The Horizontal Organization : What the Organization of the Future Actually Looks Like and How it Delivers Value to Customers

the HORIZONTAL ORGANIZATION

Frank Ostroff

OXFORD UNIVERSITY PRESS NewYork Oxford 1999

the HORIZONTAL ORGANIZATION

What the Organization of the Future Looks Like

and How It Delivers Value to Customers

Oxford Universit y Press Oxford Ne w York Athens Aucklan d Bangko k Bogot a Bueno s Aires Calcutta Cap e Town Chenna i Da r es Salaam Delh i Florenc e Hong Kong Istanbu l Karach i Kual a Lumpur Madri d Melbourne Mexic o City Mumba i Nairob i Pari s Sa o Paulo Singapore Taipe i Toky o Toront o Warsa w and associate d companie s i n Berlin Ibada n Copyright © 199 9 b y Frank Ostrof f Published b y Oxford Universit y Press, Inc . 198 Madison Avenue , New York, New York 1001 6 Oxford i s a registered trademar k o f Oxford Universit y Press All rights reserved. N o part of this publication ma y be reproduced , stored in a retrieval system , or transmitted , i n an y form o r by any means, electronic, mechanical , photocopying , recording , o r otherwise , without th e prio r permission o f Oxford Universit y Press. Library o f Congress Cataloging-in-Publicatio n Dat a Ostroff, Frank . The horizonta l organization : Wha t th e organizatio n o f the futur e look s like and ho w it delivers value to customers / b y Frank Ostroff. p. cm . ''Throw awa y your old organization char t an d creat e a new one . Manage across , no t u p an d down . Use structure t o drive results." Includes bibliographica l references . ISBN 0-19-512138- 4 1. Team s i n th e workplace . 2 . Management—Employe e participation. I . Title . HD66.068 199 8 658.4'02—dc2 1 98-978 1

1 3 5 7 9 8 6 4 2 Printed i n th e Unite d State s of America on acid-fre e pape r

To My Beloved —Wife, Parents, Children, Family

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CONTENTS

Preface i x Acknowledgments x i PARTI

WHAT THE HORIZONTAL ORGANIZATION I S 1 WH O NEEDS THE HORIZONTA L ORGANIZATION? 3 Almost Everyone 2 EAC H HORIZONTAL ORGANIZATION I S UNIQUE 2 Ford Motor an d OSHA Show the Way

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3 HORIZONTA L IS NOT THE SAME AS FLAT 5 8 Distinctive Feature s of the Horizontal Organization 4 TH

E HORIZONTAL ORGANIZATION EMPOWER S PEOPLE 7 3 How Employees Control the Company's Core Processes

PART II

HOW THE HORIZONTAL ORGANIZATION WORKS 5 ORGANIZIN G AROUN D A CORE PROCESS 8 9 The Supply Managemen t Organizatio n of Motorola' s Spac e and Systems Technology Grou p 6 ORGANIZIN G A HORIZONTAL OPERATIN G UNIT 1O 2 GE Salisbury 7 ORGANIZIN G A DIVISION AROUND A SALES AND SERVICE DELIVERY PROCESS 11 Barclays Bank's Home Finance Division 8 ORGANIZIN Xerox

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G A N ENTIRE COMPANY HORIZONTALLY 13

O

PART II I

HOW TO BUILD A HORIZONTAL ORGANIZATIO N 9 THRE E PHASES TO MASTER 15 1 Set Direction , Formulat e Design , Institutionaliz e the Approach 10 PHAS E ONE—SET DIRECTION 16 7 Where an d How Will You Compete? 11 PHAS E TWO—FORMULATE DESIG N 18 How Will You Do What You Do?

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12 PHAS E THREE—INSTITUTIONALIZE THE APPROACH 20 How Will You Maintain Momentum ?

