Faced with an increasingly complex global playing field, companies have come back to Jay Galbraith’s Matrix Organization and embraced it as the answer for dealing with a complex world.
Typically, there are a group of Senior Managers responsible for different geographic units, such as North America, South America, Europe Middle East & Africa, and Asia Pacific. On another axis of the matrix are other Senior Managers who each are responsible for one of the major Strategic Business Units of the firm. Still a third group of Sr. Managers run global functional organizations such as Finance & Control, Purchasing, Information Systems, etc. In those cases when different Business Units sell to the same global customers, there is often a fourth dimension of Sr. Managers who present one face to such customers and are responsible for the overall performance of their firm, in all of its complexity, with that customer.
If you add of these people up, a global organization will end up with 15-25 Sr. Managers who collectively are responsible for running the company on a global basis. This structure is compelling for a number of reasons.
One is that it allows for individual accountability of those Managers, Vice Presidents or whatever else they are called, who report directly to the Chief Executive. Clear goals and targets can be set for each area and the person at the head of it such that everyone should know what they need to deliver.
Another is that taken all together, it becomes relatively easy to check the logical consistency of the company strategy and tools such as the Balanced Scorecard can be used to ensure that all the regions, business units, and functions are aligned with the strategy and each other.
Finally a global matrix allows the CEO to avoid making very complex trade off as he or she can simply delegate the task of “figuring it all out” to a cohesive group of people.
The problem is the matrix does not work.
In a workshop done at IESE Business School‘s building in New York City in December, 2011, we brought together a group of line managers and Human Resources executives to explore different ways of making the matrix work. The program will be repeated, incorporating these findings December 3-5, in New York.
The key conclusions from that effort were that the matrix organization requires too many people, extremely complex processes for goal setting and alignment, is inherently slow to respond to changes in the environment, and is normally ignored in moments of tension or crisis.
This last finding was offered by an executive of a large global company which is often used as a benchmark for developing a well oiled matrix structure but even in that case critical managerial issues were resolved along one of the axes of the matrix.
Based on the participants discussions and additional research there are three fundamental issues which seem to derail the matrix in practice. These are the understanding of the source of a company’s revenue and profits, the difficulty people have with systems thinking and complexity, and the role that innovation plays in corporate renewal.
Follow the money
Every company has developed, over time, a business model, which can be deeply embedded in the way its managers think about the business and themselves. One aspect of this business model is how the firm actually makes money.
Automobile manufacturers, for example, design and develop new cars, manage global supply chains, build engines and assemble cars, manage dealer networks and provide after sales service and warranty. Car companies spend significant amounts of money on consumer marketing and brand management and have very sophisticated research and development organizations as well as a normally strong finance and product planning groups.
At these companies, however, there is a general belief that money is made (and lost) in the assembly plants and the basic idea is to keep them at very high capacity utilization. Besides designing great cars and light trucks, this is often done by offereing incentives to dealers to “move the metal” or to consumers to get the latest deal, rebate or giveaway.
The impact of this mindset is well known in the automotive industry and is a major impediment to change. It is also a major difficulty in implementing any kind of compelling matrix structure based around families of cars, customer groups or anything other than the geographic distribution of the assembly plants!
In medical devices, the fundamental paradigm is that the products make the money and thus the Strategic Business Units are often dominant as opposed to a geographic structure based around key account management at hospitals or a clinical orientation based around certain clinical areas for which the products have application.
In a very positive economic environment, one might see the construction of a more comprehensive and perhaps balanced matrix but in moments of stress or crisis, it appears that whoever makes the money (or has the most resources) will end up making the tough decisions.
Systems thinking is too hard
Although Peter Shenge published the fifth Discipline in 1990, systems thinking and complexity theory has still not spread beyond a relatively narrow group of academics and researchers. The problem, it appears, is that it is just too difficult for most people to keep track of too many aspects of a problem or a situation.
