A functional layout is a workplace organization in which processes are organized by the type of work (function) rather than by value stream or in a cellular configuration where sequential process steps are located in close proximity. In a functional layout, for example, the cutting machines would be in one location, the press brakes would be in one group, the welders would all be together, and so on.
The same is true in office environments. Each functional group sits together in a work area, and supports multiple product teams.
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This type of arrangement is typical of non-Lean organizations. There is a belief that management is easier when leaders have fewer functions to oversee. Functional arrangements also make sense when large machines support multiple product families. Of course, that also means large batches are necessary, and copious amounts of product must be transported between functional groups to keep from running out of materials.
In a Lean organization, the focus is on value streams and flow. Small, right sizes machines are organized into product oriented work cells that require less inventory. The early focus of kaizen events in a company just beginning its Lean journey is often on creating flow-oriented creating work cells.