1. As an organization grows, be sensitive to the need to change a functional structure to improve the control of organizational activities.
2. When the control problem is to manage the production of a wide range of products, consider using a form of divisional structure.
3. Use a product division structure if the organization’s products are generally similar.
4. Move to a multidivisional structure if the organization produces a wide range of different or complex goods and services or operates in more than one business or industry.
5. When the control problem is to reduce product development time by increasing the integration be- tween support functions, consider using a product team structure.
6. When the control problem is to customize products to the needs of customers in different geo- graphic areas, consider using a geographic structure.
7. When the control problem is to coordinate the marketing of all of a company’s products to several distinct groups of customers, use a market structure.
8. Always weigh the benefits that will arise from moving to a new structure (that is, the control prob- lems that will be solved) against the costs that will arise from moving to the new structure (that is, the higher operating costs associated with managing a more complex structure) to see whether changing organizational structure will increase organizational effectiveness.
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Matrix structure
A structure in which people and resources are grouped in two ways simultaneously: by function and by project or product.
Two-boss employees Employees who report to two superiors: the product team manager and the functional manager.
Figure 6.11 Matrix Structure
Team members are two-boss employees because they report to both the product team manager and the functional manager. CEO Vice President Engineering Product A Manager Product Team Two-boss employees Product B Manager Product C Manager Product D Manager Vice President Sales and Marketing Vice President Finance Vice President Research and Development Vice President Purchasing
Matrix Structure
The search for better and faster ways to develop products and respond to customer needs has led some companies to choose a matrix structure, an organizational design that groups people and resources in two ways simultaneously: by function and by product.13A matrix structure is both similar to and different from a product team structure.
Before examining those differences, let’s examine how a matrix structure works (see Figure 6.11). In the context of organizational design, a matrix is a rectangular grid that shows a vertical flow of functional responsibility and a horizontal flow of product responsibility. In Figure 6.11, the lines pointing down represent the grouping of tasks by function, and the lines pointing from left to right represent the grouping of tasks by product. An organization with a matrix structure is differentiated into whatever functions the organization needs to achieve its goals. The organization itself is very flat, having minimal hierarchical levels within each function and decentralized authority. Functional employees report to the heads of their respective functions (usually, functional vice presidents) but do not work under their direct supervision. Instead, the work of functional personnel is determined primarily by member- ship in one of several cross-functional product teams under the leadership of a product manager. The members of the team are called two-boss employees because they report to two superiors: the product team manager and the functional manager. The defining feature of a matrix structure is the fact that team members have two superiors.
The team is both the basic building block of the matrix and the principal mechanism for coordination and integration. Role and authority relationships are deliberately left vague because the underlying assumption of matrix structure is that when team members
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are given more responsibility than they have formal authority, they are forced to cooper- ate to get the job done. The matrix thus relies on minimal vertical control from the formal hierarchy and maximal horizontal control from the use of integrating mechanisms— teams—which promote mutual adjustment. Matrix structures are a principal form of organic structure (see Chapter 4).
Both matrix structure and product team structure make use of teams to coordinate activities, but they differ in two major respects. First, team members in a product team structure have only one boss: the product team manager. Team members in a matrix structure have two bosses—the product manager and the functional manager—and thus divided loyalty. They must juggle the conflicting demands of the function and the prod- uct. Second, in the matrix structure, team membership is not fixed. Team members move from team to team, to where their skills are most needed.
In theory, because of those two differences, the matrix structure should be more flex- ible than the product team structure, in which lines of authority and coordination are more stable. The matrix is deliberately designed to overcome differences in functional orientation and to force integration on its members. Does it work?
Advantages of a Matrix Structure
A matrix structure has four significant advantages over more traditional structures.14 First, the use of cross-functional teams is designed to reduce functional barriers and over- come the problem of subunit orientation. With differentiation between functions kept to a minimum, integration becomes easier to achieve. In turn, the team structure facilitates adaptation and learning for the whole organization. The matrix’s team system is designed to make the organization flexible and able to respond quickly to changing product and customer needs. Not surprisingly, matrix structures were first used in high-tech companies for which the ability to develop technologically advanced products quickly was the key to success. TRW Systems, a U.S. defense contractor, developed the matrix system to make the Atlas and Titan rockets that formed the U.S. space program in the 1960s.
A second advantage of the matrix structure is that it opens up communication between functional specialists and provides an opportunity for team members from different functions to learn from one another and develop their skills. Thus matrix struc- ture facilitates technological progress because the interactions of different specialists produce the innovations that give a company its core competences.
Third, the matrix enables an organization to effectively use the skills of its specialized employees who move from product to product as needed. At the beginning of a project, for example, basic skills in R&D are needed, but after early innovation, the skills of engi- neers are needed to design and make the product. People move around the matrix to wherever they are most needed; team membership is constantly changing to suit the needs of the product.
Fourth, the dual functional and product focus promotes concern for both cost and quality. The primary goal of functional specialists is likely to be technical: producing the highest-quality, most innovative product possible (regardless of cost). In contrast, the pri- mary goals of product managers are likely to concern cost and speed of development— doing whatever can be done given the amount of time and money available. This built-in focus on both quality and cost keeps the team on track and keeps technical possibilities in line with commercial realities.
Disadvantages of a Matrix Structure
In theory, the principles underlying matrix structures seem logical. In practice, however, many problems arise.15To identify the sources of these problems, consider what is miss- ing in a matrix.
