You'll face many issues when transitioning from a Waterfall environment to a Scrum framework. One is the temptation to retain the reporting structure of traditional line managers can create several challenges. You'll need to remove these line managers to allow the Scrum team to self-organize and increase the transparency and effectiveness of its inter-communications.
When transitioning to an Agile/Scrum environment and forming a Scrum team, line management functions should also be removed. Line managers from a Waterfall environment typically head groups of specialized people who report directly to them. For example, they are typically head of the Project Management office, head of the Product Owner office, head of Business Analysts, and so on.
If you don't remove these managers, the first problem that you'll encounter is that the team members will be reporting to different department heads. The department heads may retain their old, familiar style of management and continue to think one-dimensionally, in line with only those reporting directly to them. They may not consider the need to communicate with other managers as greater or more critical communication needs arise across the teams. Because they are communicating with direct reports, they will not have a clear and complete picture of the needs of the entire team.
Communication is also stifled within the team; team members feel obligated to report to their individual managers on status and roadblocks rather than report an accurate status to the team that they are accountable to. This reporting structure is in direct conflict with the teams' self-organization and accountability to each other.
Therefore, when creating a Scrum team from a former Waterfall environment, remember to choose the ScrumMaster or product owner carefully. Particularly if considering a former project manager, look for someone who can step back and let the team self-organize.