How is your firm structured and organized? I’m willing to bet your firm is likely to be organized around departments and functions – the purchasing department, the finance department, the admin department – the list is almost endless. Yet, consider how work flows through a typical firm – the execution of work usually requires resources drawn from various departments working together. In word, work flows through processes, not departments or functions.
Organizational structure is a key determinant of the economic performance of a firm. Where the focus is on managing departments and functions, a firm is likely to pay an economic price in lessened efficiency due to the miscoordination which results when work crosses departmental boundaries. Departmental walls represent boundary constraints on the efficient execution of work.
The form (structure) of an organization should always be subordinate to function (what the organization needs to accomplish). Where form assumes primacy it constrains the execution of work and results in silos led by turf tyrants. This is economically inefficient and ineffective.
Organizational structure should be designed by considering what functions the firm needs to carry out. Function should always drive form, in other words.
Japanese firms offer an interesting study in contrasts which achieves greater economic efficiency. While Japanese firms often have taller hierarchies and greater apparent centralization than Western firms, they place much more emphasis on delegation and de-centralized decision-making than Western firms. This follows from their superior understanding and appreciation of process over form – an appreciation that enables them to execute work more efficiently and effectively than most Western firms.