Olga is a registered PRINCE2 Practitioner and has a master's degree in project management.
Types of Organizational Structures
Imagine yourself working for a smartphone-producing company, iPear. While part of your organization's activities are routine and repetitive, such as marketing and sales for the existing products, as well as human resources and financial management, another part of the organizational activities concerns design and development of new products, usually carried out in a project management structure. How can the organization ensure each activity will receive enough resources and management time?
A modern organization often has to balance the implementation of projects with routine operations. As a consequence, it has to organize its resources, including people, in a way that will support its strategy. An appropriate organizational structure will create a system that also helps to integrate the project outcomes into the operations. Responsibilities and performance will depend on the chosen organizational structure.
In this lesson, we will review three main organizational structures for implementing projects: functional organization, dedicated teams, and matrix organization.
The simplest solution to managing projects is to manage them within an existing organizational structure, dedicating specific departments to specialized roles. This approach is called functional organization. Once a project is planned, various tasks are allocated to different existing departments and functional teams. Functional organization is used when a department has a leading role in implementing a project.
If a new smartphone launch project will be managed using functional organization at iPear, the design department will be responsible for creating a new smartphone design, the production department will be responsible for producing the components, and the marketing department will be responsible for carrying out market research and setting the price for the new device. The overall project is a part of the regular work agenda for management. A higher-level supervisor, called a functional manager, will be assigned responsibility for overseeing and coordinating the project and departments.
An opposite approach to project management is to create dedicated teams within the organization, which are units independent from the rest of organization. The team may consist of individuals from both within and outside of the parent organization, and their daily work assignments are dedicated primarily to the project in question. Such an approach is often used in organizations where projects are the main line of business. For example, construction companies approach each new building as a project and assigns a dedicated team.
If a new smartphone launch project will be managed as a dedicated team at iPear, a new team will be formed, with team members consisting of individuals from the design, production and marketing departments. Together, they will work solely on the new smartphone launch. A full-time project manager is assigned responsibility for the project and manages the team.
A third alternative is to manage the smartphone launch project in a matrix organization. This is a hybrid organizational structure that has emerged recently. There are usually two chains of command in a matrix organization: a functional manager and a project manager. The matrix approach is the most flexible of all three structures. In allows the company to balance an individual employee's time and knowledge between daily routine activities and several projects, and involves a functional manager and a project manager in the decision-making process, allowing each to step up in the scenarios where they have more experience and expertise.
If a new smartphone launch project is managed as a matrix organization at iPear, a dedicated project manager will be assigned responsibility for the project. The project manager will liaise with the head of the design, production, and marketing departments to obtain the specialists required to complete the project. The chosen specialists will report to the project manager regarding their progress on project tasks, but also remain a part of their parent department and continue to engage in daily activities and report to their department head.
An organizational structure is crucial for balancing the resource requirements between projects and routine operational activities of the company. There are three main organizational structures: functional organization, dedicated teams and matrix organization. Functional organization assigns the project responsibility to the functional manager and manages projects within existing functional teams. If dedicated teams are formed within project-heavy organizations, team members are temporarily borrowed from within or outside the organization and put into teams led by a project manager to complete a project. Finally, a matrix organization is a hybrid organizational structure with two chains of command, both a functional manager and a project manager.
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