Sunday, April 22, 2012

The Effect of Structure on Performance

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No one component may seek its own reward without destroying the balance of the system. Each component is obligated to contribute its best to the system as a whole. – W. Edwards Deming

What effect does an organization’s structure have on the ability to be successful?  For years, western business has clung to the notion that a functional organization is the most beneficial, but what effect does this really have on overall performance?

Doesn't the performance of the organization as a whole matter more than the performance of any individual area?  If so, is there a correlation between the two?  If individual functions optimize their own performance, does this automatically improve performance of the larger organization?


Lean requires a systems thinking mindset; meaning that the success of an individual function is determined by the contribution it makes to the organization.  Over an over again, I have seen examples in functionally-structured companies where individual areas - intentionally or unintentionally - focus on their own goals with little or no regard to the effect they have on other areas.

This tendency toward functionally-focused goals, which is common in western business, is a significant contributor to the construction of silos within the organization that are difficult, if not impossible, to break down without a drastic change in leadership and culture.

The alternative is a process-oriented structure that drives people to focus on the performance of the system rather than an individual area.  Each person uses his or her own special knowledge and skill to optimize the system; and rewards are based on the overall performance of the system.

The common argument against moving from a functional to a value stream (or process-oriented) structure is that sharing between specialists and improvement within the functions will cease to occur.  Although it is possible for this to happen, it is not a strong enough reason to remain in a functional structure.  Systems can  be created to assure that learning and sharing of information within functions occurs.  Since people tend to be inherently interested in their areas of specialization, assuring function-focused learning systems are effective is most likely easier than getting the various functions work effectively with each other to achieve organizational goals.

I have worked with organizations over the years that wanted to deploy lean thinking but were afraid to let go of a functionally-oriented structure.  In these instances, the functional pull toward individual goals and rewards had generally won out over the drive to optimize the organization and led to sub-optimal results.

I once worked with a manufacturing company where the supply chain team directly supported operations by procuring materials used on the production line.  On-time delivery performance for one particular factory was consistently around 60%, which negatively impacted customer satisfaction.  According to operations data, roughly 75% of late deliveries were attributed to material shortages.

Since the product produced within this factory was strategically critical for the company, team members within operations felt significant pressure to improve performance.   Although supply chain team members also felt pressure to improve delivery performance, they reported to a corporate function separate from operations and were primarily driven to reduce material and inventory costs rather than improve delivery.

Because of the situation, delivery performance continued to suffer, motivation was low, stress levels were high, teamwork suffered, and employee turnover increased.  Although from the outside this problem seemed easy to remedy, organizational politics and the natural tendency to cling to a functional organization (i.e., the we've-always-done-it-that-way syndrome) prevented the shift to a process-oriented structure.

Organizational transformation cannot occur without transformation of thought.  Everything that is known must be questioned to determine whether or not it helps the organization move toward its vision.  In most cases, without a significant reduction in the white space between teams, functions, and locations, the ability to sustain any improvement in performance will be difficult, if not impossible.

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