What’s it: A project-based organizational structure is an organizational structure in which a company organizes its organization around specialized teams working on specific projects. In a simple model, the company takes staff from each department, appoints them, and assigns them to the project team. They then work to complete the assigned task. Unlike matrix structures, they are project focused and do not report to more than one boss.
This structure is suitable for companies with large, short-term projects that wish to accommodate innovation and growth by launching projects. They can allocate and better use existing resources to meet the goals set. Another advantage is to encourage their human resources to be more flexible. However, this structure often blurs organizational lines as it draws staff from their functional work.
How does a project-based organizational structure work?
How is the organization organized?
Under a project-based organization, the company relies on the project as the main unit in running the business. The company integrates all the company’s main business functions without any formal functional coordination across project lines. In this case, there is an executive or CEO at the top. And below him, several senior managers together oversee the program manager, who is ultimately responsible for the projects and their teams (see image above).
In a broad definition, there are also project-led organizations. However, unlike project-based organizations, this structure still accommodates business functions. However, the project needs outweigh the functional impact when it comes to decision-making and reporting to senior management.
Under this structure, a project manager will lead the team, which will consist of staff from various departments. He is responsible for the overall quality of the project. And he has the authority to make decisions about the project, including selecting staff, assigning tasks, and monitoring performance.
Project teams work together to complete tasks. They executed all the plans and did all the work. Unlike the matrix structure, where individuals in the team have two bosses: the project manager and the functional manager, under this structure, they work directly for the project manager.
Where is the appropriate project-based organizational structure adopted?
This structure can be useful when a company develops a new product. The executive designs several development projects and appoints someone to lead.
In other cases, the project may not be to develop a new product but to prepare for expansion into a new market. The project team identifies potential markets to enter and designs an effective strategy for entry.
Companies operating in dynamic environments may also fit this structure. The business environment is rapidly changing, requiring them to continuously innovate on the fly. As a result, they organize their work by dividing it into various projects. Unlike a functional structure, most business functions are organized into projects under a project-based organization.
What are the advantages of a project-based organizational structure?
A project-based organizational structure is important to ensure the company remains competitive and can manage operations effectively. Companies can develop new innovations by launching new projects. Finally, companies can remain competitive and can adapt quickly to changing markets.
Other advantages of a project-based organizational structure are:
Greater team control. Project managers have more control over the team. Unlike a matrix structure, teams focus on the project and do not report to more than one boss. So, the project manager can supervise them properly. He has direct authority over operations and the project team. It also increases flexibility and response time.
Synergy between employees. This structure facilitates individuals across departments to work together as a team. They work together to make the project a success, creating a strong team culture.
Make better use of resources and competencies. The company maximizes the knowledge and skills of existing employees. And employees can actualize the best of their abilities to the project.
Since companies launch projects only when they are essential, this structure allows them to allocate physical and human resources to the most beneficial efforts.
Work efficiency. This structure makes it easy to schedule and organize work with dedicated resources. In addition, the team works specifically for the project.
Improve competence. Team members contribute to each other with different knowledge and skills. It creates space for cross-functional learning and knowledge transfer. In addition, they also gain new skills in dealing with new and emerging challenges during the project.
What are the disadvantages of a project-based organizational structure?
The downside of a project-based structure is that it blurs organizational lines. This structure effectively draws staff from their functional work. When appointed to a team, they leave their old job and focus on the project.
Other disadvantages of a project-based organizational structure are:
High cost. Projects may only meet company-specific goals, not the organization’s goals as a whole. Thus, allocating resources and staff to work on a single project can incur high implicit costs of not meeting the broader objectives. For this reason, project organization is usually applied only to large, short-term projects.
Not immediately effective. The team consists of staff with various backgrounds and functional skills. As a result, for example, communication barriers arise. Thus, knowledge transfer may be a problem.
Risking career. Team members’ careers may be threatened as the company keeps appointing them to move from project to project. As a result, their professional growth is sacrificed.
What to read next
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- Organizational Structure By Product: Advantages and Disadvantages
- Organizational Structure by Region: Advantages and Disadvantages
- Organizational Structure by Customers: How It Works, Advantages, Disadvantages
- Matrix Structure: How It Works, Advantages, Disadvantages
- Horizontal Organizational Structure: Characteristics, Advantages, Disadvantages
- Vertical Organizational Structure: Characteristics, Advantages, Disadvantages
- Shamrock Organization: How it Works, Advantages and Disadvantages
- Project-Based Organizational Structure: Strengths and Weaknesses
- Centralized Organizational Structure: Advantages, Disadvantages
- Decentralized Organizational Structure: Advantages, Disadvantages
- Formal Organizational Structure: Characteristics, Advantages, Disadvantages
- Informal Organizational Structure: Characteristics, Advantages, Disadvantages
- Multidivisional Structure: Importance, How it Works, Pros, Cons