Although there are various ways in which people can be organised to work on projects, the most common types of organisation structures are functional, project, and matrix. The examples here relate to industrial companies; however, the concepts are applicable to other sectors, such as service businesses and not-for-profit organisations (for example, educational institutions and hospitals). You will become familiar with the characteristics of the three types of organisation structures the advantages and disadvantages of each.
Functional organisation structures are typically used in businesses that primarily sell and produce standard products and seldom conduct external projects. For example, a company that manufactures and sells video recorders and players may have a functional organisation structure. In the functional organisation structure, groups consist of individuals who perform the same function, such as engineering or manufacturing or have the same expertise or skills, such as electronics engineering or testing. Each functional group, or component, concentrates on performing its own activities in support of the company’s business mission. The focus is on the technical excellence and costs competitiveness of the company’s products, as well as the importance of the contribution of each functional component’s expertise to the company’s products.
A company with a functional structure may periodically undertake projects, but these are typically in-house projects rather than projects for external customers. Projects in a functional-type organisation might involve developing new products, designing a company information system, redesigning the office floor plan, or updating the company policy and procedures manual. For such projects, a multi-functional project team or task force is formed, with members selected by company management from the appropriate sub-functions in marketing, engineering, manufacturing, and procurement. Team members may be assigned to the project either full-time or part-time, for part of the project or for the entire project duration. In most cases, however, individuals continue to perform their regular functional jobs while they serve part-time on the project task force. One of the team members—or possibly one of the functional vice presidents — is designated as the project leader or manager.
In a functional-type organisation, the project manager does not have complete authority over the project team, because administratively the members still work for their respective functional managers. Because they view their contribution to the project in terms of their technical expertise their allegiance remains to their functional managers. If there is conflict among the team members, it usually works its way through the organisation hierarchy to be resolved, slowing down the project effort. On the other hand, if the company president does the project manager the authority to make decisions when there is disagreement among team members; decisions might reflect the interests of the project manager’s own functional component rather than the best interests of the overall project. For example, take the situation in which there is disagreement about the design of a new product and the project manager, who is from the engineering function, makes the decision that reduces the engineering design cost of the product but increases the manufacturing cost. In reporting project progress to the company president, the project manager then makes some biased comments regarding the viewpoints of team members from other functional components, such as, “If manufacturing were more willing to consider other production methods, they could make the product for a lower cost. Engineering has already reduced its design costs.” Such a situation could require the company president to get drawn into handling the conflict.
The functional organisation structure can be appropriate for internal company projects. However, because projects are not a part of the normal routine, it’s necessary to establish a clear understanding of the role and responsibilities of each person assigned to the project task force. If the project manager does not have full authority for project decisions, then she or he must rely on leadership and persuasion skills to build consensus, handle conflict, and unify the task force members ‘to accomplish the project objective’. The project manager also needs to take the time to update the other functional managers in the company.
There, may be situations in which a task force is assigned to work on a project that is strictly within a particular functional component. For example, the manager of technical documentation may form a project, task force of editors and documentation specialists to develop common standards for all technical documents. In such a case, the particular functional manager has full authority over the project, and conflict can be handled more quickly than when it arises within a multi-functional project team.
Companies with functional organisation structures seldom perform projects involving external customers, as such organisations do not have project managers designated to manage customer-funded projects. Rather, functional-type organisations concentrate on producing their products and selling them to various customers.
Advantages and Disadvantages of Functional Organisation Structure
By bringing specialists from the same discipline together in one organisational unit, a functional-type organisation reduces duplication and overlap of activities. It provides the benefits associated with specialisation: an environment in which individuals can share and keep up with the knowledge and skills of their particular discipline. For example, all individuals in a computer engineering unit can share software and discuss approaches to developing computer systems.
Functional-type organisations can be insular, though, with each functional component concerned about only its own performance. Teamwork with other functions is not emphasised, and there is a little cross-fertilization of ideas among function. Project focus is not emphasised either, and decisions may be parochial rather than in the best interests of the overall project. The hierarchical structure causes communication, problem resolution, and decision making to be slow.
Take the case in which there is a problem with product failures. Engineering thinks it’s because manufacturing is not producing the product properly. Manufacturing claims it’s because engineering didn’t design it properly or because there were errors in the engineering drawings provided to manufacturing. Such a problem could work its way up and down through the chain of command, and its resolution may rest with the company president. The functional-type organisation lacks customer focus. There is a stronger allegiance to the function than to the project or the customer.