Functional structure of organisation means an organisational structure which is formed by grouping jobs of similar nature or functions and organising such functions into separate departments such as production, marketing, finance, etc.
- Specialisation: A functional structure leads to occupational specialisation since emphasis is placed on specific functions.
- Efficiency: It helps in increasing managerial and operational efficiency and this result in increased profit.
- Minimises costs: It leads to minimum duplication of effort which results in economies of scale and thus reduces cost.
- Better control and coordination: It promotes control and coordination within a department because of similarity in the tasks being performed.
- Proper attention: It ensures that different functions get due attention.
- Ease in training employees: It makes training of employees easier as the focus is only on a limited range of skills.
Disadvantages or Limitations:
- Functional empires: A functional structure places less emphasis on overall organisation than the departmental objectives. Such practices may lead to functional empires and the importance of a particular function (or department) may be overemphasised.
- Problems in co-ordination: Pursuing departmental interest at the cost of organisational interests can also hinder the interaction between two or more departments. It may lead to problems in coordination among different departments.
- Conflict of interests: A conflict of interests may arise among departments when the interests of two or more departments are not compatible.
- Inflexibility: It may lead to inflexibility as people with same skills and knowledge base may develop a narrow perspective and thus have difficulty in appreciating each others point of view.