Organizational Structures | What are the Advantages and the Disadvantages of Different Organizational Structures?
The organizational structure, as the name suggests, affetcts the whole organization’s structure. This means the power and the responsibilities of each department. There are three different organizational structures, Functional Organization, Projectized Organization and Matrix Organization. A company can change its organizational structure according to the internal or the external conditions or requirements. If you want to learn more about these three types of organizational structures a detailed article can be found here.
It’s not possible to name one organizational structure as the best for every kind of companies or projects. Because all of these three organizational structures has advantages and disadvantages.
Which organizational structure gives the most authority to the project managers? Which type of organizational structure has more focus on the projects? Which organizational structure works the best for the company’s overall sustainability.
In this article, we are going to review the advantages and disadvantages of each organizational structure: Functional, Projectized, and Matrix. If you want to learn more about organizational structure types in Project Management you should check out our 100% Online and Self-Paced Project Management Professional Certification Training.
Organizational Structure Type #1: Functional Organization
In Functional Organization, people are grouped by areas of specialization.
What are the advantages of Functional Organizations?
The first advantage of functional organization is that it makes the management of specialists easier. Because resources specialized in one area, report to the same manager who knows the domain or area as well.
Team members report to only one supervisor. This reduces the conflicts or contradictions of reporting to both project and functional manager.
Similar resources are centralized in groups. For instance, software developers belong to the IT department or sales specialists belong to the sales department. This ensures the sustainability of the organization because the knowledge and know-how remain in the department even after the projects are completed.
The last advantage of Functional organizations is that they define clear career paths for the staff. Because the staff belongs to a department specialized in an area. And improving skills, knowledge, and competence in that specialization can be proposed as a career path for the resource. For instance, for a software developer working in software development department, developer, senior developer, expert developer, and architect can be a career path as long as he improves his skills and competence.
What are the disadvantages of Functional Organizations?
The first disadvantage of this organizational structure type, is that people place more emphasis on their functional specialty to the detriment of the project. Because their ultimate manager is their functional manager. Although they are assigned to a project, they take the directions of their functional managers more seriously compared to a project manager’s direction.
There is not a career path in project management. This causes project management to be underestimated by the staff. And this affects the success of projects respectively.
The last disadvantage of the functional organization is that the project manager has little or no authority. Because staff mainly reports to the functional manager and therefore,the project manager does not have that much power and influence on the project team.
Organizational Structure Type #2: Projectized Organization
In Projectized Organization, the entire company is organized by projects.
What are the advantages of Projectized Organizations?
First and the most important advantage of this organizational structure type is the efficient project organization. Because all resources of the project are dedicated to project tasks and assignments. This dedication automatically increases the focus and motivation of team members for the success of the project.
Members of the project team are more loyal in projectized organizations. Because their ultimate manager is the project manager. The success of the project directly depends on the team members and this increases the loyalty to the project.
Last advantage is that a more effective communication is ensured in projectized organizations compared to other organizational structures. Because the team members are dedicated to a project and their existence in the organization solely depends on the project they are working for. Project teams work in the same location, even in the same room in projectized organizations. This increases the effective and efficient communication among the project team.
What are the disadvantages of Projectized Organizations?
The most important disadvantage of this organizational structure type there is no “home” for the project resources once the project is finished. Since there are not departments for the resources based on their specialties, if there won’t be a new project, resources are released at the end of the project. This causes lack of professionalism in disciplines. Let’s consider a software engineer worked in a project. At the end of the project, if he leaves the organization, his know-how will be lost as well. This causes the organization to lose its professionalism in disciplines.
Another disadvantage of the projectized organizations is the duplication of facilities and job functions. Tools and resources of a project belong to only one project in projectized organizations. Let’s consider that a project needs a testing tool to complete its quality assurance activities in a project. If the same tool will be needed for a second project in the organization, a new tool needs to be aligned for the new project team since the existing tool solely belongs to the first project team. This causes duplication of the same testing tool for the 2nd project and means additional cost for the organization.
Projectized organizations use resources less efficiently. Since project resources are dedicated to a project, even if this resource is not 100% utilized, they cannot be allocated to another task. Let’s consider that project assignments of a software engineer takes 4 out of 5 days of his work week, so he is 80% utilized. Even if he has enough time to do additional work, he is fully dedicated to the project and this unutilized time of the resource cannot be used.
Organizational Structure Type #3: Matrix Organization
In Matrix organizations, the team members report to their project manager and also to their functional managers
What are the advantages of Matrix Organizations?
Project objectives are highly visible in matrix organizations. What needs to be achieved to complete a project successfully is clearly defined and understandable for the project team.
The project manager has control over resources. Because team members of the project are reporting to the project manager as well and this gives respective authority to the project manager.
There is more support from functional areas. Because resources are grouped based on their specialties. In case of a lack of technical knowledge, the resources can consult to their senior colleagues or managers within the same functional domain.
Matrix organization enables maximum utilization of scarce resources. For instance, if a software architect needs to support a project for only 2 days, he can be assigned to other projects or activities for the remaining days of the week.
Matrix organizations enable better coordination, better horizontal and vertical dissemination of information. Every resource belongs to a function and he has a functional manager. If he is assigned to a project, he reports to a project manager as well. This structure strengthens the dissemination of information and better coordination of the staff.
The last advantage of this type of organizational structure is that team members maintain a home. So even if they are released from projects, they turn back to their department and start doing departmental work. Or when a new project is initiated, they can be re-assigned to new projects.
What are the disadvantages of Matrix Organizations?
In this type of organizational structure, an extra administration is required. Because there will be two managers of a resource: functional manager and project manager. Also, there will be several resources from different functional disciplines in a project. Naturally, this will also bring the need of additional administration.
More than one boss for project teams. For each resource, there will be two bosses: functional and project manager.
Matrix organizations are more complex to monitor and control. Because there are several disciplines and there will be several resources from these several functional departments in a project. This will require management and coordination of different functional managers. Therefore, it is more complex.
Tougher problems with resource allocation is another disadvantage of the Matrix organizations. The main reason of this is, there will be lots of projects needing resources from a single functional department. For instance, for the software projects of a company, software engineer resources will be requested from the software development department. If there will be lots of projects to initiate, this will cause resource allocation problems respectively.
Matrix organizations need extensive policies and procedures. Since there will be lots of functional departments and resources, these need to be supported with the policies and procedures in order to avoid conflicts. For instance, how to request a resource for a project, how to prioritize projects if they need the same resource, how to release a project team member, they all need to be documented clearly. It’s a must for avoiding any misunderstandings between the departments.
Functional managers may have different priorities than project managers and this causes higher potential for conflict. Let’s consider that a department has its own works and a project manager is requiring a new resource from this department. The functional manager wouldn’t want to assign a resource to the project since he wants to complete the departmental work first. These kinds of conflicts may arise in matrix organizations.
This kind of organizational structure give fair power balance to both functional manager and project manager, that’s why Matrix organizations are the most common organizational structure type in the industry. They enable a more sustainable and healthier corporate environment.
Conclusion: Comparative Overview of Organizational Structure Types
As you see in this table, the authority of the Project managers, resource availability, who manages the project budget, project managers role and how project management administrative staff works are compared and listed for the different organizational structures.
Briefly, Project manager’s role, resource availability, control of the project manager on the project are highest in projectized organizations, while the functional manager’s is the lowest. In functional organizations, Project manager’s role, resource availability, control of the project manager on the project are lowest. Matrix organizations keep the power and influence of functional and project managers in balance.