Have you ever wondered what are the key functional areas of a business and how each department interacts towards a seamless business operation?

All businesses, regardless of size, need some sort of organisational structure to operate properly. Businesses without a set organisational structure have problems implementing company policies and operating at efficient production levels. Whether a company is software sales or investment management, certain departments are key to basic operations.

An organisational structure defines who works for who. Companies choose an organisational structure based on many factors which include the size of the firm, their geographic locations, the variety of products and services they offer etc.

In a functional organisational structure, an organisation's reporting relationships are grouped based on specialty, or functional area (business unit). Generally, there will be Human Resource, Sales/Marketing, Accounting/Finance, R&D, Operations, IT, Legal/Compliance. Functional heads of each business unit will report directly to the company president or CEO.

So, what are the 5 key benefits of having a functional organisational structure?

Specialisation - Employees are grouped by their knowledge and skills, which helps achieve the highest degree of performance

Productivity - Employees understand their own and others' roles and potentially eliminates duplication in the performance of management functions

Accountability - Roles and responsibilities are fixed, which facilitates easy accountability for work as well as clear lines management

Clarity - A clear chain of command which simplifies decision-making and provides clarity around roles and responsibilities and lays out the path for growth

Efficiency - Employees are very skilled. Efficiency is gained because they are experienced in the same work and they perform very well

Functional organisational structures typically work best within large companies, especially those that produce products or services, such as in manufacturing. Smaller companies may find functional organisational structure too rigid, preventing them to adapt to changes quickly and easily. In this case, a project-based management or a flat organisation structure may be a better option.