- How strategy affects structure
- Customer intimacy
- Product leadership
- Operational excellence
- The flow of information and work
- Some views of structure
- The structural lenses
- What a firm does
- Overall structure
- Work coordination
- Organizational culture
How an organization is structured has enormous consequences not only for the success of its business but, also, for the success of its employees.
Though it is obvious why understanding organizations is critical to business success, nevertheless it is worthwhile to review these reasons. The structure of a firm either enhances or hinders efficiency and productivity. In other words, how information flows and to whom, whether and how many parts of the work process is redundant, how clear and precise is the reporting structure, if and how new ideas and products are promoted - these and many more issues are obvious consequences of structure and profoundly affect the success of the business.
What may not be as obvious but is clearly as influential is how organizational structure either supports or blocks employee behavior. There is many an employee who was terminated from one company to become a star in another similar position in a different enterprise. Why? In many cases organizational structure makes it impossible for such a worker to blossom and produce. For example, a dedicated but independent-minded employee will feel demoralized if she has to work with poor tools or machinery that frequently break. A repetitive simple-minded work assignment will dull the instincts of many good workers. The creative employee who doesn't find a fertile field in a company for his ideas will find more challenging opportunities elsewhere. The list of examples can go on and on.
There are four basis elements or categories in the analysis of the structure of an organization. They include:
- The firm's vision and strategy (whether explicit or not)
- The flow of information and work (including all systems, from vendor relations to customer service and everything inbetween)
- The culture of the organization
- Its people (their selection, qualification, compensation, promotion, career pathing, their succession)
We will touch on the important highlights of the first three categories. The fourth element, a firm's people, will not be covered in this program.
There are innumerable ways at looking at strategy and its components. Our focus here is not on strategy per se, but rather on how strategy is translated into a supporting and supportive organizational structure. A very useful way of viewing business strategy is to outline how businesses deliver customer value, which, after all, is the goal of every business. A recent Harvard Business Review article (January/February, 1993) by Michael Treacy and Fred Wiersma suggest three ways:
(1). Being "customer intimate", i.e. being able to anticipate customer needs and reacting accordingly.
(2). Providing product leadership, i.e. creating products and services that satisfy customer needs.
(3). Exhibiting operational excellence, i.e. continually improving how product and services are provided customers.
Each strategic aim requires a different structural focus. The strategies themselves overlap and, in fact, no one strategy is or can be pursued entirely in isolation from the other. To be successful requires a firm to actively seek excellence in at least one of the three strategies and to be good in the other two. The strategy that becomes prime for a company, however, has implications for its organizational structure.
"Customer intimacy" entails precisely segmenting and targeting markets, acquiring detailed customer knowledge, developing an operational flexibility that allows for immediate response to customer need, and securing tremendous customer loyalty. The value added component of this strategy is knowing the customer so well that what he/she needs is immediately provided.
For a business to pursue this strategy, what is demanded is a very responsive customer service department and a very active marketing and sales department geared to relationship selling. In fact, these departments drive the company. They are the firm's primary interface with the customer base. Customer information is continually solicited, sorted, ordered, and immediately distributed throughout the company so that it can be acted upon immediately. Information systems are state of the art. The recipients of this information have to be able to act quickly to stay on top. Thus, they have to be very team centered (to analyze the information and to translate it into new products and services), and they have to have a great deal of leeway with respect to decision making and authority (to respond promptly to customer needs).
A growing and successful construction company prided itself on building expensive homes geared to client needs and adaptable to client wants. However, client requirements were initially not addressed in depth, methods to solicit this information were not developed (e.g., the use of software that would enable clients to imagine "being inside the house" as it was being built), contact was initiated only when another payment was due, and only the owner could fix the final price of the house. The net result was that the owner, in effect, convinced buyers what they should want, thereby dramatically increasing the number of client-initiated changes as the clients along the way became clearer about what they wanted.
Information about customer-initiated changes was frequently communicated incorrectly or late to the field, even more increasing construction costs due to the need to undo work that had been already completed. Sales people were pre-empted at closing regarding sales price, making for rapid turnover of sales people and suspicious buyers, and many client complaints throughout the construction period. Needless to say, the cost of building the homes (which was, of course, passed onto the customer) also increased.
