Business organisational structure

A functional structure is one of the most common ways to organise a business. It is often used in larger companies, where employees are grouped by the type of work they do.

What is a functional organisational structure?

In this type of structure, employees are grouped into smaller teams or departments based on their roles and skills. These may include, for example:

• sales
• marketing
• production
• IT
• finance
• operations

Employees, teams and line managers are placed in specialist departments and report to the head of that department, such as the sales director. The senior management team usually includes the heads of the main functions, such as finance, marketing and operations.

Read more about the hierarchical organisational structure.

Advantages of a functional structure

A functional structure can improve efficiency because people with similar skills and knowledge work together and carry out similar tasks. The advantages of this type of structure are:

• specialisation - departments focus on one area of work
• productivity - specialism means that staff are skilled in the tasks they do
• accountability - there are clear lines of management
• clarity - employees understand their own and others' roles

However, the nature of departmentalism within a functional structure can present certain risks.

Disadvantages of a functional structure

Separating divisions and teams can create organisational silos. This is when one team is reluctant to share information or knowledge with other teams in the same organisation.

This silo mentality can cause problems around:

• aligning priorities across the business
• the flow of information and communication
• collaboration
• co-ordination of decision-making
• embedding and managing change across departments

Functional structures are common in many types of business. They work best in larger companies, especially those that provide products or services on an ongoing basis, such as manufacturers.

Smaller businesses may find this structure too rigid and less able to respond quickly to change. In that case, a project-based structure or flat organisational structure may work better. Depending on your business needs, a matrix structure or a decentralised structure may also be suitable.