Ever felt the buzz from watching a live orchestra? Strings, percussion, brass, and woodwind sections, each playing their unique tune, yet together creating a mesmerising symphony.
This is a great analogy for how a functional organisation works. Embraced by many larger companies and fast-growing scaleups, functional organisational structures are designed for maximum efficiency across potentially large and varied workforces.
Here, we dive into some of the key characteristics of a functional organisation, various pros and cons of this organisational structure, and whether startup founders should consider this for their business.
What does a functional organisation look like?
Picture the orchestra, and you can now start to picture what functional organisations look like. Just as the woodwinds, the brasses, the percussionists sit in their respective sections, functional organisations are ones where the company is organised into separate departments which operate fairly independently from one another.
In each department, you’ll find teams of specialists living and breathing their particular field of expertise. This may be organised by business function—for instance, marketing, sales, finance, human resources, and so on. For larger businesses with multiple business units (often large tech companies or FMCGs), this will be categorised by product lines along a certain theme.
Each department has a clear remit, and will have goals and targets of their own which feed into the wider business strategy. Hierarchy exists within these departments, with all departments led by a head of department or functional lead. These departments are for the most part siloed off from one another, the idea being that you can get more out of teams by allowing them to focus clearly on their specialisation rather than be distracted by cross-functional work.
This structure is much more typical in large organisations. Unilever, for instance, went through a significant restructuring in late 2022 towards a functional organisational structure. It is now separated by its five key business areas—Beauty & Well-Being, Personal Care, Nutrition, Home Care, and Ice Cream (as the owner of Ben & Jerry’s). Each business group is led by a President.
This is ideally suited to a business like Unilever, in which such a diverse portfolio of businesses demand such different needs and expertise. It also means each business group is responsible and accountable for their own growth and strategy
Other well-known businesses with functional organisational structures include Amazon and Starbucks.
What are the benefits of a functional organisation?
Efficiency is one key benefit of functional organisations. They are designed to be like moving parts on a well-oiled machine. By organising teams by specialisation, you concentrate skill sets by department which can be a huge boon to operational efficiency.
What is more, your decision-making process is much clearer. By having a clearly defined remit, whether that’s by function or by business area, it becomes very clear which responsibilities fall to which team. Additionally, because each employee isn’t individually managed but rather as a team, individuals have far more autonomy and responsibility over their own work. The role of the functional lead, rather, is to provide overall direction.
The functional organisational structure is far more conducive to measuring progress and development. By having a team of the same specialisation, you can set standardised goals and metrics, and measure people next to each other. On top of this, learning and development can be tailored to the specialisation, while individuals can learn from one another more easily.
This structure is also much more scalable. Greater autonomy between departments means you can grow separate functions or business areas without disrupting the overall structure of the business.
What are the downsides of a functional organisation?
There are certainly downsides to having a structure in which departments are more isolated from one another. Cross-functional collaboration can have huge benefits, and this is largely lost with siloed business units. Moreover, you can create cultural fractions within your wider business between different departments if they are not attuned to socialising with each other.
You may also experience less innovation and greater resistance to change. Innovation often happens when you bring together differing perspectives, particularly outsiders who may not be familiar with your expertise. Without cross-collaboration, opportunities for this to happen organically may be stifled.
By imposing rigidly defined boundaries between departments, you are prone to inflexibility around external market changes. For instance, a whole business line appears or disappears—how does the functional structure respond to this? Alternatively, if need to quickly introduce a new specialisation (e.g. finance, HR), it’s not so simple to build a whole new department.
While the decision-making process may be more clearly defined, it can also be much slower than at a flat organisation. Decisions are fed up through functional leads to executives up to the CEO, which can massively slow things down.
Should startups consider functional organisational structures?
Functional organisational structures are certainly far more conducive to large organisations and multinationals with multiple business lines. Conversely for startups, many of its features will not be particularly attractive.
In startups, you need to make decisions at 100mph. Many decisions are made informally, on the fly, and can quickly be communicated to the rest of the organisation (usually through a weekly all-hands or the like). Functional organisations, however, concentrate decision-making at the centre of an organisation, which could significantly slow things down.
Startups also demand flexibility and agility. They require people to step beyond their job descriptions, to frequently get involved in things outside of their remit. Cross-collaboration is key to this, as this can often be how startups innovate and find product market fit.
Perhaps most importantly, startups have very limited resources. You’re unlikely to be able to afford to build a whole department for each function. Rather, early-stage startups need people who can reach confidently across multiple functions at one time—COOs who can do finance, marketers who can also do creative and design, and so on.
That said, there are certainly elements of functional organisations that could be useful to startups. Startups in highly specialised fields (deeptech, biotech, sciences, etc) stand to benefit greatly from deeply specialised teams and functions, which could start to represent functional organisational structures. As you scale, you will need to start to introduce new departments quickly—like finance and HR—particularly if you are operating in a highly regulated space.
So while other organisational structures may be more appropriate for startups—like flat organisations—there are certainly valuable takeaways for founders from functional organisations.
Want more support with your organisational structure? At Vine Talent, we bring in subject matter experts who have made the mistakes so you don’t have to. Click here to find time in Josh’s (Founder of Vine Talent) diary.
