When you ask the CEO of an Enterprise how their business unit is organized, what you are given, in most cases, is an organization Chart (org chart), as shown below. It shows the structure of the enterprise – how people are divided into different functions, departments and sections. It communicates the chain of command. It shows who reports to whom.
The origin of org charts
The concept of an organizational chart, a pictorial representation of the structure of an enterprise, is two centuries old. During the early days of Taylorism, organizational charts were widely promoted as a means of breaking things down to the lowest level – a total into its components. It was touted as a good tool to divide and control employees. Org charts were, and are used to cascade annual objectives for each function, department and section – all the way down to the individual level; align the efforts of each individual with his/her boss; and evaluate employees’ performance. Relying on the powers vested in the rank, managers manage their subordinates with the hope that they will achieve the intended objectives. Unfortunately, relying solely on an organizational chart for business management is fraught with deadly side-effects.
Chaos to functional structure (org chart)
Let us consider the scenario of a small or medium size enterprise, say with about 50 people, manufacturing chairs for homes and offices. Imagine that there was no structure (and hence no org chart). Everybody did everything to make the chairs.
How efficient would this enterprise be? Some chairs would be built, of course, but inventory would be sitting everywhere. Employees all order what they think they need, and only a small portion of what is ordered is actually consumed. Chaos is the norm. These inefficiencies are then reflected in the costs of producing the chairs. The owner sees that while the quality of the chairs is decent, the business is not competitive in the marketplace.
So, the owner organizes the 50 people into different functions – engineering, procurement, manufacturing, painting, shipping, finance, HR, etc. Everyone is told what they should do – and told not to bother about other functions. Every function is given an objective to meet by the end of the year. This is called Institutionalized Management By Objectives (MBO), also known as ‘pay for performance’.
What happens next? The costs of doing business decreases significantly. Articulating a structure – putting people into different functions (along the lines of org chart) – improves efficiency over the prior chaotic situation. However, the structure and MBO system come with their own side effects.
The owner notices that while costs have come down, there is a lot of fire-fighting. Employees are scrambling to meet their objectives, even stepping on other employees’ toes. There are many interdepartmental fights. Finger-pointing and blaming other employees is not unusual. Stress levels are high. Morale suffers. The conflicts between departments is hindering growth. The owner wonders why this is happening.
What happens under such a structure and system is that employees focus on their objectives (for their self-interest), even at the expense of other employees’ needs and interests because those who meet their individual objectives are rewarded and those who don’t are …. left behind, ridiculed, punished (in so many different ways). Barriers are created between departments. Protecting one’s turf becomes a top priority (out of self-interest). Enormous amounts of energies are dissipated in these turf wars. Employees don’t get the support they need from other departments in order to do a good job. So, they do what they can to get by. Morale suffers.
In spite of all this, many companies still manage to survive – but only where their competitors are following a similar structure and system.
Things do not have to be this way! Management concepts have evolved. There is a better way.
Functional structure (Org chart) to Global Process Chart
Dr. Deming pointed out that the results any enterprise is achieving today – good or not so good – are determined predominantly by its internal processes – how things are done within the enterprise. Over 90% of problems any enterprise faces are imbedded in their prevailing processes. People making mistakes accounts for less than 10% of the problems.
The organizational chart shows the structure; it does not show how the work flows within the enterprise. The org chart helps you manage people. By managing people, you address about 10% of the problems your enterprise is facing. The remaining 90% of the problems will remain until you address the deficiencies that exist in your processes. Therefore, in order to get better results, we need to manage processes, not people!
This is exactly why high performance enterprises have adopted a paradigm shift from ‘managing people’ to ‘managing processes through people’ and from ‘managing by objectives (MBO)’ to managing for results.
So do I need an org chart?
You may not need an org chart, but you absolutely need a process chart.
Get to work on developing a Global Process Flowchart, as shown below. Each box represents a primary or enabling business process. The primary processes show how work flows in your enterprise – from order receipt to delivery. The enabling processes are vital business processes that aren’t in the primary workflow but support and facilitate primary processes to be most efficient and effective, such as accounting or IT.
Then, establish objectives for each process (not persons!) with an over-arching objective of satisfying customers with best quality, low price and timely delivery.
Building on our 25 years’ experience, we developed a web-based process documentation software (APRS) tool to help you document and manage your processes. It helps enterprises transition from conventional task-focused thinking to process-centric approaches.
If the global process flowchart is done right, as mentioned earlier, you may not need an org chart. But, if you feel that your employees are not clear on who they report to, in spite of having a process chart as shown above, you may create an org chart merely for reference. But, its role is not what it used to be a few decades ago. The day to day management should be driven by the process chart.
The by-product of this approach – in addition to better quality and low cost – are healthier bottom-line and improved morale!
Say goodbye to internal conflicts created by org charts!