Q3.

Matrix Structure and Control

Matrix Organization Structure combines the coordination and control of the decentralized structure
with the technical excellence economies of scale of the functional structures to reap the benefits of
both. While managing complex programs as in large high-technology programs, complex products
and services and multinational business, organization face several coordination problems. A matrix
avoids such problems as the total responsibility for achieving the goals and objective of the program
lies with Program Manager but must share resources from the various functional heads. The
functional managers assigned to the projects are administratively reporting to the Project Manager but
functionally to the Function Head.
The distinguishing feature of the matrix structure is thus the dual dimensions of management
embodied in it. The structure of a Matrix Organization is given below:

The outputs produced by the organization may be identified in the rows of the matrix while functional
inputs utilized by each project may be identified in the columns of the matrix. The total outputs of the
functions are found in the last column of the matrix.
Though the Project Manager assumes full responsibility for delivery of a product which meets
performance specifications he does not have direct authority over the functional organization that
actually performs the work. The functional personnel thus operate under the knowledge-based
authority of the function and the resource-based authority of the Project Manager. This may create a
friction in the course of the work but it is up to the Project Manager to use it as a creative friction to
further the goals of the program.
The matrix organization structure is suitable for projects which are not large enough to warrant a fully
decentralized set-up, with all functional managers under each project. Decentralization may result in
loss of scale economics, by way of duplication of functional services for several projects. The matrix
structure is suitable for projects of short duration.

Advantages:
1. Ensures better coordination and control of the decentralized structure along with achieving
technical excellence and economies of scale of the functional organization.
2. Fosters creativity and multiple sources of diversity
3. Broader middle-management exposure to strategic issues of the business
4. Acts as a good training ground for future leaders.
Disadvantages:
1. Dual accountability as explained above, which may create confusion
2. Necessitates tremendous horizontal and vertical coordination
3. Difference in orientation between Program and Functional personnel. The functional person may
aim for high technical performance not warranted by project requirement
4. Diffuse responsibility as responsibility is distributed between program and functional personnel
becomes difficult to administer system of accountability, leading to potential conflict
5. Program personnel may have a sense of insecurity as soon as a project is completed and this may
lower their morale
6. The design of the reward structure for program and functional personnel is a ticklish issue which
should be worked out in a fair and transparent manner to satisfy all.
We must not forget that the management control system is for the organization and not the
organization exists for management control system. One has to mold and remold the management
control system to suit the given organization structure.

Goal congruence is the term which describes the situation when the goals of different interest groups
coincide. A way of helping to achieve goal congruence between shareholders and managers is by the
introduction of carefully designed remuneration packages for managers which would motivate
managers to take decisions which were consistent with the objectives of the shareholders. Agency
theory sees employees of businesses, including managers, as individuals, each with his or her own
objectives. Within a department of a business, there are departmental objectives. If achieving these
various objectives also leads to the achievement of the objectives of the organization as a whole, there
is said to be goal congruence.
integration of goals and effectiveness when team building
The extent that individuals and groups perceive their own goals as being satisfied by the
accomplishment of organizational goals is the degree of integration of goals. When organizational
goals are shared by all, the term goal congruence can be used.
To illustrate this concept, we can divide an organization into two groups, management and
subordinates. The respective goals of these two groups and the resultant attainment of the goals of the
organization to which they belong are illustrated in Figure 1.

In this instance, the goals of management are somewhat compatible with the goals of the organization
but are not exactly the same. On the other hand, the goals of the subordinates are almost at odds with
those of the organization.
The result of the interaction between the goals of management and the goals of subordinates is a
compromise, and actual performance is a combination of both. It is at this approximate point that the
degree of attainment of the goals of the organization can be pictured.
This situation can be much worse when there is little accomplishment of organizational goals, as
illustrated in Figure 2.

In this situation, there seems to be a general disregard for the welfare of the organization. Both
managers and workers see their own goals conflicting with those of the organization.

