International comparison of project organization structures: Use and effectiveness

International comparison of project organization structures: use and effectiveness C Gray, S Dworatschek *, D Gobeli, H Knoepfel”f and E Larson The number of multinational projects and joint ventures between firms of different countries is increasing each year. Project managers, who in the past have managed domestic projects, find themselves managing or being a part of multinational projects and facing the different customs and practices of their foreign counterparts. As the discipline of project management moves toward establishing a common body of knowledge, it is important to ascertain similarities and differences among organizational approaches to project management in different areas of the world. Specifically, this study attempts to gather data to determine if selected countries actually vary in: importance attached to different project management performance criteria; rhe usage of different project management structures; the perceived effectiveness of different structures. Since the type of organization structure chosen can significantly affect the success of the project, responses concerning usage and effectiveness should be of considerable interest to project managers of multinational projects. The performance criteria emphasized by an organization determine what ‘success’ is, so these answers verify how different countries define success. Keywords: multinational projects, project management, organization structures, performance criteria

The most frequent project management structure mentioned in the literature is ‘matrix’. In some cases, the literature reports high praise for the matrix structure’. In other cases, the reports are more conoutweigh the servative, sug esting that the advantages 4 In a few cases, it has been suggested disadvantages ‘. that matrix is a hopelessly complicated and unworkable structure’. Both the literature and practising project managers themselves offer little consensus or hard data on organizational structures, including the matrix and its effectiveness. The literature is plagued by a lack of consistency in definition of structures and measures of effectiveness of project structures. Steers reviews seventeen multivariate models of organization structures and effectiveness and finds a complete absence of consistency in definitions”. Therefore, definitions of organization structures and measures of effectiveness (cost, schedule, technical, and commercial performance) were included in this survey instrument to minimize differences practicing managers have in conceptualizing structures and to provide some variety of objective measures of effectiveness used in most projects. This study includes these critical variables; it is intended to shed light on the international application of project management approaches and the relative effectiveness of different project structures. STUDY

Oregon State University, Corvalis, Oregon 97331, USA * Universittit Bremen, 2800 Bremen 33, Bibliotheksstrasse, FRG t Swiss Federal Institute of Technology, RLmistrasse 101, 8092 Zurich, Switzerland

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0263-7863/90/01002&07

@ 1990 Butterworth

This study is believed to be the first large-scale, crosscultural study of the usage and effectiveness of different project structures. The study is sponsored by INTERNET,

& Co (Publishers)

Ltd

Project

Management

a professional organization for project managers. Although INTERNET has members from many countries, its membership is predominantly from Europe. A questionnaire was used to collect information concerning the effectiveness of organization structures. Responses from selected members yielded 424 usable questionnaires, representing approximately 22% of INTERNET'S members. On the Continent, a German translation of the questionnaire, along with the English, was used in Austria, Switzerland, and West Germany. Table 1 provides a breakdown of the number of respondents according to country. A companion study to this INTERNET study was done in Canada in 1986 through the Project Management Institute (PMI); this study yielded 524 usable surveys representing about 30% of their members. Results of that study have been reported by Gobeli and Larson3. Some of the results of their study will be compared with the results of the INTERNET study.

Table 1. Distribution Sweden Netherlands Italy Norway UK Austria Denmark FRG Switzerland Hungary Yugoslavia France Belgium Japan International

of respondents

by country 32 29 25 1 169 18 11 52 25 2 3 1 1 39 16

members

Table 2. Organization

size

Nature of the INTERNET sample

Number

of employees

Percent

The size of the organizations by number of employees is shown in Table 2. Respondents of the INTERNET sample represented a variety of managers at different levels in their organizations. Table 3 shows that most (40%) were project managers. Another 28% of the samples were directors of project management offices within their firm. Over 35%of the INTERNET project managers had 510 years experience; 25% reported over ten years experience as a project manager.

