Organizational structure and culture's impact on project management effectiveness

¶ … sizes will eventually be required to manage projects of some type, and in some cases this will be the essence of their competitive advantage. No matter what type of organization or project is involved, though, effective project management represents an important function that can be facilitated by the selection of the appropriate organizational structure and the type of organizational culture that is in place. The purpose of this study was to determine what organizational structures are typically used for project management applications and to better understand how an organization's culture can affect this process. To this end, a review of the relevant peer-reviewed and scholarly literature concerning these issues was presented, followed by a summary of the research and important findings in the conclusion.

How Organizational Structure and Culture Affects Project Management Implementation and Success

Introduction

In an increasingly globalized marketplace where smaller companies are able to compete head-to-head with their larger counterparts in almost any type of industry, innovation and competitive advantage have assumed new relevance and importance. One of the keys to achieving innovation and competitive advantage has been shown to be project management, but there are a number of factors that must be taken into account in order to accomplish this function effectively. Two factors in particular, organizational structure and organizational culture, have been shown to facilitate or hamper the project management function. The effectiveness of these two factors depends on how well they mesh with the goals of the organization and what types of project are involved, of course, but the research will show that even when an organization identifies an effective structure for a given project and creates and sustains an organizational culture to support it, this approach may not be as effective or may cause more problems than they solve when used with other projects in the future. Therefore, it is important to understand how organizational structure and culture can affect the project management process and what issues must be considered during their administration.

Background and Overview

Two inevitable consequences of operating any type of organization of any size will be the need for change and the need to effectively manage projects; in some cases, these two needs will be identical or will relate to the same initiative. Indeed, even the tiniest micro-organization will require a project management function from time to time, whether the function is referred to by this term or not. Depending on the nature of the organization and its goals, a formal project management function may be required in order to bring projects to fruition while in others an alternative approach may be used for this purpose. For those organizations that require a formal project management function, though, the type organizational structure and culture that is in place can have an enormous impact on how effectively the project management function is accomplished. The purpose of this study is to identify common organizational structures that are used for project management purposes and to determine how an organization's culture can affect this process.

Importance of the Study

For those organizations requiring a formal project management function, the selection and support of a given organizational structure can play an important part on how well the project management function operates. For example, according to Richman (2002), "The organizational structure strongly influences how efficiently project management operates. It often constrains the availability of resources or the terms under which resources are available to the project" (p. 17). Moreover, there are several organizational structures that are available that can be used to facilitate to project management process, but it is vitally important that managers recognize the strengths and weaknesses of the different approaches and how they can best be applied to the project at hand. In this regard, Richman adds that, "Organizational structures typically span the spectrum from functional to project, with a variety of matrix structures in between. Any of these variations might be appropriate and effective if the advantages and disadvantages are understood and handled properly" (p. 17). This is a tall order by any measure, certainly, but the importance of selecting an organizational structure and creating and sustaining an organizational culture that is congruent with the goals of a company can spell the difference between success and failure, and for many organizations, there is little or no room for false starts or wasted resources which are by definition scarce.

In fact, organizational structure and culture are inextricably interrelated in terms of their respective impacts on the success of the project management function. For example, according to Al Zarooni, Abdou and Lewis (2006), the organizational structure sets the stage for how the project will be managed: "The main objective of organizational structure of a particular project is to set the relationships of the organizations involved in relation to the tasks required of them" (p. 31). Moreover, the organizational culture that is in place will tend to contribute to or detract from the effectiveness of the project management process. In this regard, Al Zarooni and his colleagues emphasize that, "To understand the organization structure of a particular project, two major items need to be investigated: first the client/project team integration and second, the organization of the design and team into the management process" (p. 31). Taken together, the type of organizational structure and culture that are in place play a major role in determining how the project management process will play out and how successful the allocation of resources to this enterprise will be over time. Based on the foregoing considerations, the growing body of research in these areas and empirical observations from practitioners, it is apparent that organizational structure and culture play an enormously important role in the project management function for organizations of all types and sizes, and these issues are discussed further in chapter 2 below.

