One of the main dilemmas any organization faces when setting up their project team is on making the decision of project composition. Often the organization’s leadership ends up stressing over how to resource the project team.
As we all know a project is a temporary endeavor undertaken to produce a unique product, service or a result. Projects can be undertaken by organizations in any business domain, for any specified duration, in order to achieve a set of goals and objectives. So, the organization may decide to form the project team based on the factors mentioned above.
Here is the articles on project description and conflict management.
Types of Project Organizational Structures
The main three types of project organizational structures are as follows.
- Functional organizational structure
- Project-based / Projectized organizational structure
- Matrix organizational structure
A Matrix Project Organizational Structure can be further classified as a Strong matrix, Weak matrix and Balanced Matrix based on the authority and power shared by the functional manager and the project manager.
The purpose of this article is to discuss a Function-based project organization structure in detail. So, I will keep the discussion on Projectized and Matrix Organization structures for a later date.
Get to know more about characteristics of project management.
What is a Functional organizational Structure?
A Functional project organizational structure consists of project team members allocated from different functional units of an organization. A typical organization would have different functional units such as- HR, Finance, Marketing, Sales, Operations, IT, Administration etc.
Each unit will be managed by a functional unit/business unit head who would be reporting to the strategic leadership of the organization. In a large organization, the functional unit heads may have functional managers or operational leadership-level managers working under them who in turn would have a team of executives reporting to them. For example, the HR business unit may have a head of HR, under whom there may be multiple HR managers who are responsible for different aspects of human resource management such as recruitment, performance management, training etc. There will be HR executives working with the HR managers to achieve the objectives of the HR division. Thus, functional organizational structures are to be managed using the current organizational hierarchical structure
A temporary team assembled using team members from different functions are formed once the project begins. Project execution in this structure requires the involvement of different functional units. Hence, the different functional unit carries out various components of the project where each unit is responsible for completing a particular component.
Project coordination in this structure normally happens at the functional management level. It is not mandatory that all units in an organization are represented. Staff will be allocated from units only as per the requirements of the project.
Advantages of a Functional Organizational Structure A functional project organizational structure is more suitable for projects that require a greater deal of technical expertise. The organization’s leadership has the flexibility in selecting the personnel for the project. Each functional unit involved in the project may nominate resources based on the priority and importance of the project for their unit. The project is like a temporary home for the staff member. Once they complete the project work they have a permanent home to come back to, which is the functional unit. The staff member though allocated to a project still reports to his or her functional manager. Thus, the staff member’s performance is still tracked and taken note of, thus resulting in better performance evaluations and an uninterrupted progression in one’s career.
Organizations often face the issue of key staff members leaving the company while a project is in progress. A functional organizational structure reduces the risk of such turnover with the functional manager being able to easily replace a resource with an equal or better resource in order to ensure continuity of the project.
And now the disadvantages…
The main issue with a functional organizational structure is to do with the priorities of the staff member. The staff member while working on the project has to worry about day-to-day tasks in the functional unit. Thus project responsibilities may be missed or ignored, resulting in delays or issues with quality in terms of project deliverables. The team member’s allegiance and interest may still lie with the work in the functional unit and not in completing the project work. This may negatively impact project progress.
Projects often work with constraints and limitations. Similarly, there are a lot of dependencies that need to be properly coordinated for a project to be successful. Collaboration among staff members from different functional units is a key problem faced in this sort of an arrangement. If a staff member from functional unit A needs to solve a problem which involves a staff member from functional unit C, the problem must first be taken up by the manager of A, who must then coordinate with the manager of C who may reach down to the staff member in C to get the relevant information and then relay it back along the same path back to the staff member in A. This as we see is a tedious task and may result in delays and unwanted stress on the part of staff members.
Functional organizational structures often result in a lack of motivation, interest or belongingness among team members and a lack of urgency to complete tasks. They normally end up feeling that a project is just an additional burden that will have no impact on their career progression.
Finally, a functional organizational structure is a great mechanism to use when dealing with projects that span multiple functional units and which require specialized technical expertise to complete tasks. Hence, this method must be used sensibly when forming project teams within an organization.
Rumesh is an IT business leader with over 12 years of industry experience as a business analyst and project manager. He is currently the CIO of Zaizi Limited, a UK based data management company heading the operations in Sri Lanka, the COO of LearntIn, a global training institute based in Sri Lanka and is also a lecturer / trainer at multiple private universities on management, IT, business analysis and project management subjects. He is the current president of the IIBA Sri Lanka chapter and is one of the most qualified and sought after trainers in Sri Lanka. Refer his LinkedIn profile for more details and to see more articles he has written on linkedin
Today, we will discuss the types of organizational structures.
Every company has an organizational structure built around its goals and business objectives. If the work is short-term, the structure should allow for temporary hires and seasonal employment.
However, if the company relies mainly on repeat business and regular tasks, the structure should support activities that help maintain its operation.
Organizational structure is a system that determines employee hierarchy, functions, and workflow, and also provides a transparent and fair reporting system. It is an enterprise environmental factor guiding how an organization runs its operations.
