Have you ever been involved in a project where you weren’t quite sure what you were supposed to be doing, who to ask questions to, or if anyone even cared where you were up to?
If the answer is yes, chances are there was no organizational structure set up for that project.
To define organizational structure in project management: it’s quite simply the way a company organizes its team members to work on a project. There are various types of organizational structures and usually, a company will stick with the same structure throughout its projects. However, if a company works on very different types of projects, they might change their organizational structure to suit different projects. Below, we’ll detail what the different types of organizational projects are, how to choose which one suits your company best, and a project organizational structure example for each.
Before that, however, let’s discuss:
As we will detail below, there are quite a few different organizational structures that a company can choose from. The type of organizational structure you choose will greatly affect the way your team manages projects, and ultimately, is likely to affect your bottom line.
Moreover, the precision and clarity with which you implement your organizational structure will impact the success of your project management. It’s one thing to have an organizational structure down on paper, but quite another to implement it effectively.
Below, we’ll clarify what the different types of organizational structures are so that you can make the best choice for your team.
Just the way it sounds, a functional organizational structure in project management is when a team is organized by function. So if you have 5 designers, they will be grouped together because they have the same function. Leading the design team will be a functional leader. Similarly, anyone involved in finance will be grouped together, and anyone involved in HR will be grouped together. Usually, a functional organizational structure means limited communication between functional groups. However, leaders of each department will communicate between each other.
Functional Organization Structure
This type of structure is heavily focused on authority levels and works well for big corporations. In a hierarchical structure, there can be CEOs, senior leaders, and middle managers before you get to on-the-ground team members. For this reason, career advancement within hierarchical structures is clear-cut and steady. Another advantage is the precise clarity of tasks that this structure affords - leaders pass tasks down to the workers and are on top of who is doing what.
The opposite of hierarchical, the flatarchy structure has only a very basic hierarchy of authority. Usually, team members all have the same authority level and report directly to the CEO. This type of structure works well for smaller companies, the advantage being that less time is wasted as decisions are processed through different hierarchical levels and collaboration is increased. Furthermore, a flatarchy can lower costs as with fewer people in managerial roles, pay is lower. Additionally, having less control over what workers do provides more opportunity for innovation and originality - the best ideas sometimes come from the bottom! A disadvantage is that there is less opportunity for growth.
This type of organization is similar to the functional structure, the difference being that in a divisional structure, employees are organized by department rather than by function. For example, in a company that sells men’s suits, there will be a division for jackets, a division for pants, a division for shirts, etc. Each division is self-contained with its own HR, finance, and marketing department. A divisional structure works well for companies that produce many goods, work across many locations, or provide goods to a wide range of demographics. For example, McDonald’s and Pepsi both use a divisional organizational structure.
Since in a divisional structure, each division has its own management, there is a high degree of transparency, so despite being used for large corporations, employees are still accountable for their actions. On the flip side, having individual divisions can lead to undesirable competitiveness and even rivalry across divisions. However, this problem can quite easily be solved by creating opportunities for divisions to get together and develop a shared vision.
Divisional Organizational Structure Credit: Visual Paradigm Online
The matrix structure arranges team members so that there are two, cross-functional leaders for team members of different project groups to report to; their functional manager and their project manager. This setup is ideal for companies that have many projects running at once.
A big advantage of a matrix structure is the excellent collaboration it affords. The cross-functionality aspect allows experts from across the board to be in constant contact and work together to produce optimal results. Additionally, the matrix structure allows employees to become proficient in more than just one area, which gives you more well-rounded employees.
The main disadvantages are the potentially blurred lines between roles as employees become confused about who to report to for what, as well as the decision process being slowed down due to the multiple managers that decisions need to get approved by.
Matrix Organizational Structure Credit: Instapage
A projectized organizational structure is a type of project-oriented organizational structure where team members are organized by project. A project manager is in charge of one project and beneath them, there is the project team. There can be multiple projects being worked on, with project managers reporting to the CEO. At the conclusion of every project, the team is dissolved and a fresh team, with fresh resources, is organized for the next project.
This type of project-oriented organizational structure creates strong communication between team members as they are working closely on one specific goal. Also, since new teams are formed with each project, employees gain a large variety of skills over time.
A disadvantage can be the strong and all-powerful authority of the project manager. This can cause resentment as well as cap team members' creativity.
Projectized Organizational Structure
Use the table below to discern which organizational structure would best suit your company.
To provide further clarification, let’s discuss:
In what type of organizational structure do project managers have the most authority?
In a projectized company, project managers have the most authority as they are fully in charge of specific projects.
In what type of organizational structures do project managers have the least amount of authority?
A matrix organizational structure gives the least authority to project managers as the cross-departmental leadership structure limits the scope of their decision-making power.
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