Functional Organizational Structure

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.

Structure TypeType of StructureStructure DetailsAdvantagesDrawbacks
Functional StructureBureaucraticOrganized by functions or departments (e.g., marketing, finance, and production). Advantages include specialization and efficiency within functions, but it may hinder cross-functional collaboration.– Specialization and efficiency within functions. – Clear lines of authority.– Limited cross-functional collaboration. – May hinder innovation and adaptability.
Divisional StructureDivisionalOrganized by divisions or business units, each with its own resources and functions. It allows for autonomy but may result in duplication of resources.– Autonomy for divisions. – Tailored approach to diverse markets.– Potential duplication of resources. – May hinder coordination between divisions.
Matrix StructureDual ReportingCombines elements of functional and divisional structures. Employees report to both functional and project or product managers. Offers flexibility but can lead to complex reporting relationships.– Flexibility to work on multiple projects or products. – Efficient resource utilization.– Complex reporting relationships. – Potential for conflicts and role ambiguity.
Network StructureCollaborativeCollaborative and flexible, emphasizing partnerships and alliances with external organizations. Accesses external resources and expertise but can be complex to manage relationships.– Access to external resources and expertise. – Efficient knowledge sharing.– Complex management of external relationships. – Dependency on external partners.
Hybrid StructureCombinationCombines different organizational structures to meet specific needs. Offers flexibility and efficiency but can be complex to manage.– Flexibility to adapt to different areas of the organization.– Complexity in managing different structural components. – Conflicts between elements.
Holacracy StructureSelf-ManagementDecentralized and focused on self-management. Replaces traditional hierarchies with self-managed teams or circles. Enhances employee empowerment and autonomy but requires a cultural shift.– Enhanced employee empowerment and autonomy. – Faster decision-making at the team level.– Cultural shift and commitment to self-management principles required. – Role ambiguity possible. – Not suitable for all organizations.
Team-Based StructureCollaborativeEmphasizes self-managed teams responsible for specific tasks or projects. Enhances teamwork and collaboration but requires skilled team leadership.– Enhanced collaboration and teamwork. – Empowerment of team members.– Requires skilled team leadership. – Potential for team conflicts. – May not suit all organizational functions.
Circular StructureCircularityOrganized around circular, self-managing teams known as “circles.” Promotes empowerment and adaptability at the circle level but requires a shift in organizational culture.– Empowerment of circle members. – Flexibility and adaptability at the circle level. – Enhanced communication and collaboration.– Requires a shift in organizational culture and mindset. – Potential challenges in managing inter-circle relationships. – May not fit all contexts.
Flat StructureReduced HierarchyReduces the number of hierarchical levels. Enhances communication and decision-making speed but may lack clear career advancement paths.– Enhanced communication and decision-making speed.– May lack clear career advancement paths. – Potential for limited hierarchy-related specialization.
Tall StructureMultiple Hierarchy LevelsHas multiple hierarchical levels. Provides clear career paths but can result in slow decision-making and communication.– Provides clear career paths. – Specialization and expertise at different levels.– May result in slow decision-making and communication. – Potential for bureaucracy.
Centralized StructureConcentrated AuthorityConcentrates decision-making authority at the top of the hierarchy. Ensures consistency and control but may hinder adaptability.– Ensures consistency and control. – Clear lines of authority.– May hinder adaptability and innovation. – Potential for bureaucracy.
Decentralized StructureDistributed AuthorityDistributes decision-making authority across the organization. Enhances adaptability and innovation but requires strong communication and coordination.– Enhances adaptability and innovation. – Empowers employees at various levels.– Requires strong communication and coordination. – Potential for confusion without clear guidelines.
Virtual or Networked StructureTechnology-DrivenEmploys technology to connect employees across locations. Reduces the need for physical offices but may challenge traditional management practices.– Reduces the need for physical offices. – Enables remote work and collaboration.– May challenge traditional management practices. – Requires effective use of technology.
Boundaryless StructureElimination of BoundariesEliminates traditional boundaries within and outside the organization. Promotes innovation and collaboration but requires a culture of trust and transparency.– Promotes innovation and collaboration. – Encourages a culture of trust and transparency.– Requires a significant cultural shift. – May face resistance to boundary elimination.
Lean StructureStreamlined and EfficientEmphasizes efficiency and cost reduction by eliminating unnecessary layers and processes. Increases efficiency but may strain resources.– Increases efficiency and cost-effectiveness. – Streamlines processes.– May strain resources in the pursuit of efficiency. – Potential for overemphasis on cost reduction at the expense of other factors.
Mechanistic StructureRigid HierarchyCharacterized by a rigid hierarchy and strict control. Ensures clear lines of authority but may hinder adaptability.– Ensures clear lines of authority. – Efficient decision-making within established processes.– May hinder adaptability and innovation. – Potential for bureaucracy and slow decision-making.
Organic StructureFlexible and DecentralizedFlexible and adaptable, with decentralized decision-making. Encourages innovation but may lead to ambiguity in roles and responsibilities.– Encourages innovation and adaptability. – Empowers employees to make decisions.– May lead to ambiguity in roles and responsibilities. – Requires strong communication and coordination.
M-Form (Multidivisional) StructureDivisional and AutonomousDivides the organization into semi-autonomous divisions or subsidiaries, each with its own leadership. Suitable for complex organizations but may require effective corporate-level coordination.– Provides autonomy to divisions or subsidiaries. – Tailored approach to diverse markets. – Specialization within divisions.– Requires effective corporate-level coordination. – May lead to variations in strategies and practices across divisions.