Less than 10 employees 10-99 lW99 500-5 000 5 000p1us

11 18 24 32 15

Nature of the projects The questionnaire asked respondents to indicate the type of projects they were most familiar with. Two types of projects dominate the INTERNET sample. Approximately 60% were most familiar with construction projects and 40% were familiar with development projects, e.g., development of new products, processes, and services. These percentages represent the ‘product mix’ of constituencies of INTERNET and a large variety of projects. For example, construction projects were both large and small, including space projects of the European Space Agency, an oil platform project, a light-train system, headquarters remodelling and office extension/renovation. Examples of development projects were the design of a real-time military command system, a computer system for a bank clearing house, a prison design, a software support system, the design of a computer-controlled gas mixer, and a salary administration plan. These basic breakdowns allow interesting comparisons. The breakdown for the eight countries with the largest number of responses is shown in Table 4. Since most respondents were familiar with either construction or development projects, and since previous research has indicated that there are significant differences in the nature and management of these kinds of projects’, the results will be reported separately. Countries will be reported separately if differences exist; however, data were insufficient to examine more than a few countries.

Vol 8 No 1 February

1990

Table 3. Job title Percent

Title President Vice President Director of PM Project manager Professional Consultant Other Table 4. Familiarity

2 5 28 40 18 6 1 with project type Construction

Country Austria Denmark FRG Great Britain Italy Japan Netherlands Sweden Switzerland

(%) 58 73 47 60 56 97 37 43 67

Development (%) 42 27 53 40 44 3 63 57 33

RESULTS A review of the performance criteria for different countries is followed by a description of the usage patterns of different structures. Then the effectiveness of different organizational approaches is presented.

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Table 5. Criteria most important

Country INTERNET Canada UK FRG

Development Meeting Controlling schedule costs 27’% 26 33 36

6 30 10 14

Technical parameters

Commercial parameters

41 28 36 36

25 17 21 14

17 24 25 14 22

18 8 22 24 6

Construction INTERNET Canada UK FRG Japan

Performance

35 21 29 38 14

30 48 24 24 59

measures

Project success is inherently tied to performance measures which in turn are tied to project objectives. Four of the most widely recognized factual project criteria used to assess project success were listed in the questionnaire, with room for respondents to add others. From this list, project managers were asked to identify the most important and least important performance criteria in their organization. 1. 2. 3. 4. 5.

Meeting schedule. Controlling costs. Meeting technical performance parameters. Meeting commercial parameters. Others (specify >.

If organizations are working on a joint project and have different priorities for performance, the potential for problems and conflict is high. For example, if the project is to design and install 1 600 km of electric cable overland from a power station to a metropolitan power network for the purpose of transferring electric power, the design and construction could be a joint project for companies from different countries. It is easy to imagine the problems that could arise, if the design organization uses technical objectives as the major criterion of project performance while the construction firm uses schedule and cost as its major criteria - cost may have to be sacrificed to gain technical performance, or vice-versa. Recognition of incompatibility of performance objectives among industries and countries would be helpful to project managers. INTERNET responses can serve as an anchor point for comparison purposes. Significant differences were noted between the construction and development projects of organizations across all countries. Table 5 gives a breakdown by country and criteria. The INTERNET construction group rated schedule as the most important by 35% of their respondents. For development project firms, meeting technical performance was rated highest in importance by 41% of the INTERNET sample. More significantly, only 6% of the product development group rated cost as the important objective in contrast to the construction group which rated cost as the second most important criterion by 30% of their respondents. These differences appear to relate to the working environments of each group. For

