PRENTICE HALL
Upper SaddleRiver, New Jersey07458
,...
areas after selling off the milling operations, the old core of the company. ...[In
these
cases],however, new management was brought in and acquisition and divestment used to
make the transition. So, even though vestiges of the old name remain, these are substantially different companies. ...
The vast majority of our researchhas examined one kind of strategic change-diversification. The far more difficult one, the change in center of gravity, has received far less
[attention]. For the most part, the concept is difficult to measureand not publicly reported
like the number of industries in which a companyoperates.Casestudies will have to be used.
But there is a need for more systematic knowledge around this kind of strategic change.
by Henry
Mintzberg
The "one best way" approach has dominated our thinking about organizational structure
since the turn of the century. There is a right way and a wrong way to design an organization. A variety of failures, however, ha.~made it clear that organizations differ, that, for
example, long-range planning systemsor organizational development programs are good for
some but not others. And so recent managementtheory has moved away from the "one best
way" approach, to"'ard an "it all depends" approach, fonnally known as "contingency theory." Structure should reflect the organization's situation-for example, its age,size,type of
production system,the extent to which its environment is complex and dynamic.
This reading arguesthat the "it all depends" approachdoes not go far enough, that structures are rightfully designed on the basisof a third approach, which might be called the "getting it all together" or "configuration" approach. Spansof control, types of fonnalization and
decentralization, planning systems,and matrix structures should not be picked and chosen
independently, the way a shopper picks vegetablesat the market. Rather, these and other elemcnts of organizational design should logically configure into internally consistent groupings.
When the enonnous amount of researchthat has been done on organizational structure is looked at in the light of this conclusion, much of its confusion falls away,and a convergence is evident around several configurations, which are distinct in their structural
designs, in the situations in which they are found, and even in the periods of history in
which they first de\'eloped.
To understand these configurations, we must first understand each of the elements that
make them up. Accordingly, the first four sections of this reading discussthe basic pans of
organizations, the mechanisms by which organizations coordinate their activities, the parameters they use to design their structures,and their contingency, or situational, factors. The
final section introduces the structural configurations, each of which will be discussed at
length in Section III of this text.
,
Six Basic Parts of the Organization
At the base of any organization can be found its operators, those people who perform the
basic work of producing the products and rendering the services.They form the operating
core. All bur the simplest o~nizations also require at leasr one full-rime manager who
.Excerpted originally from The StructUring0{ Organizacions(Prentice Hall. 1979). with added secrions from
Power in and ATOundOrganizalions (Prentice Hall. 1983). This chapter was rewritten for this edition of the text.
basedon two other excerptS: "A Typology of Organizational Structure." published as Chapter 3 in Danny Miller
and Peter Friesen. Organizalions: A Quanntm View. (Prentice Hall. 1984) and "Deriving Configurations,"
Otapter 6 in MinlZbeTgon Management: InsideOUT SLTange
World of Organizalions (Free Press,1989).
CHAPTER6 33 I
Dealingwith Structure and Systems T
occupies what we shall call the strategicapex,where the whole system is overseen. And as
the organization grows, more managersare needed-not only managersof operators but also
managers of managers. A middleline is created, a hierarchy of authority between the Operating core and the strategic apex.
As the organization becomesstill more complex, it generally requires another group of
people, whom we shall call the analysts.They, too, perform administrative duties-to plan
and control formally the work of others-but of a different nature, often labeled "staff."
These analysts form what we shall call the technosm4CtUTe,
outside the hierarchy of line
authority. Most organizationsalso add staff units of a different kind, to provide various internal services, from a cafeteria or mailroom to a legal counselor public relations office. We
shall call these units and the part of the organization they form the support staff.
'Finally, evety active organization has a sixth part, which we call its ideology(by which
is meant a strong "culrure"). Ideology encompassesthe traditions and beliefs of an organization that distinguish it from other organizationsand infuse a cenain life into the skeleton
of .its strucrure.
This gives us six basic pans of an organization. As shown in Figure 1, we have a small
strategic apex connected by a flaring middle line to a large, flat operating core at the base.
These three parts of the organization are drawn in one uninterrupted sequence to indicate
that they are typically connected through a single chain of formal authority. The technostructure and the support staff are shown off to either side to indicate that they are separate
from this main line of authority, influencing [he operating core only indirectly. The ideology is shown as a kind of halo that surrounds the entire system.
These people, all of whom work inside the organization to make its decisions and take
its actions-full-time employeesor, in some cases,committed volunteers-may be thought
of as inJluencerswho form a kind of internal coalition. By this term, we mean a systemwithin which people vie among themselvesto determine the distribution of power.
In addition, various outside people also try to exert influence on the organization, seeking to affect the decisions and actions taken inside. These external influencers, who create
a field of forces around the organization, can include owners, unions and other employee
FIGUREl
The Six Basic Parts of
the Organi:ation
Id~logy
(
332
CHAPTER6
..Dealin~
with Structure and Systems
~
,
associations.suppliers. clients, partners, competitors, and all kinds of publics, in the form of
governments, special interest groups,and so forth. Together they can all be thought to form
an external coalition.
Sometimes the external coalition is relatively passive(as in the typical behavior of the
shareholdersof a widely held corporation or the members of a large union). Other times it
is dominaredby one active influencer or some group of them acting in concert (such asan
outside owner of a businessfirm or a community intent on imposing a certain philosophy
on its school system). And in still other cases,the external coalition may be divided,as different groups seek to impose contradictory pressureson the organization (as in a prison buffeted between two community groups, one favoring custody,the other rehabilitation).
six BasicCoordinating Mechanisms
E\'ef)' organized human activity-from the making of pottery to the placing of a man on
the moon~ives rise to two fundamental and opposing requirements: the dit'ision of labor
into \'arious tasks to be performed and the coordinationof those tasks to accomplish the
acti\'iry. The structure of an organization can be defined simply as the total of the \\'ays in
which its labor is divided into distinct tasks and then its coordination achieved among
those tasks.
I.
2.
M/lc/uti adjuscmencachieves coordination of work by the simple process of inforntal
communication. The people who do the work interact with one another to coordinate,
much as tWo canoeists in the rapids adjust ro one another's actions. Figure 2a shows
mutual adjustment in terms of an arrow betWeentWo operators. Mutual adjustment is
obviously used in the simplest of organizations-it is the most obvious way to coordinate. But, paradoxically, it is also used in the most complex, because it is the only
means that can be relied upon under extremely difficult circumstances, such astrying
to figure out how to put a man on the moon for the first time.
Direct .~u/x.'T1li.~i/Jn
in which one person coordinates by giving orders to others, tends to
come into play after a certain number of people must work together. Thus, fifteen people in a war canoe cannot coordinate by mutual adjustment; they need a leader who,
by virtue of instructions, coordinates their work, much as a football team requires a
quarterback to call the plays. Figure 2b showsthe leader as a manager with the instructions as arrows to the operators.
Coordination can also be achieved by standardization-in effect, automatically, by
virtue of standards that predetermine what people do and so ensure that their work is coordinated. We can consider four forms-the standardizationof the work processesthemselves,
of the ourputs of the work, of the knowledge and skills that serve as inputs to the work, or
of the norms that more generally guide the wor}}.
3.
4.
Sttl11dardization
of work processes
means the specification-that is, the programmingof the content of the work directly, the proceduresto be followed, as in the caseof the
assemblyinstructions that come with many children's toys. As shown in Figure 2c, it is
typically the job of the analysts to so program the work of different people in order to
coordinate it tightly.
Standardizationof outputs means the specification not of what is to be done but of its
results. In that way, the interfaces between jobs is predetermined, as when a machinist
is told to drill holes in a certain place on a fender so that they will fit the bolts being
welded by someone else,or a division manageris told to achieve a sales growth of 10%
so that the corporation can meet some overall salestarget. Again, such standardsgenerally emanate from the analysts, as shown in Figure 2d,
CHAPTER 6 333
Dealingwith Structure and Systems T
-.
.'."..
FIGURE2
The Basic Mechanisms
of Coordination
-"
0"
,-Co
I
0
a) Mutual Adjustment
c) Standardizationof Work
5.
6.
-r0
b) Direct Supervision
d) Sundardization of Outputs
Standardizationof skil~. as well as knowledge, is anothet, though looser \vay to achieve
coordination. Here, it is the worker rather than the work or the outputs that is standardized. He or she is taught a body of knowledge and a set of skills \vhich are sub5equently applied to the work. Such standardization typically takes place outside the
organization-for example in a professional school of a university before the \vorker
takes his or her first job-indicated in Figure 2e. In effect, the standardsdo not come
from the analyst; they are i~ternalized by the operator as inputs to the job he or she
takes. OJOrdination is then achieved by vinue of various operators' having learned
what to expect of each other. When an anesthetist and a surgeon meet in the operating room to remove an appendix, they need hardly communicate (that is, use mutUa)
adjustment, let alone direct supervision); each knows exactly what the other \vill do
and can coordinate accordingly.
Standardizationof norms means that the workers share a common set of beliefs and can
achieve coordination based on it, as implied in Figure 2f. For example, if eve!)' member of a religious order sharesa belief in the imponance of attracting converts, then all
will work together to achieve this aim,
These coordinating mechanisms can be considered the most basic elements of strUcture, the glue that holds organizations together. They seem to fall into a rough order: As
334
'If'
CHAPTER6
Dealing with Structure and Systems
organizational work becomes more complicated, the favored means of coordination seems
to shift from mutual adjustment (the simplest mechanism) to direct supervision, then to
standardization, preferably of work processesor norms, otherwise of outputs or of skills,
finally reverting back to mutual adjustment. But no organization can rely on a single one of
those mechanisms; all will typically be found in every reasonablydeveloped organization.
Still, the important point for us here is that many organizations do favor one mechanism over the others, at least at certain stagesof their lives. In fact, organizations mat favor
none seem most prone to becoming politicized, simply becauseof the conflicts that naturally arise when people have to vie for influence in a relative vacuum of power.
~
Tile Essential Parameters of Design
The essenceof organizational design is the manipulation of a seriesof parametersthat determine the division of labor and the achievement of coordination. Some of these concern the
design of individual positiorlS, others the design of the superstructure (the overall network
of subunits, reflected in the organizational chan), some the designof lateral linkages to flesh
out that superstructure, and a final group concerns the design of the decision-making system of the organization. Listed as follows are the main parametersof structural design, with
links to the coordinating mechanisms.
