Org Design, Org structure

Does Functional Org Design Put People in Boxes?

Expert author: Tim Brewer

If you have delved into our articles before, you would have seen posts about all kinds of organization charts, or 'org charts' as we call them.

Hierarchy charts, cross-functional ones, charts with dotted lines, matrix org charts, accountability charts and even entity diagrams and organigrams feature.

Have no fear, that last one - organigram - is just a fancy name for an org chart, and a term to impress your friends at parties.

In this post, we examine functional org design, which is probably the most commonly used in modern-day business.

What's a Functional Org Chart?

Most organizations divide their human resources into departments with titles describing what they do, such as: finance, accounting, sales, marketing, product and HR. We've all come across organizations like this, and have probably worked in them.

A functional org chart usually features a top-down hierarchy but instead of focusing on positions and management layers, it groups employees by functional skills.

Interactive Org Chart use tools to zoom, view departments, job details, etc... ©Functionly


In the example above (using Functionly's own system), a hypothetical organization of around 20 people is divided up into seven departments, with seven managers reporting to the CEO (Janet Spelling).

If you click on Almiro Zupan on the left, you will see his role as IT Manager with 2 people (Arnold and Archie) reporting to him. 

Each department or area runs in a vertical direction from top to bottom. The manager or lead sits on a horizontal plane and reports to the CEO. Departments tend to work independently of each other, coming together at the managerial level when outside expertise is required.

Employees aren’t always grouped according to what they do. Another way to use a functional org chart is to group employees by knowledge and skills.

Whichever way you arrange it, in functionally-organized structures, staff are gathered together in their field of expertise. If you want something done in IT, then you head off to the IT department. If marketing or sales is what you are after, you go there. Experts in those various areas work almost exclusively in those departments.

The idea is that each department becomes highly skilled at their certain area, and can ‘contract out’ their expertise throughout the organization. In some cases, internal Profit and Loss budgets may apportion ‘internal revenue’ and ‘internal costs’ between departments to capture this activity, and report on it.

One obvious drawback with this approach is that it divides the staff into departments - puts them in 'boxes' - rather than having everyone work with one set of common organizational goals. Fiefdoms can appear, with departments battling each other for budgets and disagreeing over the allocation of resources.

Departmentalizing people in this way can create a 'that’s not my job' mentality, rather than everyone pitching in for common concern.

Advantages and Disadvantages of Functional Org Charts

Here are some of the potential benefits:

  • Allows employees to focus on their role
  • Encourages specialization and higher performance
  • Promotes skill development
  • Help teams and departments feel self-determined
  • Is scalable in any sized company

And some of the possible issues are:

  • Can create unnecessary silos and barriers within an organization
  • Hampers interdepartmental communication
  • Obscures processes and strategies for different markets or products in a company
  • Limits employee collaboration, innovation and knowledge sharing

In some ways, the functional org chart feels a bit outdated. Even so, many organizations are still set up in this way. Engineering firms, accounting practices and lawyers tend to deploy departments by function.

To overcome the problems of functional design, some larger companies have looked to use cross-functional teams (such as Google), or a holocracy (in the case of Canva) or matrix structures to spread teamwork, gain expertise but not be lumbered with bureaucratic barriers and inefficiency.

Change the Only Constant

Even before the pandemic, organizational change had become a way of life. A 2015 McKinsey study (1) found that 60% of organizations had redesigned themselves within the past two years. Another 25% had done so three or more years ago.

In previous generations, “most executives might have experienced some sort of organizational upheaval just a few times over the course of their careers,” the report said.

Not any more.

No longer are organizations set up one way, and that structure stays. External, disruptive market forces and increasingly competitive market spaces necessitate a continual examination of what an organization does, and how it does it.

Today’s successful organizations embrace change as a way of life. And that includes a corporate structure.

“Organizational redesign involves the integration of structure, processes, and people to support the implementation of strategy and therefore goes beyond the traditional tinkering with ‘lines and boxes.’", said the McKinsey report (1).

“Today, it comprises the processes that people follow, the management of individual performance, the recruitment of talent, and the development of employees’ skills.

“When the organizational redesign of a company matches its strategic intentions, everyone will be primed to execute and deliver them. The company’s structure, processes, and people will all support the most important outcomes and channel the organization’s efforts into achieving them.”

Functionly-icon: Get Your Structure Right. Always.

Here at Functionly, we live, eat and drink org design and structures. We appreciate the importance of good work design to organizational success.

Do you have any 'gaps or overlaps' in your organization? How would you know?

With our free tool, you can analyze your existing org chart, and strength test alternative arrangements. You can import your staff details from common accounting software, making it easy to get going. Our drag and drop tools make it so straightforward - yet powerful - to use.

Get started today, for free, with Functionly.



  1. Getting organizational redesign right, S. Aronowitz, A. De Smet & D. McGinty, McKinsey & Company, 1 June 2015
  2. What Is a Functional Organization Chart? Kristie Lorette, Smart Capital Mind

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