QUICK Update

“What is the Right Organization Design?”

B. Anand and Richard Daft

Organizational Dynamics

2007, vol. 36., No. 4, pp. 329-344

This article reviews the changes in organization design that have occurred in the last 30 years. The first era, which lasted till the late 1970’s, has been termed Self-contained Organization Designs. The key aspects of this era were that people were grouped into functions or departments; importance placed on reporting relationships; and systems to ensure coordination and integration of activities, both horizontally and vertically.

The second era (lasting from the 1980s through the mid-90s) has been termed Horizontal Design with Team-and Process-Based Emphasis. There are five design principles for horizontal organizations:

Organize around complete workflow processes rather than departments
Diminish hierarchical differences and use teams to carry out the work
Appoint team leaders to manage the internal process in addition to coordinating the work
Allow team members to interact with customers and suppliers directly, so as to adapt and respond quickly, if desired
Provide required expertise from the outside as and when requested by the team

The third era (mid-1990s to the present) has been termed Organizational Boundaries Open Up. It coincides with rapid improvement in communication technology and globalization of organizations. The three main new designs in this era are the Hollow Organization, the Modular Organization, and the Virtual Organization.

The design principles of the Hollow Organization are:

Determine core and non-core business processes in the organization
Harness market forces to outsource non-core processes
Write an effective and flexible contract to align incentives between the firm and the outsourcing provider

The design principles of the Modular Organization are:

Break products up into separable modules that can be made on a stand-alone basis
Design interfaces that allow different modules to work with each other
Outsource product chunks that can be made more efficiently by external contractors
Enable the organization to focus on assembling the different chunks of the product created in-house and outside

The design principles of the Virtual Organization are:

Create boundaries around a temporary organization with external partners
Use technology to link people, assets, and ideas
Each partner brings its domain of excellence to bear
Disband or absorb once the opportunity evaporates

The article discusses the advantages and disadvantages of each of the recent designs, as well as providing guidelines for when to use each of them. In order to succeed with the newer structural designs, it is recommended that managers:

Get the right partner on the bus
Select people with lateral organizing skills
Seek clarity, not control
Design coordination mechanisms

"Models of Success”

Jill Jusko et al.

Industry Week

January 2008, pp. 34-48

This article provides descriptions of the 10 winners of Industry Week’s Best Plants Awards for 2007. The winners are:

Autoliv North America-Tremonton Initiator Facility (Tremonton, UT)—This manufacturer of automotive airbag initiators and other products won the Shingo Prize in 2005. It also has improved productivity by 75.2% from 2003-2006. More than 15,000 employee suggestions were submitted (from 382 employees) in 2007, and almost of them have been implemented. Inventory turns have tripled since 2003. On-time delivery is at 99.6%.
Batesville Casket Co-Vicksburg Operations (Vicksburg, MS)—This plant manufacturers wood component parts for caskets. A machine maintenance program has reduced lost production cycles by 84%. Lean 5S has reduced reportable injuries by 58% over three years. $1 million has been saved in labor costs from organization projects.
Blue Bird North Georgia (Lafayette, GA)—A manufacturer of school buses, this plant has achieved 100% on-time delivery rates, 82.9% reduction in defect rates over 3 years, and 87% reduction in lost time injuries.
Cargill Corn Milling-Team Wahpeton (Wahpeton, ND)—A producer of high fructose corn syrup, con germ, and other corn products, this plant has achieved a first-pass yield of 98.2%, 99.9% on-time delivery rate, productivity increase of 39% over three years, OSHA-recordable injury and illness rates of zero.
DST Output of California (El Dorado Hills, CA)—Print statements and billings are produced in this plant. Over the last three years, there has been a 28% reduction in cycle time, an 87% reduction in customer reject rate, and on-time delivery of 99.2%. This plant was a Best Plants winner in 1992, so it was already performing very well before these achievements.
General Cable-Indianapolis Compounds (Indianapolis, IN)—This producer of polymer compounds has had no accidents or safety incidents in the last four years. Though having only 58 employees, it has vigorously implemented lean manufacturing and Six Sigma.
Lockheed Martin Missiles and Fire Control at Ocala (Ocala, FL)—While manufacturing precision electro-optical/mechanical and electronic subsystems, this plant has achieved 98.2% takt time in its primary product line. It has also won the Million hour work Award form the National Safety Council.
Lockheed Martin Missiles and Fire Control in Orlando (Orlando, FL)—This manufacturer of targeting and detection systems for the defense industry has 100% on-time delivery, reduced defects by over 95%, and won the National Safety Council Excellence Achievement Award.
Medrad Inc., Heilman Center Plant (Indianola, PA)—This plant manufactures medical diagnostic-enhancing fluid delivery systems and MR coils and accessories. It has won the Malcolm Baldrige National Quality Award, increased revenues by more than 15% annually since 2003, and cut inventory costs by 97%.
Rieter Automotive Canadian Carpet (London, Ontario), Canada)—Makers of automotive carpet, this plant has cut finished goods inventory by 50% and attained a customer reject rate of only 8.8 parts per million.

