Chapter 3.

Organization Structures

Dr. Ramzi Adriman

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Introduction

 Management has become to realize that organizations must be

dynamic in nature.
 Four (4) factors of organizational revolution:
 The technology revolution
 Competition and profit squeeze
 The high cost of marketing
 The unpredictability of consumer demands

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 Introduction

 Five (5) general indications that structure may not be adequate for
managing projects:
 Management is satisfied with its technical skills, but projects are
not meeting time, cost, and other project requirements.
 High commitment to getting job done, but great fluctuations in
how well performance specifications are met.
 Highly talented specialists involved in the project feel exploited
and misused.
 Blame each other for failure to meet specifications
 Projects are on time and to specifications, but groups aren’t
satisfied with achievement.

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Organizational Work Flow

 Organizations are continually restructured to meet the demands

imposed by the environment.
 In discussion of organizational structures, three (3) definitions
will be used:
 Authority is the power granted to individuals so that they can
make final decisions.
 Responsibility is the obligation incurred by individuals in their
roles in the formal organization to effectively perform
assignments.
 Accountability is being answerable for the satisfactory
completion of a specific assignment. Accountability = authority +
responsibility

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 The Classical Management
Structure
General
Manager

Adminis-
Director Level Engineering Production Sales Marketing Admin.
tration

Division Level

Department Level

Section Level Functional Responsibility

Classical Structure
Advantages
 Easier budgeting and cost control are possible.
 Better technical control is possible.
– Specialists can be grouped to share knowledge and
responsibility.
– Personnel can be used on many different projects.
– All projects will benefit from the most advanced
technology (better utilization of scarce personnel).
 It provides flexibility in the use of manpower.
Advantages (Continued)
 It provides a broad manpower base to work
with.
 It provides continuity in the functional
disciplines; policies, procedures, and lines of
responsibility are easily defined and
understandable.
 It readily admits mass production activities
within established specifications.
Advantages (Continued)
 It provides good control over personnel, since
each employee has one and only one person to
report to.
 Communication channels are vertical and well
established.
 Quick reaction capability exists, but may be
dependent upon the priorities of the functional
managers.
Classical Structure
Disadvantages
 No one individual is directly responsible for
the total project (i.e., no formal authority;
committee solutions).
 It does not provide the project-oriented
emphasis necessary to accomplish the project
tasks.
 Coordination becomes complex, and additional
lead time is required for approval of decisions.
Disadvantages (Continued)
 Decisions normally favor the strongest
functional groups.
 There is no customer focal point.
 Response to customer needs is slow.
 There is difficulty in pinpointing
responsibility; this is the result of little or no
direct project reporting, very little project-
oriented planning, and no project authority.
Disadvantages (Continued)
 Motivation and innovation are decreased.
 Ideas tend to be functionally oriented with
little regard for ongoing projects.
Developing Work Integration Positions

 The coordination of the flow of work between functional units

was achieved through several integrating mechanisms:
 To eliminate conflicts between functional departments by
specifying the documenting management rules and procedures.
 To reduce conflicts and minimize the need for communication
by planning processes.
 The resolution of conflicts through hierarchical referral.
 Direct contact and interactions by the functional managers.

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 Departmental Project Management

Division Manager

Department X Department Y Department Z

Project Leaders Project Leaders Project Leaders

Section Level Section Level Section Level

 Project Expeditor
ENGINEERING DIVISION

LIAISON
PIPING HVAC CHEMICAL DRAFTING
DEPT.

legend
Formal authority / reporting flow
Informal authority / reporting flow
Line-Staff Organization (Project Coordinator)

 Control of a project must be given to personnel whose first

loyalty is directed toward the completion of the project.
 Thus the project management position must not be controlled by
the functional managers.
 Two (2) possible situations can exist with the form of line-staff
project control.
 The project manager is the focal point for activity control.
(monitor)
 The project manager is given more authority. (assign work to
individuals in the functional organization) The functional
managers are forced to share their authority with the project
manager. It did occur during the early stage of matrix project
management, it did not last.

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Project Coordinator
DIVISION MGR.
LEGEND
FORMAL FLOW
PROJECT MGR.
INFORMAL FLOW

DEPT. MANAGER DEPT. MANAGER

Project Coordinator
Weaknesses
 Upper-level management was not ready to cope with
the problems arising from shared authority.
 Upper-level management was reluctant to relinquish
any of its power and authority to project managers.
 Line-staff project managers who reported to a division
head did not have any authority or control over those
portions of a project in other divisions; that is, the
project manager in the engineering division could not
direct activities in the manufacturing division.
 Pure Project Structure

General Manager

Project A Project B Project C

Manager Manager Manager

ENG. MFG. ENG. MFG. ENG. MFG.

