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An organizational structure is the detailed outline of a company’s management and product structure. A matrix organizational structure is a hybrid model, combining aspects of both functional and divisional structures. A functional structure separates a company by different functions, such as production, human resources, and sales. Divisional structures divide a company by projects, such as products, customers, or region. By integrating both options into a matrix organizational structure, companies receive more benefits.
A functional organization attempts to leverage the division of labor theory. The theory states that separating workers into groups based on experience increases the efficiency of an organization. For example, including sales, marketing, and promotion departments into one group may increase worker efficiency and output as employees typically have experience in all three tasks. The matrix organizational structure uses this division as one part of its base for a company’s structure.
Divisional organization is the second aspect of a matrix organizational structure. Two separation options exist for a divisional organizational structure. First, a company can organize into profit or cost centers; the former tracks revenues and costs, and the latter costs only. Second, a divisional organization can separate operations by project. Projects may be a specific business segment, regional location for sales and distribution, or a customer type, such as industrial or wholesale.
Another type of matrix organizational structure is the division of a company along product lines. Beneath each product line, a series of functions exist. This allows a company to set up specific management groups or teams to govern each product line. Through this division, a company may experience higher product quality as certain managers and employees can focus on a single production line. This falls under the division of labor theory, which allows for a specialization of labor to ensure operational quality.
The matrix organizational structure is not without its flaws. A major flaw is the inability to keep the entire company focused on overarching goals. For example, many companies have a single organizational mission. Having numerous separate functions and divisions weakens the ability to move all departments in one direction. More top-level management may be necessary to keep the business moving in the same direction.
Another flaw is the lack of flexibility in an organization. The matrix organizational structure has a singular focus on the division and specialization of labor. When a company removes a product line from its business, the employees working on the project are subject to removal or job changes. This can stiffen the company and make it difficult to change fluidly along with the changing business environment.