In this article, we draw on theories of social differentiation to show that functional differentiation is not about the division of work and organization, but rather about a multiplication of horizons for decision-making. We argue that a systematic management of functional differentiation makes organizations smarter and more flexible. We corroborate this claim by demonstrations of how a functional approach to functional differentiation facilitates the design of new or the further development of well-established management tools and research agendas in fields such as entrepreneurship, strategy, and human resource management. Copyright © 2017 John Wiley & Sons, Ltd.