Organizational Structures and Corporate Cultures: Functional Structure | Saylor University

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Organizational Structures and Corporate Cultures: Functional Structure | Saylor University

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This text discusses the internal factors that affect how organizational structures are designed. These structures are important to managers because they establish lines of formal authority and configure other reporting arrangements. One thing to remember is that the industry type influences the chosen structure. The text also considers the system approach and examines how the internal dimensions of the firm, such as leadership and culture, change in response to the external business environment. Note that the organizational alignment is not set in stone permanently. It will change in response to the external business environment from time to time.

Organizational Designs and Structures

Functional Structure

The functional structure is among the earliest and most used organizational designs. This structure is organized by departments and expertise areas, such as R&D (research & development), production, accounting, and human resources. Functional organizations are referred to as pyramid structures since they are governed as a hierarchical, top-down control system.

Small companies, start-ups, and organizations working in simple, stable environments use this structure, as do many large government organizations and divisions of large companies for certain tasks.

The functional structure excels in providing for a high degree of specialization and a simple and straightforward reporting system within departments, offers economies of scale, and is not difficult to scale if and when the organization grows. Disadvantages of this structure include isolation of departments from each other since they tend to form "silos," which are characterized by closed mindsets that are not open to communicating across departments, lack of quick decision-making and coordination of tasks across departments, and competition for power and resources.

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