Functional structure and division structure are the terms used in the context of the organizational structures of the company to manage its operations and accomplish its objectives. The degree of autonomy given to various organizational components and how they are organized are where these two systems differ most from one another. In order to get a better idea about both concepts one should look at some of the differences between functional structure and divisional structure
Functional Structure VS Divisional Structure
Meaning
A functional structure is an organizational structure in which individuals or employees are grouped together based on their functional areas, such as marketing, finance, operations, or human resources. In this structure, the employees within the functional area work together to achieve common goals and objectives related to their specific functions. While divisional structure refers to an organizational design where a company is divided into smaller units or divisions, each focused on a specific product or service.
Purpose
The main purpose of a functional structure is to optimize the performance of specific functions within an organization, whereas the purpose of a divisional structure is to have greater specialization and autonomy among different business units.
Basis of Group
In the case of a functional structure, the individuals are grouped together based on their functional area, such as marketing or operations, or finance, while in a divisional structure, the individuals are grouped into separate units based on the product of the company or area which the company is targeting, or on the basis of the target customer base.
Chain of Command
A functional structure typically has a clear chain of command with a single person in charge of each functional area, hence all marketing team has to report to the marketing head while the finance team has to report and take orders from the finance head. While in a divisional structure, there are multiple layers of management and hence the workers have to report to numerous heads or individuals in charge of different aspects of the business.
Professionalism
In the case of functional structure since the functional head is an expert in his or her field hence the decision-making in a functional structure tends to be more professional hence for example any problem related to marketing will be handled well by the marketing head rather than any functional head, while in a divisional structure, decisions are made at the business unit level, with more autonomy and accountability for results, however, decision making cannot be as professional as divisional structure, hence a person with marketing background can’t be expected to take decisions related to finance.
Type of Companies
Functional structure is best suited for companies with a narrow product range and stable environment as the functional structure has less flexibility in responding to changes in the market or business environment while the divisional structure is best suited for companies with a wide product range and a dynamic environment due to greater flexibility in working of the divisional structure.
Performance Evaluation
In the case of functional structure performance evaluation in e tends to be based on functional goals and objectives which are set by the company for the functional department, while in a divisional structure, the performance evaluation is based on the performance of individual business units.
As one can see from the above functional structure and divisional structure are two sides of the same coin when it comes to organizing a company’s operations. While both structures have their unique benefits, choosing the right one for your organization is crucial to hitting the bull’s eye as far as the success, as well as performance in the long run of the company, is concerned.