How we think and act in businesses and how we internally organize businesses is a subject that has been broached far too rarely in the past. At the moment, we put specialists together in teams and only let them integrate afterward in terms of generating added value – this has not been questioned for a long time. We have accepted it as a law of nature and have initiated changes in the wrong parts of businesses due to this. In this post I would like to take on this topic and clarify three questions:
- What is the reason for the functional orientation of businesses – for situating specialists in one team?
- Which focus would generate more value?
- Why is it so difficult to design the change toward this new focus?
We will begin with the first question.
What is the reason for the functional orientation of businesses?
To answer this I would like to reflect on the “Taylor tub” that I enact according to Gerhard Wohland.
All of our knowledge in the framework of business management, even the ideas of how a business should be organized and structured, have arisen in the second phase where an unsaturated global market was prevalent. This market has specific characteristics that need to be questioned these days. Customers or shoppers had relatively few possibilities to buy products in this phase. Let’s use the example of buying clothes. Then, shops were near homes, or there were a few catalog providers like OTTO. Dealers were used to this fact. They were completely focussed on efficiency. It was clear what had to be done. It just had to be done quickly and cheaply. This is how the idea arose to put specialists – so sellers, distributors, and logisticians – into separate expert teams. Through that, the range of options for businesses and the complexity were minimized. The market didn’t have to be explored often, which is why we can speak of a vendor market. This can be recognized in the two curves in the above diagram, which both settle at the bottom.
With the further development of technology, the range of options for customers and shoppers became larger. The market stayed global, of course, but saturated from the sellers’ points of view. Customers could, and can, not only shop in increasingly large and networked spaces, like online platforms. They can also leave reviews about products and sellers that will influence other shoppers when they are buying things. Now perception and exploration of the market is much more frequently in demand from the side of businesses. Through the organization that was developed in the second phase, where it is more about efficiency and not about effectivity (to do the right thing), people in businesses have learned to take care of internal things above all. Structures now condition people in thoughts and actions.
The complexity of the market that has to be handled by businesses increases whilst the businesses struggle to find an answer in their previous efficiency-orientated structure. This fact can be seen in the above diagram where the two curves drift apart.
Which ideas for the business organization would be better?
Yes, exactly, there must be and there is a better organizational model. I hear again and again that Frederick Winslow Taylor, to whom the model in the first section refers, was right, at least for his time. But it can also be framed as not only being punished by the market because, and this is decisive for the development of a better model, businesses have removed themselves from the market and from customers through this type of organization.
Sales representatives have only thought of customers in the framework of marketing campaigns, but not in the context of how the wares reach the customers or which products absolutely must be bought. It fares similarly for shoppers or the logisticians in businesses. There was no team in this model of cooperation, no team that served the customer end-to-end, and therefore taking over complete responsibility for the customers. The structure simply didn’t allow it. Customer focus was negated and nobody would admit it.
This theme can be recognized in the following diagram:
Taylor’s model is on the left. By setting up functional expert teams we have separated the available added value streams. Later, and this is only recognized through many integration initiatives or in the role of an integration manager, you have to try to cement these breaking points again. It quickly becomes clear that this customer-facing thinking and action in business is not conducive.
But what about if we didn’t just allow the added value streams but rather let the teams consistently operate along them? If there were only customer-relevant separations in the internal organization? It doesn’t really matter to the customer how the operations in businesses are structured. They just want the products that they need, find and buy. This idea is in the above diagram on the right side.
Dealers like OTTO are constructing a cross functional team that looks after all of the fashion section, maybe one for home and living. In these teams, experts – so distributors, shoppers, IT professionals, logisticians, etc – are then connected. As said, because customers have different requirements for these two product classes, it should also be taken into account in the internal organization that different activities are required.
I would like to make a small analogy about Taylor’s idea about business organization from the world of football. Image that a coach decided during a game to send the eleven goalkeepers in the first fifteen minutes of the game, so that they will be replaced by defence from twenty minutes in until the end of the first half. In the second half, the eleven midfields play with the eleven strikers, but they are never all on the field at the same time. So there are always separate expert teams active on the playing field at the same time. Would the coach remain coach for very long? Probably not. But we have been operating this way in businesses for decades. Ouch.
Why is the implementation of this idea of a new model so difficult?
The pattern that the Taylor’s organizational design lays out is one that we come across very often in our Western society – we dismantle problems into smaller problems, solve the smaller problems and add these partial solutions together to a linear complete solution.
In the context of business management, we have the following problem: satisfying the customers’ needs in adequate time. This problem is split into partial problems and the realization arises that one buys wares, markets and distributes them, and then they also have to be taken to the customer. This is how expert teams for sales, distribution and logistics arise, where each team solve their relevant part of the problem and they are compounded to a complete solution.
What does one lose sight of here? Correct. The characteristics of the actual problem to be solved, the satisfaction of customer’s needs, are destroyed. The partial problems that are solved don’t have much to do with that anymore. They recognize that in the second diagram in this article through the separation of the added value streams.
This sort of problem solving is not so easy to drop for us because it had been drummed into us since we were in school. Even our schooling is separated into subjects: Maths, Physics, Geography, etc. Do you recognize the pattern?
To formulate it in the words of Richard David Precht: we generate specialists in our society who live on their island and can therefore only solve problems on this island. Between these islands reigns a wide, immaculate sea of incompetence. Solutions for complex problems can be found there, not on the island itself.
We need more “bridge builders” that connect specialists with each other. In our system today, precisely these people with skills, competencies and talents are not in demand and so not rewarded. In our system, we promote rule-followers, not problem solvers. We should fix this.
Now of course this seems to be huge approach, the profits of which might not be seen for a few years. Isn’t there anything we can do in the interim, in the frame of small steps? Of course, and we should, even. This is currently underway with me at OTTO and we are currently changing on the basis of the ideas and thoughts formed in this article. I reflected on this a few weeks ago in the lecture “Lean around the clock” in Mannheim. The video (in German) can be viewed here: https://youtu.be/SUo_1lD9LLM.