Chapter 2: Review of the Literature

Impact of Organizational Structure on Project Management

The type of organizational structure that is in place is a function of the goals of the enterprise involved as well as the types of people who work there. In some cases, such as the military, a highly rigid organizational structure will be needed while in others, such as an information technology firm that is characterized by large numbers of knowledge workers, a less formal organizational structure may be more appropriate. As a general rule, though, the less training that employees have, the more formal the organizational structure will be that is required to effectively manage them. In this regard, Dalton, Lawrence and Lorsch (1990) report that, "The need for organizational structure is a function of the people you put into the organization and your willingness to give these people responsibility. The lower the quality of people coming in at the bottom, the higher the need for organization" (p. 144). Furthermore, different organizational structures will be required for companies that compete in the international marketplace as opposed to those which concentrate on a domestic or local market only. For instance, Briscoe and Schuler (2002) emphasize that, "Other forms of organizational structures [are] used to pursue international strategies such as joint ventures or cross-border acquisitions. . . . The specific international strategy chosen or developed influences the choice and design of organizational structure" (pp. 29, 39).

Selecting the appropriate organizational structure that is aligned with an organization's goals and values is the first step in developing the type of culture (discussed further below) that will contribute to the accomplishment of these goals as well as project management initiatives. In this regard, Bissell and Zamora (1999) note that a company's specific organizational structure institutionalizes the following:

1. How people will interact with each other;

2. How communications will flow;

3. How rewards are distributed;

4. How power relationships are defined; and,

5. What is important to the organization (p. 23).

These aspects of organizational structure are directly related to what type of organizational culture that will be created and maintained. For instance, Tata, Prasad and Thorn (1999) report that, "The structure of an organization reflects the value-based choices made by the company; it refers to how job tasks are formally divided, grouped, and coordinated. Different value orientations of organizations can influence structure" (p. 440). Therefore, the organizational structure that is in place will dictate what type of organizational culture emerges and is sustained over time by providing a framework in which the organization's goals, values and direction are defined. For instance, Bissell and Zamora point out, "In other words, organizational structure provides the basic template for the continuance of an organization's culture; i.e., norms, values, philosophies, and informal activities" (p. 23).

The process of identifying and selecting the most appropriate type of organizational structure is referred to as "organizational design": "Organizational design (the management function of organizing) is the process of consciously deciding what form of position interaction network (structure) is the best match between the task of the organization and the type of people who are and will be organizational members" (Bissell & Zamora, 1999, p. 24). Generally speaking, organizational structures can assume either a bureaucratic form or a classical form from the universalistic design approach which maintains that there is one "best" way to structure an organization irrespective of the situation; by contrast, the contingency approach to organizational design is based on the notion that different organizational designs are needed in response to different sets of circumstances and that there are not single "best" ways to structure an organization but rather the superior approach depends on numerous variables. These two approaches to organizational design for structure are described in Table 1 below.

Table 1

Principles of Universalistic and Contingency Approaches to Organizational Design and Resulting Structures

Organizational Structure Type

Description

Universalistic Design (Bureaucratic structure)

A. A clear division of labor, with each job well defined, understood and routine

B. A formal hierarchy that clearly defines the management/supervisory relationship between managers and subordinates

C. Specific rules, policies and procedures which are used to guide behavior for all employees

D. Impersonal application of all rules, policies, discipline and rewards

E. Hiring of employees based on rigid and equitable selection criteria

Universalistic Design (classical structure)

A. Work should be divided and subdivided to the greatest degree possible

B. Jobs/tasks should be grouped together on the basis of function or process -- specialization

C. Centralization of authority with top management

D. Authority should be distributed according to the job responsibility

E. Each employee should have one and only one supervisor

Contingency Approach

The choices of organizational design ranges on a continuum from what has been labeled the mechanistic form (e.g., anchored by a classical bureaucratic hierarchical structural form) to the other end of the continuum that is labeled the organic form (e.g., anchored by the neoclassical matrix structural form). Based on the circumstances presented by the external environment, its technology, and its strategic choices, which include its strategic goals, a structural form should be designed that provides the maximum support to the organization in achieving its goals

Source: Bissell & Zamora, 1999, p. 24

While some companies may enjoy a high level of success using the universalistic approach to organizational design for structure, companies that compete in a dynamic and highly competitive environment may require the flexibility afforded by the contingency approach. Whichever organizational design approach is used, though, it is the responsibility of the organization's management to make these determinations and decisions. In this regard, organizational design to identify the best organizational structure to guide the enterprise in achieving its goals is one of the more important responsibilities of a company's top leadership. The organizational design function is comprised of three basic management functions as follows:

1. Planning. This involves defining organizational objectives and developing the methods and resources by which they will be accomplished.