“Mastering the Management System”

Robert Kaplan and David Norton

Harvard Business Review

January 2008, pp. 63-77

In this article, the renowned originators of the Balanced Scorecard discuss how to avoid breakdowns between strategy and operations. They present a five-stage system:

Develop the Strategy—The key elements of this stage are to define mission, vision, and values; to conduct strategic analysis; and to formulate strategy
Translate the Strategy—The key elements here are to define strategic objectives and themes; to select measures and targets; and to select strategic initiatives
Plan Operations—The key elements here are to improve key processes; to develop sales plan; to plan resource capacity; and to prepare budgets
Monitor and Learn—The key elements here are to hold strategy reviews; and t hold operational reviews
Test and Adapt the Strategy—The key elements here are to conduct profitability analysis; to conduct strategy correlation analysis; and to examine emerging strategies

Throughout the discussion, various tools are introduced and explained with examples. A “toolkit” of books and articles on the various topics is provided as a resource for those who wish to read further about the elements of the five-stage system.

“Lean Means Business”

Neil Hettler

Manufacturing Engineering

January 2008, pp. 103-109

The author of this article explains how his organization, the Owens Corning Commercial and Industrial Insulation Business, has evolved in its understanding of Lean. Owens Corning initially saw lean as a technique for eliminating waste in the manufacturing process. He says that they have found this definition to be too narrow for two reasons: “First, lean is not just an initiative for manufacturing. Lean techniques can be applied to any business process, including administrative ones. Second, lean is much more than a technique for eliminating waste. We’re beginning to understand how introducing lean techniques into every business activity drives growth, fosters innovation, increases employee engagement, directs organizational alignment, improves safety, and more.” Initially, Dow Corning used value mapping to see and eliminate waste, but they now find it is a valuable strategic tool as well.

A value stream map forces the team to view the process through the eyes of the customer
Value stream mapping forces the team to agree on the current process, which can be especially difficult for administrative processes
The current value stream becomes a communication tool for aligning the organization around the call to action to improve the process
The current value stream becomes the foundation for decision making

As this thinking evolves, it becomes clear that the concept of improving flow on the manufacturing floor soon involves the entire organization: “The objective (and challenge) of applying lean principles at the enterprise level is to coordinate the individual lean activities so that the overall flow across the entire enterprise is improved, because that is what the customer wants.”

Owens-Corning’s lean thinking now makes an important connection between lean and growth. Kaizen activities streamline processes, and the individuals who are freed after process improvement are then assigned to growth activities.

“Maintaining Greatness”

Joe Clark, GP

Lists of “Great” organizations such as Jusko’s indicate how improvements can be made in today’s business environment. We recently ran across a list of such organizations from the 80’s and 90’s, only to realize very few of them remain on such a list today. What happened to drop these “highly successful organizations” from their lofty perches? Most were either pursuing short term rather than long term goals, or had lost sight of their good goals.

We have often heard the quote: “The biggest obstacle to becoming great is being good.” This is true both in the business world and in any other arena. Just take a look at how many times we see world champion boxers lose focus on getting into shape for their first belt defense or how difficult it is to repeat Super Bowl, World Series, or NBA championships. Partly, this is because competitors in other organizations or even within the same organization poach star players, so it becomes very difficult to keep this winning team together.

Another factor in organizations with great short-term success has been goal setting that supports short-term gains by sacrificing the future. Companies often defer maintenance expenditures in order to meet cost objectives only to face expenditures on neglected equipment and building systems in future years that are many times greater. Immediate goals are met, and team members are rewarded, but their replacements or successors must spend a great deal more to continue to meet organizational goals.

A cycle we have commonly observed has the following steps:

An organization recognizes the need for improvement, so they either bring in new “rising star” leaders, implement new management structures or implement new savings programs to meet a specific improvement goal. Through all of the stress, long hours, planning, training, reorganization, remarkable specific improvements are realized. These are reported in the measurement systems this team has developed and the celebration is on.
The organization promotes several team members and moves them to other areas within the company that need this type of “help.”
Some key team members are successfully recruited by other companies to perform this “magic” in their troubled organization.
New leaders are brought into to fill gaps that have not been internally filled.
Back to #1.

While the organization can keep up the performance for a period of time, some change is inevitable as a result of structural, technical or competitive shifts. These changes may or may not support the prior improvements, so can result in the new leadership team struggling to keep things together. This often results in the loss of many of the improvements previously realized and a downward spiral for this previously-great organization. The next thing we often see is the organization repeating the cycle by introducing new managers, management structure or improvement programs, in order to be seen as a progressive company again.

The organizations that have the correct long-term goals and successfully achieve them do so by focusing on them consistently enough to ensure they are not working diligently on things that will take them off course from their established target. Any achievement is not viewed as the end goal, but one step in the long, hard process of overall success. Organizations with sustained success are those with sustained effort. Keeping on course can sound simple, but it takes a lot of focus to ensure success for the long-term. While this is difficult, great leaders find a way to achieve this success.