Business Development

Functional Organizational Structure – What Is It, And How Does It Work?

functional organizational structure

A functional organizational structure is a team structure within an organization where the organization groups its employees into various departments based on the expertise of the employee. This is one of the most common types of organizational structure in business and is mostly seen in larger companies. Here, the company groups its employees based on their performance, functions, and capabilities.

In this article, you will also learn about what a functional organizational structure is and how it works in a business organization. Next up, we will elaborate on this using a simple example based on this organizational structure. Finally, we will discuss the major pros and cons of having such an organizational structure for business. Hence, to learn more about this structure, read on through to the end of the article.

What Is A Functional Organizational Structure?

According to Indeed.com,

A functional organizational structure is a common type of business structure that organizes a company into different departments based on areas of expertise, grouping employees by specialty, skill or related roles. It’s based on levels of hierarchy that include different departments, under the direction of designated leaders.

Most businesses operate with the use of the functional organizational structure. This is because this organizational structure groups the employees of the organization based on their expertise, capabilities, and knowledge. This helps companies achieve their goals in an efficient manner when they use this structure within a team environment.

A major example of a functional organizational structure includes different departments in an organization, where the employees are grouped based on their skills and capabilities. Some examples of such departments include the marketing department, sales department, production department, HR department, etc.

This type of structure is a vertical management structure. Here, if you take each department and observe, you will find out that the employees of each of these departments communicate only with each other and their respective leaders. Subsequently, the leaders of these departments will report to their respective managers, who then will report to the company’s top management.

Read More: What Is Social Entrepreneurship? – Steps To Become A Successful Social Entrepreneur

How Does A Functional Organizational Structure Work? – Example

Regarding this organizational structure, the Human Capital Hub states – 

Businesses typically utilize functional structures because it groups individuals with comparable knowledge and, when used in a team setting, helps organizations achieve their goals. It is a sort of organizational structure in which the organization is divided into smaller units based on specific functional areas such as information technology, finance, human resources, or marketing.

This structure basically recognizes individual employees based on their skills, qualifications, expertise, and related roles. The business is organized as per layers of hierarchy. In each of these hierarchical structures, you will find several departments with authorized leaders leading them.

Since individuals with different abilities and expertise come together in each of these functional organization structures, the structure itself allows a higher efficiency of operation.

However, one of the major problems of this organizational structure is that the functional groups of this organization might not interact with each other. This leads to negative competition and a lack of communication between departments. In this case, the matrix organizational structure comes to the rescue.

The following are some of the major characteristics of a functional organizational structure:

  • This deals with a vertical management structure.
  • The business organization divides itself into different functional departments. In each of these departments, there are employees who are specialized in specific tasks.
  • Each of the functional departments works in silos, as each of these has their own management structures.
  • Employees report to their respective leaders, who, in turn, report to their managers in the department.
  • Employees typically communicate within their respective departments rather than interacting with employees of other departments.
  • The managers of each department report to a higher management in another functional leadership structure.
  • In some cases, managers of different departments interact with each other at times of need.

Functional Organizational Structure – Major Pros And Cons

According to AccountingTools.com,

The functional organizational structure is the dominant mode of organization in larger companies, since these entities deal with such large sales and production volumes that no other form of organizational structure would be nearly as efficient.

However, like every organizational structure, the functional organizational structure has its own pros and cons, which a business must have a full idea of. Here are they:

Pros Of A Functional Organizational Structure

The following are the major pros of a functional organizational structure that benefits organizations a lot:

  •  Since the structure contains groups of individuals by duties and capabilities.
  • There is autonomy for groups, but the management works as a point of contact between functional structures.
  • People are groups as per their specialization. Hence, this assures the specialty of departments.
  • Due to specialty and expertise in departments, along with good intra-departmental communication, the speed of operation is high.
  • It ensures clarity and accountability within each of the departments within the organization. Hence, there is better utilization of time and resources.
  • It helps in lightening the workload of the senior members of the organization.
  • This structure helps in developing executives.
  • There is more scope for expansion of the organization, as the competencies are high.
  • There is better control and oversight of the enterprise due to the presence of expertise and specialized knowledge. 