28

the construction firm, there is usually an external client that in effect imposes strong cost and schedule performance constraints on the company. Conversely, when product development is ‘in-house’, costs may be frequently hidden in labour that is considered ‘fixed’ to the managers working on projects and therefore not given as much consideration. In these projects, focus is on technical and schedule performance. Thus, organizational environments influence project focus and type of performance parameters emphasized. However, some differences across countries exist as well. The Japanese respondents represent construction only. They have a strong focus on cost as the more important criterion; 59% ranked cost first, which is much higher than all other INTERNET countries. Canadian firms tend to emphasize cost as most important on all types of projects; 48% of the construction respondents indicate cost to be the most important and 30% of the development respondents agreed. Conversely, the question of which objective was least important shows that meeting commercial parameters is not as important as the others in either type of project. 52% of the INTERNET construction respondents made this choice, while 31% of the development managers made this choice. As might be expected, the pattern of choices for ‘least important’ is generally opposite to that of ‘most important’. These data reflect different perspectives respondents exercised in evaluating project effectiveness in their own organizations. ‘Success’ represents a complex, multiple objective function and appears to be unique for each organization.

Types of organization structures used on current projects in respondent’s organization The study focused on five basic organization structures used by practicing project managers. The structures have been defined in an earlier study by Gobeli and Larson3 and are defined in Table 6. In summary, the functional (A) organization is the traditional line approach to organization. Structures B, C and D are matrix forms. The functional matrix (B) organization uses the project manager to coordinate efforts of different functional groups. Typically the project manager acts as a staff assistant. In a balanced matrix (C) organization, authority and responsibility are shared with the functional managers. The project matrix (D) gives the project manager direct authority to make decisions about personnel and workflow. Project team (E) has direct authority over all personnel and resources and represents a self-contained unit. Coordination problems are exacerbated on joint projects when firms from different countries use different project management structures. For example, if one firm uses the functional matrix (B) and the other a project matrix (D) the decision making process is likely to become strained. The project manager in the project matrix group who is able to make quick decisions with authority is likely to be frustrated by the slower response of his/her counterpart in the functional matrix group who must continually consult and negotiate with functional managers before making important decisions. Similar problems of responsibility and accountability are also likely to arise when different structures are used.

Project

Management

Table 6. Project structures Functional (A)

Functional matrix (B)

The project is divided into segments and assigned to relevant areas and/or groups within functional areas. The project is coordinated by functional and upper management.

Functional

The project manager with limited authority is designated to coordinate the project across different functional areas and/or groups. The

project.

A project

manager is assigned to oversee the project and shares the responsibility and authority for completing the project with the functional managers. Project and functional managers jointly direct many workflow segments and jointly approve many decisions.

Project matrix (D)

A project manager is assigned to oversee the project and has primary responsibility and authority for completing the project. Functional managers assign personnel as needed and provide technical expertise.

Project team (E)

A project manager is put in charge of a project team composed of a core group of personnel from several functional areas and/ or groups, assigned on a full-time basis. The functional managers have no formal involvement.

Incidence of project structure Respondents structures

were currently

asked used

to

usage indicate

the

types

of

in their organizations by indicating ‘many’, ‘few’, or ‘not used’. The response of ‘many’ will be used for most comparisons because it is more indicative of the structure used by the project organization. Figure 1 shows the usage of the five structures by project type. This figure represents all INTERNET countries except the UK, the Federal Republic of Germany and Japan. The latter three had samples large enough to analyse separately. Significant differences exist between those who manage construction projects and those who manage development projects. Figure 1 indicates that respondents familiar with construction projects use project matrix (D) more frequently than others - 46% use this form on ‘many’ projects and 84% in total. Development project managers use balance matrix (B) on ‘many’ of their projects (33%). The high frequency of this form might be expected since organizations developing and manufacturing products, services, and processes are frequently organized functionally, that is by marketing, finance, operations, and engineering. The balanced matrix (C) and project matrix (D) forms have incidences similar to those of functional matrix (B) in development projects. Development organizations do not use project matrix (D) and project team (E) as frequently on ‘many’ of their projects as do construction organizations - 32% and 12% respectively, compared with 46% and 25% for

Vo18 No 1 February

1990

(B)

Matrix

(C)

Project

Matrix

(D)

Project

functional managers retain responsibility and authority for their specific segments of the

Balanced matrix (C)

