Characteristics of a Functional Organizational Structure | Small business

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Through Updated on November 05, 2019

How your business is organized determines how effectively your team helps you achieve business goals. One of the most common ways to organize a business is by function, where employees are grouped according to the main tasks of their role. For example, all employees who perform marketing functions are part of the marketing department.

Understand the functional organizational structure

A functional organization is usually a vertical hierarchy, where employees report to a manager who oversees their function. This manager can then take on another functional leadership role. For example, all employees responsible for sales report to the Director of Sales, who reports to the Vice President of Sales. Functional departments generally operate in silos as each group has its own independent vertical management structure.

Employees in each functional department communicate with each other, instead of dealing with employees in other functional departments. It is a key role of the leadership team to coordinate with other managers and to circulate information throughout the organization. For example, the customer service manager communicates initiatives and results with sales, marketing and production managers. These managers then communicate all relevant information to their respective teams.

All authorities, such as resource allocation, decision making, goal setting and budget allocation, rest with the functional manager. When an employee faces obstacles or needs guidance, the first step is to discuss the issues with their line manager. The manager can then choose to escalate the problem.

Leverage the benefits of functional organization

One of the main advantages of a functional organization is that it allows employees to hone their functional skills. Because employees are grouped with others who share similar knowledge, they can learn from each other and develop their functional expertise. This gives employees a clear career path within and outside a company. For example, if a marketing assistant is performing well, the company can promote the assistant to the position of marketing manager.

With fixed roles and responsibilities, there is no doubt what deliverables an employee is responsible for. This leads to greater efficiency and productivity. In addition, a vertical hierarchy allows employees to have direct communication channels with their managers. This ensures that employees have the advice and expertise they need.

Avoid the pitfalls of functional organizations

Due to their siled structure, functional organizations can have poor communication across the enterprise. This can lead to ineffective inter-ministerial coordination, which can lead to duplication of tasks. For example, both marketing and customer service can work independently on a customer satisfaction campaign without aligning with each other. Therefore, it is important that companies with functional structures focus on the skills and communication processes of their frontline managers and employees.

Functional organization can also lead to monotony for employees if they perform the same tasks day in and day out. This kind of stagnation can cause them to lose motivation and feel less engaged in the business. Being rigidly organized by function can also lead to a lack of innovation. With limited flexibility to explore outside of their departments, employees and managers may not have a complete picture of the business as a whole. It is important that functional organizations focus on motivating their employees to excel at their jobs.

Is a functional organization right for your business?

A functional organization is best suited for businesses where depth of knowledge in a particular area is valuable. Employees in functional departments generally do not have in-depth knowledge of other departments in their organization.

Small businesses with only a handful of employees do not benefit from the functional structure because it is too limited. In many small businesses, employees have to work across functions. However, in large organizations with hundreds or thousands of employees, functional organizations can be difficult to manage, resulting in inefficiencies and redundancies.


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