A company’s organizational structure is the system that defines a hierarchy within the organization. It typically describes job functions and reporting relationships. It can also describe how activities are directed to meet organizational goals.
A formal organizational structure helps in the internal working of an organization and helps in its future growth. It determines how work flows within an organization and allows groups to work together in their respective functions to manage tasks.
There are three prevalent types of organizational structures in the project management industry today:
- Projectized Organizations
- Functional Organizations
- Matrix Organizations
Let us take a closer look at each of these types of organizations and understand how they impact projects.
Projectized organizations are considered to be the best type for project managers (PMs). PMs are the true bosses, as they have a lot of autonomy and authority. They have the complete freedom to make major project decisions.
In these types of organizational structures, project managers have appointed at the start a project and a team is assigned to them. The team is disbanded after the project is completed. This type of organization; however, does not offer job security to project managers and project staff. See the below figure.
These types of organizations offer full-time role to PMs, who can either manage a large project or manage multiple smaller projects simultaneously.
This type of structure is followed in those companies where most of the work is project work (as opposed to operational work). For example, companies doing consulting, R&D, software development, and construction work follow this type of organizational structure.
Functional Organizations are at the opposite end of the spectrum. They are organized into divisions or departments, which contain people who have similar skills and competencies.
These divisions are called functional units and the person heading the unit can be referred to as the functional manager. Examples of such units are Accounting, Engineering, Production, Procurement, Marketing, etc.
Functional managers hold complete authority over their functional units in these types of organizations. They can make decisions related to budgeting, hiring people, resource allocation, procurements etc. All the people in a functional unit report directly or through a hierarchy to the functional manager.
These type of organization structures do not usually have a project manager. Projects are initiated and managed by the functional managers in functional organizations. However, if project management position is available, then the role of PM is usually very limited. A project manager is called either an expediter or coordinator in such organizations.
Project managers in such organizations don’t have any real authority. They provide project support and coordinate tasks among different people, but the functional managers are the real bosses. They assign resources to a project and assign the tasks. People usually work part-time in project roles.
The matrix organization structure is a combination of the above two types of organizational structures. This combination helps the companies to efficiently utilize the resources and improve turnaround time. They can respond faster to market and customer demands while decreasing the lead time for launching new products. Most large companies follow a matrix structure.
In these types of organizations, project managers and functional managers share authority. Project managers get more authority in this structure than they get in functional organizations without losing focus on functional services.
In these types of organizations, project managers are usually appointed by the Director of Projects at the start of a project and they come back to project managers’ pool after their project finishes. The functional managers choose the project team members and allocate them to the project. The team members work with the project manager while the project is going on and they return back to their functions once the project is finished.
The major disadvantage of these type of organizations is that employees have to report to more than one manager; however, there are three flavors of Matrix organizations:
- Strong Matrix
- Balanced Matrix
- Weak Matrix
Let’s take a closer look at the different type of Matrix organizations.
A Strong Matrix structure is closer to a Projectized organization. The project manager tends to get more power than the functional managers in this type of structure.
In these types of organizations, functional managers are mainly responsible for deciding which resources will be allocated to the project, but after that, the project manager takes over. Team members report to the project manager for the duration they are allocated to the project and the project manager is free to assign tasks to them. Functional managers typically have no say in how the project is managed.
This Weak Matrix structure is closer to a Functional organization. The functional managers have more power than the project manager(s).
In this type of structure, a project manager can be thought of as a project coordinator or project expeditor. They do not have any real power and just concentrate on coordination and administration. All major decisions are made by the functional managers.
Balanced matrix organizations provide similar kind of power to both project managers and functional managers. In a balanced matrix, communication problems can arise when there is not enough clarity about team members’ reporting.
An organization’s structure is what links and aligns different parts of an organization so that it can perform smoothly. An organization’s success in achieving its goals is invariably linked to the structure it chooses. Organizational structure influences how projects are managed within a company. To aid the strategic alignment, leadership should understand the benefits and limitations of different types of organizational structures.
Project managers should understand the type of organization in which they are working and manage their projects accordingly by considering the following factors before starting a project:
- Degree of project/functional orientation
- Extent of the project manager’s (office) authority
- Collocation and management of project members
- Allocation of resources
- Reporting procedures and systems
Which type of organization do you work for? Do you think it is an appropriate structure for the business that your company is into? I would love to hear from you in the comments below.