...Job specialization refers to the number of tasks in a given job and the workers' control
over these tasks. A job is horizontallyspecializedto the extent that it encompassesa few
narrowly defined tasks, verticallyspecialized to the extent that the worker lacks control
of the tasks perfonned. Unskilled jobs are typically highly specialized in both dimensiorlS;skilled or professionaljobs are typically specializedhorizontally but not venically.
"Job enrichment" refers to the enlargement of jobs in both the vertical and horizontal
dimerlSion.
...Behavior
fonnalization refers to the standardization of work processesby the imposition of operating irlStructions, job descriptiorlS, rules, regulatiorlS, and the like.
Structures that rely on any fonn of standardization for coordination may be defined as
bureaucratic,those that do not as organic.
...Training
refers to the useof fonnal irlStructional programsto establish and standardize
in people the requisite skills and knowledge to do panicular jobs in organizatiorlS.
Training is a key design parameter in all work we call professional. Training and formalization are basically substitutes for achieving the standardization (in effect, the
bureaucratization) of behavior. In one, the standards are learned as skills, in the other
they are imposed on the job as rules.
...Indoctrination
refers to programsand techniques by which the nonns of the members
of an organization are standardized,so that th~y become resporlSiveto its ideological
needs and can thereby be trusted to make its decisiorlS and take its actiorlS.
Indoctrination too is a substitute for formalization, as well as for skill training, in this
case the standards being internalized as deeply rooted beliefs.
...Unit
grouping refers to the choice of the basesby which positiorlSare grouped together into units, and those units into higher-order units (typically shown on the organization chan). Grouping encourages coordination by putting different jobs under common supervision, by requiring them to share common resourcesand achieve common
measures of perfonnance, and by using proximity to facilitate mutual adjustment
among them. The various basesfor grouping-by work process,product, client, place,
and so on-can be reduced to tWo fundamental ones-me function perfonned and the
marketserved.The fonner (illustrated in Fig. 3) refers to means, that is to a single link
CHAPTER6 335
Dealing with Structure and Systems
"Y
8'
~
FIGURE
,
3
!
I
Grouping
A Cultural
by Function:
!
Center
Finance
Operations
Public
Relations
Box Office
Maintenance
and Garage
in the chain of processesby which products or services are produced; the latter (in Fig.
4) to ends, that is. the \vhole chain for specific end products. services,or markets. On
what criteria should the choice of a basis for grouping be made?First, there is the consideration of workflow linkages, or "interdependencies." Obvi()Usly, the more tightl).
linked are p<)sitionsor units in the workflow, the more desirable that they ~e grouped
together to facilitate their c0<1rdination.Second is the consideration of prlxess interdependencies-for example, acrosspeople doing the same kind of work hut in different workflows (such as maintenance men working on different machii1cs). It sometimes makes senseto group them together to facilitate their sharing of equipment or
ideas,to encouragethe improvement of their skills, and Sl)on. Tl1ird is the question of
scale interdependencie.~.For example, all maintenance people in a factory may ha\.e to
be grouped together becauseno single department has enough maintenancc work for
one person. Finally, there are the social interdependencics, the need to ~'TOUp
people
together for s<xial reaS<1ns,
as in coal mines where mutual supp<)rtunder dangerous
working conditions can be a factor in deciding how to group people. Clearly, grouping
by function is favored by prlxess and scale interdependencies. anJ to a lL'Sserextent by
social interdependencies (in the sensethat people who do the samc kind of joh often
tend to get along better). Grouping hy function als<)encourages spcciali:ation, for
example, hy allowing specialiststo come together under the supervision of one of their
own kind. The problem with functional grouping, however. is that it narrows perspectives, encouraging a focus on means instead of ends-thc way to do the job instead of
the reaSl)nfor doing the job in the first place. Thus grouping by m,trket is usedto favor
coordination in the workflo\v at the expense of processand scale speciali:ation. In general, market grouping reducesthe ability to do specialized or repetitivc tasks well and
is more wasteful, being less able to take advantage of economies of scale and often
requiring the duplication of resources.But it enables the organization to accomplish a
wider variety of tasksand to change its tasks more easily to serve the organi:ation's end
markets. And so if the workflow interdependencies are the important ones and if the
organization cannot easily handle them by standardization, then it \vill tend to favor
the market basesfor grouping in order to encourage mutual'adjustment and direct
supervision. But if the workflow is irregular (as in a "job shop"), if standardi:ation can
easily contain the important workflow interdependencies, or if the process or scale
interdependencies are the important ones, then the organization will be inclined to
seek the advantagesof specialization and group on the basis of function instead. Of
"t"t"
C-:HAPTER6
!'(jURE 4
(;rtluping by Market:
The Canadian Post Office*
Atlantic
Postal
Region
Western
Postal
Region
South
Toronto
Nova
Scotia
Postal
District
Metro Area
Western
Proc.Plant I
II
Postal
Ontario
Postal
!
District
District
Montreai
Metro Area
Proc.Plant
Postal
~,~~_!_~
i
.Hcadquarter
scaff ~roups deleted.
Mantioba
Postal
District
Saskatchewan
Postal
District
course in all but the smallest organizations,the question is not so much which basisof
grouping, but in what order. Much as fires are built by stacking logs first one way and
then the other, so too are organizations built by varying the different basesfor grouping to take care of various interdependencies.
""
Unit size refers to the number of positions (or units) contained in a single unit. The
equivalent term, span of control, is not used here, becausesometimes units are kept
small despite an absenceof close supervisorycontrol. For example, when expens coordinate extensively by mutual adjustment, as in an engineering team in a space agency,
they will form into small units, In this case,unit size is small and span of control is low
despite a relative absence of direct supervision. In contrast, when work is highly stanCHAPTER 6 337
Dealingwith Structure and Systems "f'
"'"
""
dardized (because of either fonnalization or training), unit size can be very large,
becausethere is little need for direct supervision. One foreman can supervisedozensof
assemblers,becausethey work according to very tight instructions.
Planning and control systems are used to standardize outputs. They may be divided
into tWo types: action planning systems, which specify the results of specific actions
before they are taken (for example, that holes should be drilled with diametersof 3 centimeters)j and performancecontTolsystems,which specify the desired results of whole
ranges of actions after the fact (for example, that salesof a division should grow by 10%
in a given year).
Liaison devices refer to a whole seriesof mechanismsused to encourage mutual adjustment within and betWeenunits. Four are of particular importance:
Liaison positionsare jobs created to coordinate the work of tWo units directly, without having to pass through managerial channels, for example, the purchasing engineer who sits between purchasing and engineering or the sales liaison person who
mediates between the salesforce and the factory. These positions carry no formal
authority per sej rather, those who serve in them must use their lX)wers of persuasion, negotiation, and so on to bring the two sides together.
Task forces and standing committeesare institutionalized fonns of meetings which
bring membersof a number of different units together on a more intensive basis,in
the first caseto deal with a temporary issue,in the second, in a more permanent and
regular way to discussissuesof common interest.
Integratingmanagers--essentially liais<)npersonnel with fonnal authority-provide
for stronger coordination. These "managers" are given authority not over the units
they link, but over something important to those units, for example, their budgets.
One example is the brand manager in a consumer goods finn \vho is responsible for
a certain product but who must negotiate its production and marketing with different functional departments.
MatTix s~ctUre carries liaison to its natural conclusion. No matter what the bases
of grouping at one level in an organization, some interdependencies always remain.
Figure 5 suggestsvarious waysto deal with these "residual interdependencies": a different type of grouping can be used at the next level in the hierarchy; staff units can
be fonned next to line units to advise on the problems; or one of the liais<}ndevices
already discussedcan be overlaid on the grouping. But in each case,one basis of
grouping is favored over the others. The concept of matrix structure is balance
betWeen tWo (or more) basesof grouping, for example functional with market (or
for that matter, one kind of market with another--say, regional with pr(1duct).This
is done by the creation of a dual authority structure-rwo (or more) managers,
units, or individuals are made jointly and equally responsible for the same decisions.
We can distinguish a permanentfoFmof matrix structure, where the units and the
people in them remain more or less in place, as shown in the example of a whimsical multinational finn in Figure 6, and a shifting form, suited to project work, where
the units and the people in them move around frequently. Shifting matrix structures
are common in high-technology industries, which group specialists in functional
departments for housekeepingpurposes(processinterdependencies. etc.) but deploy
them from various departments in project teams to do the work, as shown for
NASA in Figure 7.
Decentralization refers to the diffusion of decision-making power. When all the power
restsat a single point in an organization, we call its structure centralized; to the extent
that the power is dispersedamong many individuals, we call it relatively decentralized.
We can distinguish vertical decentralization-the delegation of formal power down the
8
338
T
CHAPTER 6
Dealingwith Structure and Systems
T
,
Il<;VRE 5
~Irll.:turcs to Deal with
H",iJuallnterdependencies
b) Line and Staff Structure
c) Liaison OverlayStructure (e.g., Task Force)
FIGURE 6
A Permanent Matrix
StrUcturein an
International
Flrnl
hierarchy ro line managers-from horizontaldecentralization-the extent to which formal or informal power is dispersedour of the line hierarchy ro nonmanagers (operarors,
analysts, and suppon staffers). We can also distinguish selectitledecentralization-the
dispersal of power over different decisionsto different places in the organization-from
parallel decentralization-where the power over various kinds of decisions is delegated
to the sameplace. Six fonns of decentralization may thus be described: (1) venical and
horizontal centralization, where all the power restsat the strategic apex; (2) limited
horizontal decentralization (selective), where the strategic apex shares some power
with the technostructure that standardizeseverybody else's work; (3) limited venical
CHAPTER6 339
Dealingwith StructUreand Systems T
~
,
FIGURE i
~hiftin~MatrixStructure
I~~~I
m the NASA Weather
I~~
Satellite Program
Source:Modified from
Delbecqand Filley (1974:16).
--
decentralization (parallel), where managersof market-based units are delegated the
power to control most of the decisionsconcerning their line units; (4) venical and horizontal decentralization, where most of the power rests in the operating core, at the
bottom of the structure; (5) selective venical and horizontal decentralization. where
the power over different decisions is dispersedto various places in the organization,
among managers.staff expertS,and operatorswho work in teams at various levels in the
hierarchy; and (6) pure decentralization, where power is shared more or less equally by
all members of the organization.
