There is a big difference between the two types of organizations, and it is important that you know what type of organization are you in. The answer should affect how projects are managed and how you do business. Actually the answer to this question has profound effects on the organization structure itself.
An organization that hires professionals found an opportunity and pursued it. If the business climate changes, and the organization lands a different profession to benefit from more, then it would switch to another business, if it can.
On the other hand, a group of professionals doing business is a totally different ball game. These professionals do something well, and they can make money based on that talent or capacity. They might refine their modus operandus but they would not switch business. They have a professional identity that they would not want to change. So, even if switching to selling a different service yields more money, they are not interested as they are in a different profession.
Which one is better? well, this is not a good question. It is not about better. It is about understanding the differences between the value offered by each type, and the way each should do business.
A business hiring professionals is keen on the project aspects of quality; like finishing on time on budget, within scope. This is mostly how they would define quality. In this type of company, project management is key and outweighs technical aspects. For example, even if a technical expert has a better idea, implementing it will take a lower priority than finishing withing the triple constraints of time, cost, and scope. In this type of business, building technical capacity is hard. Technical people will find it hard to build their career, as their ability to deliver faster outweighs their ability to build more or better product. Project Managers on the other hand will be able to develop their careers better in this kind of company. Department managers are more of resource managers, who are responsible for ensuring their staff deliver within the project constraints, but are not as concerned about building their staff abilities, or improving the product they are delivering. Usually construction companies are of this type of organization. Also, manufacturing companies. While most software development and consulting rarely fit in this category, some of them actually do.
A client who knows exactly what they want should look for such a supplier. Or if the client has expertise in the product they want and require hands to deliver. Also, if the product or service sought is well defined and no need for much creativity. A client should apt in such cases for the business organization as they are very efficient, usually, in delivering fast and to the requirements, and at a reasonable cost.
If we look at a group of professionals doing business, the picture is drastically different. This type of organization has a technical edge of some sort, and they focus on building that edge, and providing value through it to the client. This organization is sought for innovation and coming up with something different than what is out there. Also, when the client is relying on the professional expertise of the supplier. finally if client needs a custom solution that requires an original architecture, if you will.
A group of professionals doing business customize every experience they undertake, and see it as an opportunity to provide a better product or service. While sticking to the schedule, budget, and scope are important, they are not the top priority. The top priority is providing the customer with a product that reflects technical competence of the organization and hence the value. In this type of organization, changes are more easily accepted, and even welcomed. They are freely and openly discussed with clients who in turn should be open and willing to pay for them, given they provide value that outweighs the cost.
In this organization structure, the department managers are partners with the project manager in leading the project. this makes the job of the project manager much harder. If the department manager has a new idea, it might cause major project delays. While the department manager does not care as he or she wants product quality, the project manager has to keep an eye on his or her responsibilities, which are time, cost, and scope sensitive. To the chagrin of the Project Manager, usually product quality overrules project quality. Remember that a client hiring this type of organization is after the product quality that the department managers or subject matter experts are offering. An example of this type of organization is Architectural, Law, and Medical firms. Also, design companies and consulting companies fit this type of organization. At least most of them.
Finally, from an organizational perspective, a business hiring professionals should put lots of authority with the PMO, and less with department managers. A matrix or projectized organization structure is usually a good setup for such an organization.
While a group of professionals should balance the PMO and the department managers power and allow for and even encourage healthy conflict between the two. The balanced matrix, or strong matrix organization structure can work for such organization. However attention should be paid that there is actually balance between departments and technical competence on one side, and the PMO on the other.
Many organizations have identity problems, caused by being unable to answer this question. This leads to failure of the organization to satisfy clients, as clients would not be able to know what type of value they should expect. This leads to customer dissatisfaction and disappointment and possibly project failure.