How does matrix organization differ from functional and project organization?

Designed to help those that are preparing to take the PMP or CAPM Certification Exam, each post within this series presents a comparison of common concepts that appear on the PMP and CAPM exams.

Functional Organizations vs Projectized Organizations

Your approach to project management may vary based on the type of organization that you are working within. Organizations may be structured in a traditional or functional manner or a projectized structure.

Depending on the organizational structure, your project management authority and availability of resources will vary.

Functional Organizations

A functional organization is a traditional structure where the organization is divided based on the functions performed by that particular group of people, such as Human Resources, Information Technology, Marketing, Service, etc.

The resource assigned as the “project manager” is usually a team member within a functional area and does not have the title of project manager. The functional manager will control the budget and the “project manager” will act more as a coordinator or expediter of project activities rather than having true project management responsibilities.

Resources for the project will need to be negotiated for with the functional managers and the accessibility of those resources will be based on business conditions. Any type of escalations of issues would need to be made to the functional manager.

Because the “project manager” has little to no authority, the project can take longer to complete than in other organizational structures and there is generally no recognized project management methodology or best practices. However, the depth of subject matter knowledge is much greater because the resources that will contribute to the project reside within the functional areas.

Projectized Organizations

In projectized organizations, the majority of the organization’s resources are involved in project work and the project work is generally completed for the benefit of an external customer. The project manager has increased independence and authority and is a full-time member of a project organization and has project resources available to them, such as project coordinators, project schedulers, business analysts, and plan administrators.
The project manager has authority and control of the budget and any escalation of issues would be made to the sponsor and potentially the PMO leadership. Given that the project resources report into the project manager versus the functional area, there may be a decrease in the subject matter expertise of the team members.

Example

Arizona Construction Company is a projectized organization: the majority of their resources are allocated against delivering projects for external customers, although they do have a few back-office workers who process the timecards, issue payroll, etc. Each foreman is a project manager and has authority over the project resources assigned to him or her.

AAJ Grocery is a functional organization: the company’s resources are structured by the function that they perform: front-end, bookkeeping, stock rotation, grocery, personal care and pharmacy, dairy, meat, etc. There is not a defined “project” organization nor are there defined “project managers”.

Summary

The organizational structure will dictate the level of power, authority, and resources available to a project manager. A traditional functional organization gives the project manager very little, if any, authority, whereas a projectized organization will provide the project manager with significant authority.

Organizational design provides a critical framework that determines how people, processes and operations move through a company. Good organizational design helps support efficiency and achieve business goals. Having a clear plan from the beginning as to how the company will operate helps different departments come together and work toward a shared goal. Two common types of organizational structures are functional and matrix.

What Is a Functional Organization?

Functional is the most common type of organizational design. In this type of structure, the organization is grouped into departments where people with similar skills are kept together in forms of groups, such as the sales department, marketing department and finance department. This helps companies ensure that each group or department performs at its peak.

There is usually a manager or a top-level executive managing a particular department, handling all decisions related to budget, resources, decision-making and staffing. A functional structure works best for those companies that operate in one location with a single product category. It also works well for small teams and small projects because resources can be more easily controlled and managed.

Are There Any Drawbacks?

Functional organizational design tends to be difficult to adopt by larger companies that have many geographical locations because of expense and the difficulty of containing resources. Work also takes place in a silo, which means that sometimes team members don't have access to people outside of their division.

Some naysayers of functional organizational design say a big problem is incoherence. Most functional teams are good at many things but great at nothing. These teams often struggle to meet the needs and demands of their clients and managers, juggling an endless, and sometimes conflicting list of demands from various departments. As a result, they find it difficult to build the type of advantage or differentiation that is required for long-term success.

How Do Matrix Organizations Work?

A combination of two or more types of organizational structures, the matrix organization can help companies improve efficiency, readiness and market adaptation. This type of structure works best for startups and other companies operating in a dynamic environment since they often can respond faster to market or customer demand while decreasing the lead time to create a new product.

The authority of a functional manager moves vertically downwards, and the authority of the project manager moves sideways. Since these authorities flow downward and sideways, this structure is called the matrix organization structure. A manager in a matrix organization has two or more upward reporting lines to bosses who each represent a different business dimension, such as product, region, customer, capability or function. It’s often a response to corporate silos.

Skills are better utilized under a matrix structure, so companies can select the most capable employees in order to deliver projects. In addition, matrix structures can serve global customers by integrating business functions and responding to customer demands quickly.

Potential Downsides of Matrix Structures

Managing a matrix structure can be complicated and challenging. A common complaint about this business model is that it increases upward reporting and slows decision making. The opposite should be true in a well-functioning matrix because it pushes down operational decision-making in a controlled way.

Furthermore, the blurred authority that characterizes this organizational structure may lead to conflicts and slow things down. Managers at opposite ends of the matrix may find it difficult to reach an agreement, creating confusion among employees. Additionally, the workload tends to be high and the resources scarce.

Another drawback is that work responsibilities are not always clear. The sales manager, for example, is often responsible for various operations, such as customer relations and digital marketing. He may or may not be specialized in each area. Wearing multiple hats is common in small companies, but it can affect day-to-day operations and overall performance in larger organizations.