The Situational Factors
A number of "contingency" or "situational" factors influence the choice of these design
parameters. and vice versa.They include me age and size of the organization; its technical
systemof production; various characteristics of its environment. such as stability and complexity; and itS power system. for example. whether or not it is tightly controlled by outSi~e
influencers. Some of me effectSof these factors, as found in an extensive body of research
literature, are summarized below as hypotheses.
(8
340 CHAPTER
6
..Dealing
with StruCtUre and Systems
i
t
1
.
AGE AND SIZE
'"
'"
'"
'"
'"
The older an organization, the more formalized its behavior. What we ha,.e here is
the "we've-seen-it-all-betore" syndrome.As organizations age, they tend to repeat their
behaviors: as a result, these become more predictable and so more amenable to formalization.
The larger an organization, the more formalized its behavior. Just as the older organization formalizes what it has seen before, so the larger organization formali:es what
it seesoften. ("Listen mister, I've heard that story at least five times today. Just fill in
the form like it says.")
The larger an organization, the more elaborate its structure; that is, the more specialized its jobs and units and the more developed its administrative components. As
organizations grow in size, they are able to specialize their jobs more finely. (The big
barbershop can afford a specialist to cut children's hair; the small one cannot.) As a
result, they can also specialize--or "differentiate"-me work of their units more extensively. This requires more effort at coordination. And so the larger organization tends
also to enlarge its hierarchy to effect direct supervision and to make greater use of its
technostructure to achieve c()()rdination by standardization, or else to encourage more
coordination by mutual adjustment.
The larger the organization, the larger the size of its average unit. This finding relates
to the previous two, the size of units growing larger as organizations thernsel,'es grow
larh'erhecause (I) as heha,'ior becomesmore formalized. and (2) as the work of each
unit hecomesmore homl~eneous, managersare able to supervisemore emplo)'ees.
Structure reflects the age of the industry from its founding. This is a curious finding,
but one that we shall see holds up remarkably well. An orh'anization'sstructure seems
to reflect the age of the industry in which it operates, no matter what its own age.
Industries that predate the industrial revolution seem to favor one kind of structure.
thl)sc of the age of the early railroads another, and so on. We should obviously expect
different structures in different periods; the surprising thing is that these structures
seem to carry through to ne\\' peril~s, old industries remaining relatively true to earlier structures.
TECHNICAL SYSTEM
Technic-'ll system refers to the instruments used in the operating core to produce thc outputs. (This should be distinb'Uishedftom "technoll1!,.'Y,"which refers to the kru)wlcdgc hasc
of an organization.)
I
I
1
i
I
I
I
I
1
...The
more regulating the technical system-that is, the more it controls the work of
the operator the more formalized the operating work and the more bureaucratic
the ...tructure of the operating core. Technical systems that regulate the work of the
operators--for example, massproduction assemblylines-render that work highly routine and predictable, and S()encourage its specialization and formalization. \\'hich in
turn create the conditions for bureaucracyin the operating core.
...The
more complex the technical system, the more elaborate and professional the
support staff. Essentially, if an organization is to use complex machinery, it must hire
staff experts who can understand that machinery-who have the capability to design,
select, and modify it. And then it must give them considerable power to make decisions concerning that machinery, and encourage them to use the liaison devices to
ensure mutual adjustment among them,
...The
automation of the operating core forms a bureaucratic administrative structure
into an organic one. When unskilled work is coordinated by the standardization of
CHAPTER6 34 I
Dealingwith Structure and Systems T
work processes,we tend to get bureaucratic structure throughout the organization,
becausea control mentality pervadesthe whole system. But when the work of the operating core becomes automated, social relationships tend to change. No". ir is machines,
not people, that are regulated. So the obsession with control tends ro disaprearmachines do not need to be watched over-and with it go many of the managersand
analystswho were needed to control the operators. In their place come the support specialists to look after the machinery, coordinating their own work by mutual adjustment.
Thus, automation reducesline authority in fuvor of staff expertise and reducesthe tendency to rely on standardization for coordination.
ENVIRONMENT
Environment refers to various characteristics of the organization's outside context, related
to markets, political climate, economic conditions, and so on.
T
T
T
T
The more dynamic an organization's environment, the more organic its structure. It
stands to reason that in a stable environment-where nothing changes-an organi:acion can predict its future conditions and so, all other things being equal, can easily reI\'
on standardization for coordination. But when conditions become dynamic-when th~
need for product change is frequent, labor turnover is high, and p<)litical conditions are
unstable-the organization cannot standardize but must instead remain flexible
through the use of direct supervision or mutual adjustment for c()()rdination, and :;0 it
must usea more organic structure. Thus, for example, am1ies,which (end to be highly
bureaucratic institutions in peacetime, can become rather org,mic when engaged in
highly dynamic, guerilla-type warfare.
The more complex an organization's environment, the more decentralized its structure. The prime reasonto decentralize a structure is that all the inft)rmation needed to
make decisions cannot be comprehended in one head. Tl111S.when the operations of
an organization are based on a complex body of knowIL-dge,there is usuallya need to
decentralize decision-making power. Note that a simple cnvironment can be srable or
dynamic (the manufacturer of dressesfaces a simple environmcnt yer cannot predict
style from one seasonto another), as can a complex one (tl1e spcci,llist in perfected
open heart surgeryfacesa complex task, yet knows what to expect).
The more diversified an organization's markets, the greater the propensity to split it
into market-based units, or divisions, given favorable economies of scale. Wl1en an
organization can identify distinct markers-geographical regions, clicnts, hut especially products and services-it will be predisp<)5edto split itself into hi~h level units on
that basis,and to give each a good deal of control over its own openttions (that is, to
use what we called "limited vertical decentralization"). In simple tenns, diversification
breeds divisionalization. Each unit-can be given all the functions ass()Ciatedwith itS
own markets. But this assumesfavorable economies of scale: If the operating core cannot be divided, as in the case of an aluminum smelter, also if some critical function
must be centrally coordinated. as in purchasing in a retail chain, then full divisionalization may not be possible.
Extreme hostility in its environment drives any organization to centralize it.~struCture temporarily. When threatened by extreme hostility in its envirl.)nment. the tendency for an organization is to centralize power, in other words, to fall back on itStightest coordinating mechanism, direct supervision. Here a single leader can ensure fast
and tightly coordinated responseto the threat (at least temporarily).
342
""
CHAPTER6
Dealingwith Structure and Systems
T
POWER
...The
greater the external control of an organization, the more centralized and formalized its structure. This imponant hypothesis claims that to the extent that an
organization is controlled externally, for example by a parent finn or a government that
dominates its external coalition-it tends to centralize power at the strategic apex and
to fonnalize its behavior. The reasonis that the two most effective ways to control an
organization from the outside are to hold its chief executive officer responsible for its
actions and to impose clearly defined standards on it. Moreover, external control forces
the organization to be especiallycareful about its actions.
...A
divided external coalition will tend to give rise to a politicized internal coalition,
and vice versa. In effect, conflict in one of the coalitions tends to spillover to the
other, as one set of influencers seeksto enlist the support of the others.
...Fashion favors the structure of the day (and of the culture), sometimes even when
inappropriate. Ideally, the design parameters are chosen according to the dictates of
age, size, technical system,and environment. In fact, however, fashion seemsto playa
role too, encouraging many organizations to adopt currently popular design parameters
that are inappropriate for themselves. Paris has its salons of haute couture; likewise
New York has its offices of "haute structure," the consulting firms that sometimes tend
to oversell the latest in structural fashion.
The Configurations
W~ have now intr(~uced various attributes of organizations--:parts, coordinating mechanisms, design parameters. situational factors. How do they all combine?
We proceed here on the assumption that a limited number of configurations can help
explain much of what is obsen'ed in organizations. We have introduced in our di~ussion
six ha.'iicparts of the organiz.1tion,six basic mechanisms of cl)()rdination. aswell as six basic
typcs of dccentrdlization. In fact. there seemsto be a fundamental corrcspondence between
all of thesc sixes, which can be explained by a set of pulls exerted on the organization by
each of its six parts, as shown in Figure 8. When conditions favor one of these pulls. the
as.'iociatcdpart of the organiZ:ltion becomeskey. the c()()rdinating mechanism appropriate
to itsclf hecomcs prime, and the form of decentralization that passespower to itsclf emerges.
1l1C organizatil)n is thus dra\\'n to design itself as a particular configuration. We list here
(scc Tahle I) and then intr(xiuce hriefly the six resulting configuration.-;, t()gether with a
seventh that tends to appear when no one pull or part dominates.
TABLE 1
CONFIGURATION
PRIME
~
COORDINAnNG
MECHANISM
Direct Supervision
Professional organizatitffi
Scandardizacion of
work processes
Srandardizacion of
Diversified organization
Scandardization of
Innovative organization
Mutual adjustment
Scandardization of
skills
outputs
Missionary organization
Political organization
norms
None
TYPE OF
KEY PART OF
ORGANIZATION
DECENTRALIZATION
Vertical and horizontal
centralization
Limited hori:ontal
Technustructure
decentralization
Operating core
Hotizontal
deccntrali:ation
Limited vertical
Middle line
decentralization
Support staff Selected decentralization
Decentralization
Ideology
None
Varies
CHAPTER 6 343
Dealingwith Structure andSystems ""
~
T
!
FIGURE 8
Basic Pulls on the
O"""anization
Politics: Pullin~ Apart
THE ENTREPRENEURIALORGANIZATION
i
344 CHAPTER 6
-no.,I;""
..,i..h ~"rll("fllrp ~nd Systems
..".
since size too drives the structure toward bureaucracy.Not infrequently the chief executive
purposely keeps the organization small in order to retain his or her personal control.
The classic caseis of course the small entrepreneurial firm, controlled rightly and personally by its owner. Sometimes, however, under the control of a strong leader the organizarion can grow ro large. Likewise, entrepreneurial organizations can be found in other sectors too, like government, where strong leaderspersonally control panicular agencies,often
ones they have founded. Sometimes under crisis conditions, large organizations also revert
temporarily to the entrepreneurial form to allow forceful leaders to try to save them.
THE MACHINE ORGANIZATION
The machine organization is the offspring of the Industrial Revolution, when jobs became
highly specializedand work became highly standardized. As can be seen in the figure above,
in contrast to entrepreneurial organizations, the machine one elaborates its administration.
