What is the main role of functional departments in organizations where projects are the dominant form of business?

What is the Functional Organizational Structure?

The functional organizational structure organizes the activities of a business around areas of specialization. For example, there may be a marketing department that focuses solely on marketing activities, a sales department that only engages in sales activities, and an engineering department that only designs products and manufacturing facilities.  The functional organizational structure is the dominant mode of organization in larger companies, since these entities deal with such large sales and production volumes that no other form of organizational structure would be nearly as efficient. It is particularly effective in the following situations:

• Large volume of standardized product or service sales

• Reduced level of change within the industry

• Large fixed asset base

• Minimal amount of entirely new product line introductions

• Minimal changes due to fashion or other changes in taste or technology

• Competition is primarily based on cost

In other words, this system works well in a stable environment.

Example of the Functional Organization Structure

ABC International has just passed $10 million in sales, and its president believes that this is a good time to restructure the business to improve efficiencies through job specialization. Accordingly, he clusters employees into the following functional areas:

• Accounting department

• Corporate department

• Engineering department

• Facilities department

• Human resources department

• Investor relations department

• Legal department

• Production department

• Public relations department

• Purchasing department

• Sales and marketing department

Advantages of the Functional Organization Structure

Of the following advantages, the first one is the most important; the functional structure can introduce a great deal of efficiency into the operations of a business. The advantages are noted below.

Increased Efficiencies

When employees are allowed to focus on one specific functional area to the exclusion of all else, they can achieve significant efficiencies in terms of process flow and management methods.

Clear Chain of Command

There is a very clear chain of command in this structure, so everyone knows which decisions they are allowed to make, and which ones to hand off to their supervisors.

Clear Career Paths

It is easier to set up career paths for employees and monitor their progress toward the goals outlined for their functional areas.

Enhanced Specialization

A company can use this approach to cultivate a group of extraordinary specialists who can strongly impact the functions of the company.

Better Training

It is easier to monitor and update the training of employees when they are focused on narrow functional areas.

Disadvantages of the Functional Organization Structure

Despite the advantages of the functional organizational structure, it can also twist the fundamental process and decision flow within a business, with the following results:

Slower Growth

When a company is growing rapidly and is therefore continually modifying its operations to meet changing conditions, the functional structure can reduce the speed with which changes are made. This is because requests for decisions must move up the organizational structure to a decision maker, and then back down to the person requesting a decision; if there are multiple levels in the organizational structure, this can take a long time.

Longer Queue Times

When processes cross the boundaries of multiple functional areas, the queue times added by each area can greatly increase the time required to complete an entire transaction.

Unclear Responsibility

With so many specialists involved in a process, it is difficult to pin the blame for a specific product or service malfunction on any individual.

Functional Silos

There is a tendency toward poor communication across the various functional silos within a business, though this can be mitigated by using cross-functional teams.

Unnecessary in Smaller Businesses

This approach is not needed in small businesses, where employees may be individually responsible for many functions.

Narrow Specialist Viewpoint

When everyone in the company is herded into clusters of functional silos, there are few people left who are capable of seeing the total strategic direction of the company, which can result in a very difficult decision-making process.

The functional organizational structure is a particular type of organization in which a company can decide to organize itself.

The structure of an organization determines how employees, teams, and work responsibilities are organized in order to meet final needs and goals.

In a functional organizational structure, the employees are divided into departments characterized by the similarity of the tasks and the projects are carried out within the individual departmental units.

What is a functional organizational structure?

 A functional organizational structure is composed by project team members allocated according to the different functional units of an organization.

A typical organization has different functional units, such as the Human Resources, Finance, Marketing, Sales, Operations, IT, Administration, etc.

Each unit is managed by a functional manager who reports to the strategic direction of the organization.

In a large organization, the heads of the individual functional units may have other operational managers working under them and reporting directly to them. The larger the organization, the more levels it will have the functional unit.

For example, the HR department can have an HR head manager, under which we find additional HR managers. Each sub-responsible will deal with different aspects of this same department such as hiring, payroll management, staff training, etc.

All these managers work in harmony with the human resources department head in order to achieve the overall goals of the HR department.

Therefore, functional organizational structures must be managed using a hierarchical structure.

In an organization of this type, the execution of a project means the birth of a temporary team. The project team will be composed by members coming from different functional units.

Therefore, the members of the different functional units will deal with the part of the project that concerns them most closely and of which they are directly responsible.

