Key Difference – Line Organization vs Functional Organization
An organization can be arranged according to a variety of structures, which facilitate the organization to operate and perform. The key difference between line organization and functional organization is that line organization operates with a structure where direct lines of authority flows from top management and the lines of responsibility flows in the opposite direction whereas functional organization is where the company is divided into smaller groups based on specialized functional areas, such as finance, production, and marketing. Organizational structure has a direct impact on the speed of decision making and task allocation, thus is a vital aspect of an organization.
What is Line Organization?
Line organization is a commonly used organizational structure where direct lines of authority flow from top management and the lines of responsibility flow in the opposite direction. This is a top-down approach to management where the decisions are made by the top management and communicated to the lower level staff in the hierarchy. Line managers are assigned to manage teams that operate with the intention of achieving an intended result. Line organization is the oldest and simplest method of administrative organization.
This is a very simple organizational structure to understand and manage due to the implementation of the scalar chain of command (formal line of authority which moves from highest to lowest rank in a straight line). In this type of an organization, every employee clearly knows his or her position and clear lines of authority and responsibility are allocated to all the employees.
One of the most significant demerits of a line organization is that this type of structure often results in one-way communication. Decisions are taken by the top management and complaints and suggestions of lower level staff may not be communicated back to the top authority. Lower level staff are closer to the customers, thus their experience and suggestions should be incorporated in decision-making.
What is Functional Organization?
A functional organization is a widely used organizational structure in which the organization is divided into smaller groups based on specialized functional areas such as finance, marketing, and production. These functional areas are also referred to as ‘silos’. Each function is managed by a departmental head who has a dual responsibility to be accountable to the top management and to direct the respective department to achieve favorable performance.
In a functional organization, all the departments should be in synchronization and work towards a common goal. Practically, this does not happen to an intended extent and conflicts may arise between departments since each department is attempting to show better results than the others.
E.g. YTD Company operates in a functional structure. During the budget preparation for the upcoming financial year, Finance department head announced that the maximum fund amount they can allocate for investment projects is $250m. However, both Research and development and marketing department heads emphasized that they are planning to carry out new investment projects worth of $200m and $80m respectively. Due to the insufficient funds, only one project can take place or finance department will have to increase the quota for investments.
What is the difference between Line Organization and Functional Organization?
Line Organization vs Functional Organization
|Line organization operates with a structure where direct lines of authority flow from top management and the lines of responsibility flow in the opposite direction.||Functional organization is where the company is divided into smaller groups based on specialized functional areas such as finance, production and marketing.|
|Level of specialization is low in line organization||Level of specialization is high in functional organization.|
|Decision making is delegated to departmental managers to a greater extent in functional organization.||It does not specify an evolutionary relationship.|
|Attitude towards Others|
|Line organization structure is mostly suitable for small and medium scale organizations||Functional organization structure can bring wider benefits for large scale organizations.|
Summary – Line Organization vs Functional Organization
The difference between line organization and functional organizations mainly depends on the way they are structured. Organizations that operates with clear lines of authority flowing from top management and has lines of responsibility flowing in the opposite direction are called line organization. If the tasks are segregated according to specialized functions, such organizations are functional organizations. The organization structure should be carefully chosen and this will depend on the nature of the business and the preference of the top management and properly managed organizational structures can result in higher employee motivation and reduced costs.
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