What Is a Functional Structure? (With Pros and Cons)

By Indeed Editorial Team

Published 24 June 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

The organisational structure a business chooses can have a significant impact on its operations, output and company culture. The functional structure is an approach to operations that groups employees into departments based on their duties and capabilities. Understanding more about what this structure is can help determine if it's right for a team. In this article, we define this structure, discuss its core characteristics, share some pros and cons of this approach and list some alternative structures that you can also consider.

What is a functional structure?

The functional structure is an organisational style in which a business categorises its employees based on their specialisation and assigns duties according to their strengths. Each department performs a function that aligns with the business's overall strategies, and in each department is a leader who manages the other employees working in this discipline. For example, a company may divide its employees into the following teams: sales, marketing, finance, administration and research and development.

Some organisations refer to these departments as silos, teams or business units. In most companies, employees interact with colleagues from other departments, and departments may work together on a singular project, with each team owning one aspect. If an organisation with this structure is creating an advertising campaign for a client, for example, the administrative team may schedule client meetings while the marketing team designs creative assets and the sales team communicates with the client to understand their requirements.

Related: What is an Organisational Chart and What is it Used For?

Characteristics

Here are some of the primary traits of this approach:

Vertical hierarchy

This structure typically uses a top-down hierarchy, meaning there are leaders within each department with more seniority, experience and control than other employees. These managers typically supervise employees, communicate organisational goals and strategies, approve projects, enforce policies and delegate tasks. Depending on the size of the company, each team may have multiple managers. For example, the marketing team at a global organisation may include a graphic design lead who reports to the content manager who reports to the director of marketing.

The leader of each department typically reports to an organisational leader like a president or chief executive officer (CEO). This individual typically provides high-level support and guides the entire company toward its goals. In a top-down hierarchic structure, leaders typically strategise to determine how their department can enact the directives of upper management.

Related: What is C-Suite? (Plus How to Become a Successful Leader)

Specialisation

A functional structure relies on employees with specialised skills in particular areas. These employees typically focus exclusively on their responsibilities, creating an ecosystem of skilled teams performing distinct functions. Organisations with this structure may aim to hire recruits with refined skills and extensive training in their discipline. The larger an organisation is, the more refined its departments might be. For example, a mid-sized company may have a human resources (HR) department, while a larger company may divide these professionals further, creating teams for talent acquisition, people management and training.

Pros

Here are some advantages of this organisational structure:

Higher quality of work

By hiring and training highly competent professionals with refined skills in a particular area, you may see stronger results from their work. People may also work more efficiently when they're handling tasks within their skill set, which can lead to greater output and better performance metrics. The hierarchic structure also allows leaders to coach more junior employees, encouraging growth and improvement. This environment may allow gifted performers to refine their skills even further.

Increased employee engagement

Many people focus more intently when they're working on tasks they enjoy and excel at, leading to increased employee engagement and satisfaction. Employees may also appreciate the opportunity to grow their career in their chosen field rather than overextending themselves by taking on additional responsibilities outside their area of expertise. This may help you attract and retain top talent.

Promotes teamwork

Dividing a team into departments united by common interests and goals may encourage teamwork and collaboration. Many people enjoy working in units and find it easier to accomplish their goals when they have teammates holding them accountable. Teamwork can make challenges fun and rewarding and allowing employees to work closely together can foster innovation and creativity.

Related: 34 Quotes on Teamwork to Help Improve Collaboration

Cons

Below are some disadvantages of this structure, along with some tips for mitigating them:

Lack of alignment

With segmented teams who may work in isolation, it can be challenging to coordinate teams and ensure everyone has the same information. This may especially apply to large organisations in which departments work in different locations. To ensure the organisation stays unified, consider holding regular company-wide meetings led by the CEO or president at the top of the organisation. It may also help to establish clear company values that each manager can emphasise at a departmental level to ensure each silo produces consistent work that effectively represents the brand.

Slow decision-making

For companies that thrive on greater flexibility and creativity, the functional organisational structure may impact their ability to operate efficiently. Formal organisational structures like this typically require employees to seek approval from management and other authority figures before making decisions. When management is unavailable for feedback during time-sensitive projects, it may hinder the team's overall progress. Managers who understand this challenge may avoid work-related delays by communicating well with their team members and responding quickly to unexpected issues.

Competition between teams

As employees within each department work together, they begin to operate as a unit, with a focus on achieving specific goals. This goal-oriented mindset, while typically positive, may prompt competition between departments. To maintain a harmonious work environment, managers can work to communicate effectively with other department leaders and respect the chief executive officer's priorities regarding the company's requirements. Promoting collaboration between teams when it's appropriate may also benefit the organisation. For example, sales and finance teams may coordinate with one another to develop quarterly presentations about the company's financial growth.

Alternatives to a functional structure

If you're interested in elements of this structure but prefer to find a different structure that better suits a team's requirements, it might be worthwhile to consider other organisational structures. There are commonalities between many structures, so weighing your options can help you find one that optimises your workflow and increases your efficiency. Below are some other organisational structures to consider:

Hierarchical

Hierarchical structures are similar to the functional organisational structure and look much like the pyramids of an organisation. The company's chain of command begins with the CEO or another executive-level position. From there, the structure may shift to an advisory board or staff director, who oversees various department directors. Department specialists and other employees report to these department directors. Management roles in the hierarchical structure have clear definitions, making it easy for employees to better understand to whom they report.

This may be an appropriate structure if you enjoy the alignment that a top-down chain of command creates but want more fluidity than other structures provide. Hierarchical organisations may have more unity between departments, as members of upper management may oversee many teams at once. Like other collaborative structures, the hierarchical structure promotes teamwork and rewards employees for utilising their strengths.

Flat

A flat structure is the opposite of a hierarchy, as it's devoid of seniority, job titles and specific job descriptions. Employees in a flat structure freely contribute to the work as required. It's common for start-ups and small businesses to operate under a flat structure, though companies often move to some form of hierarchy as they progress.

Flat structures can offer the same sense of unity that each department may enjoy under other structures. If you're a smaller organisation interested in transitioning into a different structure eventually, a flat structure may benefit you as you grow. This structure may also be appropriate if team members are multidisciplinary and have an interest in many areas of business.

Team-based

Under a team-based structure, employees work in groups based on their responsibilities and projects. These organisations tend to place less emphasis on hierarchy, though they may still have a top-down management style. Team-based organisations typically focus on coordination and collaboration, hoping they can solve problems quicker and with greater success if individuals work together.

A team-based structure may benefit you if you enjoy the group dynamics that a functional approach creates but want employees to have more freedom to move between teams. The team-based structure organises employees based on their duties rather than their specialised skills, so people can move between groups as they complete projects. The cross-disciplinary nature of this organisational structure can fit collaborative companies with highly versatile employees.

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