Lost in the Matrix

One of the biggest innovation challenges faced by most large corporations is that they organize in a matrix structure.

In this scheme, product management, branding, and sales are typically aligned vertically, and support functions, such as legal, HR, marketing, finance, and IT, are usually horizontal. Thus, for example, a person handling legal operations often has two reporting lines: one to the head of product (who has revenue accountability) and the other to the head of legal (whose job it is to ensure consistency across numerous products). The support functions rarely use cross-functional teams. 

Typically, the internal data these operations handle exists in silos. At one point, Citigroup had more than 300 different customer databases, with each product team (e.g., mortgages, loans, savings) jealously guarding their data from others in the same company.

The appeal of this model is obvious: it is great for command and control, and that’s what management loves even more than productivity.

On the other hand, the matrix structure is terrible for accountability, speed, and risk tolerance. Every time an innovative or ambitious employee tries to do something fresh and new, that employee has to obtain authorization from all the risk-averse managers in HR, legal, accounting, and much of the rest of the management ranks. That process takes time, and approval typically depends on a veto held by one or two people with the least amount of intelligent and useful data on the proposed project. This, of course, naturally leads to proposals with facts and figures “massaged” to beat the system at the cost of a realistic chance of success. Eventually, that innovative or ambitious employee gets so tired of such a dysfunctional process that they typically either quit or get fired.

Salim has observed another major issue with matrix structures: over time, power accrues to the horizontals. Because HR and legal value conformity over innovation, they have little incentive to say yes. Thus, over time, their default answer becomes a blanket “no” (which is why HR is often referred to as “inhuman resources”). It’s not that HR people are bad people. But, over time, their incentives end up at cross purposes with those of product managers.