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how companies work
Corporate structure
Printer technology and services
company Xerox has restructured
several times to align the business
with the main markets that buy its
products. In 1992, Xerox’s high-
profile change from a functional
to a new divisional structure, with
nine self-contained divisions each
serving a particular customer type,
hit the headlines. This also allowed
the company to focus on its core
business—digital publishing, color
copying, and printing.
Dividing the company by market
location is another strategy Xerox
has used successfully. In 2006, each
division was organized once again,
geographically, to ensure that those
making the decisions were closest
to the customers in each market.
CASE STUDY
7%
the increase in
Xerox’s share
value when
it announced
its move from
a functional
to a divisional
structure
in 1992
CONSUMER
Typically the
original market
BUSINESS
Products adapted or
favorably priced
INSTITUTIONAL
Large-scale provision
to a single client
Division by customer type
Businesses with distinct customer
markets may be organized by
customer division. For example,
the financial institution Bank of
America Merrill Lynch caters to
individuals, small businesses, and
corporate and institutional clients.
CEO
Europe
The second-largest
region for sales
Developing
markets
All other markets
Global services
Additional division
consulting across regions
CEO
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How it works
A business that uses a matrix setup often begins
with the more traditional functional structure. As
the business develops, it may make sense to overlay
a divisional structure to meet changes in business
conditions—for example, if a company is managing
several large projects for a client or expands globally
and is selling its products in several regions. A matrix
grid may start out as temporary—perhaps formed to
manage short-term projects—and become permanent.
The two chains of command in a matrix create the
grid. Staff report along a vertical line to a functional
manager, such as the marketing director, and along
a horizontal line to the project manager of a specific
business line, brand, project, or region.
Matrix structure
In this case study, an oil-exploration and
production company has several oil-
refining projects to manage. The matrix
guardian oversees the matrix and makes
sure it works efficiently.
FOUR BIG MATRIX ORGANIZATIONS
Each of the following companies has been cited as a
model of success for making the matrix structure work:
Procter & Gamble (P&G) To help it innovate and
respond faster to the market, the consumer-product
company is segmented into baby and family care,
global beauty, health and grooming, and global fabric
and home care.
IBM Because it needs to control many global
processes, the matrix at the technology and consulting
corporation is structured vertically by divisions such
as sales and distribution, finance and marketing, and
software, and horizontally by country and region.
Cisco In 2001, the IT company reorganized to enable
committees to make decisions across several different
functions and divisions. The idea was to stimulate ideas
throughout the organization and quickly implement
solutions to problems.
Starbucks The coffee-shop chain is arranged by
product on one axis of the matrix and business function
on the other to ensure that quality and innovation meet
customers’ expectations and anticipate their desires.
Engineering
director
Drilling
team
Oil-extraction
team
Liquefied natural
gas team
Project
manager
Arctic drilling
Project
manager
Malaysia oil wells
Project
manager
New Zealand
natural gas fields
Matrix structure
Unlike a conventional company hierarchy organized either by function
or division, a matrix combines the two approaches so that staff work
in both functional and divisional units, and report to two bosses.
Matrix
guardian
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how companies work
Corporate structure
Project management
professional (PMP®)
Qualification for project
managers offered by global
Project Management Institute
Matrix guardian Senior
professional appointed to
oversee the matrix and make
sure it works efficiently
Mature matrix Matrix structure
in which functional and divisional
bosses have equal power
NEED TO KNOW
90%
of FTSE 50 companies
had adopted a matrix
structure by 2013
CEO
Operations
director
Marketing
director
Financial
director
Undersea
production team
Marketing
team
Finance
team
Site-supervision
team
Sales
team
Line operations
team
Marketing and
PR team
Finance
team
Finance
team
MATRIX: PROS AND
CONS
Pros
Faster decision-making
Potential for improved
productivity
Flexible use of staff
Cons
Expensive to set up and run
Possible confusion as to the
reporting line
More potential for interpersonal
conflict as team goals may conflict
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72 73
how companies work
Corporate structure
Project management
professional (PMP®)
Qualification for project
managers offered by global
Project Management Institute
Matrix guardian Senior
professional appointed to
oversee the matrix and make
sure it works efficiently
Mature matrix Matrix structure
in which functional and divisional
bosses have equal power
NEED TO KNOW
90%
of FTSE 50 companies
had adopted a matrix
structure by 2013
CEO
Operations
director
Marketing
director
Financial
director
Undersea
production team
Marketing
team
Finance
team
Site-supervision
team
Sales
team
Line operations
team
Marketing and
PR team
Finance
team
Finance
team
MATRIX: PROS AND
CONS
Pros
Faster decision-making
Potential for improved
productivity
Flexible use of staff
Cons
Expensive to set up and run
Possible confusion as to the
reporting line
More potential for interpersonal
conflict as team goals may conflict
US_072-073_Matrix_Organisation.indd 73 21/11/2014 16:38
In a business with a modular structure, parts of a single product are outsourced
(it is functions or processes, not products, that are outsourced in a network
structure). A modular structure is especially suitable for organizations
producing appliances, computers, cars, and mechanical consumer goods.
Toyota is an example of a company with a modular structure, managing
hundreds of external suppliers to produce its finished vehicles.
Pros
Potential for round-the-clock
work because of global locations
Can source the best expertise
wherever it is in the world
Low overheads because there are
minimal staff in the core company
Flexible and highly creative
environment
Cons
Extreme reliance on technology—
network errors can stop effective
performance of the business
Potential for misunderstandings
because there is little face-to-face
communication
Difficult to find common time
across time zones for virtual
meetings
VARIATION: MODULAR STRUCTURE
How it works
The company at the center of the structure is stripped
back to basic functions that are essential to the type of
business being operated—research and development,
for example, in the case of a technology company. All
other functions are outsourced to external specialists.
The various parties can be scattered around the globe
and are connected by the internet. Together, they
provide all the services needed for the network to
function as one entity. This type of business structure
is based on the idea of the social media network, and
so is known as a network enterprise.
Network structure in practice
Network Screen is a small film production company based in Los Angeles,
CA, operating from a studio space with two employees—a producer and
an assistant. For each project, the producer connects with outsourced
talent around the world and everyone collaborates to create the finished
film. The producer contracts and pays these external suppliers.
Agile business Buzzword
to describe a networked
organization; the opposite
of a traditional bureaucracy
Decentralized Organization
with a wide span of control and
often an upward flow of ideas
Network structure
Also called a virtual organization or virtual corporation, a network
structure is centered around a streamlined company, with digital
connections linking it to external, independent businesses.
NEED TO kNOw
27%
of networked
organizations
report higher
profit margins
than their
competitors
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74 75
HOW COMPANIES WORK
Corporate structure
Cinematographer in
London, UK
Location scout
in Istanbul, Turkey
Set design
in Sydney,
Australia
Post-production
effects in
Copenhagen,
Denmark
Film editing
in Osaka,
Japan
Accounting
and finance
in Boston,
MA
Film
production
company, Los
Angeles, CA
N
e
t
w
o
r
k
S
c
r
e
e
n
+
X
10
=
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$
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74 75
HOW COMPANIES WORK
Corporate structure
Cinematographer in
London, UK
Location scout
in Istanbul, Turkey
Set design
in Sydney,
Australia
Post-production
effects in
Copenhagen,
Denmark
Film editing
in Osaka,
Japan
Accounting
and finance
in Boston,
MA
Film
production
company, Los
Angeles, CA
N
e
t
w
o
r
k
S
c
r
e
e
n
+
X
10
=
-
$
$
US_074-075_Network_Structure_Steve.indd 75 21/11/2014 16:21
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