Functional Structures vs Business Processes
Businesses are organised by function – as can be seen by the typical organisation chart. This is the structural consequence of Adam Smith’s ‘division of labour’ – a fundamental principle of the modern enterprise. Business functions are set up to manage clusters of related business capabilities, and they are expected to nurture expertise within their specialised domains. Performance measures have been traditionally aligned with these functional structures. The proponents of Business Reengineering argued the case for taking a completely different view of the enterprise. This view was based on the business process, a set of related business activities that would often have to span functional barriers to deliver value. It was claimed that huge benefits could be achieved by organisations that radically redesigned, and focused on, the performance of their end-to-end business processes.
Example
A typical case was that of a Swiss multinational firm in the1990s, which was losing business to its competitors because of poor customer service. The company’s traditionally organized supply chain, as shown in the figure below, was seen as a major cause of the problems.
In this company the effectiveness of each function was measured independently. For example, the performance of the central logistics function was assessed by the percentage loading of the containers that it regularly shipped to company warehouses across Europe – a factor that was not of the remotest interest to the end-customer. Advances in information technology enabled this company to take an enterprise-wide view, not only of its operational data, but also of its key business processes. The reengineering of the company’s supply chain activities, with a primary focus on rapid and reliable customer service, led to a new and competitively distinguishing performance target for the business as a whole: delivering a customer order from stock within two days anywhere in Europe. Many of the existing functional, efficiency-based performance measures were in conflict with this target, and thus became redundant under the new regime.
Business Process Reengineering
From the 1990s onwards, many management consulting firms have grown their revenues and profits hugely on the back of such business process reengineering initiatives, and the typical company’s IT function has followed suit, armed with cross-functional, integrated application package suites supplied by software firms such as SAP and Oracle. Functional strategies – except for such self-contained disciplines as HR – have often been denigrated as ‘silo-thinking’, and the inflexibilities of many companies’ legacy application portfolios have been correctly attributed to the practice of having slavishly served functional requirements in the past.
Why Functional Structures are still Important
Optimising cross-functional business processes has undoubtedly enabled many organisations to transform their overall performance: providing more reliable customer service, shrinking time to market, dramatically reducing inventories, and so forth. But the functional units that serve these cross-functional processes have not gone away. For example, those pharmaceutical companies that have significantly accelerated the drug development process by promoting strong, cross-functional project management disciplines still rely on specialised groups to handle such vital tasks as toxicology studies and clinical trials reliably. Business processes should therefore not be seen as an alternative to functional structures; they complement each other.
A further reason why business functions cannot be ignored is that they generally reflects the cost structure of the organisation, and thus enable the executive board to hold individual managers accountable. (Pinning down responsibility for the performance of a cross-functional business process presents a challenge of a different order, as many organisations have discovered.) For this reason, whenever a major change programme is proposed, business executives will always want to know the impacts on the functional organisation.
Business Capabilities
Using business capabilities provides a higher-level view that combines the process areas supporting a capability, as well as the functional groups involved in its delivery. This view allows senior management to take an elevated perspective on the issue and to understand the impacts on both the customer, through changes to processes, and the organisation through changes to the functional groups.
Summary
We therefore believe that to communicate effectively with business executives and strategic planners, the enterprise architect needs to present conceptual and logical functional models of the current and future states of the business, alongside models of the changed business capabilities and processes.
Useful Links
Applications to Business Capabilities – Why Essential models via Process
Enterprise Architecture Good Practice – Engaging the Organisation