Epilogue

THE ROAD AHEAD 22 9 Anticipating and Avoiding Problem s and Seizing Opportunitie s Notes 23 Index 24

Viii C O N T E N T S

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PREFACE

This boo k starte d a numbe r o f years ag o wit h a questio n tha t I wante d to address : What wil l th e organizatio n o f th e futur e loo k like ? I was in management consultin g an d wa s working wit h a numbe r o f larg e an d important organization s tha t wer e facin g a rapidl y changin g world . I f there wa s an organizationa l for m tha t woul d equi p the m t o cop e suc cessfully wit h this change, wha t would it be? My answer was what I now call the Horizontal Organization , an d ove r recent year s it has been applie d i n a number o f differen t kind s of firm s and organization s wit h startlingl y successfu l results . Although thi s book will describ e th e concep t i n detail , her e i s a brief descriptio n tha t wil l serve as a background t o th e res t o f the book . Nearly al l firm s an d organization s hav e a s thei r missio n th e deliver y of somethin g o f valu e t o thei r customers . Thi s ca n b e a produc t o r service, an d th e custome r ca n be a purchaser o f the produc t o r service . But ther e ar e som e organizations—suc h a s government agencies—tha t deliver somethin g o f valu e t o customer s wh o don' t pa y directl y fo r it . However, they are just a s much customers as those who buy products an d services from commercia l firms. Clearly, it is to th e organizations ' advan tage i f they can delive r maximu m value t o th e custome r no matte r ho w the custome r is defined. The Horizonta l Organization i s designed t o give organizations the structural form and integrated organizationa l approach that will allo w them t o delive r thi s value t o customers .

Thus, th e deliver y of value to customer s i s at th e hear t o f th e Hori zontal Organization . I—an d others—call it "deliverin g th e valu e proposition." Embedde d i n mos t organization s ar e cor e processe s tha t ar e meant to deliver the value proposition. Bu t in today's vertically organized firms, th e peopl e wh o mak e th e cor e proces s wor k ar e almos t alway s grouped accordin g t o fragmented functions. Different functiona l groups, for example , develop products or services, manufacture or produce them , and marke t them. This fragmentation ofte n hamper s th e deliver y of th e value proposition . The Horizonta l Organizatio n organize s aroun d cor e proces s groups . All the peopl e wh o work on a core proces s are brough t togethe r int o a group tha t ca n easil y coordinate it s effort s an d maximiz e the valu e of what it deliver s to customers . This group, b y incorporating peopl e fro m a previousl y vertical organization, result s in a much les s hierarchica l organization, more customer-focused . It is, as its name suggests, a Horizontal Organization . How does th e Horizonta l Organizatio n diffe r fro m othe r model s that have bee n offere d i n recen t years ? I t i s more comprehensiv e i n tha t i t incorporates element s o f some of th e existin g concepts, suc h as process reengineering, individua l empowerment, and teams . But it goes beyond them b y providing a n overal l framewor k for th e organizatio n tha t inte grates an d make s use o f th e bes t o f thes e idea s i n a ne w structure tha t has been prove d i n practice . Is the Horizontal Organization a universal panacea? Not at all. In most cases, th e deliver y of a value proposition require s a combinatio n o f approaches. For example, functions can help in some situations where deep technical expertise is required. M y own view is that the organizatio n of the future will very likely be a hybrid, utilizing a variety of approaches in combinations tailored t o specific performance challenges. The Horizontal Organization make s an importan t contributio n her e b y increasing the range, power, and customization of solutions to these performance challenges. My intention i n this book is to help readers understand what the Horizontal Organization is , how it works, how it can b e developed , an d ho w to decid e wher e it can be effectivel y employe d i n an y organization. October 199 8 Fran

