The Costs of Specialization

A key challenge in business organizations is achieving superior coordination and collaboration across functional boundaries. Functions represent the specialization of a firm’s activities – the departments that carry out specialized activities such as marketing, sales, production, etc.

When we look at firms, we see that value is created not so much by functions as by processes. Processes are different from functions. Processes are the groups of activities that create value for customers. A process may draw its inputs, resources and technologies from multiple functions. Thus, for example, a product development process may involve several different functions, including marketing, design engineering, and production. Processes integrate functions.

In many firms, functional organization takes primacy. These firms maintain walls between their specialized functions: marketing, sales, engineering, manufacturing, finance. The relentless focus on specialization encourages each function to pursue its own goals at the expense of others. Work does not cross functional barriers easily and often becomes trapped within a function. All of this serves to drive costs – costs involved in the extra resources and time consumed for work to navigate the functional maze, and costs incurred for the various functions to coordinate their activities with respect to each other.

To avoid these unnecessary costs, firms should ensure the primacy of processes. Organization structure (form) should be subordinated to what has to be done to provide value to customers (function). Form should never drive function; the reverse should always be the case.

To achieve this, a firm must be relentless in driving processes across functional boundaries. Functional silos should be broken up or, at the very least, made subordinate to processes. New organizational structures and configurations which support the primacy of process should be designed and installed. Flexibility and scalability of processes should be the order of the day, to support rapid responsiveness to changing circumstances. Management needs to be in the middle of the total process, integrating and coordinating workflows, and ensuring that value flows out to the customer efficiently and effectively, unimpeded by functional constraints.

Coordination and collaboration within a firm are critical to superior value creation. Never let form usurp the primacy of process.

Stewart Anderson

stewart@andersonlyall.com

www.andersonlyall.com

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