Project and product managers must motivate and inspire team members to accomplish the goals of a project. Yet, we still must work within the organizational structure and culture of the firm. Project teams are convened for new product development (NPD) work to increase innovation and to meet the strategic objectives of the company. Most companies are structured according to one of three popular models:

• Functional (also known as departmental structure),
• Project-oriented (sometimes called “projectized”), and
• Matrix (hybrid).

Over the next few weeks at the Idea Incubator, we’ll take a look at each type of organizational structure and the benefits it offers in managing an NPD project.

Functional Organizational Structure

A typical functional organization structure is shown in the figure below. In a functional organization structure, each employee has only one supervisor and there are clear lines of reporting authority. Functional organizational structures include a hierarchical management format and are often found in very large corporations.

Benefits of Functional Organization Structure

There are many benefits to a functional organizational structure. First, this type of organization offers career congruence to employees. Special skills and talents are recognized within departments and roles are well-defined. There are clear lines of communication among technical experts and the department supervisor.

Next, there is a benefit of the functional organizational structure in coordination of functional activities. This can lead to enhanced efficiency in executing specialized tasks. A functional organization structure is also a ripe learning environment for new employees (especially new college graduates) to learn practical application of theoretical information.

Disadvantages of Functional Organization Structures

From an NPD project perspective, there are several disadvantages to a functional organization structure. For instance, such organizations tend to deter cross-functional communications. Most NPD projects require a high degree of communication across departments and functions to be successful. In functional structures, coordination and support of project goals is minimized since work is directed by department goals rather than the common purpose of a project perspective.

Functional organizational structures also tend to slow the decision-making process. One of the steps in a rational-economic model of decision-making is to gather all the alternatives to evaluate effectiveness in solving the problem. With the lack of diversity in knowledge and information presented by a functional organizational structure, decision-making is slow and inhibited by limited domain knowledge.

Finally, organizational structures formed around hierarchical functions can limit the potential of employees. While some staff will be happy to spend a 30-year career in a purely technical role (e.g. engineering or marketing), most individuals are motivated by continuous learning and job enrichment. Functional organizations tend to limit both horizontal and vertical job growth.

Using Functional Organizations in NPD

NPD projects do, however, use functional organization structures in certain circumstances. For projects in which the depth of knowledge is more important than the breadth of information, a functional organizational structure is appropriate. These type of projects include cost reductions, process improvements, and foundational studies. For instance, a fundamental R&D program is well-suited to a functional organization structure since the project can capitalize on the expertise of the department.

A company that manufactures nutritional supplements for pet food uses a functional organization structure to identify new formulations. The work is guided by an R&D manager and carried out by a team of biochemists with deep functional expertise.

In later stages of the NPD process, the nutritional supplement will be coupled with other features of the pet food in a cross-functional development effort (e.g. taste, color, size). However, as early investigational work, a limited functional team is quite appropriate for this type of innovation project.

The Functional Organizational Structure

A functional organization is considered a traditional, hierarchical model of grouping employees according to functional domain knowledge. Functional organization staff generally perform very specialized tasks at the direction of a functional department manager. An advantage of the functional organizational structure is that each employee has only one supervisor; yet, cross-functional communication and coordination is substantially limited.

For more information on teams and organizational structure, please see “NPDP Certification Exam Prep” available at Amazon. If you’d like additional training on mastering team skills as a project or engineering manager, please join us for an NPDP workshop. Workshops address the theory and best practices of teams working in innovation. NPDP workshops are held monthly through guided webinars or at your own pace in a cost-effective self-study format. We now also offer project management training through our partner, Leap University. Use code GNPS2015 to save $50 on your registration.

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