X PREFAC

E

k Ostrof f

ACKNOWLEDGMENTS

This boo k ha s benefite d immeasurabl y from th e suppor t o f many folk s over man y years. I deepl y appreciate th e hel p I hav e gotten fro m every one. Th e goa l of the boo k is to help organization s improve thei r performance an d t o mak e a contributio n towar d helpin g improv e th e live s of those i n organizations . To the exten t tha t thi s book make s these contri butions, I hop e yo u wil l fee l goo d abou t th e par t yo u playe d an d th e support you gave to its writing. For thei r critica l rol e i n th e preparatio n o f thi s book , I a m greatl y appreciative o f the outstandin g assistance provide d b y Wordworks—the editorial contribution s o f Donna Sammon s Carpenter, th e projec t management o f G . Patton Wright , and th e dedicated , professiona l wor k of their colleagues, including Christina Braun, Maurice Coyle, Erik Hansen, Ruth Hlavacek , Susannah Ketchum , Martha Lawler , an d Sau l Wisnia. I am als o appreciativ e of th e encouragement , support , an d carin g shown by my agent, Hele n Rees. It is a privilege to work with my colleagues in A. T. Kearney and within its Transformation Practice. I have found i t excitin g to wor k with thos e who ar e engage d i n th e pursui t o f doin g Transformatio n "right. " My colleagues include Bar t Kocha, Mark Miller, an d al l the member s of th e Transformation Practic e core team . Other s i n A . T. Kearne y whose support has been important include Marth a Peak and Ric k Gray in our marketing department . Th e book' s graphic s benefite d tremendousl y fro m

the work of those in A. T. Kearney's graphics department, including Holly GefVert, Carolin e Johnson, and Wend y Majkowski. I a m deepl y gratefu l t o a numbe r o f colleague s an d teacher s fro m whom I have learned bot h professionally and personally . I will alway s be indebted t o Steve Dichter for his mentorship, his caring, and his concern for m y development, a s well a s his inspirational leadershi p an d insights . I a m gratefu l for th e help , guidance , an d insigh t tha t Rober t Reic h has provided fo r m e ove r the years . His work on ne w approaches t o organi zation an d management , whic h I rea d a numbe r o f year s ago, was an important earl y indicatio n tha t somethin g significan t was afoot i n ho w companies wer e organize d an d managed . Jon Katzenbac h mad e contri butions t o m y early thinking o n th e horizonta l organizatio n an d ha s always been ther e fo r me when I needed him . I am grateful to Doug Smith for hi s contributions t o both th e origina l idea s of the horizonta l organi zation and thei r expression , a s well as his concern for my welfare. I thank Gene Zelazny for both hi s friendship and insight s on th e visual depiction of the horizonta l organization . I a m especiall y indebted t o Mor t Meyerso n fo r havin g create d th e opportunity an d provide d th e suppor t t o further develo p thes e idea s i n new areas . I als o appreciat e th e rol e Jim Champ y played i n supportin g the developmen t o f the ideas . I deeply appreciate th e help and suppor t give n to me by Paul Taskier. We ar e al l bette r of f fo r havin g peopl e lik e Pau l aroun d wh o ca n b e counted o n t o do the Righ t Thing. Pau l is a living example o f the "goo d man." I hav e benefited tremendously from th e insight s and contribution s of a number o f consultants and academic s with whom I have worked. These include Charle s Baum , Jonatha n Spiegel , Malcol m Sparrow , Roge r Boehm, an d Cod y Phipps. For providin g a collegia l an d congenia l environmen t and workplac e for muc h o f the writing of the boo k I am very grateful to Colin Campbell and th e Georgetow n Universit y Public Policy Program. I am also gratefu l for th e suppor t provide d b y John Crapo , Ric h Forshee , an d Julie Tea, also of the Publi c Polic y Program. I thank Soni a Balet and th e Facult y of Business Administration of th e University of Puerto Ric o for givin g me a workplace for writing this book during a time of need.

