It might seem that something as fundamental as an organization's structure is set in stone, but that's not so. Wise leadership creates and changes a company's structure according to management's intended goals. After choosing the company's ambitions, managers departmentalize -- that is, they create departments by grouping work positions together, choosing whatever arrangement will best achieve success. Departmentalization by function results in vertical, hierarchical layers of management and employees. It's a tight, controlled structure with clear lines of authority and accountability -- an advantage for companies needing a mechanized business approach. In other circumstances, the functional structure has disadvantages.


By segregating functions such as marketing, human resources, production and finance, employees in one department have little idea of what people in other departments do. Because the challenges and opportunities that each department face are mysterious to the other functional areas, misunderstandings and mistrust can occur. In effect, departments can become like tribes, competing for the resources of the company.


Departmental isolation can give rise to problems in communication. Each department tends to increasingly communicate based on its own practices and experiences. Those outside an area lack the same contextual understanding, making communication less fluent. Meanwhile, a functional area might speak in professional jargon, the use of which reinforces isolation. Departments "speaking their own language" will find interdepartmental communication more difficult. The language barrier hinders cooperative efforts.


When management segregates departments, workers tend to forget goals beyond their own area's focus. The company-wide picture can also be lost. Such myopia makes it difficult for managers to marshal subordinates for the company's vision. Instead, subordinates tend to shorten focus to the immediate concerns of the department.


Layers of hierarchy means layers of bureaucracy. The bureaucracy results in rigidity and slow-moving processes as proposed changes work their way up the chain of command. This means that companies featuring functional departmentalization cannot adapt quickly and aren't as flexible as other structural setups. Companies might find themselves perpetually behind and reacting to external forces.

Lack of Leadership

Managers leading functional departments can succumb to the same isolationist forces as their subordinates, narrowing focus to departmental rather than company concerns. They also can begin to see other departments as competitors for company resources instead of as allies working together for the common good of the company. This narrow thinking doesn't train managers in the kind of broad-based vision necessary to lead others at the executive level. Companies may end up lacking the leadership talent and ability needed for the future.