Consequently, both morale and performance will tend to be low and organizational accomplishment
will be negligible. In some cases, the organizational goals can be so opposed that no positive progress
is obtained.
The result often is substantial losses, or draining off of assets (see Figure 3). In fact, organizations are
going out of business every day for these very reasons.

The hope in an organization is to create a climate in which one of two things occurs. The individuals
in the organization (both managers and subordinates) either perceive their goals as being the same as
the goals of the organization or, although different, see their own goals being satisfied as a direct
result of working for the goals of the organization.
Consequently, the closer we can get the individual's goals and objectives to the organization's goals,
the greater will be the organizational performance, as illustrated in Figure 4.

One of the ways in which effective leaders bridge the gap between the individual's and the
organization's goals is by creating a loyalty to themselves among their followers. They do this by
being an influential spokesperson for followers with higher management. These leaders have no
difficulty in communicating organizational goals to followers and these people do not find it difficult
to associate the acceptance of these goals with accomplishment of their own need satisfaction. accelteam.com
Achieving Goal Congruence

Goal congruence can be achieved, and at the same time, the agency problem can be dealt with,
providing managers with incentives which are related to profits or share price, or other factors such
as:
Pay or bonuses related to the size of profits termed as profit-related pay.
Rewarding managers with shares, e.g.: when a private company goes public and managers are
invited to subscribe for shares in the company at an attractive offer price.
Rewarding managers with share options. In a share option scheme, selected employees are given a
number of share options, each of which gives the right (after a certain date) to subscribe for shares in
the company at a fixed price. The value of an option will increase if the company is successful and its
share price goes up.
Such measures might encourage management in the adoption of creative accounting methods which
will distort the reported performance of the company in the service of the managers own ends.
However, creative accounting methods such as off-balance sheet finance present a temptation to
management at all times given that they allow a more favorable picture of the state of the company to
be presented than otherwise, to shareholders, potential investors, potential lenders and others. An
alternative approach is to attempt to monitor managers behavior, for example, by establishing
Management audit procedures, to introduce additional reporting requirements, or to seek assurance
from managers that shareholders interests will be foremost in their priorities. Abbey Francis

What is 'Economic Value Added - EVA'

Economic value added (EVA) is a measure of a company's financial performance based on the residual wealth
calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis. EVA can
also be referred to as economic profit, and it attempts to capture the true economic profit of a company. This
measure was devised by Stern Stewart and Co.

Calculating EVA
The formula for calculating EVA is: Net Operating Profit After Taxes (NOPAT) - Invested Capital * Weighted
Average Cost of Capital (WACC)
The equation above shows there are three key components to a company's EVA: NOPAT, the amount of capital
invested and the WACC. NOPAT can be calculated manually but is normally listed in a public company's
financials. Capital invested is the amount of money used to fund a specific project. WACC is the average rate of
return a company expects to pay its investors; the weights are derived as a fraction of each financial source in a
company's capital structure. WACC can also be calculated but is normally provided as public record.
The goal of EVA is to quantify the charge, or cost, for investing capital into a certain project, and then assess
whether it is generating enough cash to be considered a good investment. The charge represents the minimum
return that investors require to make their investment worthwhile. A positive EVA shows a project is generating
returns in excess of the required minimum return

The Benefits of EVA

The purpose of EVA is to assess company and management performance. EVA champions the idea a business
is only profitable when it creates wealth and returns for shareholders, and requires performance above a
company's cost of capital.
EVA as a performance indicator is very useful. The calculation shows how and where a company created wealth,
through the inclusion of balance sheet items. This forces managers to be aware of assets and expenses when
making managerial decisions. However, the EVA calculation relies heavily on the amount of invested capital, and
is best used for asset-rich companies that are stable or mature. Companies with intangible assets, such as
technology businesses, may not be good candidates for an EVA evaluation.