Xii A C K N O W L E D G M E N T S

I appreciat e th e encouragin g spiri t an d insightfu l advice provided b y Hinda Magidso n a t the inceptio n o f the effor t t o write this book. I a m als o appreciativ e o f th e desig n advic e provided t o m e b y Tom Phifer. Danie l Kunstler of J. P . Morgan provided importan t compan y information. I am deeply indebted for the hel p o f the companie s who participate d in th e book an d thei r employees who participated i n the interviews . The concepts of the horizonta l organizatio n ha s also benefited tremendousl y from th e application s an d insight s of a numbe r o f colleagues an d prac titioners, includin g Stev e Frangos , Phi l Jarrosiak , an d th e Operatio n Front Lin e team. The folk s a t Oxfor d Universit y Press have been a n absolut e drea m t o work with . I a m particularl y gratefu l fo r th e expertis e an d suppor t o f Herb Addison , m y editor a t Oxford , wh o believed in , encouraged , an d supported thi s project over a long period of time. Many others at Oxfor d also provide d importan t suppor t fo r th e book , includin g Laur a Brown, Mary Elle n Curley , Russel l Perreault , Carolin e Skinner , an d Joelly n Ausanka. I a m deepl y gratefu l fo r th e lov e and suppor t give n b y members of my family, as well as my friends: Irving and Barbar a Ostroff, Lesli e and Glen n White, Jon an d Angela Ostroff, Davi d and Ilen e Ostroff , Teres o an d Nelson Ramirez , Marisol and Gustav o Gelpi, Jose Ramirez , Violet and Te d Brown, To d an d Su e Brown , Esthe r an d Ha l Jacobs, H y and Collee n Mayerson, Shell i an d Mar c Ross, Pedro Alonso , Frank , Cece , and Bet h Ann Kessler , Ron Partizian , Steve Swire, and Le e Weinberg. I a m eternall y gratefu l fo r th e lov e an d suppor t give n t o m e b y my parents, Irvin g and Estelle . They have watched over me, guided me , an d sacrificed fo r me . I believ e i t i s important fo r childre n t o hono r wha t their parent s hav e done fo r the m b y the lif e the y lead. M y mother ha s now passed, bu t I hope tha t bot h sh e and m y father are prou d o f how I conduct m y life an d fee l tha t i t honors th e values they taught me . I am deeply grateful t o my brothers, Jon an d David , and sister , Leslie, for th e love, support, and companionshi p I have received from the m over the years. I am now married, with children o f my own. I cannot imagine havin g a better family of in-laws than th e Ramire z family. I am still in awe of th e

A C K N O W L E D G M E N T S Xiii

miracle o f the rol e m y wife an d I have been abl e t o play in givin g life t o our children , Estelle and Jacobo. T o my children, I want to tell you that my love for yo u is endless and tha t m y most sincere hop e i s that you go on t o be happ y in your lives and t o help mak e the worl d a better place . And t o my wife, Tere , I have no deepe r Blessin g than t o have found you. I lov e you for eternity . Above all, I am deepl y grateful t o th e Sourc e of all my Blessings.

XiV A C K N O W L E D G M E N T S

Part ONE

WHAT THE H HORIZONTAL ORGANIZATION IS O O RG A

Fig. 1. 1 Th e Vertical Organization

1 WH O NEEDS THE HORIZONTAL

ORGANIZATION?

ALMOST EVERYON E

Does thi s char t loo k familiar ? I t should . Th e diagra m illustrate s a n or ganizational desig n tha t ha s been th e mainsta y of business since th e In dustrial Revolution, helping to promote th e efficient productio n of goods and th e administratio n o f governmen t task s for mos t o f th e twentiet h century. I t i s an approac h tha t I cal l the "vertica l hierarchy, " which , as the nam e implies , comprises a tal l authorit y structur e wit h multipl e reporting level s and a decision-making apparatus tha t concentrate s authority nea r th e top . "Thinking " i s delegate d t o management ; "doing " i s accomplished i n a collectio n o f functionally distinct department s popu lated b y individuals who ar e focuse d o n specialize d an d generall y frag mented tasks. The whole concept of an organization chart—what the French call an organigramme—long predate s th e Industria l Revolution , havin g bee n around i n one form or another for centuries (diagram s outlining church hierarchy, fo r example , ca n b e foun d i n medieva l churche s i n Spain) . Study one o f these skeleta l configurations and you quickly see the reaso n

