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Due to the negative impacts caused by the recent financial recession and the failures of various global economies, organizations are struggling to minimize cost while trying to keep pace with the demands of their customers and shareholders in order to keep their prices competitive. These challenges are forcing management teams to try new techniques and/or recycle some from the past in order to stay competitive. For instance companies are being aggressive with marketing strategies exploring new technologies like social media in order to reach as many potential customers as possible. Other companies are revisiting older ideas like adjusting organization structures now that communication technologies have advanced to the point where having a global organization can be profitable for smaller scale companies. One significant challenge these organizations are struggling with is the ability to keep up with the ever changing global business arenas and customer demands. A number of the most successful global businesses are trying their hand at implementing the matrix organizational structure in order to match the level of flexibility the current business environment requires. The current global economy demands that companies be - global, efficient, quick to market, have solid communication, a clear vision and the ability to change quickly in order to be competitive and successful in some industries.
Therefore the purpose of this paper is to compare and contrast the pro and cons of a matrix organization structure when compared to the other popular organization structures as well as provide some suggestions to increase a successful implementation of the matrix structure.
What advantages does a matrix organizational structure have over the other options and do the advantages outweigh the disadvantages?
There are numerous types of organizational structures in use today, however in order to keep the scope of the paper within reason we will only focus on the following five types which are arguably the most popular (Functional, Divisional, Network, Horizontal and Matrix). In the following sections I will review the definitions as well as the advantages and disadvantages of each type.
The website www.businessdictionary.com defines a functional structure as "The classic organizational structure where the employees are grouped hierarchically, managed through clear lines of authority, and report ultimately to one top person." This type of structure works well within small to medium size organizations that can focus on one product, division or business and therefore doesn't require much coordination or communication between functional groups. The functional structure offers stability and efficiency as well as economies of scale. However according to Lisa Magloff and her online article entitled "Advantages & Disadvantages of the Structure of an Organization". the disadvantages include things such as poor communication between departments, inter-departmental conflict, also increase of customer frustration due to lack of cooperation. Figure 1 contains an example of a functional organizational chart, which shows that there are no lines of communication between the various groups except at the manager level. This type of structure will allow for employee development within their respective groups though the only groups benefiting from these skilled employees are their own.
**Figure 1: Image from www.pmhut.com **
The website www.businessdictionary.com defines a divisional structure as "A type of organizational configuration that groups together those employees who are responsible for a particular product type or market service according to workflow. The divisional structure of a business tends to increase flexibility, and it can also be broken down further into product, market and geographic structures." This type of structure is best suited for large organizations with multiple products and allows for the ability to change fast in unstable environments which leads to improved customer satisfaction. However the structure can also lead to poor coordination between product lines as well as competition between divisions. Figure 2 shows an example of a divisional organization chart which highlights the redundancy in each of the divisions.
** Figure 2 - Image from www.dougsguide.com **
Network Structure (Virtual)
The website www.businessdictionary.com defines a network structure as "A group of legally independent companies or subsidiary business units that use various methods of coordinating and controlling their interaction in order to appear like a larger entity. In a business context, three main types of network organization are typically seen: (1) internal where a large company has separate units acting as profit centers, (2) stable where a central company outsources some work to others, and (3) dynamic where a network integrator outsources heavily to other companies." As implied in the definition, some of the advantages that the network structure has is a way for a company to obtain and utilize resources from around the globe with limited investment in infrastructure and capital i.e. factories, equipment and distribution facilities. Also, a benefit of this structure is being able to remain highly flexible and responsive to customer needs with minimal administrative overhead costs. However the network structure does have some disadvantages which include weak company culture, increased time to manage relationships and potential conflicts as well as lack of control for managers over activities and employees. Also there is a high risk to stability of the organization if one of the partners or companies in the network fails or goes out of business.
The website www.businessdictionary.com defines a horizontal structure as "A decentralized power structure within an association or business. A business that is structured as a flat or horizontal organization where power is shared more broadly tends to allow more staff more control over business matters according to their expertise, and it is often supportive of considerable collaboration between employees." The horizontal structure allows for quicker responses to customer requested changes as well as facilitates a focused direction for the team on collaboration and places a high value on both production and delivery requirements. Nevertheless this structure does have a few drawbacks. One is that the organization will need to spend significant time on training its employees to deal with the required changes needed to properly implement: changes such as to the culture, job design, management philosophy and information and reward systems. Also, current managers might struggle with giving up power and authority. In addition, this structure can limit skill development among the employees.