Matrix

Balance

Team

(El

(_Construction

Functional

Matrix

(B)

Balance

Matrix(C)

Project

Matrix

(D)

Team

(E)

Project

_)

Figure 1. INTERNET structures FRG and Japan)

used

(excluding

UK,

construction. Development organizations appear to frequently use all organization structures, with the exception of project team (E). Usage patterns do not appear to vary with size of firm or type of project, with the exception that very large development firms (greater than 5 000) prefer functional (A) slightly more than do smaller firms. Some interesting comparisons of the incidence of use can be made between INTERNET in general and specific countries. Figure 2a indicates that development project managers in Canada do not use functional (A), functional matrix (B), and balanced matrix (C) on ‘many’ projects as do their counterparts in INTERNET. Canadian development organizations use project matrix (D) and project team (E) more frequently on ‘many’ of their projects. The same pattern holds for construction; Canadian project managers prefer project matrix (D) and project team (E) on ‘many’ of their projects. Development managers in the UK prefer to use project matrix (D) and project team (E) structures more frequently than do other INTERNET countries; 42% use project matrix (D) and 19% use project team (E) on ‘many’ projects compared with 32% and 12% for other INTERNET countries (see Figure 2b). UK construction firms are similar to INTERNET managers except they use functional matrix (B) less frequently than do INTERNET managers in general. Development firms in the Federal Republic of Germany depend on functional (A) and functional matrix (B) more than their counterparts in INTERNET and Canada do; they use these structures on ‘many’ projects (33% and 52% respectively). A similar pattern occurs in construction where the functional matrix (B) and the balanced matrix (C) are used more frequently. This difference in usage of structure may be related to the findings of the earlier research of Bergren and Pearson’ in their study of the UK and FRG project managers. They found a ‘strong commitment to engineering systems and standards’ would describe project management in the FRG; this important role of engineering may partially explain the preference for functional matrix (B) in Germany. In the UK, Bergren and Pearson found a desire for individualism and greater authority for project leaders, which would appear to support UK use of project matrix (0) and project team (E). In the Japanese sample, which is

29

Functional

(A)

Functional

Matrix(B)

Functional

Balanced

Matrix(C)

Balanced

Matrix(C)

Project

Matrix(D)

Project

Matrix(D)

Project

Team (E)

Matrix

Project

(D)

Team (E)

-“1---11~------Functional Functional

Matrix

Balanced

(B)

Matrix(C)

Project

Matrix

Project

(A)

Functional

Matrix(B)

Balanced

Matrix(C)

Project

Matrix(D)

(D)

Team (E)

Project

Team (E) 0

7.0

‘lo

60

80

toll

Percent b

Functional

(A) Functional

Functional

Matrix(B)

Balanced

Matrix(C)

Project

Matrix(D)

Functional

Functional Matrix

(A)

Team (E)

“.^II Functional

(B)

Functional

(D)

...”. .._... (A)

Matrix(B)

Balanced

Matrix

(C)

Balanced

Matrix

(C)

Project

Matrix

(D)

Project

Matrix

(D)

Project

Project

Team (E) 0

20

4” Percent

60

40

60

80

100

Percent

(b) UK; (c)

only construction, the incidence of project usage followed the expected pattern for construction. (See Figure 2d). Project matrix (D) was the dominant structure used; 56% of the Japanese respondents reported their firms use this structure on ‘many’ projects.

in project

respondents were asked to rate the effectiveness of the different structures in their organizations. Figures 3 and 4 present the rankings of effectiveness by managers familiar with construction and development projects. INTERNET development managers perceive balanced matrix (C), project matrix (D), and project team (E) structures to be ‘very effective’ in increasing order - from 21% to 53% for project team (E). Construction managers also perceive project matrix (D) and project team (E) to be most effective - 48% and 64% respectively. Project managers of both construction and development projects perceive project matrix (D) and project team (E) to be most effective, with over 88% of both groups rating these structures ‘effective’ and ‘very effective.’ INTERNET respondents in developINTERNET

20

d

Figure 2. Structures used in (a) Canada;

Effectiveness of different structures organizations

Team (E) 0

80

c

30

Matrix

Project ..,..,..”.,..._

(B)

Matrix(C)

Project

Project Team (E) _...“..“.*..l___“~l...,_~._-“~.

