Once the entrepreneur decides to bring idea into reality and organises the resources (manpower, machines, land and capital / funds), the next challenge is to structure the organisation so that best value can be delivered to the customers.
Structure can be defined as arrangement of man and machine wired through process on piece of a land to achieve the aims / goals of the organisation. Structure defines the allocation of work, responsibilities amongst various functions like marketing, purchase, quality, etc. Processes are defined of standard operating procedures / formats for creating communication within departments.
Structure can be visualised as a single machine in which raw materials (i.e. raw goods or raw information) are fed from one side and after processing, finished goods (i.e. processed / assembled goods or processes information) are delivered at the other end to customers.
We have discussed various functions in detail separately.
- Organising the resources (manpower & machine) as per functions (i.e. Marketing, Purchase, Accounts, Finance, etc.)
- Economies of scale (say, purchasing department purchasing for entire organisation)
- One function manages entire product-line → no need for consolidation of information
- Creation of silos and one department not communicating with other department
- Customer receiving poor service (due to silos or not getting complete picture)
- Organising the resources as per product or plant or division (say Product A, Product B) or (Plant A, Plant B), etc.
- One division managing all functions (i.e. Marketing, Purchase, Accounts, Finance, etc.) → creation of multiple functions for various divisions
- Customer better serviced → entire organisation divided as per products
- New products, its customers, its needs, etc. better managed rather than non-management alongwith established product-line
- Consolidation of information (e.g. report of organisation receivables would require consolidation of receivables of individual product-line)
- Specialisation and economies of scale of function lost (e.g. distributed purchase function or training of changes in law at different accounts & finance function would increase cost)
- Taking advantage of functional and divisional model of structuring
- Critical functions (like purchase, finance, product development, etc.) centralised or delegated for smaller values to divisions; others are arranged as per division
- Additional Disadvantage
- Duplication of reporting of a single person (to Divisional Head and Functional Head)
- Persons from various functions organised in team for specific projects
- Faster execution of projects
- Duplication of reporting of a single person (to Team Head and Functional Head)
- In the networked world, person can exist anywhere and login to organisation’s server or internet and collaborate on projects. The person can be full-time employee or hired as an expert, etc.
Deliverables (i.e. expectations from the Structure)
- To provide desired goods and services to customers
- of quality promised or better,
- at price agreed or better,
- on the agreed due date (or earlier after discussion).
- Least wastage of resources
- Creation of harmonious environment where manpower can enjoy working
- Least communication gap
- Providing growth opportunities to manpower in terms of monetary, power and self-realisation
Important developments in the Structure
- Lean Approach suggests structure based upon ‘customer pull’ over ‘customer push’ and ‘single piece flow’ to provide better value to customer.
- Customer push
- Traditional system
- Production based upon planning or projection given by Marketing Dept.
- Customer gets delivery of goods immediately
- Accumulation of inventory → blockage of working capital, incurring carrying cost (cost of maintaining inventory, pilferage, interest, etc.) and holding cost
- Loss due to obsolescence
- Longer lead time of production
- Defects getting detected at the last stage
- Batch production
- Customer pull
- Manufacturing is done as per customer order.
- Every process is customer of previous process. If the process doesn’t deliver to the next process as per latter’s demand, the process will stop requiring immediate attention of supervisor to rectify the defect.
- The process moves backward from customer to vendor, which reduces the need for holding large inventory.
- Facilitates JIT (Just-in-Time) inventory.
- Single piece flow,
- Product manufactured as a single piece, i.e. all operations are arranged in sequence or loop shape (say, in U shape) where a single piece moves from various operations till finish.
- Reduces the need for ‘batch’ manufacturing.
- Defects are exposed at early stage.
- Cloud Computing of moving the organisation servers to internet is creating open structure where organisation and even extended teams (like vendors, customers, stakeholders) can login into organisation’s website and extract the information from shared web-space;
- Work-from home and Global worker are creating open structures where teams collaborate on various projects.
- Online stores are reducing the need for physical stores.
- Outsourced entities for a certain operation / function (like compliance function or administrative function, etc.) are eliminating functions and its structure.
Traditional / Normal ways of working in Structure
- Structures getting created on Land alongwith defining functions, its rules, standard operating procedures (SOPs), etc.
Challenges with Structure creation
- Customer service: Customer is a king for any organisation. Structure must be designed to provide maximum value to the customer.
- Least wastage of resources (raw material, manpower time & creativity, etc.) and maximum utilisation of the same.
- Fast flow of information among layers and removal of barriers.
- Structure to have life: The team members spend more than 50% of their working hours of a day in the organisation. Structure must give life to them. They must enjoy coming to organisation and working in the structure. Machines are solid but human force is alive. Live forces must be provided live structures.
- Structure to give growth opportunities to team members: Everybody wants to grow while working in the organisation structure. Structure must create such processes.
Some of the Process Implementation for better Structure
- Ongoing Process review: Redundancy is the part of the process. Competition and internet are creating the same faster. Organisation must create list of issues, number of times a issue raised → prioritize the issues → create cross-functional team → carry-out structural changes wherever required
- Creation of Feedback, Suggestion and Complaint system wherein a person can submit what he / she feels about a process and recommends its improvement. Organisation must respond in a time-bound manner. Whistle-blowers must be provided security so that they can air their views openly.
- Documents Receipt Counter: Organisations with large structure tend to lose the incoming packets / couriers since outsiders don’t know to whom to deliver. Centralised document receiving counter maintaining documents’ register is highly recommended.