Practical Matrix Management

1. Selena Sol presents….. PRACTICAL MATRIX MGMT because having no plan sucks selena@selenasol.com http://www.linkedin.com/pub/eric-tachibana/0/33/b53 http://www.slideshare.net/selenasol

2. MANAGING IN THE MATRIX - INTRO Despite the fact that so many organizations have adopted the matrix approach, misconceptions about matrix management are rife in today’s organizations, and those misconceptions have two seriously detrimental effects. First, firms are losing money. A matrix is a very specific organizational structure tool that is extremely powerful when used correctly and in specific circumstances. When used improperly, or used in the wrong context, however, the tool can have a zero, or even a negative, return on investment. Think of using a power saw to cut doilies – great tool, wrong purpose. Second, great people are frustrated and alienated. The matrix structure can be extremely empowering, flexible, and can effectively drive innovation, but more often than not, improper usage creates politics, frustration, and confusion. Great people who are unhappy, at best, leave. At worst, they cause other great people to leave with them. Since my role at work is heavily matrixed, I have been thinking a lot about how to make my matrix more effective and efficient. Here’s where I am in my thinking....

3. MANAGING IN THE MATRIX – ORG STRUCTURE 101 The basic assumption around organizational structure is that we canmaximize performance and minimize problems if we get the right formal arrangements between employees through specialization and division of labour. With that said, structure both enhances (makes the firm more efficient) and constrains (like a human skeleton or a building’s frame, certain assumptions and possibilities are ‘built-in’ and insurmountable) and no single structure is ‘best’ across all contexts. Finally, there will always be a basic structural tension between how to allocate work (differentiation) and how to coordinate roles and units once responsibilities have been parcelled out (integration). That’s all I want to say on org structure theory – I prefer to get quickly into real-world matrix management. However, before that, although people have been using org structure since there were more than 2 people, management thought on the topic really began with Fredrick Taylor’s, “The Principles of Scientific Management” and a motley of works by Max Weber. Finally, Henry Mintzberg’s, “The Structuring of Organizations”, is pretty foundational. So if you are interested, in more than my 30 second crib notes, read those dudes.

4. MANAGING IN THE MATRIX – 3 FORMS OF ORG STRUCTURE OK, there are definitely more than three forms of org structure. However, in my experience, there are three forms that pretty much cover 85% of the real-world circumstances a corporate manager would face, so those are the only ones that I want to spend time with in detail. The three forms are: · Hierarchies · Cross-functional ad-hoc Networks · Cross-functional long-standing Matrices To understand matrices, you must understand hierarchies and networks as well, so we’ll start there.

5. MANAGING IN THE MATRIX – FORM 1 OF 3 HIERARCHIES CONTROLLING IN A HIERARCHY The predisposition to create hierarchies in any social group must be deeply embedded in human DNA, as they exist absolutely everywhere. Hierarchies work by implementing a chain of command. Strategic intent is driven downthe chain by clearly defining roles and responsibilities and crisply communicating marching orders. Compliance is ensured upthe chain by incentivizing strategically-aligned behaviour (either with cash or the lash) - roughly, the boss tells you what to do and, either rewards you for doing it, or fires your butt if you don’t. In the corporate environment, hierarchies often define Lines of Business (LoB) and are represented universally as “org charts”. When they work, hierarchies are exceptionally powerful, as any field general can tell you. If they are well-oiled, they maximize the value of specialization and minimize the chaos of collaboration. However,if a hierarchy lacks clear roles, marching orders, and strategically-aligned incentives, the whole shebang comes crashing down. Unfortunately, even if the General or CEO erects a healthy and well-oiled hierarchy, while marching orders can descend through hierarchies at a rapid pace and with high fidelity, hierarchies are not very good at working together. As a result, hierarchies are not very good at organization-wide innovation, and are very tied to the personality quirks of those at the tops of the chains. These shortcomings were described by many corporate sociologists in the 1960’s through 1980’s who were describing the “over the wall” problem that was contributing to the demise of American product innovation. In VERY summarized form, when you need two LoB’s to coordinate, let’s say Marketing and Engineering, your speed and fidelity dramatically dissipate as command, communication, and control bottlenecks at the top. The result is products that cannot be marketed and marketing that is not related to technical reality because the two LOBs never talked. The LOB’s, in modern jargon, have become “silos”. This speed and fidelity problem was unacceptable by the time globalization took hold in the 1970’s, with the requirements of hyper increased innovation speed and an environment of uber-competitiveness. The problem became even more acute with the mass networked communications and technology convergence in the 1990’s. What was needed was an organizational structure that allowed sub-levels of peer hierarchies to work together directly, and outside the traditional chain of command. The solution was the cross-functional team, represented through a Network organizational structure that was pioneered formally by NASA during the Space Program of the 1960’s and used effectively by Disco-era pioneers Dow Corning, Xerox, DEC, and Citibank.

