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Deciding Structure

Cisco CEO John Chambers is passionate about moving Cisco beyond being just a "network plumber" and into areas such as video, grid and cloud computing, and virtual healthcare.1 In order to do this, Chambers felt the firm needed to change to a more matrix structure, one where project groups were charged with figuring out new lines of business that offer growth potential. New markets that had to be learned required a structure that was non-functional and was driven by the project. What is a matrix structure, and should companies use such a structure?

The matrix structure emerged mostly as a way to overcome the limitations of the more common functional structure. In the early 1900s, large companies were divided into functions such as manufacturing, design, and marketing. In a manu-facturing environment the functional structure made sense.

Today, the nature of short business life cycles where opportunities exist for only a short time, and the need to operate multiple businesses simultaneously, has led to companies adopting different structures. A variety of de-centralized structures have emerged that are part functional but set up business units that have some level of autonomy. Often executives look for structures even more flexible because the company has too little understanding of how to do the work required, which has led to matrix type structures.

The ultimate example of the matrix structure comes from NASA in the 1960s, when the huge agency unified to send men to the moon. Suddenly, hundreds of simultaneous and finite projects were being led by non-functional managers, using people from across functional or specialist lines. NASA in the 1960s, however, may have been more of an aberration than a model for the efficacy of the matrix structure.

Matrix structures suffer from several deficiencies that make them very difficult to manage successfully. First, they can easily confuse authority as people cannot "serve two masters." Matrix is often a code word for multiple reporting lines; unless these lines are clearly specified in terms of which unit supercedes the other, people will have great difficulty prioritizing their work inside the matrix. Second, matrix structures require high levels of communication to manage relationships. The inevitable conflicts in the matrix are not easily rectified except through close-touch mediation and intervention, often via well-developed relationships. Such relationship building and maintenance requires a lot of time that might otherwise be used in generating actual output, which leads to the final problem: economy. Matrix structures tend to be cost-inefficient. NASA had the luxury of a deep well of resources. Most private firms do not.

So which structure is best? First, managers should consider what they are structuringóthe whole company, a division or a work group. These are different things. When talking about matrix, this is usually done at the corporate level where two major considerations must be made:

  • Based on overall strategy (regarding things like objectives, core functions, key markets), what is the best fit for the various parts. Executives much decide the structure design, based on the end goals and nature of the business(es) for the company. It is not about filling names in boxes, which might be called a position chart, but not a structure.

  • Determine the degree of centralization. Generally, if things need to be more efficient because it is well known how to operate the business, then a more centralized structure is called for. Companies with maturing businesses often find that restructuring to centralize more functions is logical. If the company enters new markets or developing businesses (ones early on the life cycle), it may need to decentralize so the structure is more externally focused.
For example, GE, in an effort to achieve organic growth in developing economies for its ultrasound devices, had to quickly decentralize its integrated global structure to unleash the needed innovation to make a device that met customers' needs: portability and MUCH lower cost. According to CEO Jeff Immelt, the rapid restructuringódisengaging the local ultrasound units to design and sell the medical devices under their own authority and not through established functional unitsówas essential to success. Within months, the China unit was able to design and sell a portable ultrasound device that was marketable to local customers at about 25% of the cost of GE's traditional, non-portable devices.2

The integrated global structure was inadequate because it was internally-focused, but market needs required an external focus on customers. Most matrix structures likely seek such an external focus, but conflicting internal priorities often interfere with results. Managers should be wary of the weaknesses inherent in the matrix approach.

1""The world according to Chambers," The Economist, Aug 27, 2009

2How GE is disrupting itself," The Harvard Business Review, Oct, 2009 by Jeffrey Immelt

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