A system detailing an organization's hierarchy, which houses all administrative duties, is referred to as its organizational structure. In an organization, it stands for the link between authority and activity. The functional structure and divisional structure are the two types of organizational structures that are most frequently utilized. Employees are placed together in a functional organizational structure according to their areas of specialization.
In contrast, a divisional organizational structure is one in which the organizational functions are divided into groups according to products, services, markets, or geographical regions.
The Need for Organizational Structure
Before examining the differences that exist between functional and divisional structures, let's look at why it's important to consider an organization's structure. Here are a few elements emphasizing the advantages of organizational structures:
Efficient Decision Making
Faster communication is made possible by organized organizations because all have knowledge of the departments' roles. Faster issue-solving and decision-making are made possible by the information flow that is seamless.
Organizational structures facilitate company operations. Employees can work more productively and efficiently if business functions are divided into departments. Even better, it aids businesses in avoiding the duplication of tasks, saving both time and money.
Better Employee Performance
Organizational structures specify the duties of each employee as well as those of each department. An employee will be more competent in performing their duties the more familiar they are with the framework.
Functional Structure vs. Divisional Structure
The primary distinction between a functional structure and a divisional structure lies in the fact that a functional structure divides the organization into smaller teams based on specialized functional areas like production, marketing, and sales, whereas a divisional structure groups operations based on groups or distinct product categories. Several structures can be used to arrange an organization, allowing it to function and perform. The same goal is to do operations effectively and efficiently.
Difference Between Functional and Divisional Structure in Tabular Form
|ASPECT||FUNCTIONAL STRUCTURE||DIVISIONAL STRUCTURE|
|DEFINITION||A functional structure is one where the organizational reporting connections are divided into their respective functional areas.||An organizational structure known as a divisional structure group the organizational functions based on product or service lines, markets, or other factors.|
|FORMATION||Formed based on function.||Formed based on product.|
|SPECIALIZATION||Functional organizations exhibit high specialization due to the usage of shared functions.||Separate functions are used by divisional organizations, which results in low specialization.|
|SUITABILITY||Organizations which operate in a single area and sell just one item category are best served by functional structures.||Companies with various product categories and presence in several areas should use a divisional structure.|
|MANAGERIAL DEVELOPMENT||There is less opportunity for managers to develop across all functions as they specialize in just one.||The managers' ability to undertake a variety of tasks makes management development simple.|
|COST||Since there is no repetition of effort, it is economical.||Since each department needs all the resources, it is not affordable.|
|COORDINATION||Coordination is challenging in the case of a corporation that sells multiple products.||As all tasks associated with a certain product are consolidated into a single department, coordination is simple.|
|SUITABLE FOR||It is appropriate for businesses with one product or a limited number of products.||It is appropriate for businesses with a variety of goods.|
What Is Functional Structure?
An organizational structure known as a functional organization divides the company into smaller divisions based on specialized functional areas including production, marketing, and sales. A departmental head oversees each function and has the dual duties of holding their department accountable to senior management and guiding them towards successful performance. These functional divisions are also known as "silos."
Functional organizational structures are 'U-form' (Unitary form) structures where processes are grouped according to shared knowledge and experience. Marketing and finance are two functions that are shared by different divisions or goods. The organization will be able to make use of specialized functional expertise and experience considerable cost savings by utilising shared services, which is the most major benefit of this sort of structure.
However, bigger scale businesses that operate throughout a huge geographic area find it challenging to implement functional structures, particularly if the company has activities abroad. Assume that two of the five product categories in the example are offered in two separate nations. In that situation, the products must be sent to the relevant nations, and perhaps other marketing strategies must be employed.
3 Key Characteristics of Functional Structure
The following traits are frequently found in organizations with a functional organizational structure.
- Senior management receives reports from department leaders. Whether it's sales, product, or IT, every department inside a firm has a head of the department who either directly reports to senior management or is a member of it.
- A top-down system of hierarchy exists. The senior management team in most functionally organized organizations oversees the entire organization, while almost every other employee works in a single, compartmentalized department.
- Certain duties are specialized by employees. In organizations with a functional structure, employees are chosen for their proficiency in specific skills. They hardly ever leave their responsibilities to assist with the job of another department.
Advantages of Functional Structure
There are three distinct benefits that businesses operating in a functional structure may have.
1. Stable working environment: An organizational structure that functions well provides a stable working environment where employees may comprehend the nature of their roles and the required standards.
2. Designed for organizational efficiency: big businesses frequently prefer functional structures because they allow each department to operate independently, which boosts productivity. There is no guarantee that a quarrel in one department would result in a bottleneck across the entire organization.
3. Focuses on people's benefit: A functional organization places workers where they are most needed and avoids assigning them jobs above their capacity. Working on tasks within their areas of competence generally results in more productive employees.
4. Expansion's Range: Compared to line organizations, it provides more room for expansion.
It doesn't deal with the issue of the few line managers' limited competencies.
5. More Effective: It generates a high level of effectiveness as the functional heads and staff groups carry out their specific and specialized tasks.
