Picture this: A well-regarded project-based organization is struggling to meet deadlines and deliver quality work to its clients. The root cause? Inability to utilize workforce to their fullest due to a rigid organizational structure that hinders collaboration and stalls decision-making.

According to the Harvard Business Review study, ineffective organizational design and structure can lead to disarray, tension, and discord among managers and employees.

Besides, in the competitive world of project-based businesses, you must establish the right organizational structure within your organization. This can be the critical factor that determines whether your company thrives or merely survives.

The structure you choose significantly influences team communication, workforce allocation, and decision-making processes. It ensures that your organization operates smoothly and effectively.

In this article, we will delve into two popular organizational structures – Functional and Matrix. Then, we’ll explore their pros and cons to help you determine which one is best suited for your project-based business.

Adapting to change: Why project-based organizations must reassess their structures

The business environment is constantly changing. Increased project complexity is now the norm rather than the exception. In fact, according to a report by the Project Management Institute (PMI), 52% of projects experienced scope creep in some way. Scope creep often results from poor workforce management and a lack of adaptability, as uncontrolled changes in a project’s scope can lead to inefficiencies and increased costs.

Organizational structures play a critical role in how professional services firms manage workforce and respond to changes in order to achieve project goals. The structure of a project-based business:

  • Determines resource allocation
  • Promotes collaboration between teams
  • Optimizes employee skill utilization
  • Influences employee engagement levels

In essence, the organizational structure sets the stage for effective workforce management. It impacts the success of projects and the overall performance of the organization.

Project-based businesses must adapt to the dynamic landscape. An appropriate structure helps redesign organizations to face new challenges, which leads to successful client outcomes.

In the following sections, we’ll delve deeper into the significant impact that organizational structure has on project-based businesses and explore its various aspects in more detail.

But first, let’s have a quick overview of organizational redesign.

Organizational redesign: An overview

Organizational redesign is more than just rearranging the hierarchy; it’s about aligning structure, processes, and people to effectively implement strategy. This includes optimizing workflows, managing individual performance, hiring skilled employees, and developing their abilities.

When a company’s redesign aligns with its strategic goals, everyone is better prepared to execute and achieve them. In this way, the organization’s structure, processes, and people all work together to support key outcomes and focus the company’s efforts on reaching its objectives.

Impact of organizational structures on employees, clients, and performance

  1. Employee experiences
    Your organizational structure significantly affects employee morale, collaboration, and growth. A well-designed structure with clearly outlined roles and processes promotes teamwork and efficient resource utilization. It also encourages learning among employees. On the other hand, a poor structure can create silos, limit collaboration, and hinder employee development.

  2. Client satisfaction
    Client satisfaction and project outcomes are also connected to your organizational structure. When employees work together, they’re better equipped to meet client expectations and deliver high-quality results. A structure that promotes clear communication and decision-making enables your teams to respond to client needs and ensure project success.

  3. Business performance
    A structure that supports workforce management and cost control can directly impact your bottom line. Also, companies with well-defined structures often see increased employee engagement, which translates into higher productivity and profitability.

Functional and matrix structures: Key components of project-based organizations

Functional organizational structure

A functional organizational structure is one where employees are grouped based on their expertise and their functions. It is a widely adopted organizational structure, offering a clear hierarchy and allowing for specialization within specific departments.

Each department in this structure focuses on specific tasks, such as marketing, finance, or human resources. Communication flows vertically, and department heads make the decisions and report to top management.

For example, in a software development firm, the functional structure would have separate departments for coding, testing, and project management. Each department would work independently, focusing on its specific area of expertise.

Matrix organizational structure

A matrix organizational structure is a hybrid approach that combines elements of both functional and project-based structures.

In this setup, employees have two bosses: one from their function (like marketing or finance) and one from a specific project they are working on. This structure helps improve communication and resource sharing across different departments.

Take the example of a project-based organization like a construction company using a matrix structure. An engineer may report to the engineering manager (functional) and project manager (project-based) for a specific building project. This enables the engineer to contribute his/her technical expertise to the project while maintaining their functional responsibilities.

A Gallup survey reveals that 84% of U.S. employees are somewhat “matrixed.” This demonstrates the widespread use of matrix organizations. Companies use this structure to combine functional centers of excellence with business-specific personnel and processes.

Weighing the Pros and Cons: how functional and matrix structures affect your business

Functional organizational structures

Matrix organizational structures

The choice between functional and matrix structures for project-based businesses depends on their priorities. A functional structure may be more suitable if specialization, a clear hierarchy, and focused departments are crucial. However, a matrix structure could be the better choice if the business values adaptability, resource sharing, and collaboration.

Ultimately, the impact of these pros and cons on project-based businesses will depend on their specific needs and goals, as well as the nature of their projects.

Finding the ideal fit for project-based firms

Both functional and matrix structures offer unique benefits and challenges. When choosing the right fit for your project-centric business, aligning the structure with your organization’s unique needs and goals is essential.

You can experiment, adapt, and continuously improve to strike the right balance between speed and stability. Ultimately, it’ll ensure that you choose the most efficient and effective approach for your organization’s long-term success.