A functional structure involves grouping of the functions of similar nature. Each group forms a separate department that reports to one head. For example, departments may be divided on the basis of functions such as production, human resources, etc. that report to the managing director of the organisation.
The disadvantages of a functional structure are:
(i) Less emphasis on organisational objectives: A functional structure places more emphasis on departmental objectives over organisational objectives. Hence, functional structure may lead to the formation of functional empires where a particular function is given undue importance with respect to the overall organisational objectives.
(ii) Problems in coordination: As an organisation grows bigger in size, the increasing number of activities is grouped into different departments. With this, the coordination among these departments becomes difficult to achieve, thereby resulting in delayed decision-making thus loss in revenue.
(iii) Conflicts: It may happen that the interests of different departments are not compatible with each other and there may be some conflict. For instance, sales department may wish to introduce a new promotional scheme for the customers (say, buy one and get one free), but the finance department may not approve the same due to lack of funds. Such incompatibility often leads to conflicts among different departments.
(iv) Inflexibility: As each department specializes in its particular function, the employees of a department have a limited set of skills that is applicable to only one particular function. This results in a high degree of inflexibility in the organisation, as over a period of time, different departments develop a narrow perspective and do not have experience in the diverse activities.