With a company's growth comes the need to organize tasks and the people who do them. Traditionally, business owners have arranged people in a triangular hierarchy that has the owner on top, managers in the middle and employees on the bottom. The result is a strict and rigid organizational structure. Some businesses have goals that need such a setup. Companies needing more agility turn to newer structures that feature lateral rather than vertical reporting relationships. Two of those are the team structure and the matrix structure.
Traditionally, vertical organizations departmentalize people according to functions such as finance or marketing. The matrix structure retains the vertical hierarchy but adds a horizontal element. Employees each belong to two departments -- a permanent functional department and a company division responsible for a product, program or project. The teams draw members from different functional departments. Unlike the matrix, the product team structure abandons the vertical element, relying solely on cross-functional teams. These teams focus on creating a product or product part. This method of departmentalization produces a flat organizational structure that removes most, if not all middle management positions.
An important goal in creating an organizational structure is establishing a chain of command. Employees must know who reports to whom and who bears responsibility for results. In the product team structure, several teams report to one manager, but authority and decision-making rest primarily in the hands of team members. The matrix structure, meanwhile, assigns employees two managers. First, employees report to their respective functional managers. Employers also report to the divisional manager charged with oversight of the project, product or program to which employees are assigned.
The main disadvantage of the matrix structure lies in the doubled supervision of employees. It creates potential conflicts of loyalty and competition between functional and divisional goals. Product teams avoid this disadvantage, but the self-reliance of the teams means their output depends on employee training and expertise. Employee development must be an ongoing commitment. The product team structure also necessitates a lot of meeting time. The divisions in the matrix structure also demand meeting time, but some loss of efficiency is regained by retaining functional departments. Grouping functions provides economies of scale.
Besides economies of scale, the matrix structure avoids waste, because retaining functional departments means resources don't have to be duplicated between divisions. In the traditional structure, functional departmentalization equals rigidity and control. By combining it with cross-functional divisional departments, the matrix structure retains functional control while adding flexibility, since division members can be reassigned as conditions dictate. The product team organizational structure boasts even more flexibility. Without a bureaucracy to bog things down, decisions are quick and employees are rapidly deployed. The product teams empower employees who respond by showing initiative, commitment and high morale. Product teams tend to innovate.