Why organisations need structure and functional structures

Covering Assessment Criterion 1.1 of 5CO01, this video focuses on why organisations require formal structure and examines functional structures in depth. It addresses the three fundamental coordination problems that structure is designed to solve — the division of work, the integration of divided efforts, and the allocation of decision-making authority — before introducing the contingency approach to organisational design, which holds that the optimal structure depends on contextual factors including organisational size, strategy, technology, environment, and culture.

Functional structures form the central subject of the video. This design groups employees by specialist discipline — finance, HR, marketing, and comparable functions — each operating as a distinct unit within its own management hierarchy. The video works through the rationale for choosing this arrangement, covering specialisation, resource efficiency, and career pathway visibility, before turning to the advantages that make functional structures the most common form encountered in small to medium-sized organisations.

The video gives equal attention to the disadvantages of functional structures, which learners must be able to evaluate for their CIPD assessment. Siloed thinking, slow cross-functional decision-making, weakened customer focus, constrained general management development, and coordination difficulties as organisations scale are all examined as genuine limitations of the functional model. Together, these advantages and disadvantages form the evaluative framework the video develops around this particular structural type, in direct preparation for AC 1.1.