Here is a brief excerpt from an article written by Tom Peters for the McKinsey Quarterly, published by McKinsey & Company (September 1979). In this archive classic, he examines the flaws of the matrix-organization design and explores several more effective approaches to implement no more than one or two essential corporate thrusts at a time.

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“Our historical cost advantage is lost; the only way we can stay in the ball game is to optimize our production facilities worldwide.”

“But you can’t close the Livorno plant! The moment you do that, they’ll hit us with special tax regulations.”

“I’m sick and tired of that ‘every country is different’ routine. We’ve got to have a uniform worldwide product image, and that means . . .”

Insoluble conflict? The chief executive of a consumer-goods company decided a few years ago that he saw a way to resolve such differences between managers. He had just read about matrix organizations and concluded that a matrix structure would, in effect, leave managers no option but to interact effectively with each other—not only “vertically” with their line superiors and subordinates, but also “horizontally” with their peers along major financial, geographic, product and/or segment dimensions. Everyone would have to talk to everyone else. The ideal solution, he decided, after much thought. So he took the plunge.

Three years later, however, the company was losing momentum faster than before. Major issues were taking longer to resolve, and the CEO was constantly called in to referee disputes between product-line, geographic, and functional chiefs. Too often, what tardily emerged from the decision process was a lowest-common-denominator political compromise. Top managers were spending more time than ever before in meetings or in airplanes taking them to and from meetings. Gamesmanship and political jockeying were widespread. The volume of detailed analysis, by the CEO’s own careful assessment, had nearly doubled; much of it seemed to be aimed at “nailing” the other guy on trivial points. Buck-passing had become a fine art; the product managers blamed the production people, and vice versa. It was tougher than ever to get products to market; new product opportunities were slipping by time and again because engineering would never let go.

In short, the CEO had never been so frustrated, so aware of managing a bureaucracy. He could no longer pin responsibility for results on anyone, and nobody but him seemed to be worrying about the big picture.

The organizational evolution

Much the same story has been enacted in many large corporations in the past few years. Up through the early 1950s, most companies were functionally organized. The postwar boom and subsequent economic growth led to mushrooming product lines and organizational complexity. During the late 1950s and 1960s, many companies sought to regain control and achieve “product-line rationality” by shedding their traditional functional organizations for a divisional structure based on the model initiated by General Motors and DuPont in the 1920s. For most the move proved successful; strategies became more coherent and divisional managers could be held broadly accountable for their operations.

In the mid-1960s, however, longer-range, more elaborate capital-investment projects called for a partial recentralization of corporate decision making. As a result, neither staff (planning) nor line (division management) could be held clearly responsible for medium- or longer-term performance.

New threats to divisional autonomy had appeared in the 1970s, as requirements imposed by foreign governments hampered businessmen’s efforts to maintain the integrity of their product lines worldwide. At home, proliferating regulations from the Occupational Safety and Health Administration, the Department of Energy, the Environmental Protection Agency, and other governmental agencies demanded centralized corporate response. Problems arising from product-line growth and attendant shorter life cycles called for more attention by headquarters to various engineering and manufacturing issues.

Typically, business’s response went through three phases. In Phase 1, inspired perhaps by the spectacular success of project management in the Polaris missile program and the even greater triumph of NASA’s moon-shot project, companies first set up “project teams” as a means of securing a coordinated functional, geographic, and divisional response to various current threats. Teams and task forces multiplied, often doubling or tripling in number in the space of a few years. As the teams proliferated, the sense of urgency that had attended their creation began to evaporate, established channels of responsibility and authority began to be blocked or bypassed, and teams began to get in each other’s way. Clearly, something had to be done to regularize matters again.

In Phase 2, matrix was embraced by an influential minority of large and sophisticated companies as the only organizational answer. For some, however, the honeymoon promised by matrix never materialized, as the examples in the exhibit indicate. For others, the honeymoon was quickly succeeded by the disillusionment of Phase 3, the situation described at the beginning of this article. Some CEOs reacted to Phase 3 by calling in behavioral scientists. “Team building” and “conflict management” became the order of the day. But the objectives of these efforts were unclear, and the headaches only got worse. In other companies—mostly giant corporations boasting “advanced” matrix organizations—open conflict was replaced by a silent battle of memos and “economic models.” Organizational Maginot Lines were built. Bureaucracy burgeoned and corporate performance continued to deteriorate.

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In short, the matrix “solution” had brought with it problems at least as knotty as those it was supposed to cure. But no fresh alternative was in sight. Indeed, a look at the postwar evolution of corporate structures—from functional to divisional to matrix—suggests that the end of the line has been reached. The first dominant form featured functional autonomy; the second, product autonomy. The third, promising to combine the advantages of both, often bogs down hopelessly in practice. Given the cloudy record of matrix, where can a company go?

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Here is a direct link to the complete article.

Tom Peters was a principal in McKinsey’s San Francisco office, who served at the firm from 1974 to 1981. He is the author of numerous books on business management, including his seminal work, coauthored with Robert H. Waterman Jr., In Search of Excellence: Lessons from America’s Best-Run Companies (Harper & Row, 1982). To learn more about him, please click here.