Understanding Types of Organization - PMP® Study

If you’re taking project management courses to study for your PMP certification, you’ll need to learn many new things, and one of them is organization types as defined by the PMI. Organization types are a framework that determines the hierarchy of people, function, and workflow—along with the reporting system in an organization.

Every organization should have a defined organization structure in order to work efficiently and achieve its business goals. Some say that without a defined organization type and structure that helps support its objectives, that organization will not succeed. As a project manager, it’s important to understand which type of organization you’re working with; this will help you identify the stakeholders and other team members you’ll be working with.

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According to PMI, there are four basic types of organization: Functional, Matrix, Projectized, and Composite. In this article, we’ll take a closer look at each of these organization types.

Type of Organization

1. Functional Organization

   Project Management training for the PMP exam covers the functional organization, the most commonly used organization type. In a functional organization structure, the organization is grouped into departments where people with similar skills are kept together in forms of groups; e.g., sales department, marketing department, finance department, etc. This helps organizations enhance the efficiencies of each functional group.
   
   All authority (i.e., budget allocation, resource allocation, decision-making, etc.) belongs to the functional manager in a functional organization. Resources in functional organizations report directly to the functional manager. The functional manager reserves the authority to release resources based on their subject matter expertise. When the project ends, the resources are returned to the functional manager again for routine work.
   
   Project managers typically do not exist in this type of organization structure; if this position exists, the role of the project manager will be very limited. The project manager may have the title of a coordinator or an expediter.

2. Matrix Organization

   The matrix organization structure is a combination of two or more types of organizational structures, such as the projectized organization structure and the functional organization structure. This combination can help organizations improve efficiency, readiness, and market adaptation. This type of structure is most suitable for organizations operating in a dynamic environment; they often can respond faster to market or customer demand while decreasing the lead time to produce 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. In a matrix organization structure, employees may report to many managers, and some from one section may report to one boss while the rest report to a different boss.
   
   When you receive project management training, you’ll learn more details about the three types of matrix organizations, and how the project manager’s power differs depending on the type. Below we provide a summary.

3. Strong Matrix

   In a strong matrix structure, the project manager enjoys more power than the functional manager. For example, the project manager has a say in the allocation of resources.

4. Weak Matrix

   In a weak matrix structure, a project manager works like a project coordinator or project expeditor. A project coordinator has some say in the allocation of resources, while a project expeditor serves only as a point of communication between the customer and team. Overall, in a weak matrix, the functional manager reigns supreme.

5. Balanced Matrix

   In a balanced matrix, both have equal power. Resources working on a project can face communication difficulties due to the lack of clarity on whom to report.

6. Projectized Organization

   A projectized organization is the ideal organization type for a project manager. Project managers are the real bosses here, with the freedom to apply your expertise and have a say in the proceedings. However, once a project is delivered, project managers become redundant. There is no job security in this type of organization.

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7. Composite Organization

   A composite organization blends the functional, matrix, and projectized types of organizations. A composite is just two or more models that are adapted for a special project, for simplicity, or to keep power in check. Most modern businesses are of the composite type.
   
   Two examples to help describe composite organizations are below:
   
   
   • An organization may deliver one project in a Balanced Matrix way, while another is being performed in a Functional way. They also have yet another project that’s being done as Projectized.
   • A Functional organization needs a small building, and the organization has the capability to construct the building itself. This would become a Composite organization because the organization creates a separate project team to complete this task.

Conclusion

It’s always helpful for a project manager to know in advance what type of organization you are working in to better understand your level of authority. Skilled project managers typically prefer a projectized organization to others.

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