Cons Of A Functional Organizational Structure

Here are some cons of the functional organizational structure, which you must be aware of while you implement it:

  • Team silos are created, and hence there is less interaction between departments.
  • Common bonds weaken.
  • Inter-departmental coordination weakens.
  • Limited perspectives.
  • There can be territorial conflicts.
  • Delays in decision-making, as things are too structured.

Final Thoughts

You will need to implement the functional organizational structure as your business grows. Having separate departments for your IT Staffing and other areas will become a need. The functional manager(s) will need to work with the managers of all the departments so as to coordinate the tasks. The command chain is clear both within the departments and outside them.

The management structure frequently utilizes specialized resources and standardized processes. However, there can be departmental silos and slowdown of decision-making due to the presence of hierarchy. What is your opinion regarding this management structure? Share your thoughts and opinions with us in the comments section below.

Read Also:

author-img

Soumava Goswami

Inspired by The Social Network, Soumava loves to find ways to make small businesses successful – he spends most of his time analyzing case studies of successful small businesses. With 5+ years of experience in flourishing with a small MarTech company, he knows countless tricks that work in favor of small businesses. His keen interest in finance is what fuels his passion for giving the best advice for small business operations. He loves to invest his time familiarizing himself with the latest business trends and brainstorming ways to apply them. From handling customer feedback to making the right business decisions, you’ll find all the answers with him!

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Enforcing Prenuptial Agreements

Strategies For Maximising Value In Mergers And Acquisitions: A Comprehensive Guide

Imagine you're trading cards with your friends. You wouldn't swap your rarest card for something common, right? You'd want to get something equally awesome or even better. When businesses combine or buy out other businesses, they essentially accomplish that. However, it involves a bit more work than just switching cards. You must ensure that your new companion is compatible and won't cause you any problems. The value of a business is harder to assess than trading cards. We'll provide you with a few strategies on how to maximize the value of mergers and acquisitions. To find out more about this fascinating business opportunity, continue reading. Here are the strategies at a glance: Thorough Due Diligence One of the first steps in maximizing value in mergers and acquisitions is conducting thorough due diligence. This means carefully examining every aspect of the target company. It includes their financials, operations, customer base, and potential risks. It offers useful data that can assist you in making defensible choices and seeing any possible warning signs that could jeopardise the merger or acquisition's success. It also allows you to negotiate a fair price and understand the full value of the target company. Legal And Regulatory Compliance There is a tonne of paperwork and legalese involved with mergers and acquisitions. Following all applicable laws and regulations is necessary to ensure a smooth process. Getting the required licenses, permissions, and approvals falls under this category. It also involves reviewing contracts, leases, and other legal documents to identify any potential roadblocks. For instance, Lloyds Brokers offers legal services to help companies navigate through the complex legal landscape of mergers and acquisitions. Cultural Alignment Another important aspect is the alignment of company cultures. Without similar values and beliefs, a merger and acquisition can quickly fall apart. In the worst-case scenario, it could result in a cultural clash that puts your business at risk. Build relationships with key members of the other company to understand their culture better. Determine their management style, work ethic, and overall attitudes towards work. This will help you spot possible conflicts and resolve them before they escalate. It will increase success possibilities. Strategic Planning And Integration A long-term strategy plan for integration is necessary to maximise the value of a merger and acquisition. The goal is to create a new entity that is more valuable than the two separate companies. The strategy should involve careful consideration of operational processes, systems, and infrastructure. This includes identifying synergies and streamlining processes to improve efficiency and reduce costs. Also, communicate the plans to employees and get their feedback. Talent Retention And Development Acquiring a company also means bringing in new talent. A retention plan must be developed in order to guarantee that the top personnel remain with the company. This could include offering incentives and bonuses or personalized career development opportunities. It's important to recognize the value of current employees. This provides them with opportunities for growth within the new entity. Also, get to know the talents and skills of new employees to identify who will fit best in different roles and teams. Communication And Transparency During a merger and acquisition, effective communication is essential. To make sure that everyone is in agreement, both businesses should keep lines of communication open. To keep all parties aware, communicate on a frequent basis in a straightforward and unambiguous manner. Transparency also builds trust between both parties, which is necessary for a smooth transition. If there are any major changes or challenges, do not hide them. Instead, be honest and address them proactively. This way, you will maximize the value of the merger or acquisition in the long run. Continuous Monitoring And Adjustment Lastly, this is another strategy that is often overlooked. A merger and acquisition doesn't end once the deal is closed. It's an ongoing process that requires continuous monitoring and adjustment. This means tracking progress and identifying areas of improvement. This makes necessary adjustments to ensure the success of the new entity. Reviewing performance metrics and addressing any issues will help maximize value in the long term. Conclusion Mergers and acquisitions are complex business transactions that require careful preparation and execution. The strategies in this guide can boost your merger or acquisition's success and value. Remember to conduct thorough due diligence and adhere to legal and regulatory compliance. Also, align company cultures, strategically plan for integration, retain talent, communicate effectively, and constantly monitor and adjust. So don't forget to consider the above information and make sure to seek professional advice when needed. Good luck! Read Also: 8 Best Practices For Managing Remote Teams The Importance Of Keeping Your HR Team Certified Seven Potential Tax Credits Available To Small Businesses In 2023