3

for it s longevity : Organizatio n chart s provid e a too l fo r understandin g how an enterpris e operates . The y can emphasize certain feature s and deemphasize others , quickl y allowin g th e viewe r t o kno w what position s exist, ho w thes e position s ar e grouped , ho w forma l authorit y flow s be tween departments , an d wh o answers to whom. More tha n just basi c roa d map s for th e intereste d observer , however, such chart s als o focu s attentio n o n th e organizationa l design' s most important buildin g blocks— a distinctio n tha t belong s t o th e individua l worker in the traditiona l vertica l scheme. The singl e worker and his or her job becom e the foundation o f performance i n a vertical or functional hierarchy, and manager s o n higher level s are charged with matching the right people with th e righ t task s and evaluatin g and rewardin g thei r per formance.1 Movement i n a vertical organizatio n i s eithe r downwar d o r upward . Because separat e department s performin g separat e function s d o al l th e work, th e syste m naturall y involve s multiple handoff s tha t devou r tim e and ineluctably focus inward on corporate politics and each department' s attainment o f interna l goal s rathe r tha n outwar d o n th e productio n o f products an d service s with value tha t continuall y satisfie s an d win s customers. Verticality is not alway s a negative force i n business, of course. In fact , it is often attribute d wit h maintaining th e standar d o f corporate efficien cy. The vertica l organization, which assume s a bureaucratic shap e domi nated b y functional departments , was brought t o it s productive ape x by the Industria l Revolution , a s manufacturin g an d industria l productio n grew mor e comple x an d involve d th e managemen t o f mor e an d mor e workers. I n th e Unite d States , fo r instance , th e constructio n o f th e rail roads i n th e 1840 s quickl y revealed a desperate nee d for som e means of controlling an d managin g th e wor k o f engineers , builders , schedulers , and others . Becaus e train s ofte n ran on singl e track s without adequat e signaling, th e potentia l for a disaster was always present . When a serious head-on collisio n o f two passenger train s occurre d i n 1841, i n Westfield, Massachusetts , a public outcry went up for better man agement an d control . I n response, th e board of directors o f the Wester n Railroad appointe d a committe e t o mak e recommendation s fo r manag ing a n increasingl y comple x operation . In it s "Report o n Avoidin g Collisions an d Governin g th e Employees, " th e committe e faulte d th e con -

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ductor o f one o f the trains who had disregarded th e company's schedule; accordingly, th e director s too k step s t o fi x "definit e responsibilitie s for each phas e o f th e company' s business, drawin g soli d line s o f authority and comman d fo r th e railroad' s administration , maintenance , an d op eration."2 Directly beneath th e presiden t o f th e Western , th e genera l superin tendent manage d th e wor k of thre e roadmasters , eac h headin g a geographical sectio n of the railroad ove r which he had to operate a handcar every morning durin g th e winte r months t o ensure tha t th e track s were clear. At the hea d of another sid e o f the company , a master of transportation i n Springfield , Massachusetts, had responsibilit y for overseein g a group of managers who administered freigh t and passenge r traffic , main tained th e engines , an d eve n bought wood fuel fo r th e locomotives. 3 In Th e Visible Hand, a stud y of th e ris e o f busines s manager s i n th e United States , Alfre d Chandle r point s t o th e Wester n Railroa d a s "the first American busines s enterprise t o operate throug h a formal adminis tration structur e manne d b y full-tim e salarie d managers." 4 Othe r rail roads followe d th e exampl e o f th e Western, 5 s o tha t b y th e mid nineteenth centur y in th e Unite d States , near th e tim e o f the Civi l War, American businesse s were formalizing their chai n o f comman d an d re sponsibility through th e vertical organizational desig n o r chart . As the hierarchical organization evolved in the early twentieth century, it wa s deeply influence d by the principle s o f "scientifi c management, " the foremos t explicator o f which was Frederick Winslo w Taylor . I n re sponse t o the perceive d behavioral problem calle d "soldiering " (tha t is, an attitude amon g workers that they should d o the leas t amount of work in th e longes t tim e span) , Taylo r calle d fo r stron g measure s t o revers e this deadly trend i n business. Specifically, h e sa w the primar y duty of the manager t o increase efficienc y b y getting the mos t work out o f a worker in th e shortes t possibl e time . B y "scientifically" measurin g productivity and setting high quotas, Taylor proposed a n antidote to the "poisonous" type of management calle d "initiativ e and incentive," whereby managers bribed workers into doin g more b y offering the m higher wages or promising the m promotions. 6 Equippe d wit h stopwatches and notepads , managers conducte d time-and-motio n studie s o n worker s within disparat e functional department s i n orde r t o increase productivity . Citing the case of some 600 laborers at the Bethlehem Stee l Company, Taylor noted that

