The functions of different organizational structures are to govern a company’s efficiencies and productivity. It’s often a chain of command in business and how hierarchies and each department are structured that make it productive – or not. A “functional” organizational structure capitalizes on employees’ specialties and moves away from having generalists who can perform in multiple roles.
What's the Purpose of Organizational Structure?
There are four main kinds of organizational structure, and each one has its pros and cons. The reason they exist is to make order in the chaos of business. Without a chain of command or an accepted method of dispute resolution, anarchy can reign.
The saying “the buck stops here” has become cliché in today’s world, but organizational structure is all about figuring out where the buck stops and how. Even if you don’t think you’ve got an organizational structure, you do. Sometimes they just grow and develop organically over time, but often they’re deliberate and planned.
The four kinds of organizational structures are flat, matrix, divisional and the previously mentioned functional structure.
Structures ultimately influence the relationships between management and employees, how communication flows, where responsibilities fall and how management oversees the company. It can even influence how a company grows its market or expands its business.
The good news is that structures aren’t written in stone, and they’re easily tweaked or altered as companies grow or contract with time.
Functions of Different Organizational Structures
Just like how some work projects benefit from adopting a specific workflow, organizations can often perform better when there's structural organization at work.
Functional organizations usually operate by delegating specific work to departments that will be responsible for anything and everything under that umbrella. For example, accounting will handle matters payable and receivable. Marketing handles marketing, advertising and promotions. Human resources handles hiring, onboarding and offboarding, training and other staff-related tasks.
In drawing up an organizational chart and their functions, each department knows its role to play, their chain of command and the workflow that’s specific to them.
What's Organizational Design?
When deciding on the structure for a company, that’s organizational design. It’s assessing what the company’s objectives are and then coming up with a chain of command and organizational structure that will be most productive in achieving said objectives.
The best companies don’t stay static – they adapt and change as time passes so they can better meet their goals or diversify for new markets.
Say a company from Hoboken, New Jersey, has 47 years of experience in dominating the Eastern Seaboard of the United States with electronics wiring. Perhaps they’ve got a new goal of tackling the Asian market because a door has opened with a fantastic opportunity. Business as usual won't fly on the other side of the Pacific. Different workflows, languages and customs will require the company to adapt and conform to expected business traditions in Asia.
By redesigning their organizational structure, the company can create new departments and hire new staff that will be best suited to these roles. The marketing department will need to hire multilingual staff and the legal team will need to know the laws for each new market that’s entered. Dealmakers and negotiators will have to understand the customs and possibilities in each place. All of this can be anticipated and planned for by creating a new organizational dynamic that's ready to face these challenges.
Changing technological practices at a company, adding a new range of products, opening another location – all of these could benefit from tweaking or redesigning existing organizational structures.
Advantages of a Functional Structure
In many ways, functional structures can be extremely efficient. By focusing on each employee’s strengths and tasking them to a department that capitalizes on said strengths, the company often benefits.
These departments are ideally led by someone with the ability and skills to oversee and expedite all the tasks at hand. By being grouped with others who have the same fundamental knowledge, there's often a trade and complement of qualities that exchanges between these employees, which can help them expand their talents.
This is exactly why areas like training can be greatly helped when functional structures are in play since employees are surrounded by the skills they need to develop.
It’s also the reason training can go further in functional formats since they’re developing employees that may be there for the long haul. Because employees are working in departments focused on their specialties, there can be a perceived opportunity of growth and development that can encourage long-term loyalty and lower turnover.
Disadvantages of a Functional Organizational Structure
The trouble with walls is, sometimes when they go up, they stay up. Some functionally divided companies can suffer communications challenges because of a perception that they work separately with good reason, as opposed to merely being a method of efficiency. In these instances, there can be conflicts between the needs of different divisions. Perhaps human resources and the IT division both have a need for assistance from the marketing department, but marketing may decide internally which request it will comply with based on expediency or other factors. Obviously, these situations can go awry, and it’s up to management to break down those walls causing territorial squabbles.
By embracing task specialists for each division, it means generalists may be overlooked. A plus side to generalists is that they can often better appreciate the need for intradivisional communication or have better foresight for how one task benefits another and so on. If generalists lose their place in the company because they’re not perceived to have strong enough skills in any one department, it can mean the company loses the valuable diversification and bridging qualities these players bring.
Management conflicts can also arise in companies with functional structure. It can happen that each department head has a myopic view of what entails success, such as their department’s performance being the most important criteria for measuring success as opposed to looking at the big picture. When benchmarks depend on departmental performance, it can also affect employee behavior and can hamper both innovation and quick decision-making.
When Are Functional Structures Beneficial?
When companies are stable and don’t constantly introduce new products, they can perform well as a functional organization. If the industry isn’t given to frequent change, there’s a fixed asset base, and these are qualities that suit functional structures.
Company size doesn’t necessarily translate to whether a functional organization is beneficial to it. A local tire shop may do well with a functional structure, but Amazon.com also uses a functional structure. It’s a vertical chain of command at play in Amazon, for good and ill. It can mean they are sometimes slower to respond to dilemmas, but it also means there's a strong central brand and cohesive management method between all of their departments internationally.
Organizational structures can be kind of like real estate – what’s perfect for today may be too big, or too small, for tomorrow. It’s wise to reflect from time to time on how a business is organized because a little tweaking and innovation can have a dramatic impact on productivity and success.