Organizational Structure: Functional Structure and Divisional Structure ! Also learn about its advantages and disadvantages!

The organizational structure can be classified under following two types:

1. Functional Structure


2. Divisional Structure

Types of Organisational Structure

Functional Structure:

This is the simplest & the most prevalent form of organizational structure. Functional organisational structure refers to the structure in which different departments are created on the basis of major functions performed in the organisation.


Each department has a coordinating head and can be further divided into separate sections. For example, a manufacturing concern will have Marketing Department, Production Department, Personnel Department and Accounts Department etc. Marketing Department may be further divided into sections like Sales Section, Market Research Section etc.

Functional Structure

Functional Structure:

Advantages of Functional Structure:

Advantages of functional structure are as follows:

1. Specialisation:

Under functional organisation, an employee is required to perform the same job within a department regularly. Thus, this improves the performance of the employees and leads to specialisation in the organisation.


2. Coordination:

Since the workers perform similar jobs, it becomes very easy to control and coordinates their activities.

3. Increasing Managerial Efficiency:

Functional structure helps in increasing managerial and operational efficiency and thus leads to increase in profits.


4. Economical:

It helps in avoiding duplication of work leading thereby to economies of scale and minimum cost.

5. Effective Training:

Providing training to employees is very easy since focus is only on a limited range of skills.

Disadvantages of Functional Structure:


Disadvantages of functional structure are as under:

1. Hindrance in Organisational Objectives:

Under functional structure, more emphasis is given on achieving of departmental objectives rather than the overall organisational objectives. Such a practice leads to functional empires and places hindrance in the interaction between two or more departments. Hence, organisational objectives may not get achieved.

2. Ineffective Coordination:


Establishing coordination in functionally differentiated departments becomes very difficult.

3. Conflicts:

Sometimes, interests of two or more departments may not be compatible. In such a situation, it leads to conflicts among different departments.

4. Inflexibility:


It leads to inflexibility in the organisation since people with same skills and knowledge develop a narrow outlook and face difficulty in understanding and appreciating other jobs.


(a) This type of organisational structure is suitable where the size of operation is very large and has various activities.

(b) The operations of the firm need high degree of specialisation.

Divisional Structure:

Dividing the whole organisation according to the major products to be manufactured by them is known as Divisional Organizational Structure. For example Samsung, Reliance etc. This type of structure is devised by the business firms when they are dealing in different categories of products. It helps in coping with the emerging complexities due to diversification of products.

In a divisional structure, the various departments or divisions are created on the basis of different products manufactured in the enterprise. In each department or division, different functions like production, purchase, finance, sales etc. are performed in order to achieve organisational goals.

Each division has a divisional manager who is responsible for the working of his division and has full authority over it. In each department, functional structure automatically develops.


But functions of each division are different, depending upon the nature of the product to be produced. Also, the divisional head of each division is responsible for the profit or loss of his division so that each division acts as a profit centre.

Divisional Structure

Advantages of Divisional Structure:

Following are the important advantages of divisional structure:

1. Development of Skills:

Handling all aspects relating to a product line enhances various skills in a divisional head and thus makes him worthy of promotion to next higher level.

2. Accountability:


Performance measurement of each division is easily possible since the divisional heads are accountable for profits. This further helps in fixing responsibilities and taking appropriate remedial action in case of poor performance.

3. Quick Decision Making:

Each division acts as an autonomous unit; hence divisional structure promotes flexibility and quick decision making.

4. Easy Expansion:

Under divisional structure, new divisions can be easily added without interrupting the working of other divisions. Thus, it facilitates growth and expansion of the enterprise.

Disadvantages of Divisional Structure:

Disadvantages of divisional structure are as under:


1. Duplication of Activities:

Similar types of activities performed in all divisions leads to duplication of work and increased expenditure.

2. Conflict:

There may be conflicts among different divisions over allocation of funds. Further, the divisions may also try to maximize their profits at the cost of other divisions.

3. Organisational Interest Ignored:

Since the managers have authority to supervise all the activities within their respective divisions, they may gain tremendous power; focus on their goals alone and ignore all else including even organisational interests.



(a) This type of organisational structure is suitable for those organisations which are concerned with the manufacturing of large variety of goods.

(b) An organisation can also opt for such a structure when it wants to grow, wants to employ more employees, or wants to create more departments.