Global Matrix Structure of MNE’s

A matrix organization structure involves horizontal, vertical and diagonal flows of responsibilities. Mathematically arrangement of anything by rows and columns is called matrix structure. In a matrix organization the products or projects may be the column element, while the horizontal or row elements might be the functional lines of production, marketing, etc. Third dimensionally, the geographic responsibilities might run. Matrix structure is a combination of two or more different structures. Thus in a global matrix organization structure a foreign subsidiary reports to more than one group, namely product/project, functional or geographic. Following figure gives the Matrix structure of an Multinational Enterprise.

Large multinational corporations that use a matrix structure most commonly combine product groups with geographic units. Product managers have global responsibility for the development, manufacturing, and distribution of their own product or service line, while managers of geographic regions have responsibility for the success of the business in their regions. Each group shares responsibility over foreign operations. Among the groups more interdependence leading to exchange of information and exchange of resources with each other takes place. In that context, product-group managers compete among themselves to ensure that R&D personnel responsible to a functional group, such as production, also develop technologies for product groups. These product-group managers also must compete to ensure that geographic-group managers emphasize their lines sufficiently. Not only do product groups compete; functional and geographic groups also must compete among themselves to obtain resources held by others in the matrix.

The Global Matrix Structure contains simultaneous, intersecting differentiation bases, with employees reporting to functional and product managers simultaneously. The organization’s top management must take particular care to establish proper procedures for the development of projects and to keep communication channels clear so that potential conflicts do not arise and hinder organizational functioning.

PepsiCo is organized by product lines-soft drinks and snacks-which would seem to imply that each product line is integrated globally. However, each line has its own global division, which separates it from domestic operations. Thus a global matrix structure is followed.

Merits of Global Matrix Organization

One advantage of a global matrix structure is that it facilitates the use of highly specialized staff and equipment. Rather than duplicating functions as would be done in a simple product department structure, resources are shared as needed. In some cases, highly specialized staff may divide their time among more than one project. In addition, maintaining functional departments promotes functional expertise, while at the same time working in project groups with experts from other functions fosters cross-fertilization of ideas.

Demerits of Global Matrix Organization

The disadvantages of a global matrix structure organization arise from the dual/multiple reporting structure. Power struggles between the functional and product managers or between the product and area managers can prevent successful implementation of matrix structural arrangements. Another drawback relates to groups’competition for scarce resources and display of their preferred operating methods. Upper management may favor a specific executive or group and as others in the organization see this occurring, they may perceive that the locus of power lies with a certain individual or group. Consequently, other group managers may think that pushing their own group’s unique needs is futile, thus eliminating the cross fertilization of viewpoints that a matrix is supposed to bring.

About Abey Francis

Abey Francis is the founder of MBAKnol - A Blog about Management Theories and Practices - and he's always happy to share his passion for innovative management practices. You can found him on Google+ and Facebook. If you’d like to reach him, send him an email to: [email protected]

One Comment

  1. Companies use a matrix structure to break the traditional vertical silos and increase cooperation and communication across the business. It enables us to serve global customers, manage supply chains that extend outside the organization and run integrated business regions, functions and processes. It also helps us to develop broader people capabilities – a matrix helps us develop individuals with wider perspectives and skills who can deliver value across the business and manage more strategically in a more complex and interconnected environment.

    The business logic is compelling, but introducing a matrix does mean a step up in complexity in the way people work together and many organizations have struggled to make it work. Some disadvantages these organizations have experienced include

    • Lack of accountability
    • Unclear goals and roles
    • Delays in decision-making (too many people getting involved)
    • Increase in bureaucracy (a proliferation of meetings and committees)
    • Increase in uncertainty and conflict

    Both the advantages and disadvantages of the matrix are about people and the way they work together. Delivering the advantages and avoiding the disadvantages cannot be achieved through a structural change, only by building the skills and mindset necessary mindset to engage people differently and the skills to cut through this complexity.

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