First, it requires a large technostructure to design and maintain its systemsof standardization, notably those that formalize its behaviors and plan its actions. And by virtue of the
organization's dependence on these systems,the technostructUre gains a good deal of informal power, resulting in a limited amount of horizontal decentralization reflecting the pull
to rationalize. A large hierarchy of middle-line managersemergesto control the highly specialized work of the operating core. But the middle line hierarchy is usually structured on a
functional basis all the way up to the top, where the real power of coordination lies. So the
structure tends to be rather centralized in the vertical sense.
To enable the top managersto maintain centralized control, both the environment and
the production system of the machine organization must be fairly simple, the latter regulating the work of the operators but not itself automated. In fact, machine organizations fit
most naturally with massproduction. Indeed it is interesting that this strUcture is most
prevalent in industries that date back to t~ period from the Industrial Revolution to the
early part of this century.
THE PROFESSIONALORGANIZATION
CHAPTER 6 345
Dealing with Structure and Systems T
. '"
There is another bureaucratic configuration, bur becausethis one relies on the standardiza.
tion of skills rather than of work processesor outputs for its coordination, it emergesas dramatically different £Yomthe machine one. Here the pull to professionalizedominates. In having to rely on trained professionals-people highly specialized,but with considerable Control
over their work, as in hospitals or universiries-to do its operating tasks,the organization surrenders a good deal of its power not only ro the professionalsthemselves but also to the ass0ciations and institutions that selectand train them in the first place. So the Structure emerges
as highly decentralized horizontally; power over many decisions. both operating and strategic, flows all the way down the hierarchy, to the professionalsof the operating core.
Above the operating core we find a rather unique structure. There is little need for a
technostructure, since the main standardization occurs as a result of training that takes
place outside the organization. Becausethe professionalswork so independently, the sizeof
operating units can be very large,and few first line managersare needed. The sUpport staff
is typically very large too, in order to back up the high-priced professionals.
The professional organization is called for whenever an organization finds itself in an
environment that is stable yet complex. Complexity requires decentralization to highly
trained individuals. and stability enables them to apply standardized skills and so to work
with a good deal of autonomy. To ensure that autonomy, the production system must be neither highly regulating, complex. nor automated.
THE DIVERSIFIEDORGANIZATION
Like the professionalorganizarion, the diversified one is not so much .m inregrared organization as a ser of rather independent entiries coupled t(~erher by a hx)Seadminisrrative
srructure. Bur whercas those enrities of rhe professional organization arc individuals, in the
diversified one they are units in the middle line, generally called "divisions," exerring a
dominanr pull to Balkanize. This configurarion differs from the others in onc major respecr:
ir is not a complete structure, bur a parcial (lne superimposed on the others. Each division
has its own strucrure.
An organization divisionalizes for one reaS<)n
above all, becauseits pr(~ucr lines are
diversified. And that tends to happen most often in the largest and most mature organizations, the ones that have run out of opportunitieS-{)r have become bored-in their traditional markets. Such diversification encouragesrhe organization to replace functional by
market~basedunits, one for each distinct product line (as shown in the diversified organization figure), and ro gram considerable auronomy to each to run its own business.The
result is a limited form of decentralization down the chain of command.
How doesthe central head4uartersmaintain a semblance of control over the divisions!
Some direction supervision is used. But too much of that interferes with the necessarydivisional autonomy. So the headquarrers relies on performance control systems, in other
words, the standardization of outputs. To design these control systems,headquarterscreates
346 CHAPTER 6
...Dealin£
with Structure and Systems
T
T
,
a small technostructure. This is shown in the figure, acrossfrom the small central support
staff that headquarterssets up to provide certain services common to the divisions such as
legal counsel and public relations. And becauseheadquarters' control constitutes external
control. as discussedin the first hypothesis on power, the structure of the divisions tend to
be drawn toward the machine form.
THE INNOVATIVE
ORGANIZATION
,
I
I
,
None of the structuresso far discussedsuitsthe industries of our age,industries such asaerospace,petrochemicals, think-tank consulting, and film making. lllese organizations need
aN)Veall t(1innovate in very complex ways. The bureaucratic structures are too inflexible.
and the entrepreneurial one to() centralized. These industries require "project structures...
ones that can fuse experts drawn from different specialties into sm()()thly functioning creative teams. That is the role of our fifth configuration, the innovative organization, which
we shall aIM)call "adhocracy," dominated by the experts' pull to collaborate.
Adh(xracy is an organic structure that relies for coordination on mutual adjustment
am(mg its highly trdined and highly specialized experts, which it encouragesby the extensivc use of the liaiM)n devices--integrating managers,standing committees, and alJt)ve all
tao;kforces and matrix structure. Typically the experts are grouped in functional units for
housekL-epingpuTpt)5eS
but deployed in small market basedproject teams to do their work.
To these teams, 1()Catedall ove,' the structute in accordance \vith the decisions to be made.
is deleg;1tedlX)wer over different kinds of decisions. 5<)the structure hecomesdecentralized
sclL'Ctivelyin the vertical and horizontal dimensions, that is, pt)\ver is distributed unevenly,
all,)ver the structure, according to expertise and need.
All the distinctions of conventional structure disappearin the innovative or~anization.
;15can be seen in the figure above. With power basedon expertise, the line-staff distinction
evaporates. With power distributed throughout the structure. the distinction between the
strategic apex and the rest of the structure blurs.
These organizations are found in environments that are N)th complex and dynamic.
hecausethose are the ones that require sophisticated innovation. the type that calls for the
ct)()perative efforts of many different kinds of experts. One type of adhocracy is often associated with a production systemthat is very complex, sometimes automated, and so requires
a highly skilled and influential support staff to design and maintain the technical system of
the operating core. (The dashed lines of the figure designate the separation of the operating core from the adhocratic administrative structure.) Here the projects take place in the
administration to bring new operating facilities on line (as when a new complex is designed
in a petrochemicals firm). Another type of adhocracy produces its projects direcrly for its
clients (as in a think tank consulting firm or manufacturer of engineering prototypes). Here.
as a result, the operators also take part in the projects, bringing their expertise to bear on
CHAPTER 6 347
Dealingwith Structure and Systems T
,
them; hence the operating core blends into the administrative structure (as indicated in the
figure above the dashed line). This second type of adhocracy tends to be young on average,
becausewith no standard products or services,many tend to fail \vhile others escape their
vulnerability by standardizing some products or services and so converting themselves to a
form of bureaucracy.I
THE MISSIONARY ORGANIZATION
!
f
t
\
Our sixth configuration forms another rather distinct combination of the elements we have
been discussing. When an organization is dominated by its ideology, its members are
encouraged [0 pull together, and so [here [ends to be a loose division of labor, little job specialization, as well as a reduction of [he various forms of differentiation found in [he other
configurations--of the strategic apex from [he rest, of staff from line or administration from
operations, between operators, between divisions, and so on.
What holds [he missionary tc6e[her-that is, provides for its coordination-is the
standardization of norms, the sharing of values and beliefs among all its members. And the
key to ensuring this is their socialization, effected through the design parameter of indoctrination. Once the new member has been indoctrinated into the organization--once he or
she identifies strongly with the common beliefs-then he or she can be given considerable
freedom to make decisions. Thus the result of effective indoctrination is the most complete
form of decentralization. And becauseother forms of coordination need not be relied upon,
the missionary organization formalizes little of its behavior as such and makes minimal use
of planning and control systems.As a result, it has little techn()S[ruc[ure. Likewise, external professionaltraining is not relied upon, becausethat would force [he organization to surrender a certain control to external agencies.
Hence, the missionary organization ends up as an amorphous mass of members, with
little specialization as to job, differentiatipn asto part, division as to status.
Missionaries tend not to be very young organizations-it takes time for a set of beliefs
to become institutionalized as an ideology. Many missionaries do not get a chance to grow
very old either (with notable exceptions, such as certain long standing religious orders).
Missionary organizations cannot grow very large per se-they rely on personal contactS
among their members-althoUgh some [end to spin off other enclaves in the form of relatively independent units sharing the sameideology. Neither the environment nor the technical systemof the missionary organization can be very complex, becausethat would require
the use of highly skilled specialists,who would hold a certain power and status over others
and thereby serve to differentiate the structure. Thus we would expect to find the simplest
I We shall clarify in a later reading these tWObasic types of adhocracies. Toffler employed the term adhocracy in
his popular book Future Shock,but it can be found in print at least as far back as 1964.
348
'If'
CHAPTER 6
Dealingwith Structure and Systems
technical systems in these organizations, usually hardly any at all. as in religious orders or
in the primitive farm cooperatives.
THE POLITICAL ORGANIZATION
Finally, we come to a form of organization characterized, structurally at least, by what it
lacks. When an organization has no dominate part, no dominant mechanism of c()Qrdination, and no stable form of centralization or decentralization. it may have difficult), tempering the conflicts within its midst. and a form of organization called the political may
result. What characterizes its behavior is the pulling apart of its different parts, as shown in
the figure above.
Political organizations can take on different u)rms. Some are temporary,reflecting difficult transitions in strategy or structure that evoke conflict. Others are more permanent,
perhaps becausethe organization must face competing internal forces (say,between necessarily s[r()ng marketing and production deparTments),perhaps becausea kind ofpt)litical rot
has set in but the organization is sufficiently entrenched to SUppOrT
it (being, for example.
a m(lnopt)ly or a protected government unit).
Together, all these configurations seemto encomp,lSSand integrate a g()()ddeal of what
we kru)w abt)ut organizations. It should be emphasized however. that as presented, each
configur.ltion is idealized-a simplification, really a caricature of reality. No real organi:ation is ever exactly like anyone of them. although S()medo come remarkably close, while
othcrs seemto reflect combinations of them, sometimes in transition from one to another.
T!1e first five represent what seemto be the most common forms of organi:ations; thus
thesc \vill form the basis for the "context" section of this htx)k-I.,beled entrepreneurial,
mature, diversified, innovation. and professional.There. a reading in each chapter willl'e
devoted to each of these configurations, describing its structure, functioning, conditions.
strateh'Y-making process,and the issuesthat surround it. Other readings in these chapters
will look at specific strategies in each of these contexts, industry conditions, strategy technique.o;,and so on.
The other tWOconfigurations-the missionaryand the political-seem to be lesscommon. represented more by the forces of culture and conflict that exist in all organizations
than by distinct forms as such. Hence they will be discussed in the chapter that immediately follows this one, on "Dealing with Culture and Power." But becauseall these configurations themselves must not be taken ashard and fast, indeed becauseideology and politics work within different configurations in all kinds of interesting \vays,a final chapter in
the context section, on managing change. will include a reading called "Beyond
Configuration: Forces and Fonns in Effective Organizations," that seeksto broaden this
view of organizations.
