IT is a new industry, and consequently the management of IT is new as well. Everybody needs to know where they fit in; What their job is; What the bounds are; And how what they do, fits in with everybody else.
Project Management (PM) And Managing Complexity?
Well, PM firstly is a methodology for managing complexity. Project Planning, and Risk Management. It also though resides in the realm of human interaction. We've really progressed in the non-human side - planning tools, risk management, and PM frameworks and methodologies, viz. PMBOK, PRINCE2, RUP, CMMI, etc. etc. The human-side though, I think we've got wrong.
In the days prior to matrix management structures - those of hierarchical management, it was easy - Oh so easy - You simply did what your boss wanted you to do. If you kept him / her happy - bliss; I've managed staff, and I've had employees say this to me. "Matthew, so long as I can know I am OK in your book, that is all that matters to me; I'll be happy". That simply doesn't work in a matrix organisation. I've worked disavowing them of this notion. It can come as a shock that I can think the world of them, but that doesn't count for much if there are those on the other dimension of the matrix don't see it that way, and want to do something about it. You can argue it shouldn't be that way, but you'll understand why it is if you understand the animal world of the modern IT organisation.
Animals of IT
This is how life works. It's political out there. Once you set in place a structure, and function, all else follows. Personalities occupying types of role follow. Pay scales follow. A lot of things follow.
In IT, and in engineering also, we have matrix management, where one dimension of the matrix are  Competency hierarchies, and the other side is  project prosecution. That is, we have two approaches in conflict.
 Competency Hierarchies
Folk who do a function live here. Their line management is here, their career progression, their benefits and entitlements. Well, at least that is how it is presented, but actually, a lot of that is actually determined by the other dimension.
 Project Prosecution.
Let me explain a project.
Decide what you want to achieve, plan what resources are going to be required when. Secure the resources. Tell folk to get to it. Track how they are doing regularly. If you are really sophisticated, you'll manage the risks, and the changes to plan also. Many project managers don't do this though. That's it. Pretty simple really.
The key though is that the business interaction is now located here. The business want's the project to, "finish on time, and within budget". Truly staggering recruitment consultants used to put that phrase in job adverts, I guess just to weed out the candidate project managers who put on their CV that they intend not to finish on time or within budget. Those of us who have worked in quality, know that, "to quality objectives", should be added to that list also.
In order to make sense of the ridiculous pay project managers can now attract we give them ever more important names - Program Managers, Segment Managers, Project Directors, Test Directors - but they are just project managers ..
So what's dysfunctional about project management?
Project Management can destroy your organisation, and you'll never know it. The problem is that a strong project management culture can increase the disconnect between those that perform your organisation's function, and the organizational executive management. I've seen it happen.
By creating this additional level of decoupled management, we create a level of management that have these characteristics,
(1) PMs do not understand the functions of the folk they are managing. There are a number of reasons for this, but mainly it goes to the nature of organisational animals. Folk who want to be project managers when they are in school, become project managers as soon as they can after school, and a certain type of person finds success there, and sticks with it. The type of person who is comfortable with managing the domain that they are not skilled in, and generally believe selling is what matters.
(2) PMs are the conduit to the business. The business, and the folk that, year in, year out, do the business, become further apart. This might not seem much of a problem at first, but it is.
Let's look at the interaction between these groups as a conversation.
The Business: "We want what we ask for, on time, and within budget, and to work". Now ideally, the business would build relationships with the functional folk; they would get to know and understand each other better, and the great communications challenge that is at the heart of that throw-away line would be addressed.
The PM: "I'll give you it. You can rely on me to get it for you. Gee these functional folk are hopeless communicators. You can rely on me to get if for you. I'll hire in an expert I know. I'm the one making things happen around here. You need to pay me more. And more. I'll give it you. ...."
I think you can join the dots for the rest. The business end up with less and less interaction with the functional folk, and them with the business. The business end up with no confidence in the functional folk. The functional folk can't get to understand the business any better, and therefore add value. The project managers reign supreme, and their rates of pay soar. If a functional fellow accidentally gets in way of a PM's profile with the business, the PM can, and will, do anything to protect his cash cow.
The functional folk end up not working for the business any longer but for the latest PM, so they actually loose the benefit of being part of a competency - exactly that thing that the matrix management was supposed to bring them.
Eventually, there is little the business can do to correct the situation. Theoretically, they could take the measure of hiring all new PMs that don't have this relationship established, but that's a courageous, and dangerous maneuver, and anyhow, the new project managers will have to be experienced, which means they'll already know how the game works. No improvement there.
In the study of organisational maturity, there is a name given to this situation, Capability Maturity Model Integrated (CMMI) Level 2, "Managed". It says that the business and projects are successful, purely because of the project manager, and the organisation doesn't really have any maturity other than that. Level 3 is "defined", that is the process are defined, well characterised and understood. They are a value to the organisation, regardless of the project management. This really is the beginning of a mature organisation.
I'm considering ways that an organisation can get itself out of this mess, but I'm not ready to publish yet.