2. Controlling. This penultimate function is the process of developing, implementing and using feedback systems that provide continuous information on the success of all system elements that have been put in place in order to achieve the organizational goals.

3. Organizing. Finally, this management function consists of designing and deciding upon the most appropriate organizational structure for achieving the organization's goals (Bissell & Zamora, 1999, p. 24).

While the organizational structure designed and selected by a given enterprise may fit one of these categories in most ways, there are some other ways in which an organization can be structured that contain elements of both the bureaucratic and classical structures, particularly as these issues relate to project management initiatives. As noted in the introductory chapter, although they may be referred to by different terms in different organizations, the organizational structures typically used by companies for project management purposes can be categorized as being functional, project or matrix structures. A description of these three organizational structures and their respective strengths and weaknesses is provided in Table 2 below.

Table 2

Organizational Structure Types: Description, Strengths and Weaknesses

Organizational Structure

Description

Strengths

Weaknesses

Functional

In the classic organizational structure, there is a hierarchy in which people are grouped into functional divisions. Everyone has one clear superior. The scope of projects is typically limited to the boundaries of the functional division. Each division has its own project managers who report to the head of the division; these project managers operate independently from project managers in other divisions.

Projects can be completed more accurately. Because project managers and team members have expertise in the functional area, project requirements can be defined and challenged intelligently. This means fewer changes will be made during the life of the project and that a more practical end product can result. In addition, project personnel are accountable for their work and must accept success or failure. Because they must live with the end result of the project, they are committed to it. Since personnel have functional expertise, learning time is also reduced and projects can be completed quickly. Problem situations can be identified and corrected quickly.

The focus on the needs of the functional division might make it difficult to see and respond to the needs of the organization as a whole. Enterprise policies and practices might not be enforced uniformly across divisions. Project control and status reporting to upper management is not standardized across the organization, making it difficult for senior executives to manage the various projects with this organization. Project costs tend to have little or no accounting. Many aspects of a project are handled as ongoing functional work of the division making it difficult to identify and account for the true cost of a project.

Project

In a project organization, projects are centralized in a separate division of skilled project managers that serves the project management needs of all divisions of the company. This is typically referred to as a "project office" and is becoming increasingly popular in organizations. In this structure, a central group is responsible for planning, controlling, managing and reporting the progress of all projects in the organization.

A formal project management system is adopted and applied uniformly throughout the organization. This common understanding and application of project management practices typically creates high efficiency in the organization. Projects are often completed on time, within budget, and in accordance with project scope. In addition, common standards of planning, controlling, and reporting exist throughout the life of each project and are applied across all projects. These common standards facilitate communication and provide efficiency. Moreover, highly skilled project managers can be available for the benefit of all. Costs can be reduced by using common tools such as project management software to manage all projects. Centralized data from all projects can be analyzed and applied to future projects to improve the accuracy of estimates and practices. A centralized organizational structure makes it easier to identify productivity trends and take steps to improve project processes. Finally, all projects of the organization can be managed as a whole.

Standards and documentation can become excessive, and without careful vigilance, this centralization of project managers and practices can become self-serving. Rather than serving the needs of the project office, careful focus must be given to the needs of the project and the people it benefits. If processes become excessive, the total cost to manage a project can be higher than other structures. Constant assessment the value being provided must be conducted to ensure value exceeds costs. Qualified technical leaders may be scarce. Project managers might not have the technical background needed for a project, and might have little access to people with the appropriate knowledge and skills. Project managers might seem unresponsive to the needs of the people who request their time and skills. Because project managers are located in a separate project office, they might become out of touch with the needs and practices of individual departments.

