Project Based Organizations
3.1 A FRAMEWORK: TYPES OF ORGANIZATIONS
The purpose of this section is to describe a project based organization and compare it to other basic organization types: functional and matrix organizations. Many companies will not perfectly fit either of these definitions. Yet in most cases one will be able to identify the basic organization type that most closely matches a company’s structure.
3.1.1 FUNCTIONAL ORGANIZATION
A functional organization groups employees and activities by functions (e.g. marketing, engineering, finance). Each function is typically led by a function manager, who reports to the senior management of the company. A key advantage of functional organizations is that knowledge, skills and facilities for each functional area are consolidated. This promotes economies of scale. In addition employees develop in-depth functional skills. (Daft, 2007) This makes the functional organization well suited for mass production of consumer goods and other industries where specialization of functions and scale effects are key (Hobday, 2000). A main weakness of the functional organization is its rigid structure and low horizontal coordination (between functions). This makes it slower to respond to environmental changes and specific customers’ requirements. (Daft, 2007)
3.1.2 MATRIX ORGANIZATION
A matrix organization groups employees and activities simultaneously by both: functions and major cross-functional projects. In a balanced matrix organization authorities and responsibilities are shared equally between function managers and project managers. Function managers and project managers report to the senior management of the company. (Hobday, 2000) Generally employees in a matrix organization report to the functional managers. This leads to the key weakness of a matrix organization: Employees and resources are often torn between functional and project demands (Lindkvist, 2004). The main advantage of a matrix organization is the combination of faster market
The purpose of this section is to describe a project based organization and compare it to other basic organization types: functional and matrix organizations. Many companies will not perfectly fit either of these definitions. Yet in most cases one will be able to identify the basic organization type that most closely matches a company’s structure.
3.1.1 FUNCTIONAL ORGANIZATION
A functional organization groups employees and activities by functions (e.g. marketing, engineering, finance). Each function is typically led by a function manager, who reports to the senior management of the company. A key advantage of functional organizations is that knowledge, skills and facilities for each functional area are consolidated. This promotes economies of scale. In addition employees develop in-depth functional skills. (Daft, 2007) This makes the functional organization well suited for mass production of consumer goods and other industries where specialization of functions and scale effects are key (Hobday, 2000). A main weakness of the functional organization is its rigid structure and low horizontal coordination (between functions). This makes it slower to respond to environmental changes and specific customers’ requirements. (Daft, 2007)
3.1.2 MATRIX ORGANIZATION
A matrix organization groups employees and activities simultaneously by both: functions and major cross-functional projects. In a balanced matrix organization authorities and responsibilities are shared equally between function managers and project managers. Function managers and project managers report to the senior management of the company. (Hobday, 2000) Generally employees in a matrix organization report to the functional managers. This leads to the key weakness of a matrix organization: Employees and resources are often torn between functional and project demands (Lindkvist, 2004). The main advantage of a matrix organization is the combination of faster market