Disadvantages of Functional Structure
Employing a functional organizational structure can have various drawbacks in addition to its benefits.
1. The possibility of silos: When people work solely in a single department or concentrate on one activity, they risk losing sight of the company's bigger picture objectives. If employees do not engage with people in other departments and comprehend how their work ties together, they may feel less engaged in the company.
2. Departmental rivalry: There is a danger that departmental competition will inhibit cross-departmental cooperation when departments are clearly defined and given particular objectives.
3. Missed opportunities for innovation: Sometimes venturing out of a department's hive mind is the best approach to come up with concepts for fresh goods, marketing strategies, or supply-chain models. Employees may miss the opportunity to learn from coworkers in a different area of the organization when they become segregated into specialized areas.
What Is Divisional Structure?
The divisional organizational structure arranges a company's operations around market, product, or geographical categories. As a result, a business structured along divisional lines might include operational groups for the US or EU, for corporate clients, and for the green widget item category. Such divisions each comprise an entire set of duties. As a result, the green widget sector would oversee its own engineering, manufacture, sales, and marketing.
When decision-making needs to be concentrated at the divisional level to respond more swiftly to local circumstances, this strategy is helpful. When a corporation has numerous areas, markets, or products, the divisional structure is extremely helpful. However, it can result in higher overall costs and a lot of small, fractious fiefdoms within a corporation that may not always cooperate for the benefit of the whole organization.
Advantages of Divisional Structure
The divisional structure's main benefits include bringing decision-making as near to the client as possible. The benefits are listed below.
Accountability: It is significantly simpler to allocate blame for acts and outcomes when using this method. A division is specifically managed by its very own management team, which stands out for the division's best interests.
Competition: The divisional structure performs effectively in markets with intense competition because local managers can swiftly adjust the course of their companies to adapt to local realities.
Culture: You may utilize this framework to develop a divisional culture that best satisfies the demands of the regional market. For instance, a retail division might have a culture created specially to raise the level of customer service.
Local judgements: The ability of the corporation to respond to the local marketplace may be enhanced by the divisional structure, which enables decision-making to be decentralized within the organization.
Numerous Options: It makes more sense for a corporation to use a divisional structure when it has a significant number of distinct product offerings or markets that it serves.
Speed: This strategy typically results in quicker adjustments to the state of the local market.
Disadvantage of Divisional Structure
Even though the corporation can assign its varied functions to distinct divisions, it is notable that the divisional organizational structure has a few contradictory characteristics. The following is a list of these components:
Limited breadth: The divisional structure's benefits and breadth are typically only available to large organizations with sufficient human capital and financial resources. It implies that smaller firms are unable to take advantage of the chances and advantages that larger organizations who use this strategy can.
Work Duplication: This strategy duplicates work. Expenditure for the organization could go up as a result.
Strong Competition: The difficult but productive and beneficial competition among the division's leaders and members bears good fruit. If all these businesses fall into the same group for generating goods and services, they can only unite as a single division. In other words, rather than being complements, they must complete one another.
Communication Lack: Lack of interaction will impede the expansion of the departments and the business. Lack of communication makes it impossible to learn about one another's intended objectives and targets.
Economies of Scale:Scale economies of scale are not advantageous to a divisional structure-based organization. The cost of manufacturing huge quantities of products and services could not be reduced by this sort of structure.
Main Differences Between Functional and Divisional Structure in Points
- According to the functional structure's definition, the organization is set up so that employees are grouped according to their areas of expertise. The divisional structure is a type of organizational structure that is built to be divided into partially independent divisions based on a company's products, services, markets, etc.
- The specialization relies on functions in the functional structure. However, divisional organization and specialism are reliant on product lines.
- If a product doesn't sell well, it might be challenging to pinpoint which organization department—production, sales, finance, etc.—is to blame. This is because responsibility is hard to assign in a functional organization. As opposed to a divisional structure, where each organization's product has a separate department, it is simple to assign responsibility.
- Due to the lack of decision autonomy in functional structures where top management guides all decisions, managerial development is difficult. It is possible to make decisions independently in contrast to this divisional framework. Development in management is therefore simpler.
- Given that no functions are repeated, a functional organizational structure has a lower cost. Unlike the divisional organizational system, which is expensive since resources are reused.
- Small and basic organizations are best suited for the functional structure. as opposed to a divisional structure, which is suitable for large and dynamic organizations.
Each organizational system has its own benefits and drawbacks, just like every coin has two sides. Because of this, it might be challenging to determine one more effective than the other under a given circumstance, but by evaluating their suitability, it is possible to determine which is best for a given organization.
References: 1.” Functional Structure – Boundless Open Textbook.” Boundless. Boundless, 31 May 2016. Web. 04 Apr. 2017. 2. “MSG Management Study Guide.” Line Organization. N.p., n.d. Web. 04 Apr. 2017.
Table of Contents
- The Need for Organizational Structure
- Functional Structure vs. Divisional Structure
- Difference Between Functional and Divisional Structure in Tabular Form
- What Is Functional Structure?
- What Is Divisional Structure?
- Main Differences Between Functional and Divisional Structure in Points