As organizations grow, their requirements change, and the structure must adapt to support its objectives.
Now you might wonder about the relative significance of the organizational structure, the invisible yet vital scaffolding supporting business activity.
The market is competitive; therefore, organizations must rapidly adapt to market demand and be responsive to shifting business objectives.
Companies with poor organizational structures will not survive.
A well-defined organizational structure helps businesses realize their potential and support their objectives.
For example:
Let us say your company is producing a good. Your customers are satisfied and not very demanding, so what kind of organizational structure would you select?
The functional organizational structure serves this company best because it supports production operations.
Let’s consider another case.
Suppose your organization has ten employees and deals with small projects. As soon as you complete a project, you start looking for the next one.
In this case, what kind of structure would you select?
You would opt for the projectized organizational structure since your company mainly works with temporary projects.
Now, the final case.
Your organization is enormous. The work environment is dynamic and diverse. Customer requirements and market demands frequently change.
What kind of structure would you select?
The functional structure won’t work because it does not allow for quick changes to its operations and isn’t as responsive to market nuance.
You also cannot select the projectized structure. Although it supports a dynamic nature, this isn’t adequate for a large organization. Your company is big, and you need permanent departments to keep your organization functioning smoothly. This is not possible with the classic projectized structure.
Hence, you will select a matrix organizational structure. It combines the qualities of both functional and projectized organizational structures and will support your operations and help achieve your business objectives.
Types of Organizational Structure
An organizational structure guides how activities in your company are carried out to achieve its goals. It determines how information flows within the organization and between departments. It defines the chain of command and job responsibilities.
The organizational structure depends on many factors, such as governing style, leadership style, workflow, hierarchy, and many more.
The PMBOK Guide defines eight types of organizational structures:
- Organic or Simple Organization
- Functional or Centralized Organization
- Multi-divisional Organization
- Matrix Organization
- Project-oriented (Composite or Hybrid) Organization
- Virtual Organization (Network Structure)
- Hybrid Organization
- PMO (Project Management Office)
Wikipedia lists six additional types of organizational structures:
- Pre-bureaucratic Structure
- Bureaucratic Structure
- Post-bureaucratic Structure
- Functional Structure
- Divisional Structure
- Matrix Structure
Some other sources divide them into the following categories:
- Simple Organization
- Functional Organization
- Divisional Organization
- Matrix Organization
- Team-based Organization
- Network-based Organization
- Modular Organization
On the Internet, you will find many different types of organizational structures. However, the classifications above are the most popular.
Since this blog follows PMI’s guidelines, we will focus on the PMBOK Guide’s classification and explain the other organizational structures briefly.
#1. Organic or Simple Organizational Structure
This is one of the simplest types of organizational structure. Here, you work alone or side by side with another employee.
You may be the only employee in your company.
Instances of this type are a solopreneur, OPC (One Person Company), or a freelancer.
#2. Functional (Centralized) Organizational Structure
Functional organizational structure is the most commonly used organizational structure. Here, the organization comprises various departments; each department has workers with similar skills: sales, marketing, finance, to name a few.
This helps organizations maximize the efficiency of each functional group.
#3. Multi-Divisional Organizational Structure
In this type of organizational structure, you may have many functional divisions with a little centralization. Generally, these divisions are independent. Although they will guide a part-time staff, project managers do not have much authority.
Under a multi-divisional structure, the organization is divided into various divisions. Employees with diverse skills are kept together in groups based on a similar product, service, or geographic location. Each division has the resources required to function and can work independently.
#4. Matrix Organizational Structure
This is the most commonly used type of organizational structure. Matrix organizational structure is a hybrid of a functional and projectized organizational structure. Here you have two command structures: vertical and horizontal. An employee may belong to a functional group and work on a project, so this structure combines the best of both worlds.
A matrix organizational structure can be of three types:
- Strong Matrix Structure
- Balanced Matrix Structure
- Weak Matrix Structure
Strong Matrix Structure
Strong matrix organizations are closer to a projectized organization. The project managers have the highest authority, control over the budget, and a full-time team reporting to them.
Balanced Matrix Structure
A balanced matrix has properties of both functional and projectized structures. Here, project managers have a low-to-moderate authority and a part-time team. Both the project manager and the functional manager manage the budget.
Weak Matrix Structure
A weak matrix is closer to a functional structure. With a weak matrix, project managers have low authority and no control over the budget; they will have a part-time team.
#5. Project-Oriented (Composite or Hybrid) Organizational Structure
As its name suggests, projectized organizations deal with projects. Project managers have a full-time role and comprehensive authority to complete the project successfully. They control the budget and have a full-time team report to them.
A team-based structure is another name for a projectized organizational structure.
This type of organizational structure is seen in small-to-medium-sized organizations that only deal with projects.
#6. Virtual Organization or Network Structure
Many experts call this a virtual corporation. The central organization is connected to outside firms via the internet. The outside firm can be a vendor, client, or associate. This structure helps businesses achieve corporate growth and a greater profit. In a network structure, the organization keeps its core business to itself while adjunct processes are outsourced.
