What is a Project-Based Organization?

In this blog post, I delve into the origins and rationale of project-based organizations, highlighting the differences between them and functional, hierarchical line management. We also show how traditional bureaucratic line management started to morph into a new type of organization that runs the business and executes strategy as a series of projects.

During the second half of the 20th century there has been a corporate shift from the functional bureaucracy management practices to project-based organizations. (Turner, J.R. and Keegan, A. , 1999)

This change has started as a reaction to the evolving nature of the business environment from stable, slowly changing technology, predictable customer requirements, and mass production to rapid, continuous technological innovation, demanding customers and highly customized products.

According to Thiry, M. and Deguire, M. (2007) a project-based organization refers to a variety of organizations that use temporary structures to accomplish business outcomes. This type of organization is growing to become an emerging corporate form.

The most technologically advanced corporations reorganized their hierarchies to flatter, agile, and more flexible groupings of teams, communities and networks. This change in the business structure enables them to integrate knowledge from inside and outside the organization and to create innovative collaboration models for the development of new products and services. Applied to a wide range of businesses like construction, IT, engineering, professional services, PBOs aim is to run business as a series of projects. However, there is no clearly demarcated line between bureaucratic and project-based organizations, most of the organizations having a matrix organizational structure, using with varying degrees project and functional based approaches. (Bourouni, A. et al. , 2014).

Classical, functional management was well understood and documented, providing to the traditional organization many advantages such as central governance and control, integrated planning, knowledge management and human resources development (Turner, J.R. and Keegan, A., 2001).

The project-based organizational form requires a different management approach to address its changing and unique nature of work. While it has been suggested that organizations should adopt integrally project-based approaches for their operations, this could not be entirely applicable. Managing operations as projects adds an additional layer of governance over its existing hierarchy, creating complex hybrid structures with higher costs. For all its flaws, functional, bureaucratic line management proved that is the most efficient choice for essential, routine operations.

Functional hierarchical line management has started to gain traction during the 19th century when engineers have started to build machines and infrastructure (Turner, J.R. and Keegan, A., 1999).

The managers of the period wanted to instill the consistency and predictability of the machines to the workforce. Traditional management based on functional hierarchy function well where machines also function well: where there is a sequential, repetitive task to be done; there are little changes on the market and a business environment that ensure long product life cycles; precision is required. The classical management approach started to be challenged after 1950s due to reasons like: fast-paced developments of military equipment and infrastructure in the post-war period, the space race, the rapid development of the emerging computer industry, the rise in consumer products diversity and fragmentation. These events propelled the adoption of project management frameworks and project teams to undertake the work that functional hierarchical structures are not fit to.

Whitley, R. (2006) points to the lack of homogeneity across project-based organizations.

There is a considerable variety between these companies, from the high-tech, high-growth Silicon Valley organizations to project based firms in construction, business services, financial services and entertainment industry. Their dissimilarity comes from the goals they have and the outputs they produce, the distinctiveness and stability of the workers’ skills employed, the longevity of the project teams and how the project work is structured and coordinated.

When project-based entities are established to create a single or a few products or services and skilled project teams coordinate without managerial intervention the project work, these temporary organizations do not manage to create an identity and to develop the firm’s technical competencies.

The learning and knowledge accumulated during the project will be mostly accomplished by individuals or small teams and will not be internalized in the organizational procedures and practices. Only when project-based organizations build core project teams to undertake a series of projects on a long-term basis, the company is able on the long run to build a specific organizational identity, to learn from project experiences, to develop problem solving and technical capabilities.

Mature project-based organizations need to develop consistent approaches to structure the delivery of strategy, consolidate governance and integrate knowledge. (Thiry, M. and Deguire, M. , 2007)

Established companies still view their projects as singular initiatives disconnected from the organizational strategy and governance. The widespread adoption of project management approaches started to influence the way companies develop and execute their strategy. Project-based organizations have started to shift from a containerized project environment to a more integrated one with the emergence of program and portfolio management frameworks for managing multiple project streams.

Project management as a field and occupation is the driving force behind the transition to post-bureaucratic organizations. (Paton, S. et al. , 2010)

Promoted as universally applicable in the knowledge-based capitalist economy, the project manager’s role is perceived as a vital contributor in post-bureaucratic organizations and as an imperative of the contemporary economic and technological climate. There are almost no indications for a route to becoming a project manager, most of the project managers have been technical specialists and only a minority are claiming to be career project managers. Project managers develop a personal identity connected to the perceived value and status their profession embodies. At the same time, while they understand the pivotal role they play, the structural and cultural aspects of most of the organizations undermine their authority, decision-making, and legitimacy. Ultimately this brings into question the contribution project management can make in organizations that do not understand and embrace this form of strategy implementation.