I follow three simple rules whenever looking at an organization chart with a view to improving its effectiveness. First, remove structural causes of delay or loss in information and decision flow wherever possible. Second, decrease span of control of leaders to rational levels, so long as it can be shown that this is a net total cost improvement. Third, never advance organization (re)design in pursuit of results metrics but always in pursuit continual improvement of process metrics. So it was a delight to read an exchange this week between Art Smalley, Michael Balle and Michel Baudin, three leading authors and lean thinkers, on the role of organization structure changes on the lean journey.
Art Smalley writes about Toyota’s Functional Organization and dispels the myth that Toyota organizes people around value streams and assigns value stream managers. It is easy to miss the significance of his opening disclaimer which basically says, “I can’t enable your presumed solution before I’ve understood your problem.” Here it is in its full glory:
The question of “how do I…” (fill in the blank with most any topic) is actually referring to an action item that has been decided upon as a solution to a problem. For individuals with extensive background inside of Toyota we have a hard time engaging in this manner. Up front we like to know more about the background and current situation and what exactly is the problem your organization is facing? Once I understand and agree upon the problem definition then I also would like to know what is your goal and how will you measure success? Then I will be a stickler for analyzing the cause or causes of the problem and debating what is the best solution space. Jumping to an action item such as reorganizing in a more “horizontal” or “business process” fashion is not something I can connect with mentally without further information. Hence my reluctance to provide key transitional points of advice.
I love this paragraph. It is the sensei sending you back with the eraser end of the pencil to work on your A3.
After noting that Toyota is structured around highly functional organizations, Smalley points out, “One of the amazing things about Toyota is how well it manages across these silos to promote improvement and develop people.” In the context of a high performance organization like Toyota, the horizontal-vertical alignment is not allowed to be a barrier. In a poorly performing organization, even the best textbook organizational models fall flat on their faces.
After explaining the origins and clarifying the misconceptions around the notion of the value stream manager, Smalley gives a key insight:
So why does Toyota value functional silos so much in manufacturing or product development for that matter? The answer is quite easy. Despite the drawbacks (which can be overcome by leadership and management) functional silos are excellent for the purpose of developing deep expertise in people and maintaining technical standards. This is critical especially in engineering disciplines for the majority of personnel.
While horizontal organizations may be better equipped to respond to customer needs, vertical or functional organizations favor the safeguarding and development of technical knowledge. It is useful to understand the broader context of the different types of industry sectors, product life cycles and market profiles and how these favor one organization design over another. A food retail organization is a very different animal from an automobile manufacturer. Value streams may run through both, but there is no lean law dictating that both should be organized and managed by them.
Michael Balle joined the conversation, advising Don’t reorganize! Learn to pull instead.
After admitting to being a reformed proponent of reengineering, Balle makes the same point as Smalley regarding the value of vertical silos in developing technical knowledge:
I was struck by Jim and Dan’s point that functional silos are necessary for developing expert knowledge on technical topics – and yes, I’ve found since that purely process oriented organizations lose out tremendously on this front: DON’T DO IT!
Balle answers the question of how to balance the benefits of a vertical organization in retaining knowledge and a horizontal organization in being more customer and process flow-aligned, illustrated by an example of a German manufacturer who managed material and information flow effectively based on a pull system. He states:
My answer, here, for what it’s worth, is DON’T REORGANIZE, learn how to use a pull system, from product-process matrix to shop stocks to kanban cards!
Learning to pull is always good advice. However this prescription of “don’t reorganize… pull” is a bit simplistic, and assumes stable repetitive production which can utilize a kanban system. For extreme cases of one-off production such as job shops, custom manufacturing, event management services and construction firms, a slightly more nuanced approach is needed. In certain situations it is worth making the effort to connect people and processes horizontally in FIFO fashion to eliminate any chance of unnecessary queuing, loss of information fidelity related to handovers, and false economies of scale due to task switching.
Michel Baudin argues that the value of changing back and forth between silos and process organizations has been overestimated. He clarifies:
It doesn’t mean, however, that organization structure is unimportant, only that changing it is not the right first step to solve a problem or implement change. What actually works is to start by changing the work that is being done, and then adjusting the organization to remove the friction caused by the changes.
I disagree both with the premise that the value of reorganization has been overestimated and the claim that changing the organization follows changing the work. It is perhaps the most neglected activity in the typical lean journey, and if not taken as the first step only because we did not realize the need at the time.
Let’s recall Art Smalley’s brilliant paragraph. Whether we begin by (re)designing the organization to fit the work or changing the work to flow better and then designing organization to fit the flow depends completely on the problem we are trying to solve. In some cases reorganization of people is essential to improved flow of material and information. This is commonly seen in service industries which have for decades thoughtlessly mimicked the functional industrial organization given to us by Ford, GM and others as “modern management”.
Ongoing experiments in U.S. hospitals in truly patient-centered flow bring the care to the person, and in some hospitals this is changing how the staff are organized. One could argue the chicken or the egg – does the decision to work in a new way come before the decision to change the organization design? They are shadows of each other, and as long as changes take place as experiments rather than big bangs, small process changes will often precede organization changes, but not always in cases where there are excess layers, meaningless and harmful organizational boundaries and unreasonable team sizes for the work that is being managed.
The typical mom and pop business does not have a functional organization, it cannot afford to do so. It self-organizes around the customer workflow. As it grows in sophistication and technical expertise, this changes to safeguard the technical knowledge, sometimes at the expense of nimbleness that comes from horizontal alignment. Organization (re)design is an art and a science that deserves more study and practice than we can hint at in a few casual blog paragraphs by experts in industrial logistics and continuous improvement.
Baudin concludes correctly that, “When organizing around a process, we should always remember that Lean is about making it easiest to do what we do the most often.” This is correct, but incomplete. We should always remember that Lean is FIRST about making it easiest to do what we do most (the Pareto principle) and SECOND that it is about making everything else easier to do, continually, step by step. Also, this is true whether we are “organizing around a process” or “organizing around a function” or “organizing around a customer”. The key is that we need to keep studying our customer behavior and (re)designing our organization to serve them ever better.