6. MANAGING IN THE MATRIX – FORM 2 OF 3 NETWORKS INFLUENCING IN A CROSS-FUNCTIONAL AD HOC NETWORK Thirty years later, Managers in the noughties will find networked org structures as second nature as managers found hierarchies in the fifties. In networks, cross-functional teams are brought together on an ad-hoc basis to solve organizational problems, maybe, for example, the development and launch of a new product. Typically, a Project Manager will lead a team made up of representatives from multiple LOB’s such as Sales, Marketing, Legal, Compliance, Engineering, Manufacturing, Support, etc. Networks are powerful because they are so flexible, responsive, and innovative. Cross-functional teams can gather the best, and most appropriate, Subject Matter Experts from all areas of the company, quickly assemble them in a structure where they can be maximally creativity, and return them to their original teams once the task is complete (or form a new SWAT team for a new task). Just as Hierarchies require clear roles, marching orders, and aligned incentives, Networks have their own success factors. Specifically, for a Network to work, participants must be adept at organizational influence and win-win negotiation. If Network participants lack these basic skills, the result will be discord. To that end, all managers should check out Roger Fisher and William Ury’s, “Getting to Yes” and Robert Cialdini’s, “Influence: The Psychology of Persuasion”. These topics cannot be covered here, so managers should just Amazon those titles for commute reading. However, as recorded by Tom Peters and others, almost as soon as Networks were established, problems emerged. A tricky dynamic is unleashed when a significant number of resource-consuming cross-functional teams start competing with one another for talent, money, and infrastructure. In addition, when employees begin relating simultaneously to one another vertically, horizontally, and diagonally, effective control is even more difficult. Although, as mentioned above, Networks can overcome some of these conflicts with good Influence and Negotiation skills, there is a special situation in which Networks crash and burn – when the participants in the Network have structurally misaligned goals. There are several common situations including: · Networks spanning Global and Regional needs · Networks spanning vertical Lines of Business and cross-cutting Horizontal “staff” services or functions (like IT Controls, Programme Management, Marketing, or Business Management functions spanning across multiple technology or product verticals) · Networks spanning multiple customer types such as “Large Multinationals”, “Small-to-mid sized Business”, or “Consumers” In these cases, even if the players are all mature in influencing and negotiations skills, and even if they are all “good” people who are looking out for the firm in addition to themselves, conflict is inevitable because the players’ very goals are misaligned. For example, Regional teams are formed to meet localized, unique regional business goals. Global teams, on the other hand, strive to balance global requirements and standardize on a single platform. Today, International firms have no choice but to grow both interest groups simultaneously. As such, they need a way to balance and direct this irresolvable structural tension. The solution is the Matrix.