Impact of Organizational Culture on Project Management

Although there is no universal definition or description for organizational culture, Allcorn (1992) defines it as "the set of basic assumptions that helps organization members to cope with anxieties about themselves, organization membership, others at work, the organization's functioning, and the nature of the competitive world" (p. 153). Other authorities suggest that a good working definition for organizational culture is simply "the way things are done around here" (Boxx, Odom & Dunn, 2001, p. 194). However it is defined, it is clear that the type of organizational culture that is in place will play a major role in determining the course of the organization and how it will respond to changes in the marketplace. According to Kezar, Glenn, Lester and Nakamoto (2008), the primary impact of organizational culture on project management outcomes is highly significant, but so too is the overall context within which the project is being implemented. In this regard, Kezar and her associates emphasize that, "Researchers suggest that the context (including both the external environment and institutional conditions) has a significant effect on whether an initiative is successful. Contextual conditions refer to major structural, human, political, and cultural elements. Examples include institutional policies, hierarchy, decision-making processes, leadership, training, climate, and politics" (p. 125).

Indeed, Cats-Baril and Thompson (1995) emphasize that the selection and approval of projects must be in line with the organization's culture in order to improve the likelihood of a successful outcome. In fact, Cats-Baril and Thompson suggest that the determination of whether a given project is compatible with the company's organizational culture represents the first step in the project management process. These authors recommend that organizations of all types and sizes "evaluate whether or not the project that is being proposed is aligned with the mission and objectives of the organization. The more aligned the project is with the departmental objectives, the easier it is to justify the project, and the greater the political support for the project" (Cats-Baril & Thompson, 1995, p. 560). The organizational culture that is in place can also influence the selection of what type of organizational structure is best suited to the needs of a company, a decision that will inevitably be strongly affected by the organization's top management who may perceive the process as a threat to their power and authority. For instance, Stuckenbruck (1991) notes that, "The decision to introduce project management is a difficult one because it will require top management to give up some of its prerogatives, and line management to be partially or wholly subordinated to project management" (p. 18).

Furthermore, although a matrix structure can provide the benefits of both a functional and project structure because of a perceived threat to their own self-interest, this approach in particular may be highly resisted by some people within the company. In this regard, Stuckenbruck adds that, "It is an even more traumatic situation if the decision is to introduce a matrix organization, which is sure to be resisted by many old line, conservative managers" (p. 19). In those cases where the organizational culture is highly resistant to the adoption of functional, project or matrix structures, there are some alternatives available that may provide many of the same benefits that accrue to these structures while avoiding the trauma involved in wholesale organizational change. According to Stuckenbruck, one of the following alternatives to a forma or rigid project management structure should be considered for adoption in those cases where a company's top management team is reluctant to relinquish authority, or if they determine that the organization's projects are not sufficiently complex to require a formal project management structure; the primary alternatives to project management in these cases include the following:

1. Establishment of a "lead" division or discipline with responsibility to coordinate and sometimes direct the activities of the other affected divisions. This may suffice for smaller projects or in small organizations; however, for larger and more complex projects, conflict between project goal and the vested interests of the "lead" technical division may result in more problems than it solves.

2. Direct control over the project by top management. This is fine if top management has enough time to get involved in day-to-day project problems. If there is not adequate time, then the project and/or the entire organization may suffer if this alternative is chosen.

3. Clear definition of responsibility and authority of each organizational entity involved in the project. Even the clearest instructions may be misinterpreted or misunderstood, especially if the project is a complex one. This alternative is satisfactory if everyone is willing to cooperate fully, but most of the time this method sounds much better in theory than in actual application.

4. Establishment of a project coordinator who can accomplish one of the principal duties of a project manager, i.e., keep top management informed; however, the project manager cannot be held responsible for a project since she or he does not have decision-making power or authority for project direction (Stuckenbruck, 1991, p. 18).

It is also important to establish and maintain an organizational culture that does not penalize team members who work on projects that do not succeed for one reason or another (besides incompetence on the part of the team members themselves of course). In this regard, Hormozi, McMinn and Nzeogwu (2000) emphasize that, "Firms have the option of initiating a variety of entrepreneurial projects with varying degrees of risk. If an organization chooses to accept greater risks, it should avoid penalizing members of projects that turn out to be unsuccessful" (p. 45). Organizations that sustain a culture that consistently penalizes failed project team members may encourage continued work on a project that is known to be doomed by its team members or otherwise adversely affect employee morale. For instance, Hormozi and his associates (2000) add that, "If team members believe they will be penalized for participating in unsuccessful projects, they will be less willing to terminate failed projects and may become risk adverse" (p. 45).

