Is a Functional Organizational Structure Right for Your Company?

We all agree that an organization without organization can quickly become a dysfunctional workplace, right? A company’s structure — which includes how work is assigned, the chain of command, and communication flow — plays a huge role in how successful it is.

This is especially true given how much corporate structure influences company culture. In a world where 77% of job applicants consider company culture, companies can’t leave structure to chance — and functional organizational structure can be a powerful contributor to a positive work culture. Here’s how it works, and how it can work for you!

What Is a Functional Organizational Structure?

Let’s start by examining the idea of organizational structure, then we can dig into what a functional structure looks like. 

Organizational structure encompasses how a company is arranged, both in terms of function and leadership. This architecture encompasses how many managers there are, the employees and responsibilities they oversee and lead, how they lead, and how they fit in with other leaders in the organization. Organizational structure also outlines how the activities of your company are directed to achieve the goals of your organization. 

Organizational structure should answer questions like: What are the rules, roles, and responsibilities of your company? What does the chain of command look like? How are different jobs defined and then incorporated into your organization’s system? 

Now let’s explore a functional structure. Functional organizational structure is a popular framework that focuses on dividing departments based on areas of expertise. It uses a top-down hierarchical structure where decisions are usually made by senior leadership of your company and those who report to them. Employees then specialize in the different tasks and fulfillment processes.

Other core characteristics of functional organizational structure include:

• Individual departments of employees are grouped by skills and job function.
• Each department reports to a manager.
• Communication between departments happens through management while employees stick to communication within their department.

Functional organizational structure is great for larger companies that have a decent amount of people with the same specialized area of expertise, and for organizations that use teams to complete tasks. 

So, should your company employ this kind of structure? It may be just the right fit, but let’s discuss both the advantages and disadvantages of this design before you make any decisions.

Advantages of a Functional Organizational Structure

What’s so great about functional organizational structure, anyway? Here are some of its benefits;

• Efficiency: Employees get really good at doing their job, becoming experts who can perform at the top of their field. This can help employees thrive, gain greater confidence in their abilities, and experience more fulfillment and satisfaction at work.
• Clear scope: Employees know what their responsibilities are, the range of their individual role, and the part their department plays in the larger picture. Having clear roles leads to strong teamwork, which makes for a positive work environment and a high-performing workforce.
• Clear communication structures: Employees know where to go to get answers to questions because they have a direct manager who guides them and their work. This helps employees devote more focus to their tasks as their managers handle the primary communication with other departments. 
• Positive training environment: Since roles are so specialized, training for new hires is straightforward and can be facilitated by peers who have a strong handle on the department’s responsibilities. Employees are 80% more likely to report emotional wellbeing when engaged in honest feedback, collaboration, and mutual respect within teams, so this kind of training and collaboration creates a healthy work environment, too.

Disadvantages of a Functional Organizational Structure

Functional organizational structure works really well for a lot of workplaces, but that doesn’t mean it comes without any drawbacks. Keep these disadvantages in mind as you determine what kind of structure might work best for your organization.

• Creating silos: Since work roles and responsibilities are well-defined and divided, employees may experience fewer innovative opportunities. Staffers may also not see the bigger picture or recognize how their contribution relates to the organization’s goals because of that tunnel vision.
• Communication difficulties: All communication between departments falls to management, which can cause bottlenecks when sharing information or slow processes down. Functional organizational structures can minimize unnecessary communication, but it’s easy to fall into the opposite pattern of poor communication, too.
• Competitive atmosphere: Departments may become competitive or frustrated with each other without ever communicating with them because they are so separate. Members might also be more motivated to work towards department goals rather than broader organizational goals. The limited interaction and connection employees have with those outside of their teams can complicate building positive communication and employee relations. 

Some of these disadvantages of functional organizational structure can be mitigated with other policies and guidelines within the company and how teams are designed. It all varies from organization to organization!

Other Examples of Organizational Structures

If functional organization doesn’t seem to fit your workforce, there are plenty of other structures you can consider.

Flat Team Structure

A flat team structure, also known as a flat organizational structure, is characterized by minimal levels of hierarchy and a decentralized decision-making process. There are few or no middle managers in this structure, and employees have a wider span of control. This promotes open communication and a collaborative environment.

