2014 International Matrix Management Institute, LLC

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2 To enhance cross-functional cooperation To better serve the external customer To reduce operating costs To manage and improve the implementation of initiatives To grow the business To merge with a new business To align around a new strategic plan Almost every one of those restructuring efforts results in chaos and confusion before, during and especially after the restructure is completed. All too often, neither leaders nor professionals know how to operationalize the new structure. Additionally, restructuring efforts rarely solve the problems they were intended to address; they just substitute new problems for the old ones. A typical solution is to restructure again, which creates more problems, so another restructure is rolled out, and the cycle continues. Isn t it time to try something different? The most common view of organizations is one-dimensional. As far as most leaders are concerned, there is only one dimension and that is the vertical dimension. This is the dimension represented on the org chart. What does the org chart show? Take a minute to think about it. It shows who reports to whom. It shows which group of people work in which area or department. But what s missing? How about customers? Products and services? Business processes and initiatives? Suppliers? All the elements that are the core to running any organization differently. An organization turns inputs into outputs for customers. This is true of profit, nonprofit and governmental organizations. The basic difference in these types of organizations is who is paying the bills. An organization is run in the horizontal dimension and so it should be managed horizontally. It also needs to be structured horizontally. A medium-sized pharmaceutical company restructured into a centralized supply chain where none had existed in the past. The product groups, who had people reporting directly to them, were restructured into a formal matrix in which the product team members reported to the regional manufacturing plants instead of the product manager. The people had not changed, just the reporting relationships. In the new structure, the product managers no longer had authority over the members of their teams. The organization was paralyzed because the product managers did not understand how to operate without authority.

3 2 Most restructuring efforts focus on moving the boxes around on the org chart. For example Having a local group report to a regional manager Combining Sales and Marketing Centralizing Engineering Decentralizing IT Support This effort only changes who reports to whom. Why do organizations spend millions of dollars changing reporting relationships? Are those relationships really that important? They are when the vertical dimension is the only dimension being used. And so, organizations continue to restructure the vertical dimension to address operational challenges. Why? Because the organizational operating system most organizations use requires authority to get things done. In this environment, people need to be in the department or business unit where decisions related to their work are made. Redesigning the organization is more than just moving boxes on the org chart.

4 3 Like computers, organizations run different organizational operating systems, some more effective then others. An organizational operating system consists of a set of premises, principles and practices that guide the running of an organization. An organizational operating system is like an operating system used to run a computer. It is the platform that runs software applications enabling users to work more effectively. Running Microsoft Office on an out-of-date operating system like MS-DOS will not be as effective as running it on a more current operating system. Vertical Management 1.0 (VM 1.0) is an outdated organizational operating system based on the premise that authority is needed to get work done. This premise keeps everyone focused on the vertical dimension. As a result, organizations running on VM 1.0 focus on modifying the org chart to address operational challenges. In VM 1.0, reporting relationships are very important.

5 4 Three reasons why a one-dimensional focus is not effective for matrix organizations Positions on an org chart are represented by one box, and a box is in one area or another. Sally either reports to Human Resources or to a business unit, but not both. If Sally is in Human Resources, she gets her direction from the human resources director. If she reports to the business unit, she gets her direction from the business unit leader. She is on one team or the other. The challenge is that Sally needs to work with both teams, and the org chart alone does not support that need. Most professionals have job responsibilities that can be accomplished mostly within their vertical unit, and then they work on projects that cross functional boundaries. Leaders typically collaborate with multiple functional groups. With VM 1.0, professionals and leaders are aligned to the vertical unit they report into. The goals of that vertical unit take priority over everything else. This optimizes individual vertical areas and suboptimizes the organization as a whole. Restructuring the vertical dimension does not address the needs of cross-functional teams. Some organizations implement dual reporting in an attempt to provide authority relationships for more than one leader. This frequently results in mixed messages and competing priorities. Gaps created by vertical silos are not eliminated by restructuring the vertical dimension. Gaps between vertical functions exist in the horizontal dimension, where work gets done. Managing those gaps requires a two-dimensional solution.

