Executive Briefings

Conventional Organizational Structures Based on Function Are Obsolete. Time for New Approach?

By now, the functional model has become the conceptual core of nearly all organizational structures, public and private. It is so ingrained in the daily activities of most companies that it is rarely questioned. But it is obsolete.

Conventional Organizational Structures Based on Function Are Obsolete. Time for New Approach?

Even when functions are seen as "shared services," which would place them relatively low on the org chart in many companies, they are typically the most permanent parts of the enterprise. Business units come and go with the product life cycle, but finance, HR, marketing, legal and R&D last forever. Even in matrix organizations, the functions maintain quite a bit of power, managing career tracks and a huge portion of discretionary investments.

The value of functions is undeniable; no company could do without them. But the business and organizational models that govern functions need updating. The most important business practices and collaborations no longer fall neatly into groupings designed many decades ago.

Perhaps the most obvious symptom of distress from the functional model is the widespread problem of incoherence. Most functional teams are good at many things, but great at nothing. They often struggle to meet the needs of all their constituents, juggling an endless (and sometimes conflicting) list of demands from line units; they never manage to build the type of advantage or differentiation that is required for long-term success. The underlying problem is not a lack of desire to focus, a lack of functional ability, or an inadequate budget. The functional organization simply no longer serves companies as effectively as it once did.

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Keywords: supply chain management, enterprise organization, silos in the enterprise, functional silos, business function alignment, strategy + business, supply chain management: Business Strategy Alignment

Even when functions are seen as "shared services," which would place them relatively low on the org chart in many companies, they are typically the most permanent parts of the enterprise. Business units come and go with the product life cycle, but finance, HR, marketing, legal and R&D last forever. Even in matrix organizations, the functions maintain quite a bit of power, managing career tracks and a huge portion of discretionary investments.

The value of functions is undeniable; no company could do without them. But the business and organizational models that govern functions need updating. The most important business practices and collaborations no longer fall neatly into groupings designed many decades ago.

Perhaps the most obvious symptom of distress from the functional model is the widespread problem of incoherence. Most functional teams are good at many things, but great at nothing. They often struggle to meet the needs of all their constituents, juggling an endless (and sometimes conflicting) list of demands from line units; they never manage to build the type of advantage or differentiation that is required for long-term success. The underlying problem is not a lack of desire to focus, a lack of functional ability, or an inadequate budget. The functional organization simply no longer serves companies as effectively as it once did.

Read Full Article


Keywords: supply chain management, enterprise organization, silos in the enterprise, functional silos, business function alignment, strategy + business, supply chain management: Business Strategy Alignment

Conventional Organizational Structures Based on Function Are Obsolete. Time for New Approach?