In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
When does a functional organizational structure make sense?
This type of organization is often way more structured than other forms of organizational types like flat structures, and they are much slower in the decision-making process, as the top-down approach might lead to politics and aligning of various interests within the organization.
Usually, a functional organizational structure might make more sense for scaled companies, which need to manage much larger teams in mature industries.
Thus, the decision-making process becomes more structured to avoid making fast decisions that might lead to massive failures.
While this approach helps the organization to consolidate and keep benefiting from the market it dominates, over time, as new industries arise, the risk is an organizational which is too stiff might lose its dominance completely.
In other words, on the one hand, it’s fine to use this sort of organizational structure for more mature organizations.
On the other side, it’s also critical to balance this with innovation units able to explore new markets and industries.
Siloed organizational structures are more top-down, and more bureaucratic, compared to more open types of organizational structures.
What’s an example of a functional organizational structure?
A good example of a functional organization is Google (Alphabet) today. Since the company has scaled to over 150 thousand employees, worldwide, it had to become a more siloed organization to handle that kind of scale.
How to balance function with innovation units?
Those innovation units are critical to balance out the top-down approach of a functional organization, to make sure the company keeps exploring new markets and industries, which make make the whole organization disrupted.
Read Next: Organizational Structure