The Matrix
The Matrix. Nope, not the movie with Keanu Reaves. The other one. The dreaded organizational design construct. Two simple words that, for all intents and purposes, are basically a viewed as a four-letter word.
For those not familiar with it, it’s an organizational design principle that has an individual reporting to two different managers (and sometimes more) simultaneously. In the typical design, a matrix structure has a functional manager component, as well as an operational manager component.
Take the example of a finance manager of a Business Unit (BU). This individual may report to the CFO of the company (the functional manager), and also the business leader who is responsible for running that BU (the operational manager).
For many employees in large, global multi-national organizations, this is nothing new and simply a way of life. For others though, it may be new and therefore could seem daunting and difficult to manage.
Advantages and Disadvantages
Like anything else, a matrix structure has its advantages and disadvantages. So, let’s take a quick look.
As an organization grows in size and geography, one advantage a matrix structure provides is direct and contextual leadership. What do I mean by that? Take the previous example of the finance manager of a business unit.
In a smaller organization, the entire finance team may be together in one location. In that scenario, having the finance manager report directly to the CFO makes a lot of sense. However, as the organization grows and new lines of business and new geographies are added, the company may find itself in a position where a finance manager that supports a Business Unit needs to be stationed in a different location, physically separated from headquarters and the CFO.
As physical separation occurs, it becomes less likely that the Finance Manager will have regular, day-to-day contact with the CFO. As a result, the CFO’s ability to provide direct and contextual leadership becomes harder. This will be especially true if the Finance Manager resides in another country. And while the Finance Manager is in a different location than the CFO, they are likely in the same location as the leader of the BU. Because of this, they have much greater and more regular interaction with the BU leader. In this case, the BU leader’s ability to provide direct and contextual leadership to the Finance Manager is much easier.
Given this, from whom should the Finance Manager take their day-to-day direction? The far-away CFO, that is in a different time zone or different country? Or, should they take their day-to-day direction from the BU leader, whose business they support and who sits down the hall? It is certainly much more practical and efficient for the BU leader to provide this direction.
Another benefit – particularly if a company is moving to a matrix from an existing organizational model that has separate, stand-alone business units – is the ability to leverage economies of scale and economies of skill. If, for example, you have an organization that has multiple, siloed business units, each with its own functional teams – such as, accounts payable, accounts receivable, recruiting and talent acquisition, purchasing, shipping and logistics, etc. – then there may be a real opportunity, through a matrix structure, to centralize and align these teams under their respective functions in a way that still gives the business units the resources it needs but in a way that more efficiently leverages the pool of talent.
While there are certainly benefits in direct and contextual leadership, as well as in leveraging skill and scale, a big strike against a matrix structure is the complexity and added bureaucracy. Simply put, multiple managers are harder for employees to deal with than a single manager. With two (or more) managers the number of meetings, the reporting, the goals & objectives, the questions – all of it – increases, sometimes exponentially. Not to mention, there is now the added complexity and confusion of who an employee listens to, and takes final direction from, if there is a conflict / difference of opinion on an issue through the various chains of command. Understandably, these negatives cause a great deal of anxiety for employees when dealing with a matrix structure. Employees rightly want, and deserve, simplicity. And there is no denying that a matrix structure takes the traditional organizational model and makes it more complex. The matrix also has the potential to create animosity between managers, forcing them to align on objectives and resolve conflicts when, before, they could make decisions unilaterally.
The key question is, therefore, are the benefits of a matrix worth the additional complexity? The answer depends on a number of factors. The size and scale of the organization is one factor. Other important factors include how well the roles and responsibilities within a matrix structure are defined and, particularly, on the culture within the company. If roles are ill-defined, the odds are there will be confusion. Also, if the culture doesn’t foster collaboration and trust between the operational and the functional managers, the system will also break down.
Considerations for a Successful Matrix Structure
If you are thinking about organizational structure change and are considering a matrix, or have recently moved to a matrix structure and are still working through the details, here are a few principles to consider:
Principle #1 – Distance Gets the Line
Ideally, the employee in a matrix has both functional and operational responsibility and knows how to balance both. Also, ideally, the functional and operational manager will naturally come together to align on priorities, goals and work so as not to cause confusion and complexity for the employee. If you are in an organization where this happens naturally, consider yourself very lucky. Chances are, however, that you will find yourself in an environment where more definition and structure are needed – where the culture calls for a final authority, in other words, a solid line manager – to make calls and break ties. In these circumstances, my personal rule of thumb for this is: Distance gets the line.
