The author says that the
organization design depends upon what stage (of growth) the company is in. By growth, we mean the
level of specialization within the
organization – and the rate of change in the company’s products or operations.
Each form of organization has its own advantages and disadvantages. If the
functional form of organization is adopted, technological development takes place but the projects fall behind schedule. If the product or project form of organization is adopted, schedules are completed on time but the technology is not developed. Where both factors are of equal importance, matrix design is chosen.
Many companies are facing pressure both in the form of new products and technologies. In a (typical) company facing change in its external environment, uncertainty leads to deterioration in plans, budgets and schedules. And various problems begin to affect the company’s functioning. As the new environment requires more decision making – and greater information processing – than the company is capable of delivering. New products and changing technology are an uncomfortable fact that every company has to live with. The more rapid the change in technology and markets, the greater the amount of decision making that is required.
The solution consists in the creation of a new position – that of the subproduct manager. The subproduct manager represents the product within the functional department. There is dual reporting, as he reports to both the product and functional managers. This allows the functional departments to concentrate their energies on functional matters.
Matrix organizations are distinguished by two main features:
- There is a dual-authority somewhere in the matrix organization. The technical authority and the formal authority over products is divided.
- There is a balance between product and functional management. This is achieved by working together on budgets, and by means of dual information and reporting systems.
There is a wide range of alternatives between pure product organizations and pure functional organizations, with the matrix organization halfway between them. The author says that not all companies require a matrix organization. For the companies that do, the factors to consider are:
- The diversity of the product line.
- Interdependence among the subunits (this means that problems in one unit directly affects another).
- Level of technology.
- Economies of scale (the greater the economies of scale, the greater the inclination towards a functional organization).
- Organization size