functional organization structure

Companies that produce the same goods consistently and have routine operations use a functional organizational structure because its rigid structure provides predictable stability.

An organization can adapt to any structure it requires. If the business mainly handles projects, it will choose a projectized structure. Whereas an organization dealing with operations will stick with a functional structure.

Your working style accommodates your organizational structure, as it defines your role and responsibilities and shapes the work culture. This culture includes the work environment, reporting system, hierarchy, etc.

Every organizational structure has a different system.

In a projectized organizational structure, team members report to the project manager. Likewise, in a functional organizational structure, employees report to a functional manager. In a matrix organizational structure, it varies.

I have covered the matrix and projectized structures in other blog posts. For now, let’s focus on the functional organizational structure.

Functional Organizational Structure

Functional Orgainzational Chart 1

The PMBOK Guide defines functional organizational structure as “An organizational structure in which staff is grouped by areas of specialization and the project manager has limited authority to assign work and apply resources.”

A functional structure divides the organization into departments based on their functions. Each is headed by a functional manager and employees are grouped according to their roles. Functional managers typically have experience in the roles they supervise, ensuring that employees are using their skills effectively. A functional structure that maximizes department expertise helps companies achieve their business objectives.

Under a functional organizational structure, employees are classified according to their function in an organizational chart. This chart shows the role hierarchy (e.g., president, vice president, finance, sales, customer service, administration, etc.).

Each department has a head responsible for it, helping the organization control the consistency and quality of its performance. These department heads are very skilled, experienced in the same work, and perform at a high level; accordingly, productivity is exceptional in a functional structure.

Functional departments are sometimes referred to as “silos.” This means each department is vertical and disconnected from the others, and communication flows straight up through the department heads to top management.

Here, all authority remains with the functional manager. Usually, a project manager has a minimal or even non-existent role in functional organizations. Project managers will need the functional manager’s approval to use resources, and they may operate as a coordinator or an expediter.

The functional organization structure works well in businesses dealing with operations, like manufacturing industries.

The strengths of functional organizational structures are specialization and efficiency.

Small companies with a limited number of products use this structure. Their employees are highly skilled due to repetitive work, which means they feature high efficiency and superior performance. 

Since employees are grouped according to their skills and experience, they gain more knowledge and expertise and become specialists, making them highly efficient and productive. They will perform quickly, with less chance of error, and their output will be of high quality.

The key weakness of functional structure is insufficient cooperation among different departments and management problems.

Although each department is efficient and productive, the lack of coordination among functional units or departments slows down productivity. Many times, they inadvertently compete with each other, putting their department’s interests above the organization’s.

This causes low morale among employees, affecting the productivity level, which can fall behind the target.  

Communication in functional organizations is formal and mostly from top to bottom. The top management makes decisions and informs the lower-level employees. They often change procedures and modify the work environment without taking the input from employees on the ground.

This negatively affects the morale of the employees and lowers efficiency, ultimately setting back innovation.

Advantages of the Functional Organizational Structure

The following are several benefits of the functional organizational structure:

  • Employees are grouped by their knowledge and skills, allowing them to achieve high performance.
  • Their roles and responsibilities are fixed, facilitating easy accountability for the work.
  • The hierarchy is clear and transparent. This reduces the number of communication channels.
  • Communication is frictionless within the department.
  • Work is not duplicated, as all departments have defined responsibilities.
  • Employees feel secure; they perform well without fear or uncertainty.
  • Because of job security, employees tend to be loyal to the organization.
  • Employees have a clear career growth path.
  • Cooperation is excellent within the department.

Disadvantages of the Functional Organizational Structure

The following are a few disadvantages of the functional organizational structure:

  • Employees may feel bored because of repetitive work. This monotony causes a loss of enthusiasm.
  • Conflicts may arise if the performance appraisal system is not properly managed. 
  • A highly skilled employee costs more.
  • Departments develop an insular, self-interested mentality. Functional managers pay more attention to their own departments and ignore others’ interests.
  • Communication is weak among the departments. This causes poor inter-department coordination, affecting flexibility and innovation. 
  • A lack of teamwork among different departments slows innovation.
  • Employees may have little concern or curiosity about events outside their group.
  • The rigid functional structure makes adapting to changes difficult and slow.
  • Decision-making is sluggish due to the bureaucratic hierarchy.
  • Functional managers can make decisions without consulting team members. This is not good for company morale.
  • Personal bias may affect employee morale. For example, an employee may feel demoralized when a low-performing employee is promoted over them.
  • As the organization grows larger, managing functional areas becomes challenging. Each department may start behaving like a small company, i.e., the “silo” effect. .
  • Functional departments may be more committed to departmental goals rather than organizational goals.
  • Employees do not learn any new skills, and their roles don’t change often, causing stagnation.

Examples of Functional Organizational Structure

Small organizations dealing with production can be similar to a functional structure.

However, as they grow, they will need elements of a projectized structure.

For example:

  • Research-based projects to launch a new product
  • Projects to improve their product or operations
  • Projects to construct new production facilities 

Summary

The functional organizational structure helps organizations run their businesses, especially those involved with ongoing operations. Here, employees feel secure, perform well, and tend to be highly skilled. Project managers typically do not have any role in a functional organization. If they do exist, they will have a very limited role and no authority. In a functional organization, employees’ roles are static, and they report to the functional manager.

Does your organization use a functional organizational structure? If yes, please share your experience in the comments section.

This is an important topic for the PMP exam. You will see quite a few questions on this topic in your exam.