Advantages of Functional Structure:
(i) In-Depth Development of Expertise:
Specialization leads to focus on specific areas to gain productive efficiency within the entire organizational structure.
Employees will be accordingly, managed by an authority with certain experience in that particular specialty. This person in authority can understand and review their subordinates’ work and ensure high productivity in the business unit.
(ii) Clearer Career Path within Function:
Employees of similar skills can work cohesively with each other by teaching/training and guiding each other in a particularly concentrated area.
This may help employees to learn, develop and lead a growing career path.
(iii) Ease of Coordination within Function:
The chain of command is linear with every employee knowing their lines of communication within their teams, lines of communication between sub-units and the line of communication with the centralized authority.
This makes coordination between employees easy.
(iv) Efficient Use of Resources:
Grouping of similar areas of expertise could entail efficient use of resources within an organization.
Equipment and personnel are not repeated across departments.
Also, every business unit can easily communicate within and across business units facilitating efficient use of resources.
(v) Possible Economies of Scale:
Functional structure is believed to be effective for an organization that provides a single product/service.
The organization correspondingly focuses on standardized procedures for providing a product/service with standard features, which ensures minimum costs of production.
Minimum costs due to standardized features along with less margin of error can lead to economies of scale.
(vi) Possible Competitive Advantage:
Competitive advantage refers to an attribute or advantages a business may have over its competitors, by generating high revenues or by garnering a higher market share.
This attribute could be either associated with a unique feature in their product or a lower costs of production.
Disadvantages of Functional Structure:
(i) Backlog of Decisions:
- Backlog refers to the accumulation of uncompleted work and decisions concentrated at superior or top-level management could lead to possible losses and held responsible for possible profits or losses incurred by the organization.
(ii) Problems during Sequential Tasks:
Employee groups organized in specialized units along the functional lines can be unaware or uninformed about activities in other units.
This may lead to employees not being able to understand the priorities and/or initiatives of other workgroups.
This could further cause employees to place their department before the company’s goals and to resent other business units.
(iii) Restricted Approach:
Functional structures are tight and not flexible or easily adaptable because they follow sequential tasks across departments.
This creates bureaucracy (rigid rules and procedures) that limits any possible change within the organization.
When there are any shifts in the market, or changes in technology or innovation, such organizations take time to react as this information needs to travel across the chain of command.
This rigidity within the structure may not be useful in dynamic environments.
(iv) Difficulty in Inter-Departmental Coordination:
Functional structure in large organizations can lead to complex inter-relationships within and between the departments.
There are also possibilities of clashes and conflicts between departments. When the business faces real problems, the departments lose out on the bigger objective of overall growth for the business due to possible miscommunication and unaccountability.
(v) Narrow Training but not Overall Development:
- Each employee focuses on specialization in one part of the job rather than an all-inclusive training that can lead only to overall individual growth (personal and professional).