Projectized Structure
Advantages
 It provides complete line authority over the project
(i.e., strong control through a single project authority).
 The project participants work directly for the project
manager. Unprofitable product lines are easily
identified and can be eliminated.
 There are strong communications channels.
 Staffs can maintain expertise on a given project
without sharing key personnel.
 Very rapid reaction time is provided.
Advantages (Continued)
 Personnel demonstrate loyalty to the project; better
morale with product identification.
 A focal point develops for out-of-company customer
relations.
 There is flexibility in determining time (schedule), cost,
and performance trade-offs.
 Interface management becomes easier as unit size is
decreased.
 Upper-level management maintains more free time for
executive decision making.
Projectized Structure
Disadvantages
 Cost of maintaining this form in a multi-
product company would be prohibitive due to
duplication of effort, facilities, and personnel;
inefficient usage.
 There exists a tendency to retain personnel on
a project long after they are needed. Upper-
level management must balance workloads as
projects start up and are phased out.
Disadvantages (Continued)
 Technology suffers because, without strong
functional groups, outlook of the future to improve
company’s capabilities for new programs would be
hampered (i.e., no perpetuation of technology).
 Control of functional (i.e., organizational)
specialists requires top-level coordination.
 There is a lack of opportunities for technical
interchange between projects.
 There is a lack of career continuity and
opportunities for project personnel.
The Matrix Management Structure
General
Manager

Engineering Operations Finance Others

Functional Responsibility

Project Mgr. Project Responsibility

X

Project Mgr.
Y
Project Mgr.
Z
Matrix Structure
Advantages
 The project manager maintains maximum
project control (through the line managers)
over all resources, including cost and
personnel.
 Policies and procedures can be set up
independently for each project, provided that
they do not contradict company policies and
procedures.
Matrix Structure
Advantages (Continued)
 The project manager has the authority to
commit company resources, provided that
scheduling does not cause conflicts with other
projects.
 Rapid responses are possible to change,
conflict resolution, and project needs.
 The functional organization exists primarily as
support for the project.
Matrix Structure
Advantages (Continued)
 Each person has a “home” after project
completion. People are susceptible to
motivation and end-item identification. Each
person can be shown a career path.
 Because key people can be shared, the
program cost is minimized. People can work
on a variety of problems: that is, better people
control is possible.
Matrix Structure
Advantages (Continued)
 A strong technical base can be developed, and
much more time can be devoted to complex
problem-solving. Knowledge is available for all
projects on an equal basis.
 Conflicts are minimal, and those requiring
hierarchical referral are more easily resolved.
 There is a better balance between time, cost
and performance.
Matrix Structure
Advantages (Continued)
 Rapid development of specialists and
generalists occurs.
 Authority and responsibility are shared.
 Stress is distributed among the team (and the
functional managers).
Matrix Structure
Disadvantages
 Multidimensional information flow.
 Multidimensional work flow.
 Dual reporting.
 Continuously changing priorities.
 Management goals different from project
goals.
 Potential for continuous conflict and conflict
resolution.
 Difficulty in monitoring and control.
Matrix Structure
Disadvantages (Continued)
 Company-wide, the organizational structure is
not cost-effective because more people than
necessary are required, especially
administrative.
 Each project organization operates
independently. Care must be taken that
duplication of efforts does not occur.
 More effort and time are needed initially to
define policies and procedures, compared to
the traditional organizational form.
Matrix Structure
Disadvantages (Continued)
 Functional managers may be biased according
to their own set of priorities.
 The balance of power between the project and
functional organizations must be watched.
 The balance of time, cost and performance
must be monitored.
 Although rapid response time is possible for
individual problem resolution, the reaction
time can become quite slow.
Matrix Structure
Disadvantages (Continued)
 Employees and managers are more susceptible
to role ambiguity than in the traditional
organizational form.
 Conflicts and their resolution may be a
continuous process (possibly requiring support
of an organizational specialist).
 People do not feel they have any control over
their own destiny when continuously reporting
to multiple managers.
Matrix Structure
Disadvantages (Continued)
 Employees and managers are more susceptible
to role ambiguity than in the traditional
organizational form.
 Conflicts and their resolution may be a
continuous process (possibly requiring support
of an organizational specialist).
 People do not feel they have any control over
their own destiny when continuously reporting
to multiple managers.
Modification of Matrix Structure

 The Matrix can take many forms, but there are basically three
(3) common varieties.
 Typical matrix structure as Fig. 3.6, for small company.
 Development of a director of project management as Fig. 3.7
(see attached), companies grew in size and the number of
projects.
 Placing project engineering as Fig. 3.8 in the project office.

