Functional Structure

Functional grouping and divisional grouping are the two most common approaches to structural design. In a functional structure, also called a U-form (unitary), activities are grouped together by common function from the bottom to the top of the organization.

The functional structure is a format of organizing organizational members according to their level of authority in a top-down hierarchy, or the particular function that they perform within the organization and the set of resources that they draw on to perform their tasks.

All engineers are located in the engineering department, and the vice president of engineering is responsible for all engineering activities.

The same is true in marketing, research and design (R&D), and manufacturing. An example of the functional organization structure is shown in Figure X-1.

A Sample of Functional Organization Structure Figure X-1 A Sample of Functional Organization Structure| Credit — PDF Education Opens in new window

With a functional structure, all human knowledge and skills with respect to specific activities are consolidated, providing a valuable depth of knowledge for the organization.

This structure is most effective when in-depth expertise is critical to meeting organizational goals, when the organization needs to be controlled and coordinated through the vertical hierarchy, and when efficiency is important.

The structure can be quite effective if there is little need for horizontal coordination. Figure X-2 summarizes the strengths and weaknesses of the functional structure.

 Figure X-2 A Strengths and Weaknesses of Functional Organization Structure Figure X-2 A Strengths and Weaknesses of Functional Organization Structure | Credit — Slide Player Opens in new window

One strength of the functional structure is that it promotes economy of scale within functions. Economy of scale results when all employees are located in the same place and share facilities.

Producing all products in a single plant, for example, enables the plant to acquire the latest machinery. Constructing only one facility instead of separate facilities for each product line reduces duplication and waste.

The functional structure also promotes in-depth skill development of employees. Employees are exposed to a range of functional activities within their own department.

The main weakness of the functional structure is a slow response to environmental changes that require coordination across departments. The vertical hierarchy becomes overloaded. Decisions pile up, and top managers do not respond fast enough.

Other disadvantage of the functional structure are that innovation is slow because of poor coordination, and each employee has a restricted view of overall goals.

Functional Structure with Horizontal Linkages

Some organizations perform very effectively with a functional structure, and organizing by functions is still the prevalent approach to organization designOpens in new window.

However, in today’s fast-moving world, very few companies can be successful with a strictly functional structure. For example, Watershed Asset Management is organized by functions such as legal, accounting, and investment, but to ensure coordination and collaboration, founder Meridee A. Moore has everyone sit in one big open room.

“There’s not much that is distilled or screened, “ she says, “When we’re working on something, there’s a lot of back and forth.” For a small organization, this informal coordination works fine, but as organizations grow larger, they typically need stronger mechanisms for horizontal linkage.

Managers improve horizontal coordination by using information systems, liaison roles, full-time integrators or project managers, task forces, or teams, and by creating the conditions that encourage relational coordination.

One interesting use of horizontal linkagesOpens in new window occurred at Karolinska HospitalOpens in new window in Stockholm, Sweden, which had 47 functional departments. Even after top executives cut that down to 11, coordination was still inadequate.

The top executive team set about reorganizing workflow at the hospital around patient care. Instead of bouncing a patient from department to department, Karolinska now envisions the illness to recovery period as a process with “pit stops” in admissions, X-ray, surgery, and so forth.

The most interesting aspect of the approach is the position of nurse coordinator. Nurse coordinators serve as full-time integrators, troubleshooting transitions within or between departments.

The improved horizontal coordination dramatically improved productivity and patient care at Karolinska The hospital is effectively using hospital linkages to overcome some of the disadvantages of the functional structure.

Remember This
  • Functional grouping and divisional grouping  Opens in new window are the two most common approaches to structural design.
  • Each structure has both strengths and weaknesses.
  • With functional and divisional structures, managers also use horizontal linkage mechanisms to complement the vertical dimension and achieve coordination of departments and levels into an organizational whole.
    Research data for this work have been adapted from the manual:
  1. Organization Theory & Design By Richard L. Daft
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