Practically speaking, this means that the manager that doesn’t benefit from proximity is the solid line manager and the manager who is closer to the employee is dotted line. It’s not always perfect, but I lean on this principle for a few reasons:
1. For the reasons mentioned before, it’s much easier and more effective for a manager to walk down the hall and into the office of an employee to provide direction than it is for the manager who has to do this by sporadically, from a distance and over the phone. This ability gives the local manager more de facto authority. The solid line for the remote manager attempts to balance this dynamic.
2. In the case of the Finance Manager, you really want the BU leader to have a trusted business partner by their side. By the same token, the Finance Manager needs to have a degree of independence from the business and be able to step back and provide objective advice and support. The solid line to the CFO also provides this.
Principle #2 – Two to Hire and One to Fire
Given the first rule, you need some checks and balances to make sure the system doesn’t run amok. That’s where this next rule comes in. It should be pretty self-explanatory, but within a matrix, hiring an employee should require the sign-off of both the functional and operational manager. This should seem obvious, but I have rarely seen situations work where an employee is “forced” upon a manager. You really want to make sure both the functional and operational manager are excited by having the employee on their team. It is a different story, however, if things go sideways. If the employee isn’t performing or, worse, doesn’t exhibit the right values, then any of the two managers can make the call to begin the process to initiate a change.
Principle #3 – The Function Owns Career Management
In the example we’ve used with the Finance Manager, the functional manager (the CFO) should be responsible for developing the career of the employee. Chances are the Finance Manager will want to continue to evolve their career within the finance track. The BU leader cannot help with this, but the CFO can and should. In addition, if the Finance Manager is interested in exploring roles outside of Finance, the CFO — with a birds-eye view across the entire enterprise — is best suited to help guide the employee and connect them with people within the organization who can help them grow and evolve. In either case, the functional manager needs to take the ultimate responsibility for helping the employee with career management.
Principle #4 – Simplify and Communicate Constantly
A successful matrix requires constant communication and simplification between the managers. Here are a few places to focus simplification and communication efforts:
1. Align on the KPIs that matter most. If different functions are measuring a company’s success differently, then the company is setting itself up for a problem and putting its matrix’d employees in a difficult position. In addition, as KPIs are being established, each axis in a matrix needs to recognize that business success requires some level of tension. Is the objective revenue growth or cost out? Speed or quality? These are false choices. An organization must be ambidextrous and KPIs need to be set up to establish the appropriate balance between seemingly competing metrics.
2. Aligned with #1 above, when assigning annual goals, ensure there is a balance between operational and functional objectives. This doesn’t mean take your 5 goals for the year and add the other manager’s 5 goals to it and make the employee responsible for delivering 10 things. It means putting on the big hat and working with the other manager to agree on the 5 highest priority goals for the company, even if some of them (or even most of them) aren’t yours.
3. Don’t ask the employee to do double work. For example, if they have produced a report for the functional manager, use it versus asking them to show you the same data in a slightly different way. Along these same lines, wherever possible, try to coordinate calendars so that – especially on big topics – they are presenting to both managers simultaneously versus having to schedule two meetings to discuss the same thing.
4. Don’t get the employee caught in the middle between you and the other manager. If there is a conflict or difference of opinion, it’s up to the two managers to sort it out. Period.
These things are not rocket science. In fact, if you step back, you can see that in many ways these principles are similar to a consulting arrangement, where the functional vector acts like the employer for the employee and the operational vector acts as the client. In a consulting arrangement, the employee is retained by the client, who is generally responsible for determining the scope of work and providing day-to-day direction. The employer, on the other hand, works with the client to ensure the right individual(s) are assigned to the project and is ultimately responsible for the employee’s career. In a successful engagement, the employer and the client work together to ensure, among other things, that project scope is continuously assessed and managed, there is a common definition of success and issues are identified and resolved quickly and efficiently.
My experience has been that in most cases within a matrix, people come to understand these principles, particularly as it relates to back-office functions like HR, IT or Finance.
Where it gets trickier, and often much more contentious and polarized, is when the matrix structure is applied to front-office functions like Sales or Service. For example, when a matrix structure is created between a Regional Sales Organization and a Global Business Unit, other considerations often arise that aren’t part of the discussion when you are dealing with back-office functions. The big ones are: 1) Who “owns” the number? and 2) Who makes the final call on operational decisions? In this case, all of the four principles above apply but with a few important, additional add-ons:
Principle #5 – How You Report the Numbers Should Guide Who Owns the Number (and vice-versa)
If your organization reports its numbers to its primary stakeholders (whether it’s the Board, the Street, private investors, etc) by geography, then you should align your matrix so that the accountability for setting the plan, providing the estimates and ultimately delivering the numbers is with the geographic vector – i.e., the Regional Sales Organization. Alternatively, if your organization reports its numbers by Business Unit, then each BU should be ultimately accountable for the numbers. If you divorce your internal reporting mechanisms – plan setting, sales forecasting, and actual sales performance tracking – from the accountability for these things, it can lead to confusion and create unnecessary complexity. My advice is, align these whenever possible.