It is not mandatory that all units of an organization are present in a project. The employees will in fact be assigned only on the basis of the requirements of the given project. For some projects, for example, no member from the Marketing department may be needed while more specialists of the HR department may be required.

The advantages of a functional organizational structure

When an organization is structured in a functional way, it is important to know what are the advantages and disadvantages of this choice. Let’s try to clear ideas by listing the advantages and disadvantages of this organization. Let’s start with the advantages:

• No change. The projects are completed within the basic functional structure of the organization. There is no radical change in the operations and structure of the organization.
• Flexibility. There is maximum flexibility regarding the use of team members. Specialists from different functional units can be temporarily assigned to the project, after which they return to their normal work. With many specialists available within each functional department, people can be exchanged between different projects with relative ease.
• In-depth expertise. If the primary responsibility of the project is assigned to the correct functional unit, it is possible to make use of in-depth expertise on the most crucial aspects of the project.
• Easy post-project transition. Normal career paths are maintained within a functional department. While specialists can make a significant contribution to projects, their functional unit is their professional home, therefore the focus of their professional growth and advancement. The project becomes like a temporary home for the staff member and, once it is completed, the employee returns to his “real” permanent home which is the functional department.

A functional organizational structure is – in general – more suitable for projects that require greater technical experience.

Disadvantages of a functional organizational structure

•  Lack of attention. Each functional unit has its own basic work to do and it happens that project responsibilities are set aside to meet these primary obligations. This becomes even more difficult when the project has different priorities for different units. For example, the marketing department can consider one project urgent while other departments consider it only of secondary importance – if not a real waste of time. This can lead to delays and quality problems.
• Poor integration. There may be poor integration between functional units. Functional specialists tend to care only about their own project segment and not what is best for the project in general.
• Slow. In general, more time is needed to complete projects within a functional organizational structure. This is partly attributable to slow response times. Information on the project and decisions must be disseminated through the normal management channels that do not consider horizontal communication between departments. For example, if a staff member of functional unit A needs to solve a problem involving a team member of functional unit C, the problem must first be assumed by the manager of A, who must then coordinate with the manager of C that can then reach team C member in order to get the relevant information and then retransmit it along the same path back to the staff member of A. This, as is easily deducible, is a complicated process and can cause delays and stress.
• Lack of ownership. The motivation of the people assigned to the project may be weak. The project can be seen as additional work not directly related to one’s professional development. Moreover, since project members only work on one part of the project, they do not identify with the project as a whole. Lack of ownership thus discourages team members who may not engage enough in project-related activities. The result, even in this case, will be a problem of quality of the results.

The role of the project manager within a functional organizational structure

It is a fact: The project manager has less authority over the members of the project team in the functional structure than in any other form of organizational structure.

In fact, he is more of a project coordinator than a real project manager. This is precisely because functional managers maintain complete authority over project team members and project budgets.

Here are the important facts regarding the role of project manager within a functional organizational structure:

• The functional organization is a traditional organizational structure in which the authorities – and therefore the real managers – are divided according to the functions performed by a particular group of people, such as Finance, HR, Marketing and Purchases, etc.
• Power and authority are in the hands of the functional manager, not in those of the project manager.
• The functional manager has the authority to release the resources based on their knowledge and their competence – the project manager is therefore always dependent and pending on the decision of the different functional managers.
• The resource goes back to the functional manager after completing the project – and in any case it is never “completely” separated.
• The resources that work in this type of organization are always under the authority of the functional manager, in any situation.
• The project manager generally has much less power in this type of organization.
• Project manager skills are much less used in this type of organization.
• The resource assigned to the role of “project manager” is usually a member of the team within a functional area and does not have a real project manager title or training.
• The functional manager will control the budget and the “project manager” will act more as a coordinator of the project activities rather than having real project management responsibilities.
• The resources for the project must be negotiated with the functional managers and the accessibility of these resources will be based on the business conditions.
• Any type of problem escalation must be reported to the functional manager.
• Since the “project manager” has low or no authority, the project can last longer compared to other organizational structures. Generally, there is no recognized project management methodology or best practices used.
• The project manager practically assists the functional manager.
• The project manager spends a lot of time doing administrative tasks and often works as a PM only part-time.

In conclusion, in a functional organization, project managers have little or no role when it comes to allocate resources and must completely rely on and hope for the cooperation of functional managers in order to obtain the resources they need to complete projects.

Functional managers have complete control over the company’s specialized departments and are responsible for the productivity and results of the unit.

To reach our conclusion, we can say that, in general, the functional organizational structure can work well in a company that mainly carries out repetitive work.

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