National Evaluation Series (NES) Business Studies Practice Test

Which type of organizational structure best describes a company organized by functions?

1. Flat structure

2. Functional structure

3. Matrix structure

4. Network structure

The correct answer is: Functional structure

A company organized by functions is best described by a functional structure. In this type of organizational structure, the company is divided into specific departments or functions, such as marketing, finance, human resources, and operations. Each of these departments is responsible for its own area of expertise, enabling a more efficient and specialized approach to managing tasks and projects. This leads to clearer lines of authority and responsibility, as employees report to a department head who oversees all activities related to that function. Functional structures are particularly beneficial in larger organizations, where tasks can be complex and require specialized knowledge. This structure allows for improved communication within departments, standardized procedures, and the potential for enhanced skill development among employees, as they tend to focus on similar tasks and collaborate frequently with their functional peers. In contrast, a flat structure typically has fewer levels of management and a wider span of control, which may not focus specifically on functional specialization. A matrix structure combines functional and project-based approaches, which can introduce complexity in reporting relationships. Lastly, a network structure emphasizes flexibility and collaboration between independent groups, which differs from the traditional departmental focus of the functional structure.