WHO NEED S TH E H O R I Z O N T A L O R G A N I Z A T I O N ? 5

their improve d productivit y resulted fro m a n "elaborat e organization " guided b y managers who were committe d t o th e principle s o f so-called scientific management. 7 Not surprisingly, organization designer s have experimented with structural configuration over the years, coming up with a number of variations. Surveying th e multiplicit y of approaches , organizationa l theorist s have long recognized that there is no one "best" structure. They have shown— as par t o f what i s called th e "contingenc y approach " t o organizationa l design—that organizational effectiveness improve s when structure fits the particular demand s o f the situation. 8 Bu t it is increasingly apparent tha t the long-favore d vertical model is, by itself, n o longer capabl e of meeting all the differen t need s o f business. It ha s been rendere d inadequat e fo r today's demandin g competitive , technological , an d workforc e environment by its inherent shortcomings . These include : • It s internal focu s o n functiona l goal s rathe r tha n a n outwardlooking concentratio n o n deliverin g value and winnin g customers • Th e loss of important informatio n a s knowledge travels up and down th e multipl e levels and acros s the functiona l departments • Th e fragmentation of performance objective s brought abou t by a multitude o f distinct and fragmente d functional goals • Th e adde d expens e involve d i n coordinatin g th e overl y frag mented work and department s • Th e stiflin g o f creativity and initiative of workers at lower levels That is why leading-edge corporations, suc h a s those featured i n thi s book, ar e turnin g t o a cross-functiona l organization designe d aroun d end-to-end wor k flows, a n approac h I call the "horizonta l organization. " It is a design ideally suited to a radically different business climate defined by ne w technology , intens e globa l competition , a constantl y changing marketplace, and th e expande d aspiration s o f workers who are demand ing increased participation an d greate r responsibility. Speed, service , total custome r solutions, and flexibilit y ar e th e watchwords i f a compan y is to thriv e i n thi s ne w economy . Th e concep t o f a horizontal organization structure d around a small number o f end-to-end work, information, and materia l flows known as core processes is tailor-made

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for helpin g a company reach it s competitive peak. As we will see in chap ter 3 , th e distinctio n betwee n a cor e proces s an d a n ordinary , simpl e process i s crucial. Th e forme r extend s acros s a busines s an d drive s th e achievement o f fundamenta l performanc e objective s tied t o a n organi zation's strategy . Cor e processes , whic h numbe r n o mor e tha n thre e o r four i n th e typica l organization, ar e th e catalyst s that transfor m a n or ganization fro m th e vertica l t o th e horizontal , channelin g al l energie s toward achievin g customer satisfaction. This chapte r wil l introduc e yo u t o th e feature s of the horizonta l ap proach, an d explai n wh y it can help make your organizatio n a winner.

