1021 Mize Pres

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The Horizontal Organization

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THE HORIZONTAL ORGANIZATION

MIT Course 16.852J/ESD.61.J – Fall 2002

Dr. Joe H. Mize

October 23, 2002

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REFERENCES Portions of this presentation were adapted from the following:

Ostroff, Frank, The Horizontal Organization (New York, Oxford University Press, 1999)

Hammer, Michael, Beyond Reengineering (New York, HarperBusiness, 1996)

Hammer, Michael, “Process Management and the Future of Six Sigma”, MITSloan Management Review (42:2, Winter 2002)

Majchrzak, Ann and Qianwei Wang, “Breaking the Functional Mindset in

Process Organizations”, Harvard Business Review (Sept – Oct 1996)

Galbraith, Jay, Designing Organizations (San Francisco, Jossey-Bass, 2002)

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ORGANIZATIONAL STRUCTURE

• Comprises the organizational components (units), their relationships and hierarchy

• Portrays where formal authority and power are located

• Provides a “home” and identity for employees

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FUNDAMENTAL QUESTIONS REGARDING

ORGANIZATIONAL STRUCTURE

• Who goes where?

• What do they do?

• What are the positions and how are they grouped?

• What is the reporting sequence?

• What is each person, and each unit, responsible for?

• How does authority/accountability flow?

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DEPARTMENTALIZATION

Definition: The grouping of employees

Bases for departmentalization• by function or specialty

• by product line

• by customer/market segment

• by geographical area

• by work flow process

• combination

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Functional Organization StructurePresident

Finance Legal

HR Corporate Develoment

Public Relations Product MarketingCustomer Support Research & Development

Production Operations Distribution

Receiving & Storage

Quality Assurance

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Product Oriented Organization

Structure

President

Finance HR

Accounting Accounting

Production Production

Marketing Marketing

CD Cabinets Disk Boxes

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Geographic Oriented OrganizationStructure

President

Finance HR

Accounting Accounting

Production Production

Marketing Marketing

Western Division Southeas Division International

Europe

South America

Asia

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Process Organization Structure(Horizontal Organization)

General Manageer

New Product Development Process Order Fullfillment Process Customer Acquisition and Maintenance

New Product Teams Product Teams Customer Teams

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VERTICAL (FUNCTIONAL) ORGANIZATION MODELInherent Shortcomings

• Internal focus on functional goals rather than outward-looking concentration onwinning customers and delivering value

• Loss of important information as transactions travel up and down the multiple

levels and across the functional departments

• Fragmentation of performance objectives brought about by a multitude of distinctand fragmented goals

• Added expense involved in coordinating the overly fragmented work anddepartments

• Stifling of creativity and initiative of workers at lower levels

• Slow responsiveness to changes in the external environment and to customer issue

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LEGACY OF THE INDUSTRIAL REVOLUTION

• A foundation of the I.R. was “specialization of labor”

• Business processes were decomposed into narrower and narrower tasks

• Efforts were focused on improving the performance of those individual tasks

• Organizational units (functional departments) also reflected this narrowspecialization

• Tasks – and the organizations based on them – formed the basic building blocks of 20th century enterprises

• We lost sight of the totality of the business processes

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TASKS vs. PROCESSES

• Same as “Parts vs. Whole”

• A task is a defined unit of work, usually performed by one person or small group

• A process is a related group of tasks that together create an outcome of value to a

customer

• Only when all the tasks are performed together as a wholistic process is value

created

• When rewards are based on task performance, the total process performance will

usually be sub-optima

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MAJOR (CORE) BUSINESS PROCESSES

Core Processes

• end-to-end work, information and material flows

• extends across a business (and even beyond the business boundaries) and drives the

achievement of fundamental performance objectives to an organization’s strategy

• usually no more than 4 to 10 in a typical organization

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TYPICAL MAJOR (CORE) BUSINESS PROCESSES

Order Acquisition Process – transforms a sales potential into a firm order in hand

Order Fulfillment Process – transforms an order into delivered goods, a satisfied

customer, and the paid bill

Product Development Process – transforms a customer need and/or an advanced concept

into a manufacturable design that satisfies the value proposition

New Business Development Process – transforms technological and conceptual

advancements into new businesses

Customer Support Process – transforms customer concerns and needs into value-adding

solutions

Major processes are divided into sub-processes, which are then

describable in terms of basic tasks or activities

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FUNDAMENTAL PRINCIPLES FOR

ORGANIZING HORIZONTALLY

• Organize around cross-functional core processes, not tasks or functions

• Map processes, eliminate waste

• Re-deploy personnel and resources

• Install “process owners” who have responsibility for an entire core process

• Make teams, not individuals, the basis of organizational design and performance

• Empower individuals and teams to make decisions directly related to their activitiesin the work flow; provide essential training and education

• Ensure cross-trained work teams

• Retain down-sized functional units as “centers of excellence” for expertise and career-path “homes” for professionals

• Measure for end-of-process performance objectives (which are driven by the valueproposition)

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COMMON CHARACTERISTICS OF

HORIZONTALLY STRUCTURED ORGANIZATIONS

•Core processes group employees according to the sets and scope of multiple skillsneeded to meet performance objectives

•Teams constitute the fundamental units of the organization and are largely self-supervised

•Process owners are responsible for leading and managing the entire core processes

•The primary focus is external rather than internal, emphasizing the delivery of thevalue proposition to customers

Value Proposition Definition

The set of benefits an enterprise offers at a price attractive to customers andconsistent with its financial goals

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ADVANTAGES OF CORE PROCESS GROUPING

• Eliminates the numerous handoffs that occur in functionally organized

companies

• Facilitates a tight alignment with what the customer wants

• Highly compatible with the “lean paradigm”

• Fewer levels of hierarchy, reduced “overhead” effort

• Facilitates agility, rapid re-configuration, as external environment changes

• Performance measures and incentives/rewards can be tied more directly to

tangible, measurable work progress

• Enhances morale

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HORIZONTAL (PROCESS-ORIENTED) ORGANIZATIONS

Question: “Do they really work?”

Answer: “Yes, provided . . .”

See HBR article by Majchrzak and Wong

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PROCESS-COMPLETE DEPARTMENTS

Definition: Departments that are able to perform all the cross-functional steps

or tasks required to meet customers’ needs

• product design

• manufacturing

• supply chain

• support tasks

• interfaces with customers

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Sample size: 86

31 were “process-complete”

55 were functionally organized

Primary Measured Variable: Cycle Time

Result: Process-complete departments had shorter cycle times only if theirmanagers had taken steps to cultivate a collective sense of responsibility

Result: Those process-complete departments which had not taken such steps had

longer cycle times than the functionally organized departments

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MEANS OF FOSTERING COLLECTIVE RESPONSIBILITY

• Structure jobs with overlapping responsibilities

• Arrange work areas so that people can see each other’s work

• Base incentives/rewards on group performance

• Design procedures so that employees with different jobs are better able to

collaborate

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CONCLUSIONS FROM STUDY

1. Restructuring by process can lead to faster cycle times, greater customer

satisfaction, and lower costs, but only if the organization has a collaborative culture

2. If companies are not willing to change their culture, they may be better off

leaving functional departments intact

GENERAL CONCLUSIONS

1. Process oriented organizations are superior to functional organizations for many

situations2. “One size does not fit all” in organizational focus. There are still many situations

in which the classical vertical organization is superior

1021 Mize Pres

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