What Is a Franchise

What Is a Franchise, And How Does It Work? – Examples, Benefits & More

What is a franchise? - If you want to start with a franchise, you will be able to get the benefits of an already successful brand and an in-demand product. Furthermore, you can also receive various tools and guidance from the franchisor, who wants to see you succeed in the local area that you are to operate in. All you have to do is pay an amount to the franchisor and get the licence to operate under its name. In this article, you will learn about franchises and get an understanding of the working of a franchise. Furthermore, you will also learn some of the major characteristics of a franchise. Next up, we will discuss the major types of franchises with examples. Finally, you will learn the essential pros and cons of a franchise for both the franchisee and the franchisor. What Is A Franchise? According to Investopedia, “A franchise is a type of license that grants franchisee access to a franchisor's proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell a product or service under the franchisor's business name. In exchange for acquiring a franchise, the franchisee usually pays the franchisor an initial start-up fee and annual licensing fees.” When a business wants to increase its geographical reach for a higher share of the market, one of the ways it can do this is by franchising its brand name and product. The franchising entity is called a franchisor, while the individual or group that buys the franchise from the franchisor is called a franchisee. Read More: Entrepreneurship – Definition, Meaning, Scope, And More Understanding A Franchise - How Does It Work? According to Wall Street Mojo, “Franchising definition refers to a license or an agreement between two parties, which gives an individual or an organization (the franchisee) the right to market goods and services using the trading techniques and brand name of another organization known as the franchisor. Technically, the contract binding the franchisor and franchisee is the ‘franchise.’” The franchisee basically gets the right to sell the franchisor’s goods while using the business model of the franchisor. Any advertisement or marketing efforts of the franchisee are set by the franchisor in most cases. What Are The Major Types Of Franchises? As per the observations in an article on Hubspot, “A franchise involves a mutually beneficial relationship where the franchisor (company) offers an array of support to the franchisee in exchange for recurring royalty fees. Through this relationship, the franchisee (individual) can expand the parent company's reach and get more of the commercial product to more customers.” However, to understand franchises better, you will need to get an idea of their types: 1. Product Franchise Here, the franchisee makes use of the brand name, products, trademarks, etc. of the franchisor. Here, the main brand allows third-party operators to market and distribute the products of their brand by signing a contract.  Furthermore, the franchisee has to pay an initial fee to the franchisor. However, the franchisor is in control of the way in which the franchisee distributes the product. An example of a product franchise is any automobile producer or a soft-drink manufacturer. 2. Business Format Franchise This type of franchise uses a particular business format, as well as the best practices of the franchisor, to produce the product. The franchisor basically comes with an established business model and guides the franchisee with ways to launch and operate the business. The biggest examples of such types of franchises include fast-food sellers and restaurants like McDonald’s, KFC, Subway, etc. 3. Manufacturing Franchise In this type of franchise, the franchisor provides the franchisee with the rights to produce products under its trademark and brand name. Some of the food and beverage companies also maintain their business with this model. Biggest Pros And Cons Of A Franchise The following are some of the major pros and cons of franchises which you must get an idea of:  Pros Here are some of the major pros of a franchise: Since the franchisor’s network increases, it helps to increase the goodwill of the brand. As franchisors get bigger, they tend to know the different needs and demands of a large number of customers. Franchisors also tend to get valuable feedback based on the choices of customers and the popularity of a product, which further helps them to cater better. The franchise can expand its distribution chain pretty quickly. The franchisee does not need to promote the product a lot since the brand’s name is getting more famous. Since the franchisee sells its products under a well-established brand, the risk for the franchisee becomes lower. As the franchisee makes a financial investment in the franchise, it becomes a source of capital for the brand. The franchisor can get local knowledge of the business environment with the help of the franchisee. For franchisees, the rate of success is higher since they work on a proven business model. Cons Here are a few cons of franchises that you must be aware of: The franchisor has to depend on the performance of the franchisee for success in the local area. If the franchisee is not capable enough, it can tarnish the business image of the brand. To help franchisees set up business in the local area, the franchisor needs to provide valuable resources. As franchisees get a lot of details from the franchisor, there is a risk of information leaks to competitors. For the franchisee, there are a lot of restrictions from the franchisor since the former must stick to the tried and tested business plan. They also need to stick to a fixed marketing and advertising model. If the brand is successful and trendy, to get rights for a franchisee, one must pay a substantial amount for the franchise. Read More: What Are The Different Types Of Entrepreneurship? – Take A Look Wrapping Up Hope this article was helpful for you in getting a better idea of what is a franchise and how it works. You can see from here that although there are many advantages and disadvantages, franchises are popular with some of the big brands. If you are looking to take up a franchise from a renowned franchisor, consider doing research, and find out whether it fully suits your local area and demands or not. Do you have any more to add to this article regarding franchises? Share your ideas with us in the comments section below. Read Also: Private Equity Vs. Venture Capital: Key Differences Business Venture Definition, Types, And How To Start? What Is A Venture Capitalist, And What Are Their Functions?

