Under functional organization, similar or related activities are grouped together as functions. The functions may be Production, Marketing, Finance, Human Resources. It is a traditional organization method, normally adopted by smaller firms or firms with a limited line of products. Functional organization follows occupational specialization.
The disadvantages in this type of organizational structures are found when the organizational grows geographically or in product lines. It is likely that the functions may develop narrow view of their department only making it difficult for the higher level to coordinate.