The firm's relative success was due to the fact that it was small enough to eventually determine what a customer wanted, as well as the fact that its competition in its geographical area was no better. However, this firm's growth is hampered by a mismatch of its strategy and its organizational structure.
In contrast, a truck parts firm divided its customers into three groups, from their "best" through to their "infrequent customer". They devoted a considerable amount of attention to what their "best customer" wanted and needed, and when what they wanted would be needed. Frequent personal interviews with their "best" customers were conducted by sales personnel (both at the in-house counter and on the road) and other senior managers to anticipate needs and concerns. The "infrequent customer" group was not neglected, but the information sought from and about them was minimal. Information, however, that was closely monitored were those transition points where a customer graduated to a higher "class" with the company and, also, where customer's business growth profile was changing.
This information was distributed throughout the firm, so that Inventory knew in advance what would be needed when, shipping knew what was to go out to whom when and with what priority, and Accounting knew the appropriate pricing schedules. Information transmission was instantaneous, decision making was local and immediate, and problems (in inventory, shipping, unusual demands, etc.) were anticipated or handled on site.
This firm's information system, personnel and departments were an exquisitely networked organizational structure. The phrase, "customer intimacy", would be an understated description of their organization's structure.
To pursue a strategy of "product leadership" entails delivering value through offering leading edge products and services, providing a stream of new products and services, and creatively adapting to new and changing marketing conditions while constantly pursuing new solutions on behalf of its clients and customers.
This strategy depends on an organizational structure that, among other things, is very research and development centered (if a manufacturing company) or extremely knowledgeable about the products and services currently being developed and considered in the market place. In addition, the firm's Sales & Marketing Departments must be part and parcel of their customer's business planning process so as to be able to anticipate future needs, to supply that need, to teach their customers new approaches and solutions to their problems, and particularly to be able to direct their customers into avenues they hadn't entertained on their own as being profitable directions.
In contrast to (but overlapping in certain respects with) the organizational structure demanded by a "customer intimacy" strategy, "product leadership" requires an organization that is not bureaucratic but rather quick to action and opportunistic in intent. Personnel tend to be organized into matrix teams that cross departmental lines since this type of structure provides the fastest response time. At the same time, since decision making authority is spread throughout the firm, risk management is carefully monitored.
In addition, in order to stay current with clients' long range plans to which their input could be invaluable, "relation selling" is essential. These firms have not only the sales force, but also as many other departments as they can, in their clients' planning meetings. The firm's personnel take on an advisory and consultative role, putting them in the position of informing their clients' strategic thinking and anticipating their needs.
An advertising and PR firm continually scans the marketing environment for new approaches to offer their clients and for creative talent with whom to partner either temporarily or long term. They are continually meeting with their clients to review these new approaches and the opportunities their newly discovered talent opens up.
In order to achieve this level of "service leadership", personnel are teamed into matrices, with each team having the responsibility to bring fresh ideas and directions to their clients. They joke about having offices at their clients because they are rarely seen in their home offices. Communication between team members is so crucial that each team has a designated person whose primary responsibility is to ensure that everyone knows what everyone else on the team is doing and to serve as a liaison to senior management. In addition, the teams convene regularly to review not only the latest presentations and their impact, but also what is out there in the market place, who is doing what, etc., and how can they partner or ally themselves with the talent that is out there.
Because the cost of this kind of process is high (e.g., voluntarily preparing project ideas with accompanying support material clients hadn't even initiated or requested), Finance is regularly consulted about each team's ROIs.
"Operational excellence" as a strategy emphasizes reliable and high quality products and services, competitive pricing, and minimal difficulty and inconvenience. This strategy entails a continual search for ways to minimize overhead costs, to eliminate intermediate non-value added steps, to reduce transactions costs, and, in general, to optimize business processes and work flow.
The organizational structural dynamics supporting "operational excellence" is in-ward looking: how to get quality product and service to the customer at the best, most competitive price by changing, tinkering, re-engineering, eliminating etc., what is done internally. Most of today's popular focus (the Baldridge Award, Total Quality Management, Continuous Improvement, Achieving Manufacturing Excellence, etc.) is devoted to this strategy.
This inward looking stance is reflected in an organization willing to look at itself, warts, scars, and all; training people to do so; continually measuring itself against specific goals and objectives; and revising and revamping itself accordingly. Clearly, then, this is an organization where employee empowerment is preached and practiced, team work is a sine qua non, training programs are the norm. All departments become equal partners in the quest for success. No one department dominates.