People in general, and Managers, in particular like clarity and, as stated above, this is one of the key attractions of the matrix. The problem comes when a leader of one of the parts of the matrix works with their own team and pushes the accountability idea down into the organization. In the field, one eventually gets to two possibilities neither of which is conducive to manage a complex world.
One solution is to simply have enough people at every level of the organization so that the different areas can be represented. This approach, according to one of the participants in the workshop, is simply much too expensive on the one hand and very slow on the other. While the source of the cost is clear, the speed of decision making depends largely on the degree of cohesiveness that the people representing the different areas have with each other as opposed to with their business unit or function.
To some degree the degree of local cohesiveness appears to depend on the distance form head office where the direct lines of authority often have more weight.
Whats new?
The third area which makes the matrix largely inoperable is the need of constant innovation in many sectors of the economy and the added challenges that doing things in a different way poses to such an organization. In the first place approving a new product or process becomes more complex as there are potentially a number of departments which have a stake in the change and to get all of the managers involved and supporting such a change is extremely difficult.
Second, research done by Paddy Miller indicates that people from different cultures actually understand innovation in different ways and that getting a group of people to be more innovative is much more difficult than re-arranging the furniture or having brainstorming sessions. In terms of the matrix organization, it becomes difficult to get the right people in the room as many global organizations have their people spread out around the planet and face time for the team is difficult to achieve.
From Miller’s perspective, a traditional regional or national structure with a functional layer below that is potentially much more conducive to innovation than the more complex matrix structure mainly because it becomes possible to work with the same group of people over time all of whom contribute different points of view but share a common cultural understanding of what it means to be innovative. Innovation in the matrix is much more complex but nevertheless has to be done.
The third way that the matrix gets in the way of innovation is the normally very structured balanced scorecard systems that are often implemented alongside the matrix organization are normally not able to deal with ambiguity in general and innovation in particular.
What to do?
We therefore have a potential problem in that many companies will implement a matrix organization to manage global complexity but that there will be fundamental flaws with that structure. Thus the challenge facing the men and women at the first line who are responsible for one part of the matrix is to somehow get things done in any case. A somewhat different challenge faces people at the second level who find themselves reporting, in one way or another, to two, three or four different Sr. Mangers who are often asking them to do different things.
The answer appears to have five parts:
- One aspect is that to manage global complexity, Mangers need to understand it and recognize it. Only by having a clear sense of the nature of the global challenge can Managers hope to be able to overcome those challenges.
- The second part of making the matrix work has to do with understanding the goals and behaviors of the different functions, regions, and business groups which make it up. People will only be able to understand one another if they first recognize the differences between them and then spend time and energy on understanding those differences. The overall idea is cross cultural management and this applies to both national differences as well as functional and sectorial differences.
- The third part of the puzzle is to find ways to actually get people who are in different places on the planet to work together and this involves both using the communication and information tools currently available but perhaps more importantly adapting the way we manage and communicate to the reality of working across time and space and to the tools themselves.
- The fourth and part of making the matrix work has to do with leadership. Our findings is that the leadership challenge facing managers in a complex matrix structure are more demanding than a traditional organization. In fact, people who excel in the complex and ambiguous environment often display a set of leadership qualities which are similar to those found in people who lead people in dangerous, life threatening situations. Col. Tom Kolditz, author of In-Extermis leadership explored what these leadership traits are and found that leading people in extreme sports, emergency services and war has to do with basic ideas such as competence, leading by example, and personal integrity.
- The final part of the making the matrix work also ha a parallel in the military and is about making sure that each person in the organization understands the company strategy at both the larger, company level, and in terms of what they have to do. Kolditz refers to this idea as understanding strategic Intent and explains how commanders need to decide what to do in highly ambiguous situations. In a matrix environment, the challenge is to go beyond the narrow interests of one area, function or business line and do the right thing for the company.
In an earlier comment, I attempted to make the point that history matters and that when doing business in different parts of the world, it would be wise to study the history of a country or territory. A similar argument can be made for studying its politics and the relationship that the country, and its current political leaders have with its neighbors and even the rest of the world.
