Functional organization has been divided to put the specialists in the top position throughout the enterprise. This is an organization in which we can define as a system in which functional department are created to deal with the problems of business at various levels.

Functional authority remains confined to functional guidance to different departments. This helps in maintaining quality and uniformity of performance of different functions throughout the enterprise.

The concept of Functional organization was suggested by F.W. Taylor who recommended the appointment of specialists at important positions.

For example, the functional head and Marketing Director directs the subordinates throughout the organization in his particular area. This means that subordinates receives orders from several specialists, managers working above them.

Features of Functional Organization

1. The entire organizational activities are divided into specific functions such as operations, finance, marketing and personal relations.

2. Complex form of administrative organization compared to the other two.

3. Three authorities exist- Line, staff and function.

4. Each functional area is put under the charge of functional specialists and he has got the authority to give all decisions regarding the function whenever the function is performed throughout the enterprise.

5. Principle of unity of command does not apply to such organization as it is present in line organization.

Merits of Functional Organization

1. Specialization- Better division of labour takes place which results in specialization of function and it’s consequent benefit.

2. Effective Control- Management control is simplified as the mental functions are separated from manual functions. Checks and balances keep the authority within certain limits. Specialists may be asked to judge the performance of various sections.

3. Efficiency- Greater efficiency is achieved because of every function performing a limited number of functions.

4. Economy- Specialization compiled with standardization facilitates maximum production and economical costs.

5. Expansion- Expert knowledge of functional manager facilitates better control and supervision.

Demerits of Functional Organization

1. Confusion- The functional system is quite complicated to put into operation, especially when it is carried out at low levels. Therefore, co-ordination becomes difficult.

2. Lack of Co-ordination- Disciplinary control becomes weak as a worker is commanded not by one person but a large number of people. Thus, there is no unity of command.

3. Difficulty in fixing responsibility- Because of multiple authority, it is difficult to fix responsibility.

4. Conflicts- There may be conflicts among the supervisory staff of equal ranks. They may not agree on certain issues.

5. Costly- Maintainance of specialist’s staff of the highest order is expensive for a concern.