7. MANAGING IN THE MATRIX – FORM 3 OF 3 MATRIX A Matrix is a special case of a Network org structure that balances the speed, flexibility, and creative power of Networks with the command and control capability of a hierarchy. The key benefit of matrices is that they resolve the issue of managing stakeholder conflicts caused by structurally misaligned goals by 1) erecting a shared compensation model, 2) clarifying rules of engagement of all Matrix Stakeholders, and 3) defining an explicit process for conflict resolution. The Basic Matrix The Matrix is usually represented using a 2-dimensional grid with axes for Matrix Stakeholders and Matrix Activities. Matrix Activities include all the cross-functional work that must be completed through the matrix. Matrix Stakeholders are individuals who have an interest in the outcomes of the Matrix Activities. There are 5 broad types of Matrix Stakeholders: Using these definitions, consider the Global versus Local issues faced by a Country Head for a consumer brand conglomerate raised earlier. In this example, a Country Head is responsible for various activities specific to their country including Sales, Brand Management, Local Product Development, etc. Typically, Country Heads across a region will roll up to a Regional COO who has P&L responsibility for, and compensation based upon, all the countries in the region. So a Singapore Country Head would roll up to an Asia Pac COO. In addition, to ensure that Global Brand and Marketing interests were upheld locally, the Country head would also have a matrix management relationship to the Global Marketing Head. He would also oversee Compliance, Legal, HR, product development functions as well as multiple local product line teams regionally, who would also have Global counterparts.

8. MANAGING IN THE MATRIX – MATRIX BY EXAMPLE Using these definitions, consider the Global versus Local issues faced by a Country Head for a consumer brand conglomerate raised earlier. In this example, a Country Head is responsible for various activities specific to their country including Sales, Brand Management, Local Product Development, etc. Typically, Country Heads across a region will roll up to a Regional COO who has P&L responsibility for, and compensation based upon, all the countries in the region. So a Singapore Country Head would roll up to an Asia Pac COO. In addition, to ensure that Global Brand and Marketing interests were upheld locally, the Country head would also have a matrix management relationship to the Global Marketing Head. He would also oversee Compliance, Legal, HR, product development functions as well as multiple local product line teams regionally, who would also have Global counterparts.

9. MANAGING IN THE MATRIX – THE PROBLEM OF STRUCTURAL MISALIGNMENT IN A MATRIX However, if each country were to have free reign to market and brand the company’s products in the way that best met their customer’s needs (a good thing, right?) or to redevelop product functionalities or product platforms to meet localized requirements (a good thing, right?), then the global brand would fracture (oops!). As a result, even if regional revenue expanded, global costs would expand faster and global revenue might drop as the Brand devalues and the product line becomes unsupportable by operations. This is what we mean by structural misalignment. It is not that actors are political, selfish, greedy, opportunistic, or devious. It’s just that the market demands that the company is schizophrenic. We need to be globally coordinated to enjoy economies of scale and scope, but locally unique and responsive to be competitive on the ground. Whatever the case, the Country Manager is going to be in a very uncomfortable situation. His two bosses, the Regional COO and the Global Marketing Head, are going to be giving him conflicting instructions, and both will be “right”.

10. MANAGING IN THE MATRIX – RESOLVING THE STRUCTURAL MISALIGNMENT PROBLEM So how does the Matrix Actor deal with multiple bosses in conflict? In a Network, he/she would simply use Organizational Influence and Negotiation skills. However, in a Matrix, his/her bosses are defined as being at least sometimes structurally at odds. As a result, the Matrix Actor is torn. Good Influence and Negotiation skills will get the manager part way to a happy job, but, since we cannot assume that all managers will be super-managers, this alone will not realistically suffice. What would you do? Lacking any governance, any sane Matrix Actor would go with either the boss who pays them or the boss who yells the loudest. Either way, the matrix has failed to deliver results. This, then, is the crux of the solution. To resolve structural misalignment problems, the Matrix Apex Manager must implement one structural change, one relationship change, and one procedural change to ensure governance. 1. Align behaviour through compensation 2. Ensure that leaders lead 3. Get everyone to agree on clear rules of engagement I’ll quickly cover these, but would recommend managers browsing the Jay Galbraith library. Galbraith is a true Matrix veteran with excellent and down-to-earth advice.

