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Definition: a Functional Organization is a type of organization in which functional departments such as Finance, Marketing and Human Resources are created to deal with such business problems at various levels. The FO uses the principle of specialization based on function or role.
It allows decentralization of decisions, since issues are delegated to specialized persons or units, which are given the responsibility of managing, implementing, evaluating, or controlling their responsibility area.
Other forms of organizations are: hierarchical organization, matrix organization, network organization.
An FO is also called departmental organization.