Agile Consulting

Why Agile Consulting Is Important

TCGen is a leading provider of agile consulting services and transforms organizations of all sizes and any industry. Regardless of what and how the consulting area is, the approach of TCGen starts with an efficient and thorough assessment of an organization’s needs and follows it with focused training for team members and their managers. Agile consulting reduces the time it takes businesses to deliver new products and services. While the main goal of businesses is to improve their sales projections, delivering products in a timely fashion is a critical factor. Through an agile business model, businesses improve their efficacy and deliver products, meeting customer expectations quicker than ever before. Whether a business is trying to improve its processes to deliver products promptly or they are simply trying to solve a customer problem, an Agile consultant can offer valuable feedback to an organization. Reduce Market Time Agile consulting helps businesses reduce the time it takes to market a product. Such reduction allows companies to work faster than the competition and quickly respond to the rapidly changing market. Agile consulting is a flexible approach that can help organizations deliver products and services more efficiently. Breaking down projects into smaller, manageable chunks and continuously testing and refining the work as it progresses allows corporations to reduce products’ time to market. Improve Stakeholder Outcomes Improved stakeholder outcomes are another crucial factor that organizations can improve with the help of an agile consultant. TCGen's consulting services can help achieve this as they promote the involvement of stakeholders in the development process. This helps ensure that the final product or service meets the needs and expectations of stakeholders, allowing them some ownership in the process. Meet Customer Needs Meeting customer needs and increasing their happiness is critical for organizations that want to work better than their competition. TCGen's consulting services can help achieve this by promoting a customer-centric approach, involving customers in the development process, and improving the products as it evolves. This means that customer satisfaction is improved and the final product can generate higher sales.  The Process The first step in TCGen's approach is identifying the several pain points holding an organization back. This typically includes issues with a product definition, product mindset, delays, and missing financial or impact goals. Identifying these pain points allows TCGen to work with organizations and agree on goals and KPIs, prioritize implementing agile capabilities, and select a small number of agile practices to embed in the company’s culture. Once the goals and KPIs have been agreed upon, TCGen helps transform organizations through best practices in change management. This involves working with the organization to establish and socialize agile practices. When agile practices are established, TCGen can help organizations add to and improve their systems.  To ensure that organizations are left with new capabilities that employees will be able to use going forward, TCGen typically pairs up with a senior-level individual contributor. This is not a full-time assignment, but it is given a high priority. TCGen's approach to program management will show organizations how to implement agile projects, using sprints, user stories, kanban, and backlog management as required. With TCGen's agile coaching, organizations can embed these practices throughout the company and achieve their goals. TCGen's approach to agile transformation is comprehensive, flexible, and tailored to the specific needs of each organization. Identifying pain points, agreeing on goals, and working with organizations to achieve their transformation allows TCGen to help organizations to achieve more and stay ahead of the competition. If you want a partner to help you achieve your agile transformation, consider working with TCGen’s Agile Consulting. Read Also: Top 7 Best Startups Revenue Model That Will Grow Your Business In 2021 Everything Any Entrepreneur Needs To Know Before Starting A Business How To Start A Dropshipping Business In 2021 – A beginners Guide