CHAPTER 6 349
Dealingwith Structureand Systems T
MANAGING
Ford's customerservice division is successfullytrying out teams to better serve dealers and their
I
N THE MANIC RUSH to devise principles by which to manage and motivate companies, it is increasingly difficult to tell the big idea from the
fashionable quick fix. An idca, reengineering, say,is hailed as the newcure-all. A herd
of companiestears around chanting the new
mantra, often without clear strategic objectives. Then the rush to judgment begins:
"The best thing we ever did!" "No, an utter
flop!" And so it goes.
Take heart: That rare thing, a consensus,
RI,PORTI,R ASSOllA T[ Raji" M. I~(/o
'II)
FORTUNE
I\PRIL3.!'I'I:;
is beginning to evolve around a model corporation for perhaps the next 50 years-the
horizontal corporation. After more than
half a century during which the functional
hierarchy was the dominant-really the only
-model for organizational design, we are
on the cusp of a fundamental transition.
suggestsDavid Robinson, president of CSC
Index: "Changes in operating models arp '~
the tectonic shifts of the business worl
.
They don't happen often, but when they do.
they flatten the unprepared." In Robinson's
opinion, just such a change is under wa~':
'
"ployees, like this happy bunch at a Ford dealership in Virginia.
"It's a shift from [competing on] what we
make to how we make it." American Express Financial Advisors, which is moving
toward a more horizontal organization, sells
financial products-insurance and mutual
funds, for example. But its organizational
redesign focuses on how its financial plan~
(
sell
these
products,
"' 1!"' t-lationships
with
emphasizing
build-
customers.
..e horizontal corporation includes
these potent elements: Teams will provide
the foundation of organizational design.
They will not be set up inside departments,
like marketing, but around core processes,
such as new-product development. Process
owners, not department heads, will be the
top managers,and they may sport wonderfully weird titles; GE Medical Systemshasa
"vice president of global sourcing and order
to remittance."
Rather than focusing single-mindedly on
financial objectives or functional goals,the
horizontal organization emphasizescustomer satisfaction. Work is simplified and hierarchy flattened by combining related tasks
-for example, an account-management
process that subsumesthe sales,billing, and
service functions-and
eliminating work
that does not add value. Information zips
along an internal superhighway: The knowledge worker analyzes it, and technology
moves it quickly across the corporation instead of up and down, speeding up and improving decision-making.
Okay, so some of this is derivative; the obsessionwith process,for example,dates back
to Total Quality Management. Part of the
beauty of the horizontal corporation is that it
distills much of what we know about what
\()PII
~ 1000; ~nPT'IN~
01
MANAGING
works in managing today. Its advocatescall it
an "actionable model"-jargon for a plan
you canwork with-that allows companiesto
use ideas like teams,supplier-customer integration, and empowerment in ways that reinforce each other. A key virtue, saysPat Hoye,
dealer-service support manager at Ford Motor, is that the horizontal corporation is the
kind of company a customer would design.
The,customer, after all, doesn't care about
the servicedepartment's goals or the dealer's
,;;
--
sales targets; he just wants his car fIXed right
and on time-so the organization makes
those objectives paramount. In most cases,a
horizontal organization requires some employees to be organized functionally where
their expertise is considered critical, as in human resources or finance. But those departments are often pared down and judiciously
melded into a designwhere the real authority
runs along process lines. Done right, says
Frank Ostroff, a McKinsey consultant who
with former colleague Douglas Smith devised a clear, coherent architecture for the
new model in 1992,"the horizontal corporation can take you from 100 horsepower to
500 horsepower."
As never before, managemenJwill make
all the difference. Getting from here (the
vertical, functional organization) to there
(the horizontal, process-basedone) is quite
possibly the greatest managementchallenge
of our time. Unraveling lines of authority
92 FOR TUN E
APRIL 3. 1995
and laying out newones can entangle a com- Americans an array of AEFA financial
pany as quickly as a kitten will get tied up products like mutual funds, insurance, and ~
viti!
with a ball of wool. It is critical, experts say, investment certificates for a commission.
that processes be defined with adequate Only 30% of the planners stayed for four
breadth, which ensures that they span the years. Another problem: Selling on commiscompany and include customersand suppli- sion may be the norm in the industry, but
ers. The challenge, almost by definition, is people al AEFA believe illeaves them vulan epic one; you can't timidly test it in one nerable to tomorrow's competitors.
Like whom, precisely? Like Bill Gates, recorner of the organization. Says Mercer
plies Douglas Lennick, an executive vice
Management Consulting's David Miron:
"That's like building a house one room at a president, referring to Microsoft's yet-to-beapproved acquisition of Intuit, maker of
Quicken software, which allows usersto pay
bills, manage finances, and track inveslments online from their PCs. SaysLennick:
"The marketplace does not want cold calling
and adversarial tactics. Unless the industry
responds better to clients, they'll turn to the
equivalent of the automatic teller machine.
Quicken is an emerging torpedo boat." By
year-end AEFA intends to put an end to
cold calling and to award planners-and
managers-bonuses for scoring well on
client-satisfaction surveys.The goals of the
redesign are explicit: a 95% client-retention
rate, 80% planner retention after four years,
and annual revenue growth of 18%.
To reach these goals, AEFA knew it
.could not content itself with installing
teams at the front line and giving extra '.:Ij
.
tical responsibility, usually regional, and
"owns" a process that horizontally spans
the organization-a process like client satisfaction or account management. Below
the senior managers, 180 divisions have
been reconfigured into 45 clusters led by
group vice presidents, who own processes
like new planner integration.
Organizing by process calls for a difficult
and time-consuming hand-over of power,
something you don't hear much about amid
AMERICAN EXPRESS
all the hosannas when companies reorgaFINANCIAL ADVISORS
When a company is basking in the glow of nize. Says Lennick: "This creates a lot of
People are saying, 'How can you
21 % annual earnings growth over the past trauma.
take my district away from me?' " Simply defive years, it takes a special nerve to turn it
fining what job belongs in which process can
inside out. American Express Financial Advisors, based in Minneapolis, contributed a be confusing. "One of the beauties of the
hefty $428 million to its parent company's vertical, functional organization is that who
profit of $1.4 billion in 1994. But these rosy you report to and who's the bossis very, very ~
earnings disguised a thorny problem: heavy clear. The new systemcreates ambigui~ fo' ~
everybody," saysBarry Murphy, AEFA san-U
attrition of its 8,000 planners-independent
contractors who exclusively sell middle-class imated vice president of client service. For
time without a master plan. You never engage management in thinking about all the
customer accountabilities and all of the suppliers in the process flow." Yet ever larger
legions of companies are taking up tho-challenge. Four organizations that have started
down this road show how long and hazardous it canbe. They're well on their way-but
not there yet.
example, the executive team initially made
client acquisition part of the marketing process.Later the team decided it was more appropriately Murphy's job, since satisfying the
client begins at the very beginning.
Because AEFA is a successful company
with strong leadership,the strategic vision of
the redesign seems to be shared across the
company, which improves its chancesof success. Marilyn Pierson, a senior financial adviser in the Oeveland office, has taken to
morrow's. The focus on process,he says,is
not enough. A corporation must continually
be replenished by its core, functional disciplines-"the professionalexcellence that elevatesa company'sprocessesfrom bestpractices to competitive breakthroughs."
FORD MOTOR'S
CUSTOMERSERVICEDMSION
If proof were needed that the horizontal,
process-based corporation has widespread
ler's office, where specialized expertise was
deemed critical. The division has stopped
selling parts to independent repair shops directly, even though this was profitable, because it didn't contribute to customer
satisfaction and customer retention, the new
touchstones.
That's the right way to think about
something as fundamental as the transition
from a functional organization to a horizontal one, saysMcKinsey's Ostroff: "This
is not just about efficiency. It starts from
'Where do we want to be in ten years?
What business do we want to be in? What
are the processes that drive that?' " Ford
made building easy-to-repair cars one of
its core processes, and so rather than
pinching pennies, it has doubled staffing in
upstream engineering.
Dealer support is a second core process.
Dealers are independent businessmen, but
obviously Ford's effort to improve service
would be a nonstarter without their cooperation. To enlist it, Ford is simplifying the way
it works with dealersby reducing the battery
of functional experts-parts specialists,marketing incentive specialists,and many, many
more-dealers routinely dealt with.
Ford has abandoned its functional organ-
the Washington,D.C., area.
the new client-satisfaction surveys, which
she recently received back from her clients:
"It's very valuable. Ifwe want long-term clients, this is how we go about it."
Is going horizontal a euphemism for being
spreadtoo thin? Worries Brij Singh, a region
director based in Cleveland: "There is a lot
going on. My concern is that something
could fall through the cracks." AEFA's
single-minded focus on its horizontal design
may also have hobbled its ability to take
advantage of opportunities. While CEO
Harvey Golub is pushing American Express
to think more globally, AEFA has made few
moves to capitalize on the growth of a large
middle class in Asia and Latin America. This
is a characteristic weaknessof the horizontal
(e
corporation,
\1
Group's
argues
Philippe
Boston
Amouyal,
Consulting
who
attacked
the concept in a provocative article he co-authored. An organization obsessedwith satisfying today's customer is prone to miss to-
94
FORTUNE
APRIL3,1995
appeal, here it is: Even Detroit is among the
disciples. Ford's 6,200-e.mployeecustomer
service division is ripping up its organization
chart to focus on increasing customer satisfaction, a yardstick by which it trails not only
the Japanesebut even General Motors. Says
Ronald Goldsbeny, the mildly theatrical division general manager: "We looked to see
if anywhere in the division we had a quantifiable goal of 'fIX it right the first time.' We
couldn't find one. It shocked us."
After a 2 'h-year study, Ford announced
last fall that it was organizing around four
key processesthat create customer satisfaction on the service side of the business: Fixing it right the first time on time, supporting
dealers and handling customers, engineering carswith easeof service in mind, and developing service fixes quicker. Like most
companies going horizontal, Ford elected to
keep some employees organized in functions like employee relations or the control-
recognition of a customer problem. Now we
make decisions on the spot in out-of-warranty situations, and the customer service
rep backs us up." Despite widespread support from dealers, the pilots, which started
in the summerof 1993,will not be evaluated
till the summer of this year, when Ford will
decide whether they will be rolled out across
the country.