6 5 When most leaders hear the term matrix management, chances are they associate it with the concept of dual reporting. This operating system is referred to as Matrix Management 1.0 (MM 1.0). MM 1.0 was invented in the 1980s in an attempt to manage projects and products that crossed vertical boundaries. MM 1.0, like VM 1.0, is based on the assumption that authority is needed in order to lead. The dual reporting solution provides two leaders with the authority over a single direct report. Authority is only useful when one person has the final say. Dual reporting just puts the direct report in between two competing authorities who typically have two competing sets of priorities. It is a no win situation and not a solution to managing the horizontal dimension. Most organizations operate in two dimensions and need to use an organizational operating system that addresses both dimensions. The horizontal dimension is the dimension of suppliers and customers, products and services, operating processes and projects. It is the dimension where the work gets done to produce the products and services that generate income for the organization. The vertical dimension is the dimension where resources are housed and where capacity and capability are managed. In the vertical dimension People are trained and allocated to project and process teams Technology is managed Standards are created and upheld

7 6 Work gets done in the horizontal dimension where inputs are converted into outputs for customers. Organizations need to use an organizational operating system that focuses on the horizontal dimension. Matrix Management 2.0 (MM 2.0 ) is a two-dimensional organizational operating system, and it s the only organizational operating system that creates structure for both the vertical and horizontal dimensions. MM 2.0 includes best-practice thinking related to project and business process management, relationship management, collaborative leadership and a cutting-edge approach to matrix management. The framework for the MM 2.0 operating system is organized around five keys to success, SPARC : 1. Structure 2. Productivity 3. Accountability 4. Relationship Management 5. Collaborative Leadership See the SPARC Keys on the next page. The MM 2.0 Structure Key (S Key) provides a new approach to structuring an organization. This approach focuses on the horizontal dimension and then creates a vertical structure to support it. In addition to updating the S Key, a successful restructuring also requires leaders to address and update the Productivity and Accountability Keys. The Structure, Productivity and Accountability Keys together enable the organization to align both dimensions with the strategic priorities.

8 7 MM 2.0 recognizes that an organization has two dimensions. The Structure Key adds structure to the horizontal dimension. The Productivity Key addresses the multiple management systems that need to be realigned to make a matrix work. The Accountability Key aims to produce cooperation not competition across the organization to deliver organizational and team goals. A matrix is a network of relationships. The Relationship Management Key focuses on identifying and managing relationships as partnerships. The Collaborative Leadership Key addresses the collaborative leadership skills needed in a matrix.

9 8 In MM 2.0, the horizontal dimension is the most important dimension since it is where the products and services that generate income for the organization are produced. The vertical dimension supports the horizontal dimension to ensure there is capacity and capability to execute that work. Matrix Management 2.0 adds horizontal structure to the existing vertical structure to enable two-dimensional operations. Horizontal structure in a matrix consists of interlocked steering council teams that govern the operations. There are three levels of horizontal governance that run the organization: executive, strategic and operational. The steering council teams are comprised of leaders who either lead the teams or participate on them. Team members do not report to anyone in the horizontal dimension, since horizontal relationships are dotted-line relationships. Leaders who are members of a steering council team maintain a permanent position in the vertical dimension along with responsibility and accountability tied to that role. Their primary role, however, is as a member or leader of one or more steering council teams. For a more extensive look into the Structure Key of Matrix Management 2.0 and the principles for horizontal structure, the Matrix Management 2.0 Body of Knowledge offers detailed information and can guide organizational leaders on replacing the outdated one-dimensional approach to restructuring with a new two-dimensional approach. The MM 2.0 Structure Key uses a new set of six guiding principles to design an organization that defines and executes strategy through cross-functional teams. 1. Structure the horizontal dimension to run the organization and the vertical dimension to manage resources and technology 2. Structure the horizontal dimension around the most important organizational sectors (a permanent segment focused on external strategy) and vectors (a major segment of focused on internal strategy) 3. Structure organizational governance in the horizontal dimension 4. Create interlocking teams whenever possible 5. Align the vertical structure to support the horizontal structure 6. Deploy goals throughout the horizontal dimension

10 9 Leading an organization down the restructuring path requires a shift in thinking, and an organizational design process that ensures alignment to the most important sectors of the organization. Matrix Management Institute s (MMI) MM 2.0 restructuring process is a team-based process that provides a unique roadmap for designing and implementing a two-dimensional structure. MMI s restructuring process is carried out in partnership with an organization s business leaders and a team of MM 2.0 experts. MMI uses a three-phased process to shift the thinking, design a structure that will work for the organization and identify the work effort needed to implement the change. During this phase, critical information is collected about the organization and its business goals. This not only ensures an understanding of what the organization does, but also creates the opportunity to see where the organization is still applying VM 1.0 and MM 1.0. This phase is used to learn what the senior leadership team hopes to accomplish through the restructuring effort and demonstrate to them that a new approach is needed to accomplish their goals. This information is also used to guide the creation of a customized restructuring plan. Strategic Interviews MMI team members interview six of the organization s top leaders. Through these interviews, the team gathers the necessary information about the organization needed to draft a Charter for the restructuring initiative and identify an internal champion and project leader for the design team. Diagnostic Assessment Next, the MMI online MM 2.0 Diagnostic Assessment tool is used to collect data from 30 to 50 of the top leaders about how the organization is operating. Using this data, a report is prepared assessing how the organization is applying MM 2.0 principles. This analysis guides the restructuring plan and identifies recommended updates to the Productivity and Accountability systems.