A large manufacturing company, in pursuing " operational excellence", was highly invested in continuous learning principles and re-engineering. Their first step was for senior management to develop a first draft vision of "The Company of the Future" utilizing scenario planning as a means of optimizing their ability to compete in the future. They then developed tentative goals (financial, productivity, etc.) and specific action programs that spanned the next several years. This plan was cascaded down through the firm. Its various departments were encouraged to give feedback about and to question the attainability of the goals and the feasibility of the action plans, as well as to consider the future vision. After another iteration sharpened these future maps, the departments then developed their goals and action plans that would contribute to the achievement of the corporate objectives.
A specific focus was on those activities that added value to their product, i.e., on work processes that could be "seen" and "experienced" as valuable by the customer, minimizing those activities (e.g., unnecessary lifting and moving of materials around the shop, duplication of steps in the order taking, etc.) that did not. Further, each work process was documented and reviewed on a regular basis to ensure efficiency and effectiveness. People were trained in skill areas that upgraded their skills and prepared them for advancement, working new machinery, supervising, etc. People were gradually transitioned from departments to matrix teams, with each team working on a different product line. Their task was to not only stay in touch with customers and what they needed, but to also anticipate future products and needs and to translate these into new products and services.
"Operational excellence" requires an organizational design that is fluid, with people and roles changing in response to the winds of the market. Only a company where employees are fully trusted and entrusted, trained and loyal, can successfully undertake this strategy. One reason most TQM and re-engineering projects fail is because the hosts lack this flexibility and are not willing to look in the mirror to see why.
We will not try to disentangle what is "pure information" from "pure work" since they overlap in so many areas. Thus, for example, a finished part arriving at the installers site is "informative"; to pull apart what is work from information would be an exercise in futility.
The basic theme underlying work and information flow has to do with "structure", or, a system of roads and highways over which information and work does indeed flow. Buildings present themselves as a ready analogy. The arrangement of the mortar, bricks, telephone lines, electrical outlets, elevator shafts, etc., making up a building can be seen as the elements of a building's structure. They determine where people will walk, how fast people get to their floors, the offices they occupy, the atmosphere (e.g., whether stark modern or warmly rustic), and the like.
In general, when we talk about organizational structure we do mean the physical, observable and traceable bricks and mortars. Organizational culture overlaps structure to a very great degree, but, for purposes of this course, they will be treated as separate.
The chart below offers a way of thinking, a lens through which to view an organization. Each of the lenses is pitched at a different level of analysis but all are connected. They differ by their level of generality. That any one falls within a larger one of the concentric circles means that it is assumed by that larger one, i.e., that the larger one is based on the smaller one, contains it, but goes beyond it in its reach. Thus, even though they are furthest apart, the lens of "What a Firm Does" is based on "Work Flow".
Which lens to use in analyzing an organization, division or department depends on what our goal is. For example, in a review of our corporate strategy, we might want to utilize "What a Firm Does" -- it gives us a nice overview of the firm's structure and what needs to be changed to accommodate strategy. A problem in quality might focus on "Work Flow" because that type of analysis gets into the nitty-gritty of things.
The enclosed article by Henry Mintzberg and Ludo Van der Heden entitled, "Organigraphs: Drawing How Companies Really Work", describes in detail how this lens produces information about a firm's actual functioning. It is a way of seeing how the outside and inside world work together, something the traditional organizational charts and work flow forms do not convey. Because of this feature Organigraphs are excellent bridges to a firm's strategic plans.
This section is adapted from Robert Keidel's book entitled, "Game Plans: Sports Strategies for Business", published by E.P. Dutton, New York, in 1985.
The overall structure of a firm can fall within one of three different types or can overlap several. These three types resemble the structure of sports teams so much so that it is uncanny. There are essentially three different types of business structures, and, correspondingly, three different types of sports teams: baseball, basketball and football.
(1). Winning "football" teams are characterized by:
- Systematic teamwork in each of their platoons (offense, defense and special teams) in which the performance of one person is very dependent on that of the other
- Meticulous planning and coordination because of the dependencies between the various aspects of the work flow
- Carefully designed interaction between players so that handoffs don't drop to the floor
- Specialized players playing on specialized teams
Manufacturing firms are organized around a "football" structure characterized by these features.