This raises a nagging question: Is Ford
moving fast enough? The company is just
beginning to experiment with systems that
complement the horiwntal organizational
design, like 360-degree performance reo
views. Budgets are still drawn up on departmental lines. SaysMarshall Roe, who head~
the division's businessstrategy and commu.
nications: "There are things we have to solvc:
before we pull the trigger. In the past if wc.
got close enough, we'd pull the trigger an(
pick up the pieces later."
continued
MANAGING
Still, managers who once competed for
resources now work in teams alongside finance folk and are actually putting money
they think they won't need back on the table. Dealers seem excited. The division has
its new structure in place. It has defined
comprehensive core processes.It has set the
bold stretch target of increasing customer
retention-the percentage of Ford owners
whose next car is also a Ford-from 60% to
80%. Each additional percentage point is
worth a staggering $100 millio~ in profits,
Ford estimates.
Trouble is, consumer perception is a
stubborn beast to ride. As it tools down the
horizontal highway, Ford will have its work
cut out for it staying abreast of competitors, who are also focusing on after-sales
service as never before. Says Ford's Donald Sparkman: "If you take too long, you
could miss the market." Which may explain why some industry veterans aren't
impressed. "They've set themselves a pretty big challenge. It's a noble goal," says
Jake Kelderman, executive director for industry affairs for the National Auto
Dealers Association, making a
game effort to stifle his skepticism:
"In this industry we hear a lot of talk about
doing things differently. The minute the
objectives are not achieved, people are off
to something else."
GE MEDICALSYSTEMS,
MILWAUKEE
Imagine a manufacturing operation
where the manager in charge confesses he
can't evaluate his three direct reports because he sees too little of them. Go down
two layers to a production associate, a union steward to boot, who sayshe won't talk
to his manager unlessthere is a problem becausehis manager has plenty
on his plate. (He does check
for E-mail messages daily,
though.) Chaotic, you wonder? Far from it. This is a
plant that has cut the time it I
takes for its order-to-remittance process-the
period
from when an order is received through shipment to
payment-by 40% over the
past three years.
GE Medical Systems is a
tale of delayering run riot.
I
In the Eighties, Frank Waltz took over th
"
Milwau~ee p~antthat r:nakesmagnetic re~~'
onance ImagIng machInes. The manageP
of the nearby X-ray and CT scanner facilities moved to other positions in the past
four years, so Waltz has assumed those
jobs as well. Over the past six years two
layers beneath him have been torn out altogether. In the X-ray facility, for instance, only a production manager stands
between him and 170 people on the factory floor. Says Waltz: "Every year the
organization changes. I would expect it
to change next year."
Bet on it: His boss, Serge
Huot. a direct French Canadian who is vice president of
global sourcing and order to
remittance, wonders in all seriousness if the organization
is delayering fast enough:
"In a big organization each
layer slows down the process.
By delayering you are giving
people the power to change.
Too many companies spend
too much time thinking
about this. By the time
;;;;...
McKinsey consultanJFrank Ostroff;39. is convincedthat thehorizontal organization is theblueprint for tomon-ow'scorporation. Weasked
him about how companiesare building this new organizationalform.
Is there a road mapto get from a functionalorganizationto a horizontal
that together,don't do this. It won't help,and youwould be better
off investingthe company'stime andenergygettingthe fundamentals right. You wantto usethe horizontalmodelwhereveryou can
perform better byhaving real-time,integrated,parallelwork-for
example,developingnew-productor account-management
teams.
one?
You must first do the analytical homework to understand what
it takes to achieve competitive advantage. Then you must determine what core processesdrive that and whether a cross-functional,
process-based organization will get you there. You don't just redesign work; you design an enabling organization that goes with it.
You. get that one-time improvement from redesigning work. And
you get coherent goals from strategically defining core processes.
Where is it appropriate?
This is not a magic bullet-{)bvious, but an important point. If
you don't have your businessfundamentals,the basic blocking and
tackling, do tha~first; Some of the fundamentalsforhigJ;l-peiformine;companie~ are a:demanding CEO
Most companiesseem to be movingtoward a hybrid of the functional
and the horiZontalcorporation.
Most will be a hybrid. The pure horizontal model is appropriate
for the whole business maybe 10% of the time. We've had the vertical org chart hard-wired on our brains. Executives couldn't visualize anything else. The model helps people see new possibilities.
Howdo you maintain functional expertise?
On a continuum, you can say,"Where do we need functional expertise above all else?" If it's more important than anything, keep
strict functions. "Where are we better served by working in a real~me,p~llel
way?"That's where you go horizontal. There are innical pools, ~ntechAl
so, comparnes
~Thp.
i;;~l:
96 FORTUNE
APRIL3,1995
(~
do it, the train's passed them."
, !i;; hen you're as flat as GE Medical is.in
Ilwaukee, a lot of what some companies
see as the niceties of the horizontal corporation are revealed to be necessities. Waltz
is perfectly matter-of-fact about why production associates routinely visit GE facilities in Europe: "They see things the managers don't see." Elsewhere, people use
360-degree appraisals to shift employee focus-for example, to get employees to pay
home, lies down, and listens to music for an
hour to recoup. Barb Barras,who started out
at the plant 23 years ago in an entry-level position in subassembly production, says her
colleagues' response to the delayering is
mixed; people like the greater responsibility,
but some dislike the accountability that goes
with it. In her current position she usesCAD
systemsto plot the production process flow,
a job reservedfor engineers until a couple of
years ago. Says Barras: "Twenty years ago
partment, BCG advised, look at illnessto recovery as a process with pit stops in admission, surgery, and a recovery ward.
What this means in practice is that patients now meet a surgeon and a doctor of
internal medicine together, for instance,
rather than separately, which results in better care and fewer hospital visits. Says Mikael Lovgren, a BCG consultant who
worked with Karolinska: "Hospitals don't
think along the patient dimension. They
think only in terms of specializations"-not
unlike many companies that manage only
their functions and thereby obscure their
line of vision to customers.
Karolinska's problems as it began to
transform itself into a horizontal organization were compounded by the fact that it
had recently been through a major decentralization, which had created 47 departments marching to their own drums. Tribalism is the human condition, it seems,within
hospitals as well as corporations. Lindsten
had brought the number down to 11,but coordination was still woefully haphazard. Patients had to scale the high walls between
functions, often making multiple all-day visits to the hospital for tests. A patient with an
enlarged prostate gland spent, on average,
an astounding 255 daysafter his first contact
with the hospital before it was treated; only
',-"
.;'"";::;~:.;::
attention
to
Waltz
has
comes
me,
minutes
pleasing
a more
basic
reason:
do
cility,
are
a team
and
needed
to
install
years
to
ago
in part
since
calibration
first
this,
ou
haven't
Bob
the
asked
Claudio,
in testing.
We're
ty, he confirms:
98 FORTU
and
quarter
N E
you
report
to
better
way
to do
this."
know
KAROLINSKA
of
me
assothe
time
case
at
about
tive,
did
associates
radiation
tests
The
that
cr
a delivery
1994.
Bob.
after
APRIL3,1995
felt
in its
20%.
lan
the
the
stress,"
group
leader
There's
plen-
work
a
it could
care.
When
fessional
CEOs
he goes
then
dreaded
impairing
he turned
advisory
trying
Time
Based
cally
change
Boston
the
promptly
set about
hospital
around
a patient
way
work
as
the
quality
of
hospital's
the
they
sug-
from
Group's
methods
was
flow.
pro-
includes
Volvo,
reorganizing
patient
He
as much
Consulting
Management
execu-
prospect:
which
like
by
cut
to the
board,
in
funding
chief
the
already
of companies
bouncing
of
Karolinska's
without
in
difficulties
a reduction
had
in Eu-
Hospital
financial
undsten,
hospital
gested
organization?
about
was
hospitals
Karolinska
1992,
of
They
prestigious
faced
a couple
engineers.
Nobody
there
-
state-funded
Stockholm
machines
today.
a clock.
whether
HOSPITAL
many
rope,
X-ray
a production
days
fa-
hours
perfect
came
a few
X-ray
reduced
missed
all ears,
Most
asked
for
you
Like
production
hasn't
then,
and
At the
that
by field
facility
the
-Is
of
came
production
350
by letting
to be done
scanner
out.
complex
a third
punched
it
them
boss.
I don't
staff
from
the
jobs."
engineers,
sourcing
sites
perform
it turns
of
customer
used
their
in, you
"When
who
I see
sometimes.
doing
nicely,
ciates,
this
managers
it alone.
a week
they
Quite
U
than
to evaluating
I can't
how
more
to
radi-
done.
BCG
work
at the
Instead
department
of
to
de-
sibilities include minimizing the number of
visits a patient must make. Nurse coordinators-one might call them "process doctors"-look for situations where the baton is
dropped in the handoff between or within
departments. The position has also created
a career track for nurses,who can aspire to
become administrative heads of various departments. Departments have a medical
chief as well, who is responsible for the professional expertise that is so obviously important in a hospital. Says Sonia Wallin, a
nurse coordinator, who has worked at Karolinska since 1981: "I report to a nurse who
is over the doctors. A few years ago that
would have been impossible,"
Not all the doctors are entirely comfortable reporting to nurses, even on purely administrative matters. The new structure has
been sold to physiciansas a way to free them
from scheduling and other drudgery. They
can concentrate instead on their clinical
work and research. Some departments at
Karolinska have taken to the concept of patient flow faster than others-orthopedic
and plastic surgery share a ward, for example-yet hospital managers are sanguine.
Says Einar Areklett. a senior manager:
"Running a hospital is like running an opera
house. You have a lot of Pavarottis. It takes
a few years before you have everyone with
you.~
O
NE
of the
ers
involved
clear
in
lessons
manag-
similar
transi-
tions can take away from Karolinska is the need for what
Reengineering Management author James
Champy calls "honest eloquence." Lindsten, who has since left to take charge of a
similar redesign of a hospital in Copenhagen, consistently framed his exhortations for
change in the context of the hostile external
environment the hospital faced. Staff
moved quickly from disbelief to aclion.
Waiting times for surgery have been cut
from six or eight months to three weeks.
Three of 15 operating theaters have been
closed, yet 3,000 more operations are performed annually, a 25% increase. Says Dr.
Sten Lindahl, head of the department of anesthesiology and intensive care: "We would
hate to go back to the lazy days."