Best Pajamas Wholesalers

Who Are The Best Pajamas Wholesalers?

Pajamas are a staple in any wardrobe, and they're also a popular product for online retailers. If you're looking to add pajamas to your e-commerce store, you'll need to find a reliable source for wholesale pajamas. What to Look for in a Wholesale Pajama Supplier When choosing a wholesale pajama supplier, there are a few things you should keep in mind: Quality: Make sure the pajamas are made from high-quality materials that will last. You want to avoid selling pajamas that are poorly made or that fall apart after a few washes. Variety: Offer a variety of pajama styles and sizes to cater to a wide range of customers. This will help you maximize your sales. Cost: Look for a supplier with reasonable costs. Your goal should be to turn a profit on your pajamas while maintaining the affordability of your products for your customers. Verify the supplier's dependability and promptness of order shipment. You don't want to have to postpone shipments and let your customers down. Where To Look For Pajamas In Bulk There are several locations where you can purchase wholesale pajamas. Here are some possibilities: Internet-based markets: You can purchase wholesale pajamas on a number of internet marketplaces, including Alibaba and IndiaMART. You can communicate with suppliers worldwide through these marketplaces. Trade shows are also an excellent way to meet suppliers in person and see their products firsthand. There are several apparel trade shows, including the International Textile and Apparel Association (ITAA) Show and Texworld USA. If you have the time and resources, you can also buy pajamas directly from manufacturers. This is a great way to get the best prices, but it is also more time consuming. Wholesalers Of Pajamas In The United Kingdom Here are some of the best nightwear and pajamas suppliers in the UK Fashion Stores in Paris: Paris Fashion Shops is a leading distributor of high-quality pajamas. They have a large selection of styles and sizes, as well as a dependable shipping policy and excellent customer service. Nightwear Wholesalers: This company sells nightwear to retailers of all sizes, from small independents to large multiples. Pajamas, dressing gowns, and nightwear for all ages are available. Wholesale Nightwear: This company is a leading wholesale nightwear supplier in the UK. They sell a variety of nightwear items such as pajamas, dressing gowns, and slippers. PJ Supply: This company is a major wholesale pajama supplier to the UK market. They have a large selection of pajamas for men, women, and children. The Nightgown Company: This company is a major wholesale supplier of nightgowns to the UK market. They provide a diverse range of services. Where Can I Buy Wholesale Pajamas In Paris? To purchase wholesale pajamas from Paris Fashion Shops, you must first create an account on their website before shopping for pajamas. You can then add the pajamas to your cart and check out. They accept credit cards and PayPal, among other payment methods. Conclusion Purchasing wholesale pajamas can help you increase your profits and expand your e-commerce business. You can ensure that you are getting high-quality pajamas at competitive prices by finding a reputable supplier, such as Paris Fashion Shops. Read Also: Why  Create A Powerful Business Continuity Plan? What Is Network Marketing And How To Do It In 2021 How To Start A Business In 2021 – Best Business Strategies