Principle #6 – Be Very Intentional on “Who Makes the Operational Call?”
Whether you decide that the Regional Sales Organization owns the number, or the Business Unit does, there are still lots of details that still need to be ironed out. A regional sales organization and a business unit both view themselves as operational entities, responsible for day-to-day decisions that impact the operational and financial performance of the enterprise. As a result, they both want to know things like: Who gets to set the price for our products or services? Who has discount authority? Who decides on how many salespeople to hire? etc., etc. It’s a long list, actually. Pay a lot of attention to this and try to clarify it as much as possible for the people within the organization. RACI models (that determine who is Responsible, Accountable, Consulted and Informed for various decisions) are a good way to ensure you are thinking through this comprehensively and have the appropriate level of detail and rigor in the process. As you do this, there are a few rules of thumb that I have found particularly useful:
1. The Global BU is best positioned to set the global strategy and make global trade-offs. Because the BU is global, they have a unique perspective on making trade-offs on a global level. They alone can answer questions like: If we wanted to maximize our opportunities, are we better served in investing more in R&D, or in Sales & Marketing? Where are the commercial opportunities greatest and how much of the Sales & Marketing budget should we allocate to the US market, versus to Europe or to Asia?
2. The Regional Sales organization is best positioned to execute on a local level. The European sales team, for example, would then take the allocated Sales & Marketing budget set by the Global BU and answer questions like: “Are my opportunities greater in Germany or in Italy?”, “Are we better served with direct or indirect sales?” or “How much should we spend in digital versus traditional advertising?”
If you take these two rules of thumb, you can – generally speaking – apply it to most of the roles and responsibilities in a RACI matrix, like pricing, discounting, etc. However, even once responsibilities and accountabilities have been established, very rarely do things ever work well in a vacuum. The fact is that while someone should have accountability to make a final call, there should always be dialogue and healthy debate, which bring us to the last, and perhaps most important principle of a matrix.
Principle #7 – Create A Culture of “For the Greater Good”
This last principle is perhaps the single biggest element required for a successful matrix organization. It is one where the culture is such where the primary objective for every employee is to do the things that are in the best interest of the company and its customers. This seems obvious, but is much easier said than done because it’s human nature for individuals to want bigger responsibility, larger teams and more accountability and try to position themselves for those opportunities. For this, it’s important to be honest about your organization. Is status based on team size, or whether the lines on the org chart are solid or dotted? If so, the organization will likely not be able to tolerate a matrix structure. If, however, status is based on the contribution to making customers happy and winning, regardless of the number of direct reports someone has, then a matrix can work. In a “for the greater good” environment, even if one manager within a matrix doesn’t agree with the position of the other manager, there is likely still recognition that each party, through their own lens and set of experiences, is ultimately trying to make the best decision for the company and its customers. If one vector within a matrix understands that the other vector has the best interest of the company and its customers at heart, there is more likely to be trust, open lines of communication and less friction in conflict resolution and problem solving. In the end, diversity of thought is one of the greatest assets for a corporation and a matrix can actually help bring this out, as long as the culture allows for it.
Conclusion
Bottom line, a matrix structure doesn’t have to be scary and it can create certain advantages. If you think about it, it’s also not that foreign of a concept. If you walked into my house, you would see me, my wife and my three children. You would also see that we very much operate in a matrix. The children don’t report to Mom or to Dad. They report to Mom AND to Dad. My wife and I certainly don’t always see eye-to-eye on things related to the children. As for the kids, I’d be lying if I said we were totally efficient in our parental approach. I know they’ve had to answer: “How was your day?” or “Did you do your homework?” multiple times during the day. It would also be much easier and faster for the kids if one of their parents made unilateral decisions (especially those in their favor), but they know that decisions – particularly the big ones – require a discussion and sometimes (even often) debate. And no matter whether we agree or disagree on an issue, my wife and I know that we always both have the children’s best interest in mind. The matrix structure in our house certainly isn’t always easy. It requires work, it requires constant communication and it requires trust. It works though, and with those same principles in place, it can work in your business too.