That's the funny thing about newly horizontal oompanies. People get positively proprietary about them. Take John Vanderpoel, a team leader in AEFA's back office,
who took his 2O-memberteam out to dinner
to celebrate five good months. A rare but
rich pleasure; he wasn't able to spend time
with the entire leam as often as he would
like, he said.
Across the hall sits Sandy Weeks, a service associate in the new business section.
She began ten years ago in a department
that only performed address changes on
accounts, an example of Taylorism gone
crazy. She exudes a quiet pride in Iier
work, though she confesses that she sometimes finds her increased responsibilities
daunting. To help her in those times, she's
tacked a quotation from Machiavelli's The
Prince onto a wall in her cubicle. Because
it addresses the anxieties of anyone caughl
in the throes of organizational change and
illustrates how one woman has embraced
the challenge, some of it seems worth
reproducing:
/t must be consideredthatth.e'"Cis nothing
'/10redifficli/tto cany out, nor moredO/lhtjilf
:)/ SllcCesS,nor more dungero/ls to holIdic,
/hanto initiate ane\{: order of thi/l.!,'.~.
[)
I':
"
"
WANTED: BurealU::raCy basher, willing to
challenge convention. assume big 1isks,
againstthe sameentrenchedbureaucracy that has held you back before. The
and rewrite the acceptedndes of industri- engineers still battle manufacturing.
al order.
Marketingcontinuesto slug it out with
sales.And the financial naysayersfight
everyone.
That's because,despitethe cutbacks.
turing, finance,or any other busi- you probably still work in the typical
ness discipline. And as seismic vertical organization, a company in
changescontinue to rumble acrossthe which staffers look up to bossesinstead
corporate landscape,it's the kind of of out to customers.You and your colwant ad the ~
century corporation leaguesfeel loyalty and commitmentto
mightwrite.
the functional fiefdoms in which you
Skeptical? No matter where you work. not to the overall corporationand
work, it's likely that your companyhas its goals. And even after all the cu~
been,in today's vernacular,"downsized" ting, too many layers of management
and "delayered."It has choppedout lay- still slow decision-makingand lead to
ers of managementand sup~ly
em'" high coordinationcosts.
pow~ employeeswith greaterre.'J>On- Mere downsi1ing,
in other words.does
sibility. But you're still bumpin~:up little to changethe fundamentalway
I
oJ
t's
ing
a
job
about
d~ption
your
that
skills
says
in
noth-
manufac-
that work ge~ done in a corporation.
To do that takes a different organizational model,the horizontalcorporation.
Already, some of CorporateAmerica's
biggest names, from American Telephone& Telegraphand DuPontto General Electric and Motorola,are moving
toward the idea.In the quest for great.
er efficiencyand productivity, they're
beginningto redraw the hierarcl1icalorganizationcharts that have definedcorporate life sincethe Industrial Revolution (pageBO).
-WAVI Of 1M1.uwu~. Someof these
changeshave beenunder way for severa] yearsunderthe guise of "totaJquality
management"efforts, reengineering,or
business-process
redesign.But no ma~
which buzzwordor phraseyou choose,
the trend is toward flatter organizations
ORGANIZEAROUND
PROCESS,
NOTTASK
Insteador creatinga
0
stlucture around func-
Simple downsizingdidn't produ(:ethe dramatic rises in
productivity many companieshopedfor. Gainingquan-
tions or departments, build
Ute oompany around its
three to five "tXIre process-
tum leaps in performancerequires retllinking the way
es,' wiUt specific perfor-
work getsdone. To do that, somecompaniesare adopt..
mance goals. Assign an
ing a new organizationmodel Bere's how it might work:
"owner"to eachprocess.
ft, '~'orrr
...,-rv
,.,.. .ftrft
~~
.~.
7'='
fl-il
I
:c
' I
c
CI -'_.
;;;..,(.~:;f'
IT'SABOUT
MANAGING
ACROSS,
NOT
UPANDDOWN
"-".'ko..;,.;'
,.'.".'
"~~:Ji~~1~~:~~.~X:j:~~!o::~.~,
~:~~~~::':,;'::";~';':.~
in which managing across has become
more critical than managing up and
down in a rop-heavy hierarchy.
The horizontaJ corporation, though,
goes much further than these previous
efforts: It largely eliminates both hierarchy and f1mdjonal or departmental boundaries. In its pW'est state, tile horizontal
rorporation might boast a skeleton group
of senior executives at the rop in such
traditional support functions as finance
and human resources. But virtually
everyone else in the organization would
work together in multidisciplinary teams
that perform core processes, such as
product development or sales generation. The upshot: The organization might
have only three or four layers of management between the chairman and the
staffers in a given process.
If the concept takes hold, almost every ~t
of corporate life will be profoundly altered. Companies would orga.
nize around process-developing new
products, for example-instead of around
narrow tasks, suchas forecasting market
demand for a given new product. Self.
managing teams would become the
building blocks of the new organization.
Perfonnance objectlves would be linked
ro customer satisfaction raUler tban profitability or shareholder value. And staffers would be rewarded not just for individual. perfonnance
but for the
development of their skills and for team
performance.
For moot companies,Ute idea amomlts
to a major cultural transfonnation-but
one whose time may be at hand. Mit's a
wave of the future. ft declares M. Antbo-
FLArnN.
USEnAMS TOMANAGE
HIERAROtY
MRYTHING
a
To.reducesupervision,
~
combine fragmented
tasks,~
work that
&
Maketeamsthe main
VI buildingblocksof the
organization.Limit supervisory rolesby makingthe
teammanagei~
Givethe
teama commonpurpose.
Hold it accountable
for measurableperfonnance
goals.
fW w add value, and cut
the activities within eacl\
processto a minimum. Use
as few teamsas possible !D
perfonn an entire p~
,..~- "nov
ny Burns, chairnlan of Ryder System
Inc., tlte truck-leasing concern..You just
can't summarily layoff people. You've
got to change the processesand drive
out the unnecessary work. or it will be
back tomorrow." Such radical changes
hold the promise for dramatic gains in
productivity, according to Lawrence A.
Bossidy, chainnan of AlliedSignal Inc.
~ere's an awfu1lot more productivity
you're going to see in the next few
years as we move to horizontally organizOOstructures witlt a focus on the customer," says Bossidy.
How .so? Just as a light bulb wastes
electricity to produce unwantro heat, a
traditional corporation expends a tremendous amount of energy running i~
own internal machinery-managing relations among departmen~ or provid-
D,,~,..e..,.~..-r ,
""".71
~
8'
-ing information up and down the hierarchy, for example. .
A horiwntal structure e~
moot
of ~
Wks and focusesahnoot all of a
company's t:esources.on its customers.
That's why proponentsof the idea say it
can deliver dramatic improvements in
efficiency and speed. "It can get you
from 100 horsepower to.500 horsepower," says Frank Ostroff, a McKinsey &
Co. consultant. With colleague Douglas
Smith, he coined the term "the horizontal organizationwand developed a series
of principles to define the new corporate model (page 76).
The. idea is drawing attention in corporate and academiccircles. In the past
year, Ostroff has given talks on the horizontal organization before sizable gatherings of corporate strategic planners,
quality experts, and entrepreneurs. He
has also carried the message to MBAs
and faculty at the University of Pennsylvania and Yale University, and he boasts
invitations from Harvard University and
several leading European business
-II
AT&T
oncustomerevaluations
EASTMAN CHEMICAL ~odak unit has over 1,OOO.;:~.~~
~s;
.ditched senior v-ps for administration, ~:
schools.
PROCUS AND MIN. But this is much
more than just another abstract theory
making the B-schooll~
rounds. Examples of horizontal management
abound. though much of the movement
is occurring at lower levels in organizations. Some AT&T units are now doing
annual budgets based not on functions or
departments but on processes such as
the maintenance of a worldwide telecommunications network. They're even
dishing out bonuses to employees based
on customer evaluations of the teams
performing those processes. DuPont Co.
has set up a centralized group this year
w nudge the chemical giant's business
:1nits into organizing along horizontal
ines. Chrysler Corp. used a process ap>roach to turn out its new Neon sub~ompact quickly for a fraction of the
,ypical development costs. Xerox Corp.
s employing what it calls "microenterJnse units" of employees that have be~-to-end
responsl"bilityfor the com>any's products.
tical structure, adoptinghorizontaldesignwilli
more than 100processesand programs --:
I
LETCUSTOMERS
DRIVE
PERFORMANCE
REWARDTEAM
.Make
cuswmer satis-
A
Changethe appraisal
faction-not stock ap-.
VI
and pay systemsto '"
V
preciation or profitability-
ward team results, not ju.9.
the primary driver and
individual perfonnance.En-
measureof perfOntWlce.
couragestaffers k>develop
The profits will come and
multiple skills rather tJIaD
the stock will rise if the cus-
specializedknowhow.R&ward them for it.
tomers are satisfied.
.'~~\A"""'~"Deo"",
100'1
PERFORMANCE
1~
~
j
critical decision.-makinz power residesi
at tJ1etop. But while gaining clarity and
I AT&T'SNetwork. ~ystems
Div. "We
weren't performing as well as we could,
stability, such organizations make it difand we had already streamlined our
ficult for anyone to understand tile task , operations.W
t.)
to-day activities, which are managed by
tbe teams tbemselves,. explains Harold
Giles, manager of human reso~
iIJ
GE'Slighting business.
In all CBSes,
the obj~ve of the hon- I The change forced major upheavalc;
7A>ntaI
corporation is to change the nar- in GE'Sttaining, appraisal,and oompensarow mind-sets of armies of corporate , tion systems. To create greater allespecialists who have spent their careers I giance ro a process, rather than a boss,
climbing a vertical hierarchy to the top tbe company has begun ro put in place
To solve such probJerns, some com- of a given function. As DuPont's Terry
panies turned to SOo<:aIled
matrix organ- Ennis puts it: "Our goal is to get everyizations in the 19605 and 1970s. The one focused on the businessas a system below tbe employee eval~te tbe permodel was built around specific proj~
in which the functions are seamless.w formance of an individual in a process.
that cut ~
departrnentaJlines. But it
DuPont executives are trying to do In some cases, as many as 20 people
still kept the hierarchy intact and left away with what Ennis calls the "discon- are now involved in reviewing a single
most of the power and responsibility in nectswand "handoffsWthat are so com- employee. Employees are paid on the
the upper reaches of the organization.
mon between functionsand departments. basis of the skills tbey develop rather
Heightened global competition and the "Every time you have an organizational than merely the individual work they
! boundary, you get the
perform.
potential for a disconRyder System is anotner oonvert. 'The
.nect, WEnnis says. "The
company had been organized by diviI bigger the organization, sion-each witb its own functions-based
LEXMARKINRRJlAnONAL Former mM division
the bigger the functions, on product. But it wanted an organiza.
axed ~ of managers in manufacturing and supand tile more disconnects tion that would reduce overhead while
you get.W
port in favor of cross-functional teams-worldwide
being more responsive to customers.