(2). "Basketball" teams require:
- Spontaneous and flexible teamwork
- Little top-down planning
- Spontaneous interaction between players
- Mutual adjustment by players to achieve cooordination
- Players who are able to perform all the various functions required of any one player, though at differing levels of ability
Advertising companies and creative departments frequently play "basketball". There may be individual stars within the group, but "victory" requires a great deal of coordination and teamwork.
(3). Organizations that play "baseball" exhibit:
- Situational teamwork, i.e., a particular "play" requires the squad to act as a team with certain players active, while subsequent "plays" require different players
- Little hierarchical planning
- Minimal and short-lived interaction between autonomous players
- Coordination being governed by the rules of the game, not as a result of top-down planning ("football") nor mutual adjustment ("basketball")
Sales companies and sales departments of companies are prototypical "baseball" players, each of whom can become a star independent of the quality of play of the remaining players and of the win-lose record of the team as a whole.
As you look closer at your organization, you begin to see how work is controlled and guided, thereby allowing its flow to follow one of the structural paths presented, i.e., "football", "baseball" or "basketball". These include the following:
(1). Mutual adjustment refers to the coordination of work by the process of informal communication. The control of work rests in the hands of the "doers" in the simplest organization to the most complex. Success depends groups and teams adapting to each other along an uncharted route, much like a group of people rafting down a turbulent river.
(2). Direct supervision involves the coordination of work by someone who takes responsibility for the work of others. The tasks supervisors undertake include planning, scheduling, allocating, instructing, monitoring actions. Mutual adjustments are not fully sufficient to co-ordinate work - thus the need for a supervisor to co-ordinate work tactics.
(3). Standardization of work processes occurs in all firms and industries, even in those companies that pride themselves on being "creative". The content of the work may vary from company or industry, but nevertheless work proceeds according to some set of standards. Standard processes facilitate automation, machine control and systems which demand little direct supervision. Workers require little supervision or even informal communication with peers (except to be sociable). Some work standards have discretion built in. For example, a retail buyer may be permitted to buy up to 10,000 worth of goods each month, but otherwise is left free to decide the range of goods to buy. A manager of a fast-food restaurant may have some discretion over staff rotation but none in terms of changing the menus, the decor nor displays.
Standardization, of course, is the heart of quality control, as we will see in that training module.
(4). Standardization of skills takes over when work or processes cannot be standardized. Control of work, then, is based on education and training and the sharing of values and ethical standards which inspire loyalty. Skills and knowledge are standardized through education and training before or after joining the firm. Where an organization invests in systematic training, not only policies, rules and values are being conveyed but also standard ways in which skill should be applied.
Professionalization is at the extreme end of the scale of skill standardization. The rigorous training that a doctor, lawyer or accountant receives provides admission into the club of the profession with its rules of behavior and ethical values. Workers may appear to be wholly autonomous when working, but "lines have been learned. For example, when the anesthetist and surgeon meet to remove an appendix, they might communicate more frequently through a nod and a wink than more complex explanations and discussions. Through training they know what to expect of each other.
The value of employee know-how and problem-solving ability is generally recognized in organizations wanting to improve product and service. Improving skill levels enables staff to undertake more complex work independently, rather than depending on direct and constant supervisory intervention.
(5). Standardization of outputs and results predetermines the fit between tasks. Work results can be specified by quality desired, conversion ratios, profitability, cost indicators, turnaround time, etc. For example, the performance on a project may not be specified, though, of course, progress may be monitored with an eye on the deliverables from each phase.
These five elements fall into a rough order. As organizational work becomes more complicated, coordination shifts from mutual adjustment to direct supervision, to standardization (preferably of work processes - otherwise, of outputs or else of skills).
The most basic of structural elements, the actual bricks and mortars, is how the development of products and services progresses from inception to delivery. This progression can be mapped using a set of standard icons and rules. A "process map" y, as it is called:
- Can give us a snapshot of how work actually occurs
- Either creates a shared understanding among participants of how a task is completed, or it can point out differences in opinion and in the actual work
- Facilitates benchmarking
- Highlights complexities and problem areas that do not add value (e.g., rework, multiple sign-offs, bottlenecks, etc.)
