A matrix organization is one where functional leaders are responsible for more than one area. Employees report to both their immediate manager and a cross function leader. This type of organization is known as a matrix because when the relationship between an employee and the management team is illustrated on a diagram it is in a matrix square.
A hierarchy organization is where one person manages direct reports and those reports manage direct reports in a cascading responsibility. A hierarchy organization looks like a pyramid when illustrated, as opposed to the square that a matrix organization forms. Matrix organizations, however, utilize a cross functional approach.
Cross functional teams work with shared responsibility for both projects and traditional tasks. For example, a buyer in a hierarchy organization works in a procurement department and reports directly to the purchasing manager. In a matrix organization, the buyer would report to two bosses. One would be the traditional purchasing manager and the other may be the manager of a project the buyer is assigned to.
Often in matrix management there is a distinction between the solid line manager and dotted line manager. This is to make it easier for the employee to understand the reporting structure. The solid line manager is typically the functional manager and will not change. In the purchasing example, the solid line manager is the purchasing manager. The solid line manager handles day-to-day issues such as vacation requests and, in most cases, delivers performance appraisals.
The dotted line manager may be a project manager who is coordinating many different departments on a specific project. The employee would report to the dotted line manager for issues regarding that project only. Once the project is complete, the project manager is assigned to a new project that may or may not include the same team of employees as before. The employee may also move on to a new project run by a different manager. In that case, the new project manager would replace the previous dotted line manager while the solid line manager remains the same.
There are several benefits to a matrix organization. Faster communication is one advantage of this style organization because each functional area is working together for the same goal. This makes the project team more efficient since they do not have to go through separate management chains to get information. The outcome of projects is also typically more successful in a matrix environment because area experts are gathered together with a specific goal in mind and can collaborate without outside influence.