Functional

Matrix

Balanced

1

(Development)

(A)

FRG;

(d) Japan

ment (excluding UK, FRG and Japan) had no respondents who consider functional (A) or functional matrix (Z?) structures to be very effective. When effectiveness among the five structures was compared to meeting objectives, no large differences appeared on any dimension of schedule, cost, technical, or commercial parameters. The meaning of this is not clear; it is probable that effectiveness ties to all of the stated objectives. Relatively, however, meeting schedule and cost objectives appear to be more difficult in development projects than in construction projects. Effectiveness patterns were not altered by organization size, type of project, or project complexity. Project matrix (0) and project team (E) were rated most effective in all comparisons. Perceived effectiveness across all types of projects and country comparisons also suggests a preterence toward more authority for the project manager. Project matrix (0) and project team (E) are perceived to be ‘very effective’ by all respondents. In total, Canada and the UK are similar in perceived structure effectiveness. The rankings of both countries and types of projects for the structures that were ‘very effective’ follow the same pattern. Beginning with functional (A), the effectiveness rating is very small and increases through project team (E). Japanese construc-

Project

Management

Functional Functional

Matrix

ctive

(B)

Balanced

Matrix(C)

Project

Matrix(D)

Project

Team (E)

Functional

(A)

Functional

Matrix

(B)

Balanced

Matrix

(C)

Project

tion managers report using project matrix (D) predominantly on many projects (56%), but they perceive other structures to be about equally effective. The Federal Republic of Germany construction respondents ranked the Project matrix ‘very fD) to be effective’ (67%). This is a very strong showing since only 35% reported using this structure on ‘many’ projects (see Figures 2c and 4~). In the German sample 52% of the development project managers report using functional matrix (B) on ‘many’ projects, yet only 5% of the same managers feel functional matrix (B) is ‘very effective.’ This type of difference is apparent across all countries and types of projects in the sample. Position/rank of the respondent in the organization did not alter the pattern. Project matrix (D) and project team (E) are perceived to be most effective, but they are infrequently used. This difference between use and perceived effectiveness presents an interesting contradiction for managers of development projects. Recall from Figure 1 that development organizations use functional matrix (B) and balanced matrix (C) on many of their projects about as frequently as they do project matrix (D). If development project managers judge project team (E) and project matrix (D) as most effective, it may be that development organizations will move toward greater use of these structures in the future. This move would also be true for construction firms not using these structures.

(A)

Matrix(D)

Project

Team(E)

Percent

Figure 3. INTERNET perceived structure effectiveness a Functional Functional

Matrix

Balanced

(A) (B)

Matrix(C)

Project

Matrix

(D)

Team

(E)

Project

Functional Functional

Matrix

(A) (B)

Balanced

Matrix(C)

Project

Matrix(D)

SUMMARY Project

Team

There are differences between construction organizations and development organizations in terms of project objectives. Development organizations in INTERNET tend to favour technical objectives as most important. Construction organizations tend to favour schedule. There are differences between construction organizations and development organizations in terms of organization structures used. INTERNET construction firms tend to use project matrix (D) more than other forms; development firms appear to use all of the matrix structures. Japanese construction project managers tend to have a stronger focus on cost as the most important objective than do managers in other countries. There are differences among countries in project organization structures used. The construction firms in Canada, Japan, and the UK predominently use project matrix (D), while firms in the Federal Republic of Germany use functional matrix (B). German firms also frequently use this form in development projects. There are significant differences between actual organization structures used and those perceived to be most effective by project managers, especially among project managers of development projects. In every type of project and almost every country, respondents perceived matrix structures that increase the role and authority of the project manager to be more effective than the structure in current use.