** Figure 3 - Image from www.dougsguide.com **
The website www.businessdictionary.com defines a matrix structure as "An organizational structure that facilitates the horizontal flow of skills and information. It is used mainly in the management of large projects or product development processes, drawing employees from different functional disciplines for assignment to a team without removing them from their respective positions. Employees in a matrix organization report on day-to-day performance to the project or product manager whose authority flows sideways (horizontally) across departmental boundaries. They also continue to report on their overall performance to the head of their department whose authority flows downwards (vertically) within his or her department. In addition to a multiple command and control structure, matrix organization necessitates new support mechanisms, organizational culture, and behavior patterns. Developed at the US National Aeronautics & Space Administration (NASA) in association with its suppliers, this structure gets its name from its resemblance to a table (matrix) where every element is included in a row as well as a column." Figure 3 provides a simple example of the typical matrix organizational chart which results from overlaying a vertical and horizontal structure to create an environment where the employees end up with two different managers. This structure is by far the most complex that we have reviewed in this paper which is why over the years, companies such as Xerox, Texas Instrument, Citibank, and Dow Chemical have tried and failed to correctly implement this structure which resulted in them ultimately abandoning the matrix structure. Still, a lot of companies either have tried or will try to use it because the advantages which include; sharing of resources which saves cost, the built in flexibility to accommodate frequent changes both from the customer and the business environment. Other benefits of the matrix structure are that it allows for product and functional development as well as being able to work through complex decisions due to the cooperation between the functional groups. The potential advantages of the matrix structure are impressive. There are just as many concerning problems such as the dual authority leading to frustration and confusion among the employees as well as time consuming meetings and conflict resolution. Also, due to the complexity of this structure, it is probably the most difficult organizational structure to implement because it requires training as well as constant oversight until all participants understand how it works and they show a willingness to adapt to its constraints.
Throughout my investigation of organizational structures I have discovered that choosing the correct organizational structure for a company isn't as simple as evaluating the advantages and disadvantages of a given structure. In my opinion it has more to do with the following conditions of the company:
Number of products
Skill set of the employees and managers
Demands of the business environment
Demands of the customer base
For instance, a new company with a single product will probably start out with a vertical structure in order to keep the focus on the development and launch of that one product. However as that company grows into different locations, products and industries it might find that it needs to adjust its structure based on the changes in the company scope. Whereas a large global organization might use a few different types of organizational structures depending on the group or department, it seems that a lot of today's organizations are turning to either a full matrix style structure or at least a hybrid of two or more of the structures including the matrix type. Due to the struggles other companies have had with the implementation of the matrix structure, some companies refuse to call their organizational structure a matrix even if it is, just to avoid the negative connotations that have been surrounding this structure since the 1970's. However with all of that information should a company try to implement the matrix structure. While Philip Atkinson answered this question pretty clearly when he wrote "It is fairly obvious that 'matrix' is the only appropriate approach to managing organizations that are subject to change. In the old days, the traditional form of organization worked well - "top down' with little "bottom-up" flow of communication. But as the natural environment for most organizations becomes less predictable the need to manage with ambiguity has to become a major core competence. This cannot be achieved through the traditional approach."
Due to the complexity of the matrix organizational structure as well as the difficulty in which companies have had in its implementation, I have put together the following list of critical items that managers should acknowledge and commit to prior to trying to use the matrix structure in their respective organizations.
Management teams must completely commit to the new structure
Power must be balanced between functional and project managers
Clear roles and responsibilities defined
Managers should have adequate training in conflict resolution and negotiations
Balanced reward systems, both incentive (project) and performance (function)
When conflicts do arise managers should discuss resolutions separate from the team
Power struggles and conflicts are expected but they must be closely monitored and contained
I currently work for a company that has been trying to implement a matrix organizational structure for three to four years. In my opinion the company continues to struggle with its implementation. I believe that the issues we are facing as an organization are due in part to the fact that the management team didn't completely commit to the list of critical items listed above. The first critical item requires that the management team must completely commit to the change; if this isn't done the manager's contempt for the purposed change will filter down to the employees and cause further conflict or confusion. This confusion can erode the positive company culture and also affect the ability to meet our customers' expectations. The second item requires that the management team must be set-up with a balance of power between the functional and project managers. If this item is neglected then the turf battles and power struggles between the two managers will be one sided and the employees will choose the side which has the greater perceived power specifically if that side correlates to their performance reviews. The third item which requires clearly defined roles and responsibilities has the potential to cause the most confusion with both the managers and the employees because they don't understand where their job responsibilities start and stop and if this creates gaps between the jobs then there is a chance tasks will be missed which could cause the company to miss the customers' expectations. The article "Problems of matrix organization" touches on this same issue in the following passage. "We believe the lesson of this experience is loud and clear. Organizations should not rely too much on an informal or latent matrix to coordinate critical tasks. Relationships between functional and product managers should be explicit so that people are in approximate agreement about who is to do what under various circumstances. Properly used a matrix does not leave such matters in an indefinite status; it is a definite structure and not a "free form" organization." The fourth item on the list requires that the management team complete some type of conflict resolution training. If this is completed then the potential for power struggles and turf wars would be minimized. The fifth item requires that there be a balanced reward system between function goals and project goals so that one set of goals isn't given more priority of the other. Otherwise the employees will naturally focus their attention on meeting the goals of the manager with whom the results will better benefit the employee not necessarily the company. Items six and seven go together in that the matrix structure is designed to cause conflict between two managers whom are focused on different goals while item six warns that if these conflicts are public than the employees can lose respect for one or both of the managers. Along the same lines item seven warns that if these conflicts or power struggles become to big then upper management needs to be aware of the negative impact this could have on the entire team. "Another key element in stopping power struggles before they get out of hand and destroy the balance is the top level superior to whom the dueling managers' report. Because of the element, the matrix is a paradox - a shared-power system that depends on a strong individual, one who does not share the authority that is delegated to him (say by the board), to arbitrate between his power-sharing subordinates." It is my opinion that if the seven items are addressed and completely understood by the management team then the company is ready to start the process of changes needed to successfully implement the matrix organizational structure.