization structure is an arrangement where a worker has different managers for different areas of the organization operation. Since this type of structure has many departments, it could also have several reporting structures as well.

In a functional organization structure, the reporting relationships are grouped based on the specialty or functional area. Separate areas are established to take care of different concerns.

In today’s aggressive business environment, company’s must be more efficient, flexible, and innovative than before in order to obtain a competitive advantage in the market. It is obvious that a number of factors affect a company’s success. For example, having a well-defined organizational structure is one of them. Typically, organizational structures define how the tasks are directed and coordinated towards the achievement of organizational objectives. For that purpose, there are many different types of organizational structures that can be used to demonstrate reporting lines and roles of the workgroups. In this article, we will discuss the functional organizational structure and its advantages and disadvantages compared with other structures.

What is a Functional Organizational Structure?

An organization can be established in many different ways, depending on its goals. The structure of an organization demonstrates the system in which it operates. Basically, an organization structure shows the allocation of responsibilities of individuals and departments in a hierarchical way.

A functional organization structure is one of the most common structures which break down the company into departments such as the marketing department, engineering department, sales department, IT department, etc.

Employees are supervised by a department manager who has skilled and experted in the same field. This expertise supports the department managers to analyze the powers of their team and lead them through the achievement of organizational goals. Department managers are responsible for the performance of their department. The direction of communication is from the department manager to the top management.

In that structure, employees are classified according to the function that they perform within the organization.

If you consider other types of organizational structures, you will see some differences in the reporting system. For example, in a projectized organizational structure, you report to the project manager. In a matrix organizational structure, your reporting hierarchy depends on the type of the matrix.

Project Managers Role

In functional organizational structures, all the authority stays with the functional managers. Therefore the role of the project manager is very limited if he exists. A functional organizational structure has a vertical and disconnected structure in which communication flows through the functional managers to the top management.

Advantages of the Functional Organizational Structure

The following are some advantages of the functional organization structure:

• Staff and department managers are skilled because they are experienced in the same field of business.
• Employees are grouped according to their skills and expertise. This increases the performance of the team brings high operational efficiency.
• The roles and responsibilities are well defined. Each employee has a fixed job definition. This helps to prevent duplication of work.
• The reporting lines are clearly defined and employees don’t have to report to multiple managers. Employees just report to their functional managers, therefore, they don’t have to communicate all issues with other managers.
• The career paths are clear, the employees may be motivated to advance their careers.
• Employees can proceed with confidence and with a minimum amount of mistakes.
• Since there is a sense of job security, employees don’t move to another company.
• Communication and cooperation within the workgroup are strong.

Disadvantages of the Functional Organizational Structure

The following are some disadvantages of the functional organization structure:

• Employees may get bored because they have the same daily works.
• Since the employees are grouped according to their knowledge and skills, competition may arise between them.
• Cooperation and communication between departments and units may be poor. Lack of teamwork and reduced flexibility may cause conflicts between departments and units.
• If an organization gets broader, it could be difficult to manage and control the work with the existing structure.
• Departments may concentrate on their own goals rather than concentrating on the organizational goals.
• Because of the strong hierarchy and bureaucracy,  delays may occur in decision-making.
• Inside a department, employees know all the things but outside their department, they have limited knowledge which may cause problems.
• When the employees become experts in their fields and get more skilled in their departments, they will cost more. A high skilled employee means a high cost.
• Adaptation to changes is difficult in a functional organizational structure because of its rigidity.
• If the functional manager takes decisions without discussing the issues with his team, the team may be demoralized

Which Company is Suitable for a Functional Structure?

The functional organizational structure best suits the smaller organizations rather than the ones which produce many different types of products. Also, the functional organizational structure suits best the operations which require deep knowledge.  For example, the expertise of the department is very important for a research and development project. Employees are grouped based on their skills and expertise in the functional organizational structures. The reporting hierarchy is clear in this structure.

The below figure illustrates the organizational structure of FedEx which is a great example of a functional organizational structure.

This chart demonstrates various departments such as marketing, human resources, and communications. Each department is divided into sub-functions.

Example of Functional Organization Structure

For example, XYZ Ltd. manufactures wooden tables and chairs and has around two hundred employees. It has adopted a functional organizational structure and formed departments for manufacturing, accounting, operations, sales, and human resources. All the department heads report to the top management. This is an example of a functional organizational structure.

Summary

Organizational structures define the working styles of individuals and departments. The type of organization is determinant on your role, career growth path, responsibilities, reporting system, and working culture. A functional organization structure is a strong and rigid structure that ensures running the organization’s business effectively. This type of organization is applicable for relatively small companies or the ones that provide a standard product or a service. When the company gets larger, a matrix organization structure will be suitable.

The project manager’s role is very limited and the department manager’s role is significant.

Unlike other organizational structures, a functional organizational structure gives a static role to the staff. You report to the functional manager in this structure while in other types of structures you may report to multiple managers. However, vertical communication lines and limited cooperation with other departments decrease flexibility and innovation.

Note that this is one of the most important topics for the PMP Certification Exam. You may encounter a few questions related to the topic.

What is your opinion regarding the advantages and disadvantages of the functional organizational structure? Please share with us your comments.

Further Reading

pmi.org

Brantlee Bhide

Brantlee Bhide is a project manager at HB Consultancy. She has 16 years of experience working as a project professional across varying industries, countries, and cultures. She operates in both business and technical domains using an approach that she developed.

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