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The Matrix Management Structure
(With a Director of Project Management)
General Manager

Director: Director: Director: Director:

Project Mgmt. Engineering Manufacturing Finance/Admin.

Project Mgr. X

Project Mgr. Y

Project Mgr. Z
 Balancing Technical and Human Skills

Technical Skills
High

Low
Human Skills

Junior Senior Supervisor Middle Senior President

Team Member Team Member Manager Officer
Center for Project Management Expertise

 In project-driven companies, the creation of a project

management division is readily accepted as a necessity to
conduct business.
 Organizational restructuring can quite often occur based on
environmental changes and customer needs.
 In non-project-driven organizations, employees are less tolerant
of organization change. Power, authority, and turf become
important.
 Recently, non-project-driven companies have created centers
for project management expertise.

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Matrix Layering

 Matrix Layering can be defined as the creation of one matrix

within a second matrix.

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 The Multidimensional Matrix

Time, Dimension or Space

Note: Each slice could be a different country.

Selecting the Organization Form

 Middleton did a survey on all airlines and obtained the following

results.
 Seven (7) major company advantages of project management:
 Better control of projects (92%)
 Better customer relations (80%)
 Shorter product development time (40%)
 Lower program cost (30%)
 Improved quality and reliability (26%)
 Higher profit margins (24%)
 Better control over program security (13%)

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Selecting the Organization Form (continued)

 Six (6) major company disadvantages of project management:

 More complex internal operations (51%)
 Inconsistency in application of company policy (32%)
 Lower utilization of personnel (13%)
 Higher program cost (13%)
 More difficult to manage (13%)
 Lower profit margins (2%)

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Factors For Selecting An
Organizational Form
 Project size
 Project length
 Project management experience
 Philosophy and visibility of executives
 Project location
 Available resources
 Unique aspects of the project
 Project Vs. Functional Influences

Project Influence
Relative Influence

in Decision-Making

Functional Influence Dual Influence

In Decision-Making

Functional Matrix Project

Organization Organization Organization
Structuring the Small Company

 Small and medium companies generally prefer to have the

project manager report fairly high up in the chain of command,
even though the project manager may be working on a relatively
low-priority project.
 Two (2) major questions:
 Where should the project manager be placed within the
organization?
 Are the majority of the projects internal or external to the
organization?
 Two (2) key points that are important to small companies:
 Only the name of the project manager need be identified.
 Should not identify the names of functional manager due to:
 The functional employees are probably part time.
 The project manager is the focal point of all communications.
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Strategic Business Unit (SBU) Project Management

 An Strategic Business Unit (SBU) is a grouping of functional

units that have the responsibility for profit (or loss) of part of the
organization’s core business.
 The major benefit of these types of project management SBU’s
is that it allows the SBU to work more closely with the customer.
 It is a customer-focused organizational structure.

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 Strategic Business Unit
Project Management

SBU
SBU SBU
SBU SBU
SBU
Ford
Ford GM
GM Chrysler
Chrysler
Programs
Programs Programs
Programs Programs
Programs

Program
Managers
SBU Project Management
Using Platform Management

SBU
SBU SBU
SBU SBU
SBU
SBU
Platform Program
Project Managers
Management

Platform
Platform

Platform
Platform

Platform
Platform
Transitional Management

 Organizational redesign is occurring at a rapid rate because of

 shorter product life cycles,
 rapidly changing environment,
 accelerated development of sophisticated information systems,
 increased marketplace competitiveness.
 Transitional Management is the art and science of managing the
conversion period from one organizational design to another.
 Transitional management necessitates an understanding of the
new goals, objectives, roles, expectations, and employees’
fears.

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Tugas

1. Buatlah Resume mengenai Organization Structure (tipe, kelebihana dan

kekurangannya, beserta contoh Perusahaan/Unit yang menerapakan
organization structure tersebut?
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