11 10 The main reasons organizational redesign efforts fail is because the leadership team does not commit to the change or to the need for a new approach. The concept of structuring and running an organization in the horizontal dimension is new for many leaders who often need to learn more before fully committing. The best approach for solidifying this commitment among a leadership team is to immerse them in an experiential program that demonstrates why a new approach is needed. Once they are see for themselves how an outdated system does not work, they typically move towards accepting the new two-dimensional approach, and can provide a go/no go decision demonstrating that readiness. Decision Facilitation The MMI team reviews the diagnostic report with the six leaders interviewed at the beginning of the initiative. If the leadership team decides to move forward, a design team is created and membership on this team is defined. MMI recommends the team consist of at least two organizational development professionals, preferably internal ones, but external consultants can be used as well, who will oversee the implementation phase of the project. Solidify Commitment with a Structured Working Session MMI s structured working sessions are highly experiential programs that demonstrates how the MM 2.0 organizational operating system works and why it is needed. During the session the following topics are addressed: Introduction to the basics of how a matrix is structured Required shifts to be successful Business strategy review Identification of top three strategic goals Key elements of horizontal structure Identification of key sectors and vectors for the organization At the conclusion, the leadership team once again decides whether to move on to phase 3 of the redesign effort. This is an important decision, as phase 3 takes a significant commitment of people and resources.

12 11 Six team-based collaborative design sessions create an environment for leaders to collaborate in building the right levels of horizontal structure needed to run their organization. These sessions Build leaders understanding of the new operating system Identify changes in the Productivity and Accountability Keys required to make the structure work Position leaders to take ownership of the solution As with any design project, stage gates and go/no go decisions are crucial to a successful launch. These working sessions produce the new organizational design and the implementation plan for executing it. Between each session, the design team continues to work on the restructuring design deliverables. Four hours of coaching are included to support the participants and answer any questions that arise. Structured Collaborative Team-Based Design MMI s team-based design process is broken down into six collaborative working sessions that produce the new organizational design and an implementation plan for executing it. MMI s certified matrix consultant partners with an organization s design project team in a series of two-day working sessions, preferably held off-site. These sessions are typically held at two-week intervals, but can be modified based on the needs of the organization, the design deadlines, and the complexity of the design. For smaller organizations, it may be possible to complete the design in less than six sessions, while more sessions may be needed for larger or more complex organizations. See the Team-Based Design Roadmap on the next page.

13 12 Strategic Level Session 1 Review of diagnostic assessment data, interview data, charter, etc. Map the horizontal dimension and identify sectors Analyze sectors and identify stakeholders Consider high-level design options and determine the best possible solution Operational Level Session 2 Review feedback from Executive Steering Analyze customer/supplier process maps Review segments Brainstorm operational design options and select best possible solution Complete an adoption assessment to determine adoptability of selection Vector Steering Design Session 3 Review feedback from Executive Steering Examine segment accountability Identify vector and identify portfolios for each vector Design vector steering Set criteria for initiative selection within each vector Vertical Structure Session 4 Review feedback from Executive Steering Examine vertical structure and define its role within the new matrix structure Define accountabilities for vertical leaders Review internal governance to ensure support of the horizontal structure Identify implementation project structure and team leads Management System Design Session 5 Implementation Planning Session 6 Review feedback from Executive Steering Evaluate accountability and performance management systems Redesign accountability systems Define key components of a new performance management system Review feedback from Executive Steering Evaluate accountability and performance management systems Redesign accountability systems Define key components of a new performance management system

14 13 Matrix Management Institute is a global leader in matrix management technology and creator of Matrix Management 2.0, the only two-dimensional organizational operating system. Our expert consultants and trainers understand the challenges leaders face in matrix organizations and deliver the management systems and solutions needed to position teams to execute organizational strategy in the most effective and efficient way. To learn more about MMI s restructuring program, please call 1 (512) Visit our website at