Matrix Structure

The matrix structure is one of the most prominent organizational structures used by multinational corporations (MNCs). Made up by the combination of some elementary organizational structures, the matrix structure is meant to cope with the increasing internal and external complexity MNCs face as a result of their growing internationalization and diversification. While up until the 1970s the matrix structure was embraced as a kind of best practice to organize large, multidivisional MNCs, the following years have seen some disenchantment, due to the many difficulties MNCs faced in designing and managing matrix structures. Nevertheless, many large MNCs nowadays still adopt a matrix structure.

The matrix structure is one of three basic structural models MNCs have at hand to cope with the problems that arise from the geographic dispersion of their business activities. If internationalization is still rather piecemeal, MNCs often opt for an international division structure in which all foreign business activities are taken together and managed separate from the domestic business. In a later stage of their internationalization many MNCs turn to elementary forms of global structures, i.e., to the global functional, the global geographical, or the global product structure. These elementary forms of global structures integrate national and international business activities according to one organizing principle. For instance, in a global product structure, business activities are organized in different product divisions that have worldwide responsibility. Elementary forms of global structures overcome some problems associated with the international division structure such as resource duplication or slow knowledge flow. However, they are not sufficiently responsive to the multiple and sometimes conflicting demands that strongly internationalized MNCs face. This is what the matrix structure is meant for. The matrix structure is a gridlike combination of two elementary organizational structures, which have equal priority. This implies two lines of command and reporting. For instance, in a matrix combining global product and global geographical structures, a foreign subsidiary reports to the headquarters simultaneously through a specific product division and a specific regional organization.

MNCs from many industries have adopted matrix structures, including aerospace, automotive, chemical, and banking. Three conditions seem to be instructive for a particular MNC to choose a matrix structure: (1) there are outside pressures for the equal recognition of two foci (e.g., product and region); (2) a high level of information-processing capability is needed to stay competitive; and (3) there is strong need to share resources (e.g., technologies or human resources) within the MNC. In such situations a matrix structure promises significant advantages. It allows for a mutual recognition of the different requirements global and local customers have. It facilitates access to [Page 1099]resources, skills, and technologies across incumbent functional, geographic, or product-related divides. It supports economies of scale and increases information flow through the introduction and use of lateral communication channels.

However, these advantages are not easy to achieve, leading to a certain disenchantment and decline in the use of matrix structures by MNCs from the 1980s onward. For one, problems occurred in designing matrix structures. Matrix structures can take rather different shapes and depth. With only limited practical experience and theoretical understanding available, many MNCs found it rather difficult to design a matrix that represents a differentiated fit with their specific environment and strategy. Moreover, business goals and objectives turned out as rather difficult to align in the matrix. Many problems occurred with regard to managing the matrix structure; thus it turned out that keeping the two reporting lines equal in importance is difficult to achieve. This often resulted in strong political conflicts between the reporting lines. Moreover, roles and responsibilities in a matrix tended to be unclear and prone to misunderstandings. Overall, the speed of decision making slowed down.

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