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.

When a product reaches millions of people, fast experimentation becomes much riskier for the organization.

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.

The functional structure is part of the siloed types and the divisional structure.

Siloed organizational structures are more top-down, and more bureaucratic, compared to more open types of organizational structures.

Again, a siloed organizational structure might be more effective for large organizations which navigate the existing and mature industry and that needs to keep their position within these industries.

What’s an example of a functional organizational structure?

Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

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.

In other words, Google, which in the early days was a flat organization, over time has morphed into a top-down organization.

This process is usually normal and it happens as a result of scale, and of consolidating a position in an industry (like search) that goes from new to mature.

Thus, Google of today is much different from Google of the early days.

How to balance function with innovation units?

Siloed organizational structures are quite effective to handle scale. However, it’s critical to balance them out with innovation units.

In other words, within an organization, there should be small teams, which look more like startups, that we can call “innovation units” whose main goal is to explore new industries.

Those innovation units must be kept separate from the main headquarter, they must be free to build their own culture (potentially also in conflict with the mainstream culture of the organization).

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

Types of Organizational Structures

Organizational Structures

Siloed Organizational Structures


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.



Open Organizational Structures




In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.

Key Highlights

  • Functional Organizational Structure Definition: A functional organizational structure arranges groups and teams based on functions or departments. Decision-making typically flows from top management to lower levels, resulting in a top-down approach. This structure is more structured and slower in decision-making compared to flatter structures.
  • Appropriate Situations for Functional Structure: Functional structures are suited for scaled companies in mature industries. As organizations grow and reach a significant scale, fast experimentation becomes riskier. A structured approach helps avoid hasty decisions that might lead to major failures. This structure is effective for consolidating dominance in existing markets.
  • Balancing Structure with Innovation: To maintain innovation and adaptability, it’s important to balance a functional structure with separate innovation units. These small teams operate like startups and explore new industries. These units must have the freedom to develop their own culture and operate independently from the main structure.
  • Google (Alphabet) Example: Google, as it scaled to become a tech giant with over 150,000 employees worldwide, shifted from its initial flat structure to a more siloed, top-down structure. This transformation was necessary to manage the increased scale and complexity of the organization.
  • Evolution of Organizational Structure: Organizations may naturally evolve from flatter structures to more hierarchical ones as they grow and establish dominance in their industry. This evolution allows them to manage the challenges of scale effectively.
  • Innovation Units: Innovation units, kept separate from the main headquarters, allow organizations to explore new markets and industries without being constrained by the structure of the larger organization. These units help prevent stagnation and promote continuous growth.
  • Maintaining Balance: While a functional structure provides stability and efficiency, innovation units introduce adaptability and exploration. Striking a balance between these two aspects is crucial for long-term success.
  • Types of Organizational Structures: The discussion touches on various types of organizational structures, including siloed, divisional, matrix, and flat structures. Each structure has its own characteristics and benefits.

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Kotter’s 8-Step Change Model

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Nadler-Tushman Congruence Model

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McKinsey’s Seven Degrees of Freedom

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Mintzberg’s 5Ps

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COSO Framework

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TOWS Matrix

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Lewin’s Change Management

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Organizational Structure Case Studies

OpenAI Organizational Structure

OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019. The corporate structure is organized around two entities: OpenAI, Inc., which is a single-member Delaware LLC controlled by OpenAI non-profit, And OpenAI LP, which is a capped, for-profit organization. The OpenAI LP is governed by the board of OpenAI, Inc (the foundation), which acts as a General Partner. At the same time, Limited Partners comprise employees of the LP, some of the board members, and other investors like Reid Hoffman’s charitable foundation, Khosla Ventures, and Microsoft, the leading investor in the LP.

Airbnb Organizational Structure

Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

Amazon Organizational Structure

The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.

Apple Organizational Structure

Apple has a traditional hierarchical structure with product-based grouping and some collaboration between divisions.

Coca-Cola Organizational Structure

The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.

Costco Organizational Structure

Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure. Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue. Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.

Dell Organizational Structure

Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.

eBay Organizational Structure

eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.

Facebook Organizational Structure

Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).

Goldman Sachs’ Organizational Structure

Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.

Google Organizational Structure

Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

IBM Organizational Structure

IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.

McDonald’s Organizational Structure

McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.

McKinsey Organizational Structure

McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.

Microsoft Organizational Structure

Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

Nestlé Organizational Structure

Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.

Nike Organizational Structure

Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).

Patagonia Organizational Structure

Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.

Samsung Organizational Structure

samsung-organizational-structure (1)
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).

Sony Organizational Structure

Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.

Starbucks Organizational Structure

Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.

Tesla Organizational Structure

Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.

Toyota Organizational Structure

Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).

Walmart Organizational Structure

Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

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