How to build a functional organizational structure

Sometimes, you have to leave the island to see the island. The fresh perspective that comes from observing things from the outside is the goal of a functional organizational structure. This framework helps you map out your departments and how they work, fostering collaboration among team members within each area.

This roadmap will guide you on how to create a structure that ensures everyone is working towards the same goals.

What is a functional organizational structure?

A functional organizational structure is a system for classifying employees and departments based on their core functionalities and areas of expertise. Imagine a company's sectors like marketing, sales, finance, and HR. Each one has its own focus, and team members become specialists in their functional roles.

Grouping people based on similar skills helps you better use your team's expertise, solve problems faster, and work more efficiently.

Example of a functional organizational structure

Picture this: Your sales team is about to implement a new CRM system. While the online sales team wants a solution focused on automation, the phone sales team needs something that integrates with the platforms they already use for direct customer outreach.

Instead of letting them fight it out, you can use a functional structure to define who is responsible for discussing these options and who is responsible for the final decision. By fostering communication within the department, teams can align and collaborate to find the best tool to address their needs. It's a win-win!

Here's an example of a functional organizational structure chart:

A functional org structure has a few characteristics that define how an organization operates:

• Departmentalization by areas: Unlike companies where cross-functional collaboration is a priority, this structure focuses on teams of highly skilled experts in each sector. It This means that an assistant from the marketing department will never report to a sales manager, but to the head of their own area.
• Clear hierarchy: Company executives usually have decision-making authority, and a clear chain of command flows down through the sectors. This type of structure creates a well-defined reporting system where employees know exactly who to answer to and who makes final decisions.
• Specialization: While some companies focus on self-management and diverse skill sets, functional organizations empower employees to become experts in their specific job areas. It's a strategy to retain and develop talented members of your team.

Benefits of a functional organizational structure

If your company is booming but lacks expertise and efficiency, this type of structure might be the key to unlocking your full potential. The benefits of a functional organizational structure include:

• Enhanced expertise: Functional structures encourage knowledge sharing within departments. Specialists learn from each other, fostering a deeper understanding of their specific field and creating a highly competent workforce.
• Clear roles and responsibilities: A chain of command clarifies task management by showing who's accountable for what activity. It minimizes confusion and prevents duplicated efforts, keeping your team focused on priorities.
• Increased productivity: One advantage of a functional structure is that it empowers employees to refine their expertise and improve processes in their area. These practices streamline workflows and task completion, keeping your company moving forward.
• Visible career paths: With clear structures, employees working in each area easily identify opportunities to grow. This transparency motivates them to develop their expertise and reach their career goals within the company.

How to create an organizational structure: a 5-step guide

According to the SHRM State of the Workplace Report, 68% of HR executives consider reducing costs while improving efficiency as a top priority for 2024. If you need to streamline workflows in a cost-effective way, a functional structure helps you set clear lines of responsibility and reporting by grouping similar functions together.

Follow these five steps to design an organizational structure:

1. Choose a visual tool for designing your structure

Designing an organizational structure requires creating different scenarios and discussing possibilities with your team and stakeholders. Instead of wasting tons of paper, use an online whiteboard to make work collaborative and keep a record of all the versions that make sense to your organization.

Solutions that offer organizational structure templates allow you to save time and customize your structure to fit your specific needs.

2. Assess your current structure

Before designing the org chart, analyze your company's current state. This step ensures that your structure aligns with your goals, workforce skills, and future expansion plans.

Use these questions to facilitate your meeting:

• What are your company's top strategic goals for the next three to five years?
• Are there any roadblocks or skill gaps hindering your ability to achieve these objectives?
• What core competencies do you need to achieve your strategic goals?
• How effectively does your current structure facilitate communication and collaboration across teams?
• Can your current structure adapt and scale effectively to accommodate future growth?

Take advantage of a SWOT analysis template to assess your organization's strengths, weaknesses, opportunities, and threats. This framework helps you identify areas where a new structure can address weaknesses in communication, collaboration, or decision-making.

Related: 11 top tips for facilitating strategic planning sessions

3. Define your organizational functions, roles, and responsibilities

To build an organizational structure by function, identify the areas that drive your business and define their roles and responsibilities. With this step, you set the foundation of your structure, ensuring transparency across departments.

Here's what to focus on:

• Core functions: To form the building blocks of your structure, select all the essential departments, such as accounting, legal, product development, and so on.
• Reporting structure: Outline who reports to whom within each area — remember to encourage communication between departments to prevent silos.
• Ownership and responsibility: Define the tasks and projects for each role to avoid overlap. Make sure you can track individual contributions for future performance evaluation.

Consider scheduling brainstorming sessions with key stakeholders to gather inputs from different sectors.

Related: How to facilitate a brainstorming session

4. Implement and communicate changes

Once the structure is ready, it's time to share it with your team! One benefit of this step is incorporating feedback into your structure, especially from the leaders and executives who participated in the brainstorming phase.

Engaging your stakeholders and employees helps you identify areas for improvement and ease the transition to the new structure. Research by Gallup shows that low engagement costs the global economy $8.9 trillion (wow, that’s a lot of disengagement). Remember to present your functional org chart to all teams and make sure they understand their roles and reporting lines.

Related: How to collect feedback from stakeholders effectively

5. Monitor and adjust your organizational structure as needed

As your company evolves, so too should your structure. Want to keep your organization running smoothly? Here's how:

• Perform ongoing evaluation: Schedule regular reviews to assess the effectiveness of your functional structure. Look for any challenges or areas where the framework might be slowing down progress.
• Embrace change: Don’t be afraid to make adjustments as needed. The most effective structure adapts and scales with your company’s long-term success.

Use a project retrospective template to review the implementation process and identify learnings to incorporate into future adjustments.

Design your functional org structure with Mural

It's time to eliminate silos and overlaps! Mural empowers you to create a functional organizational structure in a few clicks — and collaborate with your team in real time.

With the online diagram maker, you can create and share any number of diagrams. You can use them to organize and share all the steps of your process, from thinking to making a presentation. Explore Mural's tools and features to enable easy feedback from everyone:

• Flowchart creator: Build flows to streamline communication and decision-making between areas in your organization
• Templates: No need to design structures from scratch — save time with our library of models and get inspiration for new murals
• Flexible permissions: Define who can access and edit your structure to control versions
• Interactive tools: Engage your team to comment, add images, and vote in their favorite structures
• Integrations: Connect Mural with tools you already use to make teamwork more efficient and effective

Create and collaborate on functional org charts with Mural. ‍Sign up for free.