What are some of the major disadvantages inherent in a functional organization?

The functional organization is the dominant form of organizational structure governing information systems organizations today. It is philosophically based upon the functional paradigm. The functional paradigm suggests that the best way to manage a complex business function is to logically subdivide it into a set of lower level functions that can individually be more easily controlled. Division of labor is based upon a functional decomposition of the organization's major business functions into functional application teams. A hierarchical management structure representing a wider level of functionality is utilized to manage and control the application teams.

Functional applications have evolved as semi-autonomous data processing entities with their own distinct user interfaces, business processes, databases, reporting mechanisms and uses of technology. They are popular because they are well-positioned to provide concise and effective tracking of tasks, as well as control of human resources, systems resources and capital resources. There is a direct line of accountability between the sponsoring business unit and the functional application responsible for implementing the business requirements.

While functional applications are highly prevalent in IS organizations, the expense of such applications is nevertheless relatively high. This is due to the high overhead cost of developing and testing customized code. The organization must bear the costs of training and retaining systems personnel possessing the specialized technical and business skills needed to support the requirements of the sponsoring business unit. The time to market for system-enabled products is long, and the backlog of change requests is often high. Object technology deployed in a functional organization simply results in costly, closed-model, object-oriented systems. Many of the attributes associated with the functional organization also appear in closed-model systems. Commonalities include slowness to respond to changing external conditions, slowness to internally reorganize, barriers that obstruct communication, and a localized focus. From a budgetary point of view, the functional application is only funded to support the localized requirements of the business unit that is its benefactor.