11. MANAGING IN THE MATRIX – STRUCTURAL MISALIGNMENT FIX (STEP 1 OF 3) Step One: Align behaviour through compensation The purpose of a Rewards System is to motivate employees to execute the behaviours that support organizational goals. The design of the system must address two components: First, the types of performance that are needed to support the strategy and the behaviours that underlie that performance must be clearly defined and understood across the board. In a Matrix, performance should be viewed in terms of both objective financial or operational performance ‘and’ subjective collaborative behaviours – the WHAT and the HOW. Second, the performance management process must generate the information that is required to measure these behaviours and arrive at a full and fair assessment of performance. A full and fair process entails collecting information from all the people who are able to observe the person’s performance. It also involves an open discussion and analysis of the performance data in order to arrive at a decision for promotion or bonus. The least effective performance management process is one wherein the boss collects the information, makes the assessment, and decides on the bonus; this approach does not result in a full and complete assessment. In today’s matrix organizations, wherein employees engage in lots of international projects and across many cross-cutting activities, there is no way that the boss has anywhere near the necessary performance data. In addition, the boss will have a natural and reasonable bias for deliveries and behaviours aligned with his/her Line of Business. The Regional Country head will be focused on regional net income, not reduced global R&D costs. The better performance management process is one in which the two bosses on either side of the matrix jointly evaluate the Matrix Actor. As part of this process, it is key that Matrix Managers are afforded special rights in the compensation process. At a minimum, they must have a meaningful impact on compensation caps and floors, and be consulted heavily throughout the process. At best, they should have direct and quantitative impact on compensation and career management. That is, for example, even if the line manager wants to promote, if the matrix manager rejects, the promotion should be aborted. The Rewards System is NOT a substitute for managers’ responsibility to Influence and negotiate – it, appreciating that we are all people, supplements influence and negotiation providing a safety net under the matrix. Finally, ideally, this process should be policed and overseen by HR.

12. MANAGING IN THE MATRIX – STRUCTURAL MISALIGNMENT FIX (STEP 2 OF 3) Step Two: Ensure Leaders Lead Second, the Matrix Apex Manager at the top of the matrix must define an explicit process for conflict resolution and encourage managers to use it ‘jointly’ when necessary. Now, this does not mean setting up a new cross-functional division for Matrix Management. I think that one of the reasons Matrix structures failed so stupendously in the 1980’s was that they put way too much process around the Matrix. In fact, all that is required is that a Matrix Apex Manager sits down with the Line Manager and the Matrix Managers regularly to resolve decision bottlenecks where the Line and Matrix Managers simply cannot agree. These bottlenecks should not be seen as failures or ‘bringing problems to the boss’. Instead, they should be appreciated as a normal and natural part of the process. We should not pretend conflict does not exist, we should just be more mature about how we work together to resolve it. If we don’t, natural conflicts will still arise, but they will be acted out and resolved in dysfunctional ways. And, once again, it is worth reminding that Matrices are subsets of Networks and Networks join distinct Hierarchies. As such, putting in place matrix-friendly compensation and conflict-resolution processes does not remove the need for managers to implement Network and Hierarchy best-practices. Thus Organizational Influence and Win-win Negotiation skills as well as clear roles, marching orders, and aligned incentives are still required of all staff working in a Matrix. Finally, while leaders must lead, followers must take responsibility for being led. If the Matrix Actor sees or senses a potential conflict driven my misaligned goals, he or she must proactively escalate issues and ensure that the Matrix and Line managers set aside time to resolve the issue. A passive Matrix Actor has only herself to blame.

13. MANAGING IN THE MATRIX – STRUCTURAL MISALIGNMENT FIX (STEP 3 OF 3) Step Three: Get everyone to agree upon clear rules of engagement Finally, for a Matrix to work, the responsibilities of all Stakeholders must be clearly defined. Matrix roles and rules of engagement come together in the LACI diagram. This valuable tool clarifies who is involved with what decisions. LACI is an acronym that refers to:

14. MANAGING IN THE MATRIX – LACI DEMO To demonstrate the LACI tool, let’s consider a global Capital Markets organization in which delivery is divided into 1) Lines of Businesses, 2) Regions, and 3) Staff Functions. Further, let’s consider the LACI roles of a Regional Business Manager for the Equity Line of Business in the Asia region. The following organizational chart should give a sense of the relationships. Management LOB standards and processes (Global Equity Business Manager) and 3) Ensure Cross-LOB Regional standardization and reporting (Regional Cross LOB Business Manager).

15. MANAGING IN THE MATRIX – APPENDIX APPENDIX: SUMMARY The following table summarizes the key points above: