Functional Structure Overview
Functional organization is a common type of organizational structure in which the organization is grouped based on specialization by function. Organizations can be structured in various ways, and the structure of an organization can determine the modes in which it operates and performs. The functional structure is one structure with associated advantages and disadvantages.
In functional management, the organization is grouped by areas of specialty within different functional areas (such as IT, finance, operations, and marketing), which some refer to as ‘silos,’ referring to an image of these areas as vertical and disconnected (Figure 1). Correspondingly, the company's top management team typically consists of several functional heads such as the chief financial officer and the chief operating officer, and communication generally occurs within each functional department, transmitted cross-department through the department heads.
Some argue that functional departmentalization allows for greater operational efficiencies in that employees with shared skills and knowledge are grouped together by functions performed. A disadvantage is that the different functional groups may not communicate, potentially decreasing flexibility and innovation. A recent trend to combat this disadvantage is the use of teams that cross traditional departmental lines.
Functional structures appear in a variety of organizations across industries. However, some argue that the functional structure in a large organization is best suited to organizations that produce standardized goods and services at large volume and low cost. Smaller organizations following a functional structure may find themselves less silo-ed if they aspects like shared space create natural opportunities for communication.