A matrix lacks the advantages of bureaucratic structure (discussed in Chapter 5). With a flat hierarchy and few rules and SOPs, the matrix lacks a control structure that al- lows employees to develop stable expectations of each other. In theory, team members continually negotiate with one another about role responsibilities, and the resulting give- and-take makes the organization flexible. In practice, many people do not like the role
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ambiguity and role conflict that matrix structures can produce. For example, the func- tional boss, focused on quality, and the product boss, focused on cost, often have different expectations of the team members. The result is role conflict. Team members become un- sure of what to do, and a structure designed to promote flexibility may actually reduce it if team members become afraid to assume responsibility.
The lack of a clearly defined hierarchy of authority can also lead to conflict between functions and product teams over the use of resources. In theory, product managers are supposed to buy the services of the functional specialists on the team (say, for example, the services of ten engineers at $2,000 per day). In practice, however, cost and resource al- location becomes fuzzy as products exceed their budgets and specialists cannot overcome technical obstacles. Power struggles emerge between product and functional managers, and politicking takes place to gain the support of top management.
As this suggests, matrix structures have to be carefully managed to retain their flexi- bility. They do not automatically produce the high level of coordination that is claimed of them, and people who work in a matrix often complain about high levels of stress and un- certainty. Over time, people in a matrix structure are likely to experience a vacuum of au- thority and responsibility and move to create their own informal organization to provide them with some sense of structure and stability. Informal leaders emerge within teams. These people become increasingly recognized as experts or as great “team leaders.” A status hierarchy emerges within teams. Team members often resist transfer to other teams in order to remain with their colleagues.
When top managers do not get the results they expect, they sometimes try to increase their control over the matrix and to increase their power over decision making. Slowly but surely, as people jockey for power and authority, a system that started out very flat and decentralized turns into a centralized, less flexible structure.
Matrix structures need to be managed carefully if their advantages are to out- weigh their disadvantages. Matrix structures are not designed for use in everyday organizational situations, however. They are mainly appropriate when a high level of coordination between functional experts is needed because an organization must respond quickly to a changing environment. Given the problems associated with man- aging a complex matrix structure, many growing companies have chosen to overlay a functional structure or a product division structure with product teams rather than attempt to manage a full-fledged matrix. The use of IT greatly facilitates this process because it provides the extra integration needed to coordinate complex value-creation activities.
The Multidivisional Matrix Structure
Multidivisional structures allow an organization to coordinate activities effectively but are difficult to manage. Communication and coordination problems arise because of the high degree of differentiation within a multidivisional structure. Consequently, a com- pany with several divisions needs to be sure it has sufficient integration mechanisms in place to handle its control needs. Sometimes the corporate center becomes very remote from divisional activities and is unable to play this important integrating role. When this happens, organizations sometimes introduce the matrix structure at the top of the organi- zation and create a multidivisional matrix structure, which provides for more integration between corporate and divisional managers and between divisional managers. Figure 6.12 depicts this structure.
As the figure shows, this structure allows senior vice presidents at the corporate cen- ter to send corporate-level specialists to each division, perform an in-depth evaluation of their performance, and to devise a functional action plan for each division. Divisional managers meet with corporate managers to exchange knowledge and information and to coordinate divisional activities. The multidivisional matrix structure makes it much easier for top managers from the divisions and corporate headquarters to cooperate and coordinate organizational activities jointly. Many large international companies that op- erate globally use this structure, as the example of Nestlé in Organizational Insight 6.3 illustrates.
Multidivisional matrix structure
A structure that provides for more integration between corporate and divisional managers and between divisional managers.
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N
estlé, based in Vevey, Switzerland, is the world’s largest food com- pany, with global sales in excess of $80 billion in 2011. The company has been pursuing an ambitious program of global expansion by ac- quiring many famous companies, for example, Perrier, the French min- eral water producer, and Rowntree, the British candy maker. In the United States, Nestlé bought Carnation, Stouffer Foods, Contadina, Ralston Purina, and Dreyer’s Grand Ice Cream.In the past, in each of the countries in which it operated, Nestlé al- lowed the managers of each of its product divisions (such as its Carnation division) to assume responsibility for making business deci- sions. For example, managers had the authority to make all product development, marketing, and manufacturing decisions. Nestlé’s corpo- rate managers at its Vevey headquarters made the broader acquisition, expansion, and resource allocation decisions such as how best to in- vest its capital. However, the size of the corporate staff in Vevey had increased dramatically to manage its rapid global expansion as it ac- quired more and more global food companies
By the end of the 1990s Nestlé’s CEO realized the company had ma- jor problems because corporate managers had become remote from the divisional managers in its thousands of global operating divisions. Moreover, the way the company operated made it impossible to obtain the potential benefits from sharing its distinctive competences in food product development and marketing, both between divisions in a prod- uct group—for example the beverage group—and between product groups and world regions. Because each product group operated
separately, corporate executives could not integrate product-group ac- tivities around the globe. To raise corporate performance, Nestlé’s man- agers had to find a new way to organize its activities.
Its CEO decided to restructure Nestlé from the top down, creating seven global product groups, and giving the managers of each group the authority to oversee all the activities of the product divisions inside their group (for example, convenience food such as soup and frozen meals, beverages, and candy). Each global product group was to inte- grate the activities of the operating divisions in its group and transfer distinctive competences to create new kinds of food and beverage