Blog Barista: Bob Marquis, CPA, PMP | Nov 7, 2018 | Project Management | Brew time: 8 min

Do you remember the cult fan-favorite film, The Matrix? It was a 1999 blockbuster. In the film’s dystopian future, the majority of the human race only exists to support machines within a simulated reality called “the Matrix.” 

In our real world, a matrixed organizational structure is a distinct company structure that utilizes a grid design, or matrix, for reporting relationships, rather than the traditional hierarchy organizational structure. In this system, employees have binary reporting relationships. They report to two managers.

Between these two scenarios, which is more terrifying?

Putting the ethereal discussion aside, if your Project Management Office (PMO) is enterprise-wide, or even if it supports just a single large business unit, there is a good chance that it is operating in a matrixed structure.

Why Should You Care?

The organizational structure of an enterprise can play a significant role in its success. It affects more than employees. It affects customers, efficiency, productivity, and the mission of the organization.

Organizations are typically structured in one of two ways (with variations of course). They tend to be either Hierarchical or Matrixed. Traditional hierarchical structures are fairly well known and understood. Matrixed structures however, are often confusing, especially in large organizations. They are frequently misunderstood by both managers and employees.

If your PMO is part of a poorly functioning matrixed structure, or is a poorly functioning cog in an otherwise well-functioning matrix, the consequences for the organization–not to mention the PMO itself–can be significant.

Hierarchical

Traditional hierarchical organizations are generally organized by functional areas. In the private sector, these might be Sales, Engineering, Operations, etc. In government human service agencies, there might be various divisions such as Children’s Services, Healthcare, Mental Health, as well as Field Operations (caseworkers).

In the private sector, hierarchical organizations operate on a “balanced tension” basis. Like ropes on a tent, each functional area pulls against the others to hold the poles and the tent up. If one side pulls too much, it pulls the tent down.

For example, Product Development wants to design unique products, but Operations must be able to build them. Operations wants to run an efficient and stable operation, but Sales wants special requests to keep their customers happy. Sales wants to sell products, even if they have to cut the price to make the sale, but Finance needs to insure profitability. There is always natural tension between the priorities of these functional areas. Despite the tension, it is necessary to keep the tent up.

In the government sector, this model is less the case because the various divisions are usually fairly independent. However, within a single division, there are still conflicting priorities which can affect allocation of funds, operations, and policy.

In hierarchical organizations, employees report up to one manager and follow the direction of this one manager. When there are differences of opinion and priorities, they are escalated and worked out between peer leaders.

Traditional Hierarchical Organizational Structure

Matrixed

The matrixed organizational concept is different. A matrixed organization splits the traditional hierarchical organization into “vertical” and “horizontal” structures.

A matrixed organizational structure replaces the “balanced tension” of any hierarchical structure with a “customer/supplier” model.

The vertical groups are responsible for interacting with the external customers. In a government organization, these external customers would typically be the beneficiaries of services. The vertical groups are the “business” side of the organization. The horizontal groups support the vertical groups.  They act as service providers to the verticals. Vertical groups contract with horizontal groups for products or services. Therefore, vertical groups are essentially customers horizontal groups.

As an example, the Buick, Chevrolet, and Cadillac brands would be considered verticals of General Motors. The production facilities are horizontals; a single plant may build cars for all three brands.

Conceptual Matrixed Organizational Structure

Some horizontal groups exist merely for the internal support of the vertical groups. These could include Human Resources, Finance, and Legal. These groups don’t typically provide services to outside clients and sometimes have names such as Shared Services, Support Services, etc. They are typically viewed as general overhead in the organization.

Other horizontal groups deliver services directly to external customers. These may be referred to as Centers of Excellence, Delivery Centers, etc. In particular, these horizontal groups can include the PMO. A PMO may provide internal support to a vertical or it might also provide project management services to external clients. (Individual projects can also be horizontal across verticals. While this is a matrix structure, it is in a slightly different context.)

In a matrixed organization, both the vertical and horizontal group leaders ultimately report to the CEO. However, in day-to-day operations and internal financial reporting, the horizontal groups operate as suppliers to the vertical groups. They have a dotted line reporting structure into the vertical groups. What does this mean? It means that staff in the horizontal groups have (at least) two bosses. They report to both their solid-line manager and their dotted-line manager(s). This can sometimes feel otherworldly to managers and staff. They are “caught in the Matrix!”

The Marketplace Concept

In a matrixed structure, an internal market is created as the vertical groups acquire services from the horizontal groups. So, instead of these groups acting as peers in a hierarchical structure, the groups operate under supply and demand market principles.

In a matrixed organization, support resources are clustered within the horizontal groups. The vertical groups no longer have their own dedicated resources. From a PMO perspective, this means that project managers are part of the PMO group. They are not part of, and do not report to, the individual business units. The business units do not have their own project managers. The vertical groups acquire services from the horizontals to satisfy their own needs or the needs of their customers. They provide relief to, or “pay” the horizontals for services (typically via intra-company or intergovernmental billing).

The horizontals try to sell as many services as they can to the verticals to sustain their relief and their resources. The horizontals have to prove their value and sell themselves. If they don’t, their relief dries up. In this structure, each horizontal group essentially acts as its own business.

How it Looks

Using the original hierarchical diagram, the diagram below shows how the organization might look with a matrixed structure for a service organization. The New Services and Operations groups operate on a dotted line basis to the Client Accounts group. Each horizontal group can support all the vertical groups. Each vertical group could depend on one or more of the horizontal groups.

Matrixed Organizational Structure

Vertical groups typically position themselves in specific industries, geographies, or demographics to assure clients that they understand the client’s business. In a government organization, the verticals are typically program specific as noted earlier. Once a sale is made (or during the sales process), or once a need is identified within a government organization, the vertical groups call on the horizontal groups who actually provide the services needed.

Again, very few employees actually report directly to vertical leaders. There might be hundreds of employees delivering services to an external customer, but these employees report solid-line to horizontal delivery leaders, and only dotted-line to the vertical leaders.

Leveraging Resources

Both Hierarchical and Matrixed organizations can leverage their resources. However, they do it in different ways. Traditional structures leverage their resources by having them take on more than one responsibility for a single client. Resources are more generalists.

For example, in a traditional structure, a project manager might provide all the project support necessary for his one client. They fill the roles of project manager, project scheduler, and project coordinator. Over on other accounts, other project managers may be doing the same thing. The project managers are leveraged in that they fill more than one role or have more than one responsibility. This simplicity may be the only reasonable choice in smaller organizations.

Hierarchical Structure – Resources Leveraged Across Roles

Matrixed structures leverage their resources by having them perform one responsibility but perform it for more than one vertical. In a matrixed structure, resources are specialized. In our example, the PMO would have all of the project management resources. Each resource tends to perform just one role based on their skill set, but does so for multiple verticals. A resource may be assigned to more than one vertical concurrently if the workload for each isn’t full-time, or a resource may finish a full-time project for one vertical and then be assigned to a new project in another vertical. Rather than having resources be “jack of all trades, master of none” they are “jack of one trade” and master of it.

Matrix Structure – Resources Leveraged Across Verticals

We’ve looked at the differences between a traditional hierarchical organizational structure and a matrixed structure. Despite its complexity, there are many good reasons to use a matrixed structure, particularly for a horizontal PMO in a larger organization.

In Part II of this post, we’ll look at some of the advantages and disadvantage of having a matrixed structure, as well as key factors necessary for an organization to successfully use a horizontal PMO.

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