Functional Organization

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Functional Organization – Explanation, Merits and Demerits

The father of the scientific management F.W. Taylor introduced and developed the concept of functional organization. As the name suggests, the organization under this type is divided into departments based on their functions performed, unlike the line organization in which the authority flows from the top to the bottom of the organization hierarchy. According to Taylor, the organization should be departmentalized or divided on the basis of specialization which is believed to bring out the organizational balance.

The most common type of organization is the functional organization that is adopted by a wide range of industries. Under this, the organization is divided into smaller parts such as the IT department, finance department, HR department, etc. Greater productivity and operational efficiency are achieved as the people working under each sector share their skills and knowledge to contribute towards success. An employee in this type of organization structure reports to more than one manager as there are different managers for different areas of organization operation. Hence, there are also different reporting structures.


Merits of Functional Organization

  1. Specialization

For instance, an appointed person is specialized in sales - hence, the job done by the specialized person is with minimal errors. The training cost and time are reduced. This structure ensures better productivity and efficiency of the quality of the goods and services the organization is providing.

  1. Production of Workload

It reduces the burden of the top executives as the work is well managed by the specialized people below him.

  1. Balanced Decisions

Decisions are well thought and balanced because, under this structure, you have direct control and advisory control. So you have a combination of both.

  1. Executive Development

Since the functional manager has expertise in only one area and is required to upskill in the same area, this helps in better executive development.

  1. Better Training

Since the focus is on only a few skills and knowledge, training is impactful and easier for the employee to absorb.

  1. Scope of Expansion

Compared to the line organization, this structure gives a scope of expansion as it does not face the issue of the limited abilities of a few line managers.

  1. Coordination within the department

Since the nature of work is similar in a department, employees understand each other as their skills and knowledge about the product or service is similar.


Demerits of Functional Organization

  1. Confusion

This type of organizational structure can create confusion as the person does not know whether to go with advice or with direct control. It can lead to conflict in the same issue where your specialized manager may say to do something to improve quality and at the same time, your direct command line will ask you to submit the task within the stipulated time frame given. So the employee has no clarity and is surprised by too many instructions given by different heads in the organization.

  1. Ineffectiveness in the staff

Under this, the organization is a developed specialist, not a generalist and this may create saturation in the creativity and effectiveness of the staff.

  1. Limited Perspective

The top executive or the department head thinks only in his perspective towards the quality, his target, his goals, etc without considering the different angles of the different departments.

This leads to the loss of overall perspective in handling the business concerns. It also leads to not appreciating other points of view and inflexibility to understand the issues arising in other departments from the decision made by one department.

  1. Minimal duplication of efforts

This structure certainly minimizes the duplication of work as the structure is divided according to the functions. This eventually leads to lower costs.

  1. Delay in Decision Making

The decision is delayed unnecessarily as it requires more than one specialist to take a  call on the business concerns or issues arising.

  1. Conflict of Interest

The top executive of the department gets involved in his department tasks and targets that he forgets the overall organization’s interest or the company's objective.

Even with so many demerits, this type of organization structure has been successfully followed by a lot of industries, enterprises like banks, insurance companies, etc. 

For better understanding, let's look at the structure under a functional organization.

The General Manager

The Personal Manager

The Finance Manager

The HR Manager

The Operational Manager


Generally, under this, all the department heads or functional heads report to the general manager or the CEO of the organization.

FAQ (Frequently Asked Questions)

1. What do you mean by functional structure?

Functional structure is a kind of organizational structure used in businesses. This includes a grouping of the employees of the company based on their skill set and specialities. The employees are grouped under different departments based on their ranking. This is done under the supervision of the designated seniors or leaders.

2. What are the features of functional organizations?

features of functional organizations are:

  • There are different organizational activities that are divided into various functions that include finance, marketing, operations, and personal relations.

  • There is an existence of three authorities which are: function, line, and staff.

  • Each area of function comes under specialists who have got the authority to take all necessary decisions regarding the function wherever the function is carried out throughout the project. 

  • The principle of the unity of command does not bear on to such organizations.

3. What are the types of organizational structures?

There are 4 types of organizational structures:

  • Divisional

  • Matrix

  • Flat

  • Functional