Advantages of the flat structure encourages employee autonomy and engagement, fostering innovation and faster response to changes. Communication flows more freely, enabling efficient sharing of ideas and information. Decision-making is decentralized, leading to quicker responses to challenges, and reduced managerial layers can lower overhead costs.

On the other hand, the lack of a clear hierarchy can make career advancement paths less defined and harder to aim for, which may cause confusion and frustration among the ranks. Limited managerial oversight might lead to coordination issues and conflicts. Certain roles, like team leadership, might be unclear, impacting accountability. In some cases, a lack of hierarchy can also result in decision-making bottlenecks due to over-reliance on a few key individuals.

Matrix Team Structure

A matrix organizational structure blends functional and project-based hierarchies, allowing employees to report to both functional managers and project managers. This encourages cross-functional collaboration and optimized resource allocation. Employees have dual responsibilities, contributing to both their functional teams and specific projects.

Versatility is one of the main benefits of a matrix structure. This setup promotes efficient resource utilization as individuals with specialized skills can be shared across projects. Cross-functional collaboration enhances creativity and problem-solving. Plus, its natural flexibility allows adaptation to changing project requirements. Team members in these settings develop a broader skill set due to exposure to different functions, which helps employees with their development and satisfaction.

There are some challenges to this structure to consider, too. Dual reporting can cause role ambiguity and potential conflicts for employees. Managers may feel that they must compete for employees' time and loyalty. A frustrating aspect for both leaders and employees is complex communication lines, which can lead to confusion and decision-making roadblocks. Despite how helpful a flexible structure can be, maintaining the balance between functional and project objectives requires careful coordination and can be time-consuming, so it’s important to find communication channels and methods that work for your teams.

Divisional Team Structure

A divisional organizational structure arranges an organization into semi-autonomous units based on specific products, services, geographic locations, or customer segments. Each division operates as a separate entity with its own functional areas like marketing, finance, and operations.

Some of the benefits of a divisional structure include streamlining operations and offering tailored support for every team. It allows for better focus on specific products or markets, promoting specialization and expertise. Each division operates somewhat independently, enabling quicker responses to local market needs. Decision-making is streamlined within divisions, which makes that unit far more agile and responsive to sudden challenges. It’s also possible for performance evaluations to be more accurate since each division's results are relatively isolated.

Divisional team structures also have pitfalls to guard against. Duplication of functions across divisions can lead to inefficiencies and increased costs, which takes a toll on profitability for the entire company. Coordination and communication between divisions might be challenging, potentially resulting in ineffective silos. If there are standard practices that the organization wants to implement, standardization across divisions might be difficult to achieve, impacting overall organizational coherence. Ultimately, it’s helpful to consider centralized decision-making when necessary for overarching strategic goals.

Drive Performance with Your Organizational Structure

Selecting the right organizational structure for your organization can increase your employee productivity. Strategically aligning the roles, responsibilities, and reporting relationships within your company creates an environment that fosters collaboration, communication, and efficiency.

Employee wellbeing is an essential part of optimizing your organization for impact. Workforce wellness programs boost employee productivity, a key reason 90% of companies with wellness programs see a positive ROI.

Gympass's flexible wellness platform allows HR departments to foster engaging and successful workplaces for all their team members — no matter the shape or size of their organization.

Connect with a wellbeing specialist for help maximizing the efficiency through employee wellbeing.

References

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• Functional Structure: 3 Characteristics of Functional Structure. (December 17, 2021). MasterClass. Retrieved January 17, 2023 from https://www.masterclass.com/articles/functional-structure. 
• Functional Organizational Structure: Everything You Need to Know. (August 10, 2020). Upcounsel. Retrieved January 17, 2023 from https://www.upcounsel.com/functional-organizational-structure#:~:text=A%20functional%20organizational%20structure%20is,to%20one%20product%20or%20service. 
• Functional Structure: Advantages and Disadvantages. (April 3, 2020). Indeed. Retrieved January 17, 2023 from https://www.indeed.com/career-advice/career-development/functional-structure. 
• International Foundation of Employee Benefit Plans. (2017). Well-being takes the lead over ROI in workplace wellness measurement. Retrieved from https://blog.ifebp.org/well-being-takes-the-lead-over-roi-in-workplace-wellness-measurement/
• Openness Predicts a Team’s Strength. Atlassian. Retrieved January 17, 2023 from https://www.atlassian.com/practices/open/research