b Functional Functional

Matrix

(A) (B)

Balanced

Matrix

(C)

Project

Matrix

(D)

Project

Team (E)

Construction Functional

(A)

Functional

Matrix

(B)

Balanced

Matrix

(C)

Project Project

Matrix(D) Team (E)

c Functional

(A)

Functional

Matrix

(B)

Balanced

Matrix

(C)

tive

Project Matrix(D) Project Team (E)

Functional Functional Balanced

OF RESULTS

(E)

Matrix

(A) (B)

Matrix(C)

Project Matrix(D) Project Team (E) II

20

40 60 Percent

Figure 4. Perceived structure (a) Canada; (b) UK; (c) FRG

Vol 8 No 1 Februarv

1990

so

too

effectiveness

CONCLUSIONS in

The results of this international position that a project manager

study support the should have a strong

31

formal role to increase chances of project success in meeting schedule, cost, and performance objectives. The project matrix and project team structures were rated most effective by all countries in the categories of types of project, sizes of firms, and managerial ranks. Furthermore, with the exception of Japan’s construction responses, project managers working on similar kinds of projects attached similar priorities to project objectives. Thus, the potential for misunderstandings appears to be low. The contradiction between use and effectiveness of structures may be the result of the era in which we live. The movement toward world markets forces faster change for new products and services on development organizations. The traditional functional organization is not the best structure for quick response. Traditional functional organizations have frequently had to form project teams to meet a market condition. The development of the IBM PC is a classic example. In another example, a survey respondent of a functional organization stated, ‘We only use the Project Team structure when we have a catastrophic [event], must-do to survive project.’ The project matrix and project team structures represent an extreme change from the functional structure and will be resisted by functional managers. However, the change from functional toward matrix forms does exist and should evolve overtime. Project managers of multinational projects should be aware of the differences in structures and their relative effectiveness so they can argue for an approach which will best meet project objectives.

REFERENCES 1 Bergren, S and Pearson, A ‘Project management and innovation in the scientific instrument industry,’ IEEE Trans. Eng. Manage. Vol EM-30 No 4 (1983) pp 194-199

32

2 Corey, E and Starr, S Organization strategy: a marketing approach Harvard University Press, Boston, USA (1971) 3 Gobeli, D and Larson, E ‘Relative effectiveness of different project structures’ Proj. Manage. J. Vol 18 No 2 (1987) pp 81-85 4 Katz, R and Allen, T ‘Project performance and the locus of influence in the R & D matrix’, Acad. Manage. 1. Vol 28 No 1 (1985) pp 67-87 5 Larson, E and Gobeli, D ‘Significance of project management structures on development success’ IEEE Trans. Eng. Manage. 6 Marquis, D and Straight, D Organizational factors in project performance NASA, Washington DC (1965) 7 Peters, T and Waterman, R In search of excellence Harper and Row, NY, USA (1982) p 42 8 Sayles, L ‘Matrix management: the structure with a future’ Organ. Dynam. (Autumn 1976) pp 2-27 9 Steers, R ‘Problems in the measurement of organizational effectiveness’ Admin. Sci. Quart. Vol 2 (1975) pp 325-343 10 Struckenbruk, L ‘The matrix organization’ Proj. Manage. J. Vol 10 No 3 (1979) pp 21-33

Clifford Gray, professor of business administration at Oregon State University, served as director of the research team conducting the INTERNET study reported in this oaoer. Other members of the team and authors who made the study possible are Dr Sebastian Dworatschek (Universitiit Rremen. FRG). Dr David Gobeli (Oregon State University, USA), Dr Hans Knoepfel (Swiss Federal Institute of Technology, Switzerland), and Dr Erik Larson (Oregon State University, USA). Each member of the team is a professor in a university, has had experience working in a business project management environment, and has spent several years addressing critical issues facing project managers. 1

Project

1

Management