How to link process and organisation structure?

In the last twenty years we have become very good at mapping and improving processes; but we still have poorly structured organizations. Can we use our understanding of processes to improve organization design?

A process exists to deliver a positive outcome to a customer or beneficiary. Sometimes the beneficiary is the person who does the work, as when you make a cup of coffee for yourself. But most processes in organizations exist to do something of value for an external or internal customer, who is not the person doing the work. This principle, deliver value to the customer, lies behind one of the great developments in process work – Lean. By analysing a process with a focus on what is needed to deliver value to the customer and eliminating everything that is not needed, a process becomes Lean. But Lean tells us little about how the work and people involved in delivering the process should be structured into an organization.

So let me try to make a connection.

There is a principle in organization design, developed from business strategy work (I am more of a strategy and organization expert than a process expert), that suggests it is easier to understand the customer and deliver exactly what the customer wants at a reasonable cost, if all of the people involved in delivering value to the customer are part of a team focused on that customer or customer segment. This is the customer-focused organization: identify the different customer segments you want to serve, and then create a “business unit” for each type of customer that needs a different value proposition.

Another principle in organization design – the specialisation principle - suggests that capability is likely to be higher and costs lower if people doing similar work report to the same person. So marketing people should report to a head of marketing and sales people to a head of sales, etc.

You can see that these two principles are in conflict. The first suggests that it is best to structure by customer segments. The second suggests that it is best to structure by function. Fortunately there is a way of resolving this conflict. Go with the customer segment structure, but make exceptions for steps in the process where the performance improvement (lower costs, for example, from economies of scale or higher quality from higher skills) is significant. So put all the sales people into one function, if and only if, doing so makes sales much more effective or much lower cost. It is not worth moving away from a customer segment structure for small gains, because a loss of focus on the customer can quickly lead to underperformance from lack of alignment with the customer’s needs.

If we try to link these ideas to processes, we get a clear connection between process work and organization structure. The implication is that the organization should be structured so that all of the people working on a process report to one person, subject to exceptions for steps in the process where significant performance improvements can be achieved by having a different reporting relationship.

So lets take a simple process and apply this rule. Because I work in a business school, I will take the example of the process of developing and delivering a teaching session on organization design to a class of students.

The process involves the following major steps
- define the session objectives (by course director)
- design the session (by course director and session lecturer)
- develop the materials (by lecturer)
- produce the materials (by administrator)
- print materials (by print technician)
- provide a class room ready for the session (by facilities manager and administrator)
- deliver the session (by lecturer)
- follow up and provide after class support (by lecturer and administrator)

So there are five people involved in this process – course director, lecturer, administrator, print technician and facilities manager

The rule states that all these people should form one team reporting to the course director, unless there are significant performance gains from a different reporting relationship.

As it turns out, there are significant performance gains from having different reporting relationships for all steps in the process. This is because none of the steps requires 100% of anybody’s time. Hence, unless the course director is directing enough courses to keep a lecturer, an administrator, a print technician and a facilities manager fully occupied, these people are going to be working in other teams for a good portion of their time. Typically, therefore, business schools have administrators reporting to a head of administration, facilities managers reporting to a head of facilities and print technicians reporting to a head of print. In fact, even if the course director did have enough courses to occupy a full time facilities manager and print technician, it might still make sense for these people to report functionally.

So the organization design challenge is about how to make sure that the people involved in the process of delivering a teaching session do not lose site of the customer and the customer’s needs. In part it depends on the course director’s ability to form and lead a team of people from different functions. In part it depends on the heads of administration, print and facilities encouraging their people to feel part of course-focused teams. In part it is about sharing course performance and customer feedback with the whole team and setting performance improvement targets with the whole team. In part it is about introducing the whole team to the course participants.

This raises the question “Do we really mean the whole team? Does it make sense to involve the print technician in course targets, in team meetings and in meeting participants?” This depends on whether the relationship between the print technician and the rest of the team, mainly the administrator in this case, can be a simple transactional relationship or needs to be a complex team relationship. If it is simple, with simple performance metrics, the print technician can be considered to be a supplier to the team rather than a member of the team. But, if the relationship is complex requiring the print technician to consider the needs of the lecturer and the preferences of the customer and the availability of the facilities manager, then yes, even the print technician should be treated as part of the course team.

So my proposition is that, if we understand some of the core principles of good organization design, such as ‘structure by process, except for steps where the performance gains are significant’ and ‘create a process team for those whose relationship with the process is complex’, we can use our deep understanding of processes to improve the way our organizations are designed.