Many practicing managers are becoming disenchanted with traditional ways of designing their organization. Up until a few years ago, most managers attempted only timid modifications of classical bureaucratic structures and balked at daring experimentation and innovation. However, many of today’s managers finally overcome this resistance to making drastic organizational changes. They realize that the simple solutions offered by the classical theories are no longer adequate in the new paradigm environment. In particular the needs for flexibility, adaptability to change, creativity, innovation, knowledge, as well as the ability to overcome environmental uncertainty are among the biggest challenges facing a growing number of organizations. The response has been horizontal network, and virtual organization designs.
Horizontal designs replace the traditional vertical, hierarchical organization. The advanced information technology and globalization environment, suggests the use of horizontal structure to facilitate cooperation, teamwork and a custom rather than a functional orientation. A McKinsey & Company consultant is given credit for developing some of the following guiding principles that define horizontal organization design.
Organization revolves around the process, not the task. Instead of creating a structure around the traditional functions, the organization is built around its three to five core processes. Each process has an owner and specific performance goals.
The hierarchy is flattened. To reduce levels of supervision, fragmented tasks are combined, work that fails to add value is eliminated and activities within each process are cut to the minimum.
Teams are used to manage everything. Self-managed teams are the building blocks of the organization. The teams have a common purpose and are held accountable for measuring performance goals.
Customers drive performance: Customer satisfaction, not profits, or stock appreciation, is the primary driver and measure of performance.
Team performance is rewarded. The reward systems are geared toward team results, not just individual performance. Employees are rewarded for multiple skill development rather than just specialized expertise.
Supplier and customer contact is maximized. Employees are brought into direct, regular contact with suppliers and customers. Where relevant, supplier and customer representatives may be brought in as full working members of in-house teams.
All employees need to be fully informed and trained. Employees should be provided all data, not just sanitized information on a need to know basis. However, they also need to be trained on how to analyse and use the data to make effective decisions.
Today, the horizontal structure has become a reality in an increasing number of organizations. For example, AT&T units are doing budgets based not on functions but on processes, such as the maintenance of a worldwide telecommunication network. Importantly AT&T is also rewarding its people based on customer evaluations of the teams performing these processes, and GE Motorola and Xerox among other firms have moved to the principles of the horizontal design of organization. For example General Electric has scrapped the vertical structure that was in place in its lighting business and replaced the design with a horizontal structure that is characterized by over 100 different processes and programs. In particular, to cut out bureaucracy and solve organizational problems that cut across functions and levels. GE implemented its famous Work Out described as follows:
Large groups of employees and managers – from different organizational levels and functions come together to address issues that they identify or that identify or that senior management has raised as concerns. In small teams people challenges prevailing assumptions about the way we have always done things and come up with recommendations for dramatic improvements in organizational processes.
The Government Electronics group at Motorola has redesigned its supply chain management organization so that it is now a process structure geared towards serving external customers. At Xerox new products are developed through the use of multidisciplinary teams: the vertical approach that had been used over the years is gone. These new ways of organizing are more relevant to today’s environmental needs for flexibility, speed, and cooperation.
The Horizontal Organization suggests principles such as the following:
- Make teams not individuals, the cornerstone of organizational design and performance
- Decrease hierarchy by eliminating non value added work and by giving team members the authority to make decisions directly related to their activities within the process flow.
- Emphasize multiple competencies and train people to handle issues and work in cross functional area.
- Measure for end of process performance objectives, as well as customer satisfaction, employee satisfaction and financial contribution.
- Build a corporate culture of openness, cooperation and collaboration a culture that focuses on continuous performance improvement and values employee empowerment responsibility and well-being.
The network designs go beyond even horizontal structures and totally abandon the classical, hierarchical, functional structure of organization. The bureaucratic model worked fine in the previous era when there was less competition and more stable market conditions, and before the now boundary less conditions of advanced information technology and globalization.