Problems of Matrix Organizations

No organization design or method of management is perfect. And any form can suffer from a variety of problems that develop because of the design itself. This is particularly true when a company tries a new form. In this article we look at one relatively new organization form—the matrix—which has gained considerable popularity in recent years but which has some significant pathologies. Before discussing its ills, however, let us look for a moment at matrix management and organization (see the sidebar below) and at how widespread the matrix is in U.S. industry today.

What Is a Matrix?

The list of well-known companies that are using some form of a matrix is becoming long and impressive. Take, for example, a company that has annual sales of $14 billion and employs about 400,000 people in scores of diverse businesses—General Electric. For decades, despite the diversity of its businesses, GE used one basic structure throughout its organization: five functional managers reporting to one general manager. Employing the logic that a company must organize to meet the particular needs of each business, some GE groups, divisions, and departments, which have found the pyramid form cumbersome, have turned to the matrix as a fundamental alternative.

In projecting its organization over the next ten years, GE management states in its Organization Planning Bulletin (September, 1976):

“We’ve highlighted matrix organization. not because it’s a bandwagon that we want you all to jump on, but rather that it’s a complex, difficult, and sometimes frustrating form of organization to live with. It’s also, however, a bellwether of things to come. But, when implemented well, it does offer much of the best of both worlds. And all of us are going to have to learn how to utilize organization to prepare managers to increasingly deal with high levels of complexity and ambiguity in situations where they have to get results from people and components not under their direct control…

“Successful experience in operating under a matrix constitutes better preparation for an individual to run a huge diversified institution like General Electric—where so many complex, conflicting interests must be balanced—than the product and functional modes which have been our hallmark over the past twenty years.”

Other major corporations, in diverse activities, such as Bechtel, Citibank, Dow Chemical, Shell Oil, Texas Instruments, and TRW, to mention a few, have also turned to the matrix. Based on our studies of the matrix in these companies, we believe that while some of the matrix’s popularity is simply a passing fad, most uses of it are founded on solid business reasons that will persist. The matrix’s most basic advantage over the familiar functional or product structure is that it facilitates a rapid management response to changing market and technical requirements. Further, it helps middle managers make trade-off decisions from a general management perspective.

Because the matrix is a relatively new form, however, the companies that have adopted it have of necessity been learning on a trial and error basis. The mistakes as well as the successes of these pioneers can be very informative to companies that follow their lead. Here, we present some of the more common problems that occur when a company uses a matrix form. For the sake of easy reference, we diagnose each pathology first, then discuss its prevention and treatment. By using this format, however, we do not mean to suggest that simple first-aid treatment of pathologies will cure them.

Ills of the Matrix

Many of the ailments we discuss do arise in more conventional organizations, but the matrix seems somewhat more vulnerable to these particular ones. It is wise, therefore, for managers thinking of adopting a matrix to be familiar with the diagnoses, prevention, and treatment of nine particular pathologies: tendencies toward anarchy, power struggles, severe groupitis, collapse during economic crunch, excessive overhead, sinking to lower levels, uncontrolled layering, navel gazing, and decision strangulation.

Tendencies toward anarchy

A formless state of confusion where people do not recognize a “boss” to whom they feel responsible.

Diagnosis—Many managers who have had no firsthand familiarity with matrix organizations tend to have half-expressed fears that a matrix leads to anarchy. Are these concerns based on real hazards? Actually today, a considerable number of organizations are successfully using the matrix form, so we need not treat anarchy as a general hazard of the matrix. However, there are certain conditions or major misconceptions that could lead a company into the formless confusion that resembles anarchy.

Through firsthand experience we know of only one organization that, using a “latent” matrix form, quite literally came apart at the seams during a rather mild economic recession. Following a fast-growth strategy, this company used its high stock multiple to acquire, and then completely assimilate, smaller companies in the recreation equipment field. Within a period of about six months the company changed from an exciting success to a dramatic disaster. Its entire manufacturing, distribution, and financial systems went out of control leaving unfilled orders, closed factories, distressed inventories, and huge debts in their wake.

Of course, there are many possible reasons why this might have happened, but one perfectly reasonable explanation is that the organization design failed under stress. What was that design?

Essentially, the organization used a functional structure. As it acquired each small company, top management first encouraged the owners and general managers to leave, and then it attached the company’s three basic functions of sales, production, and engineering to their counterparts in the parent organization. Within the parent marketing department, a young aggressive product manager would be assigned to develop for the acquired product line a comprehensive marketing plan that included making sales forecasts, promotion plans, pricing plans, projected earnings, and so forth. Once top management approved the plan, it told the selected product manager to hustle around and make his plan come true. This is where the latent matrix came in.

The product manager would find himself working across functional lines to try to coordinate production schedules, inventories, cash flow, and distribution patterns without any explicit and formal agreements about the nature of his relationships with the functional managers. Because he was locked into his approved marketing plan, when sales slipped behind schedule, his response was to exhort people to try harder rather than to cut back on production runs.

But once one or two things began to crumble, there was not enough reserve in the system to keep everything else from going wrong. As the product manager lost control, a power vacuum developed, into which the functional managers fell, each grabbing for total control. The result was that a mild recession triggered conditions approaching anarchy.