- And, possibly the most important feature, can aid in the restructuring of the organization and its workflow
A work process can be defined in a variety of ways, but its chief characteristics include the following:
- It is a structured, ordered and measured set of activities designed to produce a specific outcome for a particular customer (whether internal or external)
- It occurs over time and place with a beginning and an end, with clearly defined inputs and outputs
- It provides value to the customer insofar as non-valued activities are reduced to a minimum, i.e., since value is defined by the customer, any aspect of a process (e.g., rework, multiple sign-offs, etc.) that the customer doesn't "see" in the product or service is non-value added.
- It doesn't follow functional lines; processes reach across departments in order to be completed.
- A process is conducted by interdependent sub-units of work; these sub-units are generally referred to as "activities".
Thus, for example, the "order fulfillment process" includes all of the activities involved in ordering, warehousing, shipping and accounting for an order.
What is the culture of an organization? How does it differ from structure? And, even if there is a difference between culture and structure, what difference does it make?
Basically, organizational culture is the personality of the organization. Culture is comprised of the assumptions, presuppositions, values, norms and tangible signs (artifacts) of organization members and their behaviors. Culture is one of those terms that's difficult to express distinctly, but everyone knows it when they sense it. You can tell the culture of an organization by looking at the arrangement of furniture, what they brag about, what members wear, etc., similar to the information (either explicit or implicit) you use to get a feeling about someone's personality.
As in all things in life, there is considerable overlap between culture and structure, and, in fact, one influences the other. For example, employees in a "football-playing" organization tend to be more formal in their interpersonal relations. They may be more conscious of their "turf" boundaries and may be more reluctant to delegate authority. This, in turn, is related to the historical fact that many manufacturing companies have been very middle-management oriented. However, the need for middle managers has decreased dramatically with the advent of technology, computerization and automation. This no doubt accounts for some of the "turf-battles" occurring in organizations today.
A team-oriented "basketball-playing" organization would tend to be stymied if they were formal and concerned about "turf" and delegation. The very definition of "team" implies the dimunition of divisional lines in an organization. Thus, the personality or culture of such an organization would tend to be more relaxed and free-thinking.
But as personalities differ, so do organizations who share similar organizational structure. Before listing various ways of describing organizational cultures, we have to deal with the question of why it is important to even consider.
The culture or personality of an organization, by its very nature, places certain restrictions and boundaries around behavior. We notice these restrictions more easily when, for example, we move to a new organization and have to change our ways of working and relating. Culture can also be witnessed when we encounter those people who are "rebels" - their counter-behavior tells us a great deal about approved behavior which in turn teaches us the implicit norms of the culture.
The longer we stay in an organization or community, the less we think about these implicit but all-important "rules". One resulting problem is that, as a result of living and working in a culture, our thinking and problem-solving styles takes on the coloration of the organization. Our thinking becomes "in-box" - we tend to lose the creativity to which "out-of-the-box" thinking refers. Thus, the more conscious we are of our culture and its rules, norms and basic assumptions, the freer we are to think "out-of-the-box".
The concept of "corporate culture" is particularly important when trying to make changes either in part or throughout the organization. These attempts run right into cultural walls and invoke such responses, "We've never done it that way before", "If it ain't broke, why try to fix it?", "Its too much trouble and not worth the energy to do it differently", "It'll never work", "You can't get ahead here", etc.
If we were to ask staff members to describe their organization, we would get the following kinds of characterizations, all of which refer to some aspect of a firm's culture:
- Pushy, harsh and authoritarian
- Very political with traps and pitfalls for people to fall into if they are not nimble and able to wheel-and-deal and hold their own in a brawl
- Rule and ritual bound
- Cold and separated
- Brisk, dynamic, opportunitic
- Exploitative -- all take and no give
- Caring and genuinely interested in people as people
Thus, organizational culture is expressed in:
- How authority is exercised and distributed
- How people are and feel rewarded, organized and controlled
- The values and work orientation of staff
- The value placed on planning, analysis, logic, fairness etc
- How much initiative, risk-taking, scope for individuality and expression is given the employee
- The rules and expectations about such things as informality in interpersonal relations, dress, personal eccentricity etc etc.
There is a certain "prophetic" aspect to this in that an organization's culture is very instrumental in determining the type of people employed, their career aspirations, their educational backgrounds, and the like, which in turn promotes the cultural values of the organization, thereby entrenching the organization's culture and making it even more difficult to change.