To the extent, then, that an organizational culture tolerates this type of fiefdom to develop and remain in place is likely the extent to which projects that such managers approve of will receive the resources they need to succeed, but conversely it will also likely be the extent to which projects such managers do not approve of will fail. A similar point is made by Frame (1999) who cautions that organizational cultures that are characterized by "turf battles" over the scarce resources that are allocated to various project management initiatives can result in project failure, demoralized employees and even doom the enterprise itself. According to Frame, "Managers who use their control over resources to strengthen their power within the organization contribute to organizational pathology. They see resources as part of their personal treasure trove and dispense them like monarchs granting favors to loyal subjects. Similarly, they withhold resources from people they view as disobedient, disloyal, or threats to their power" (p. 35).

Just as the type of organizational structure that is used for one project may prove fruitful in terms of contributing to its success but which will not operate as effectively for others, the same type of organizational culture that is successful in one case may not be appropriate for other projects -- or may result in initial success but long-term failure. For example, Frame cites the case of Digital Equipment which employed what the author terms "a macho management" approach to its efforts to develop an early mini-computer in the 1980s: "The corporate culture in which project team members found themselves oozed testosterone," Frames notes, and adds, "Team members visualized themselves as gunslingers [who] lived by the credo, 'Ours is not to reason why, ours is but to do and die'" (p. 36). Although the company was successful in achieving its goal of developing a viable mini-computer in record time, the majority of the project management team members left the organization as soon as the project was completed because of dissatisfaction with the organizational culture that drove them to this successful outcome. In this regard, Frame writes, "At the end of the project, the majority of the engineers left the company. Most of them felt unfulfilled by their experience and this feeling appeared to be tied to the cold, uncaring, macho environment in which they functioned" (p. 36). This is not to say, though, that project team members should be treated as prima donnas or coddled; it is to say, though, that the type of organizational culture that is in place can achieve its short-term goals while creating major problems for the company once a project is completed unless the needs and desires of all of the stakeholders involved are taken into consideration before, during and following project completion.

Chapter 3: Analysis

Evaluation Concerning How Much is Currently Known Concerning the Impact of Organizational Structure and Culture on Project Management

The review of the peer-reviewed and scholarly literature concerning both organizational structure and organizational culture indicated that a great deal of attention has been given to these issues in recent years, but there is a slightly larger amount of material available concerning organizational structure than there is organizational culture, particularly as these two factors relate to project management per se. An informal statistical analysis of the amount of information available on these two factors in general and as they relate to project management in particular supports the foregoing observation. For example, a simple search on Google using the quoted search term, "organizational structure" resulted in 4,470,000 matches, while a comparable search using the quoted search term "organizational culture" resulted in 4,210,000 matches.

A more refined Google search using a combination of "organizational structure" and "project management" resulted in 350,000 matches, while a comparable search using a combination of the search terms, "organizational culture" and "project management" resulted in 136,000 matches. A similar search using a reliable online research source, Questia.com, provided fewer matches but comparable relative levels of material available on these topics. For instance, the quoted search term "organizational structure" resulted in a total of 11,735 matches (8,400 books, 2,786 journal articles, 401 magazine articles, 440 magazine articles and five encyclopedic entries). By contrast, a quoted search for "organizational culture" resulted in 3,376 matches (2,040 books, 1,471 journal articles, 203 magazine articles, and 22 newspaper articles). A search using a combination of these terms with "project management" also resulted in comparable relative levels of interest as identified in the Google search. For example, searching using a combination of "organizational structure" and "project management" resulted in 855 matches (765 books, 77 journal articles, 12 magazine articles, and one newspaper article); by contrast, a similar search using the terms "organizational culture" and "project management" resulted in 551 matches (446 books, 39 journal articles and six magazine articles). These findings are presented in Table 3 and Figures 1 and 2 below for ease of comparison.

