Matrix Structure: How It Works, Advantages, Disadvantages

What’s it: A matrix structure is an organizational structure in which a company organizes its organization based on vertical and horizontal relationships. Vertical and vertical relationships may be based on dimensions such as business function, project, product, or region. This structure does not follow the traditional hierarchical model but combines two or more types of organizational structures. And the company divides resources and employees based on these dimensions. Thus, for example, an employee reports to two superiors: the functional manager and the project manager.

The matrix structure allows the company to accommodate future growth while maintaining existing operations. For example, it helps companies manage organizations effectively to fulfill two goals: maintain existing products and create new, more innovative products and services. In addition, this structure makes human resources more flexible because they are accustomed to performing multiple roles.

However, complexity can create confusion among employees. For example, they must report to more than one boss. In addition, the work pressure becomes heavier, stresses them, and demotivates them, especially if it is not accompanied by an adequate compensation package.

How does the matrix structure work?

Under a matrix structure, the company divides the organization according to two or more dimensions: function, product, region, project, or other variables. Thus, employees will have multiple reporting relationships: vertical and horizontal.

In the figure above, a company divides operations into strategic business units and regional groups. A Chief Executive Officer (CEO) heads each strategic business unit. Each CEO report and are accountable to the CEO at headquarters.

Then, in each region group, there is an executive at the helm, who also reports to the CEO at headquarters. Meanwhile, employees will report to the CEO in their strategic business unit and regional executives.

In other cases, the company might manage the organization by dividing resources and employees based on business functions and projects. Take passenger car manufacturers as an example. Say the company is developing a new project to launch a new product line: electric cars.

For example, the company appoints someone as a project manager. He has the authority to recruit employees and gather the required resources. He then recruited several employees from each function, such as procurement, production, marketing, and human resources. He assumed they had the skills and knowledge needed to make the project a success.

These employees have dual roles: as employees in functional areas and as project teams. That also applies to their chain of command. Thus, they have two bosses: the functional manager and the project manager. And they must be accountable to and coordinate with both. They report to the project manager on project matters and the functional manager on matters relating to functional issues.

How the company compensates these employees depends on the organization’s policies. Ideally, they get additional compensation beyond their payroll.

Another case is to combine functional structural with product-based structures. In a vertical relationship, companies group activities based on business functions. Meanwhile, the horizontal relationship is based on the product. So, for example, the company divides the lines of communication and reporting between two or more decision makers with different functional responsibilities. And employees work across teams and within their own functions or divisions.

Which companies adopt this structure?

Giant companies such as multinationals generally adopt a matrix structure. They have overseas subsidiaries and several regional executives. Headquarters establishes policies for subsidiaries while granting them a great deal of autonomy. Thus, management in the subsidiaries has independent operation and control over operations and production in their respective areas.

Large companies with multiple projects may also adopt this structure. They relocate employees when and where they need them.

In contrast, small businesses are more suited to adopting an organizational structure based on function rather than a matrix structure. They have limited resources.

When was the matrix structure adopted?

Companies adopt a matrix structure if two dimensions are essential for the company. Adopting this structure enables effective operation.

For example, the two dimensions are functional and project-based. On the one hand, the company must maintain current operations and make money. Thus, existing business functions must continue to operate.

On the other hand, the company needs to launch a new product because the market demands it. And, without a new product, the company’s competitiveness may decline as competition becomes more intense. As a result, new companies with innovative products have sprung up.

Take, for example, the company in the car business. Tesla came up with an eco-friendly car and got an enthusiastic reception from the market. It forces conventional car companies like BMW, Chevrolet, Honda, and Toyota to develop product innovations and compete with Tesla; otherwise, their markets are threatened.

What are the types of matrix structures?

How power and influence are distributed among command lines can vary greatly between companies. Thus, there are various alternative matrix structures. Say, companies now structure their organizations around two dimensions: business functions and projects. There are three main categories when we divide them based on the extent of the project manager‘s power:

1. Weak matrix
2. Strong matrix
3. Balanced Matrix

Weak matrix. Project managers have relatively weak power compared to functional managers. They have limited authority. Their role is minimal and more on coordination and administrative tasks.

