Dotted lines add a bit of complexity for certain. If the group at each end of the dotted line understands the objectives and the scope of that dotted line - I think it works well.

If a Project Manager, for instance, does not fully grasp the project or the resources available, it can become quite messy. The same holds true for anybody connected by a dotted line. Understanding of your realm of responsibility and overall goal of the team created by those dotted lines helps a lot. Good communication doesn't hurt either.