Table 3

Informal Search Results for Organizational Structure and Culture and Project Management

Search Term

Google

Questia

"organizational structure"

4,470,000

11,735

"organizational culture"

4,210,000

3,376

"organizational structure" and "project management"

350,000

"organizational culture" and "project management"

136,000

Figure 1. Informal Search Results for Organizational Structure and Culture and Project Management: Google

Figure 2. Informal Search Results for Organizational Structure and Culture and Project Management: Questia

Clearly, this is a very rough approximation concerning the amount of material devoted to these issues, particular since the concept of "organizational culture" may be referred to as "corporate culture" or "company culture" by some authorities. Nevertheless, this informal analysis does provide some indication concerning the amount of attention being paid to these respective issues in general and how they relate to project management in particular. The emphasis on organizational structure vs. organizational culture may also be related to the fact that many authorities consider organizational structure as the antecedent to organizational culture, with some discussing organizational structure in the same fashion as they discuss organizational culture, almost as if the terms were interchangeable.

Discussion Concerning Quality of Literature

Although none of the online sources identified in the informal search described above were consulted, the quality of the juried and scholarly material reviewed otherwise was generally high, with the vast majority of the authors providing straight-forward, no-nonsense discussions and analyses concerning these issues as they relate to an organization's success in general and their impact on project management in particular. A few authorities (i.e., Richman, 2002; Stuckenbruck, 1991) provided some directly on-point guidance concerning these issues while most of the others discussed organizational culture and structure in more general terms as they relate to project management outcomes, if at all.

Evaluation of the Need and Significance of New Research Directions

It is reasonable to suggest that an increasing number of projects in the future will involve information technology but there remains a paucity of research concerning how these types of projects should be managed to contribute to their success or what types of organizational structures and cultures are best suited to their specific needs. Likewise, there are a number of project management software applications on the market and more are being introduced every day, but here again there is a dearth of timely and relevant studies concerning how to use these tools to their maximum advantage and what type of organizational structure and culture are best suited to their use.

Chapter 4: Conclusion

The research showed that no matter what type of organizational structure is selected, organizational design is the process used to identify the best structure and it is a company's top management's responsibility to conduct this analysis. The research also showed that an organization's structure serves to institutionalize the manner in which people interact with each other, establish how communication flows within the enterprise, and provides a framework for the manner in which power relationships are defined within the organization. Organizational structures can be universalistic in design, in other words, a company's top leadership may determine that there is one structure available that is best suited to their long-term needs. Such organizational structures can be either bureaucratic or classical in design, and either approach may contribute to project management success if the projects involved are appropriate to these configurations and are aligned with the company's organizational culture.

Organizational structures can also be contingent, or based on the current and anticipated needs of the company. It would appear that the contingent approach may be more appropriate for companies with a larger number of complex projects, but even when this decision is made, a further determination must be made concerning what type of contingent approach is best suited for project management applications. For this purpose, organizations can elect to subscribe to a functional, project or matrix structure, each of which has its respective strengths and weaknesses. Identifying the superior combination of the foregoing organizational structures, though, represents the top leadership's first step to facilitating project management success and also serves as the framework in which the organization's culture will be established and sustained over time.

Based on the growing body of knowledge concerning the impact that change can have on an organization's efficiency and the adverse effect it can have on employee morale, though, organizational leaders should be cautious in making across-the-board and sweeping changes to their organizational structure in response to the types of projects that are involved unless there are some very compelling reasons to do so. Although the research was consistent in emphasizing the need to tailor the organizational structure to the goals and values of the organization and the types of projects that were being managed, studies have shown time and again that people generally resist change and will go out of their way to avoid it whenever possible because it disrupts their day-to-day routine and requires them to learn something new in ways that may make them feel threatened.

In the final analysis, it was clear that even though there is a "one-size-fits-all" approach to organizational structure available from the universalistic approach, a contingent approach to organizational design may be the most appropriate for most organizations involved in large number of project management initiatives. It was also shown that a matrix approach may offer several benefits for these companies because of the strengths this structure provides to project management applications that may not be achievable using a functional or project approach and which will not require substantive changes every time the wind blows a new project management requirement into the company's repertoire. It was also shown, though, that there are some potential problems with establishing a given organizational structure and sticking to it over time and without careful management, individual fiefdoms can emerge that can disrupt the best project management approach.