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Functional Structure of an Organization: Advantages, Disadvantages & Example

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  • 0:01 What Is an…
  • 0:23 What Is a Functional…
  • 0:46 Advantages
  • 1:22 Disadvantages
  • 2:39 Alternatives
  • 3:37 Lesson Summary
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Lesson Transcript
Instructor: Carol Woods

Carol has taught college Finance, Accounting, Management and Business courses and has a MBA in Finance.

A functional organizational structure is one of several reporting structures a company could implement. Read on to learn why a company might implement a functional structure and the advantages and disadvantages for both company and staff.

What Is an Organizational Structure?

An organizational structure defines the reporting relationships in a company - in other words, who works for who. Companies choose an organizational structure based on many factors, including their size, their geographic dispersion, and the number of different products and services they offer.

What Is a Functional Organizational Structure?

In a functional organizational structure , an organization's reporting relationships are grouped based on specialty, or functional area. For example, there might be separate departments for marketing, accounting, and engineering. Generally, all the functional heads will report directly to the company president or CEO.

Advantages

There are some definite advantages to grouping all staff by function:

  • Staff is managed by a person with experience in their same specialty who can adequately understand and review their work.
  • Staffers have the opportunity to move up within their functional areas, which gives a reason for them to stay long-term. The company gets the advantage of their expertise and company knowledge over time.
  • Staffers work with others in their field, which allows for knowledge sharing and lateral job moves to learn new skills.

Disadvantages

The functional structure also has some disadvantages, including:

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