~-~
CYQB. The ear- MWewere reaching the end of the nInMOTOROlAGovernment Electronics group rede- . I Iy proponents of the hor- way looking for ~ efficiencies,as most
signed its supply management organization as a
I izontal
corporation are companies have," says J. Ernie Riddle,
process with external customers at the end; team
t'JJl.imin~
signifi~t gains. senior vice-president for marketing. MSo
At General Electric Co., we're looking at processes from front
members are now evaluating peers
where Chairman John F. to back..
IEROX Develops new products through multi-disciWelch Jr. speaks of
To purchase a vehicle for leasing, for
plinary teams that work in a single process, in-"
building a "boundaryl$SW instance, requirOOsome 14 to 17 handoffs
company,the concept has as the documents wended their way
stead of vertical functions or departments
MIA:
~
-.MG! , CD. reduced costs, shortened from one functional department to an--I
cycle times, and in- otber at a local, and tben a national,
ever increasing speed of technological creased the company's responsiveness level. MWepassed the baton so many
change have since altered the rules of to its customers. GE'S$3 billion lighting times tbat tbe chances of dropping it
the game and have forced corporate
busin$S scrambled a more traditional
were great,. says Riddle. By viewing
planners to seek new solutions. ¥We structure for its global technology or- tbis paperwork flow as a single process
were reluctant to leave the command- ganization in favor of one in which a from purchasing the vehicle to providing
and-control structure because it had senior team of 9-ro-12 people oversees it to a customer, Ryder has reduced tbe
worked so well," says Philip Engel. p~
nearly 100p~
or programs world- handoffs to two from five. By redesignident of CNACorp., tl1e Chicago-basedin- wide, from new-product design. to ing the work, weeding out unnecessary
surance company that is refashioning its improving the yield on production ma- approvals, and pushing more autbority
organization. ¥But it no longer fit the chinery. In virtually all the CBSes,
a mul- down tbe organization. tbe oompany cut
realities."
tidisciplinary team works together to its purchasing cycle by a third, to four
Indeed. many companies are moving achieve the goals of the process.
months.
to this new form of corporate organizaThe senior leadership group-com-A a.IAN SHDT.- Some startups have
tion after failing to achieve needed pro- ~
of Jnan8gm'S
witJ1"multiple compe- opted ro structure tbetnselves as horitenoeswrather than narrow specialistszontal oompanies from tbe get,-go. One
ductivity gains by simple streamlining
and consolidation. ¥We didn't have an- exists to allocate resourCesand ensure such oompany is Astra/Merck Group, a
other horse to ride,~ says Kenneth L.
coordination of the processes and pro- new stand-alone company formed to
Garrett, a senior vice-president at grams. "They stay away from tile day- market antiulcer and high-blood-presof the company as a whole and how to
relate his or her work to it. The result:
Collaboration among different departments was often a triumph over formal
organization charts.
I
so-called
in
"36O-degree
which
peers
appraisal
and
others
routines"
above
and
THEHORIZONTAL
MODEL
N'\\II'1)
~PV
MAXIMIZE
SUPPUER
&
CUSTOMER
CONTAa
INFORM& TRAINAU
IA
Bring employees into
A
Don't Just spoon-feed
'"
direct, regular oontact
V
sanitized
information
EMPLOYEES
with suppliers and custom-
on a -needw knoW-buis.
ers. Add supplier or custom-
Trust staffers with raw data,
er representatives ~ full
but train them in how w
working meIIlbers of in-
use it w perfonntheir own
house tR.amswhen they can
analyses and make their
be of service.
own decisions.
1'1
-.,
...
t
of
-sure dregs licensed from Swooen's As- manufacturing, marketing, sales, and
tra. Instead of organizing around func- finance.
tional areas,Astra/Merck is strncturoo
By working together, Modicon's team
~d
a half-dozen"market-driven busi- avoided costly delays from disagreenessprocesses,.from drug development ments and misunderstandings. ¥In the
past," says Whire, ¥anengineering team
to product sourcing and distribution.
"We literally had a clean sheet of pa- would have worked on this alone with
per to build the new model company,. some dialogue from marketing. Manusays Robert C. Howes, direclor of stra. facturing wouldn't get involved untfl the
tegi~ planning. KA functional organiza- design was brought into the factory.
tion wasn't likely to support our strate- Now, all the business~~
are right on
gi.: g~ to be Jean. fast, and focused on the table boomthe beginning."
the customer..
!lAM HA1S.The change allowed Modicon
Some fairly small companies are also to bring six software products to market
finding the model appealing. Consider in one-third the time it would nonnally
ModioonInc., a North Andover (Mass.) take. The company,a subsidiary of Germaker of automation-control equipment many's ~
Benz, still has a managewith annual revenues of $300 million.
ment structure organized by function.
lnstad of viewing product development But many of the company's !KX)employas a task of the engineering function, ees are involved in up to 30 ~
that
President Paul White defined it more span several functions and departments.
broodlyas a process that would involve Predicts White: "In five years, wel1 stj11
a tA38m
of 15 managers from engineering, have some formal functional strocture.
but ~ple will probably feel !roo enough
to spend the majority of their time out.
side their functions..
So far, the vast majority of horimntaI
experimentation has been at the lower
levels of organimtions. Increasingly,however, corporations are overhauling their
entire structures to bear a closer resemblance to the horimntal model defined by consultants Ostroff and others.
Eastman Chemical Co., the $3.5 billion
unit of Eastman Kodak Co. to be spun
off as a stand-alone company on Jan. 1.
replaced several of its senior vice-presidents in charge of the key functions
with "self-directed work teams.. Instead
of having a head of manufacturing, for
example, the company uses a team ronsisting of all its plant managers. Mlt was
the mM dramatic cl1angein the company's 70-year history,. maintains Ernest
W. Deavenport Jr.. president of Eastman Chemical. Mlt makes people take
c
r.
t,'a
e
I)
--
(fj
..ae
m
"# ;'"
1""",'r,
OS:
d
'a;
-
I
f the
horizontal,
21st
century
what
corporation
wiD
i~
mart look like? That's right, 0rganization dlarts.-tll~
dull, lifeless temp1a~
tlIat ~ure power relationships to a c0nfusing mass of boxes and arrows. As a
growing number of planners try to tm"n
a managementabstraction into a pragmatic reality, organization ~
are beginning w look stranger and stranger.
Consider Eastman Chemical Co., the
Eastman Kodak Co. division to be spun
off as a separate company in January.
MOurorganizationchart is now calloo tlle
pm chart because it looks like a p~
with a lot of pepperoni sitting on it,"
says Ernest W. Deavenport Jr., who as
president is the pepperoni at the center
of tile pie. MWedid it in circular form to
show that everyone is equal in the organization.No one do!niMt.~ tJie other.
The white space inside the circles is
more important than the lin~ .
Each pepperoni typically represer1t9a
cross.functional team responsible for
managinga business, a geographic area,
a function, or a ~
competence" in a
"'~""C«\'~_~-
tal company-boastsa chart with a stack of six elongatedrectangles.each repre- cl
senting a core processof the pharma- nd
ceutical startup. Across the rop are a rs
series of functionalboxes.or "skill cen- aI.'
ters," that drive down through the pro- ~.
goes
organization
cesses with an'OWS.
:n
WILDIIIAMaomI. For its own conooptu-pr
a1modelof what the horizontalorganiza- et.
con should look like, McKinsey& Co.. ir:
the consultingfirm. cameup with a fair- ti
Iy abstract rendering of three boxes
floating above a trio of coreprocesses.! c
Each processis representedby a bar ~bl
MODELSFOR
THE MODERN
CORPORATION?
=n..-,."
STAIIUIST88
~
~
-
Wltn three circles on the surf~.
The
circles symbolize the multidisciplinary
warns in cltarge of a specific process.
])Orategovernance,
somecompani~sucll
as Mobil Oil Corp. !aDd rard Mo~ Co.'
have put shareholders and the board of
directors in boxes above the top dOg.
But they still favor the old verti~, rom-mand-and-control hierarchy. ;' -:
'
-All of the-Conference Board's best.
sellers-BankAmerica,
Ford. General
,EJ~c,mH,
and Mot.orola-are pretty
much 'what you would expect: plenty'of
boxes connected by lines in steep pyramids:IndeOO, lmder Ford's'offireof the
,chief executive, :therem a :mind-bog- gling 59 box~ of divisions;:departments;
-and functions..: ';' --~:-;;;:~-c"~.-.:., ."
This is not the first time organizations]theoristshavemoo to rome up with a
workablealternativeto the vertical structUrethat has dominatedbusinessfor a
eentury'or more. Some have been as
wild as the shamrockimage promoted
>yCharI~Handy. a lectm'erat the LonDonBusiness School. Its three leaves
symbolizethe joining forcesof rore em.
jployees.external rontractors, and partImlestaffers.Jam~ Brian Quinn,a Dartr
mouthB-scltool prof. thought up the
starbUl'Stto reflect the company that
~lits off uni~ like shootingstars. ,
But these experimental designs,are
'.. 'Only-a few\c)fthe-Cham:refleci. the-
trend toward horizontal organization. I
:Why?--Forone ..thing,it's simplyitOO'«&r';c
Jy~~Oi.ganization
chartSlag what's'hap-'"
..paring,.'YS~
Smith,ca~
"
;whohetped develop thehorizout&l'id~:~
'_~da:lot,of~ple
C8D't~"out
how
;,t()~
it any other way.._'Foranother,:'~
;,.~
:oftJIemare.,dramatic
clJangEfJ
a]ong'
;! JaOrizontal lines~
at 'diViSion.:M I
:,:,;,
1.._:A:..~ 0t':CmTing,
'
c~~:'orsuu:si"':"',",'1ev els .'That!s :where:.:.;;jl
IJ~t~":tPepsiCo -"and ~EaStmari i;KOdak', ;;;~"1:
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