This organization structure is also known as a hollow corporation, hollow organization, or network structure.
In a virtual organization, the project manager has a low-to-moderate authority, mixed control over the budget, and they may or may not have a full-time team reporting them.
#7. Hybrid Organizational Structure
True to its name, this type of organizational structure may use any combination of the organizational structures.
Suppose yours is a functional organization whose typical needs are easily met by conventional departments In some cases, however, your organization will create a separate project team to complete unique tasks.
Hybrid Organization is a mixed structure that serves organizations with diverse needs. Responsibility, authority, and other factors are also mixed depending on the structure.
#8. PMO (Project Management Office)
PMO is also a mixed organizational structure. Here, project managers have the highest authority. They control the budget and have a full team reporting to them.
This concludes the summary of organizational structures.
Next, we will discuss those organizational structures not mentioned in the PMBOK Guide. Note that I am describing these organizational structures for your information only. You will not see any questions in your PMP exam about these types of structures.
The Simple Structure
This organizational structure is suitable for small organizations in their early stages. They have just started and are still in the development phase. In this type of organizational structure, authority rests in a single person. These structures have few rules, and work is relatively straightforward.
Some scholars call this a pre-bureaucratic structure. In the organization chart for this type of organizational structure, you will find one person at the top and all other employees are below it.
The Modular Structure
In this structure, the organization outsources some parts of a product.
Note that in the network structure the company outsources the processes, while in a modular structure outsources only a few parts of the product.
Pre-Bureaucratic Structure
Pre-bureaucratic organizations do not have standard procedures and policies. Small-scale and young companies use this structure. This organizational structure has a few employees who handle simple tasks. It has a central command with one decision-maker in the top position.
Communication takes place on a one-on-one basis, and it usually is informal.
Bureaucratic Structure
This type of organizational structure is suitable for huge organizations with complex operations that need smooth administration. They have standard procedures and processes.
An example of this organizational structure is the food and beverage industry, with strict rules and regulations that govern processes.
Post-Bureaucratic Structure
Post-bureaucratic organizations are quite developed and have complex standards and procedures. These organizations have a central command comprising several board members; decisions are made through a democratic process.
This encourages employee participation, trust, responsibility, and respectful interpersonal relationships.
Key Elements of Organizational Structure
The followings are five key elements of an organizational structure:
- Job Description
- Division of Department
- Chain of Command
- Span of Control
- Formalization
Job Description
A job description defines the task managed by each employee of the organization.
It is the most important element of organizational structure as it distinguishes one role from another and separates and defines the responsibilities.
Division of Department
An organizational structure can have many departments, such as finance, human resources, and quality control.
Each department has a unique set of activities and a department head. Sometimes, departments are known as sections and led by the section head.
Chain of Command
This shows the line of command from top to bottom.
For example, quality control supervisors report to quality control engineers, and quality control engineers report to the quality control head.
However, the head of quality control and human resource are equal and report to the organization’s CEO.
Span of Control
This shows how many departments the organization has; moreover, it defines how many employees a manager or department head can control.
The span of control determines the chain of command and provides shape to the organizational structure.
Formalization
Formalization defines how employees should behave and communicate through the chain of command.
Formalization standardizes the workflow in organizations.
The Impact of Growth on Organizational Structure
The structure of an organization cannot be fixed, especially when the business is growing.
When the company is small or starting up, it will have a simple structure.
As it grows bigger, but still handles a single project at a time, it can function well with a pure projectized organization.
If the company is creating products and growing, it may shift to a functional organizational structure.
But as the business continues to grow, it cannot rely on a pure project or functional structure. It will require elements of both structures to support its needs. In such cases, the business can have a strong matrix or weak matrix structure.
As the company expands, it will need to have a hybrid structure to support its business objective.
The Advantages of an Organizational Structure
An organizational structure has a well-defined reporting structure, reducing friction among employees by clarifying roles and responsibilities.
Having a proper organizational structure can bring immense benefits to any organization. A well-chosen structure
- Allows an organization to grow.
- Focuses attention on your strategic goals, instead of each department focusing on its agenda.
- Unites a group of people and points them towards a common goal.
- Encourages employees to enhance their skills.
- Makes the decision-making process efficient, smoother, and faster.
- Facilitates the specialization of employees.
- Empowers better control and use of resources.
- Establishes a proper reporting system.
- Enables easier and effective communication, which helps reduce conflicts.
- Allows employees to perform better.
- Equips employees to grow their careers and streamlines new employee onboarding.
- Identifies clear roles and responsibilities.
Conclusion
An organizational structure is a framework that helps organizations achieve their business objectives. It defines the relationship between the various departments and teams and helps organizations delegate authority, power, and responsibility.
An organizational structure gives employees a transparent reporting system helping to avoid conflicts and supporting good communication. An organizational structure is essential for smooth functioning, so companies should choose a structure suitable to their needs and requirements. A misaligned structure will hinder growth.
What type of organizational structure does your organization have? Please share your experiences at work in the comments section.