In contrast, functional managers hold a larger role with more responsibility for people and resources. They can not only oversee the project. However, they also hold project budgets and timelines and make decisions about projects.

Strong Matrix. The project manager has broad authority. They have great power to manage resources and control the project budget. In contrast, functional managers have a limited role; for example, they can oversee the project but are not authorized to make decisions about the project.

Balanced matrix. Project managers and functional managers share roles in proportion to employees, budgets, and other resources. Thus, employees cannot prioritize one manager over another when they report. Rather, both are equally important to prioritize.

What are the advantages of the matrix structure?

The main advantage of the matrix structure is the efficiency in using resources. Companies can allocate resources – including employees – for several purposes, for functional tasks and projects. And, they can leverage the expertise and knowledge of the best employees in each division to support and succeed in new projects, which is important to support competitiveness and growth in the long term.

Recruiting new employees for projects can indeed be done. However, it is expensive and less effective. For example, new employees have less experience with the company’s business. In addition, they may be less able to adapt to the company culture. Finally, they cannot play an effective role in the project.

Thus, by organizing the organization into a matrix structure, companies can maximize the skills of existing employees. In addition, companies can allocate them from one project to another as needed.

Other advantages of the matrix structure are:

Effective flow of information. This structure improves communication across the business. Information about projects flows across business functions through cross-functional teams and is not locked in the hands of the project manager and his team. Finally, it improves cooperation and communication between departments within the company.

High spirit. Engaging in projects is one way to actualize skills and knowledge. Some employees may like it and are excited. In addition to self-actualization, they can also exchange ideas and information with specialists from other divisions, improving their perspectives.

Flexible human resources. This structure is a way to develop employees to be flexible with business demands. They have to handle different tasks at the same time. So, apart from expanding their skills and knowledge, it also makes them more flexible.

Coordinated efforts across functions. The company brings the best employees in each department to jointly complete a task or project. As a result, it leads to a cross-functional coordinated effort on a project.

Fast decision-making. Employees relate to their colleagues in other divisions. It encourages coordination between them. And when it comes to making cross-functional decisions, they can be taken more quickly.

Successful new project. Projects are formally coordinated across functional divisions, obtaining adequate resources and support for success while keeping existing business processes running normally.

This strategy accommodates the company’s need to grow and develop new growth centers. As a result, companies can pursue long-term growth by launching innovative projects. And they can manage these projects effectively without disrupting existing business operations.

Finally, this structure helps companies adapt rapidly to changing customer needs. As a result, companies can quickly produce new products. And for this reason, when the business environment is dynamic, this structure is the right choice.

What are the disadvantages of the matrix structure?

Complexity is the main disadvantage of this structure, leaving employees confused about their roles and responsibilities. For example, complexity leaves no clear lines of accountability for the project team. Finally, employees cannot prioritize their routines because they face more than one boss. For example, the company does not clearly define the compensation package, duties, and responsibilities. In this case, they may place more importance on jobs in functional areas because they affect their salaries and careers.

Other disadvantages of the matrix structure are:

Heavy work pressure. Employees have to play multiple roles. As a result, their tasks and work become more difficult. Finally, it increases their psychological and physical stress, leading to stress. Instead of encouraging them, it demotivates them.

Takes time to be effective. At the beginning of adopting this structure, employees need time to adapt and get used to working on playing multiple roles at once. They are familiar with routine work in functional areas but not with work on projects.

Disrupting existing business processes. This structure can create control problems because employees are accountable to more than one boss. Say, they may neglect their functional responsibilities and place more importance on the project. As a result, the project proceeds at the expense of existing business operations.

Power struggle. Project managers and functional managers compete for power and influence. Project managers claim employees should prioritize work for the project. In contrast, functional managers ask employees to prioritize work in functional areas.

Higher cost. Companies have more managers. They have to pay project managers and functional managers. In contrast, for example, they only pay functional managers under a functional structure. 

In addition, the company should also provide employees with generous compensation packages to encourage and motivate them to carry out work for projects and functional areas.