In the functional organisation, all activities in the enterprise are grouped together according to certain functions like production, marketing, finance and personnel and are put under the charge of different persons. The person-in-charge of a function follows it throughout the organisation and also controls the individuals working in that functional area. This means that if a person performs several functions, he will be under the direct charge of several persons-in-charge of these functions. The functional in charge is an expert in his own field. It is rare to find a pure functional organisation. However, many business enterprises follow a functional plan to some extent to carry out the primary functions.
A functional organisation may be at different levels. At the top level, it leads to a formation of departments each for a common major activity like purchases, sales, production, finance, etc. Each department looks after its function common to all departments.
For example, the question of selection, training, promotion, etc. in a purchase, sales and other departments will be decided by the personnel department. Taylor recommended functional organisation even at the shop level (lowest level). He expressed the view that a foreman should also be assisted by a number of specialists.
The above discussion brings out the following characteristics of functional organisation:
1. The work is divided into specialised functions.
2. The superior specialist commands an authority and therefore gives orders relating to his specific functions throughout the line.
3. The specialist must be consulted before any decision is taken on matters relating to his specialised area.
4. The responsibilities of functional authority are mainly discharged by other executives.
5. It is flat topped organisation in comparison to the line organisation. A specialist can supervise a large number of employees while in the line organisation, a specialist supervises a limited number of subordinates.