A Workplace Beset by Turmoil Whether w e are busines s executives , middle managers , shop-floo r workers, o r simpl y consumers, non e o f us ca n ignor e th e profoun d change s that have occurred i n the workplace over the past two decades. The mindboggling technological progress tha t emphasizes computer-based integra tion, coordination , an d communicatio n i s apparent everywhere . Unfortunately, s o i s th e troublin g disintegration tha t gnaw s awa y a t virtually every area o f our lives. Consider bankin g transactions in this age of the ubiquitous ATM . The few remainin g human s wh o ru n th e loca l ban k branche s overse e on e aspect o f your business while a maze of invisible back-office department s tends t o others. Ofte n no on e perso n ha s responsibility for ever y part of a customer's business, and thi s diffusion o f accountability can be a nightmare fo r th e consumer . Yo u probably know , for example , ho w difficul t it i s to hav e check s directe d t o a new address afte r yo u hav e moved , o r to correct a n erro r i n your account. The numbe r o f people i n countless departments wh o hav e t o mak e som e contributio n t o th e proces s ca n turn a simple transactio n int o endles s torture . What i s more, di e effect s reac h wel l beyon d th e real m o f persona l annoyance an d aggravation : Th e bank' s inefficiencie s devou r no t onl y your time, bu t als o it s own, not t o mentio n it s profit s an d shareholde r value. The problem i s that your bank—like your insurance company, perhaps, o r th e airlin e you travel—is an organizatio n stil l mired i n th e vertical mindset of the past . The vertica l organization' s focu s o n interna l functiona l goals mean s

WHO NEED S TH E HORIZONTA L O R G A N I Z A T I O N ? 7

that peopl e ar e eithe r lookin g upward , inten t o n pleasin g th e boss , o r downward, occupie d b y supervisin g subordinates . Unfortunately , th e most important angle of vision—the view out toward what the whole company should b e doin g t o win customers—is often obstructe d b y internal concerns. Furthermore, becaus e separate unit s performing separate tasks do all the work, completing a project naturally requires multipl e handoff s that wast e valuable tim e an d encourag e fragmented , eve n conflicting, performance objectives , thereby raising costs , decreasin g efficiency , an d hindering coordination . I n addition, the separatio n o f tasks tends to emphasize what is "optimal" for the individua l unit or function rather tha n what is best for th e entir e organization . All in all, it does no t produc e a recipe fo r succes s in a highly competitive environment . The vertical hierarchy attained its status and thrived when the business landscape wa s relatively stable an d predictable . S o long a s markets were steady, competitio n wa s primarily domestic , technolog y mean t simple , special-purpose machine s such as the typewriter , and labo r was abundant and semi-skilled , th e vertica l hierarch y worked—an d worke d magnifi cently. Change is always inevitable, as we know, but who could have predicted the magnitud e of the transformatio n tha t has occurred ove r the pas t two decades, an d ho w it would forever alter th e busines s landscape? The collapse o f borders, th e wirin g of the world , the nee d t o tailor product s t o accommodate a diverse marketplace, and a clamor among available workers for more responsibility and job satisfaction—al l thi s came together to make stability and predictabilit y nothing mor e tha n a fond memory of a bygone era. 9 With inconstancy becoming th e rule , a bureaucracy weighted dow n b y supervisory layer upon supervisor y layer and it s clumsy inability t o coordinat e effort s prove d incapabl e o f reactin g wit h th e spee d needed t o mee t th e varie d an d unrelentin g demand s o f global markets and customers. To war d of f an y misconception , I mus t poin t ou t tha t a vertical , function-based organizatio n ca n stil l be a n appropriat e choice , on e tha t can wor k where deman d fo r good s exceed s supplie s o r wher e worker skills ar e quit e low—i n lesser-developed countries , fo r example—o r i n situations where succes s demand s technica l expertis e abov e al l else , o r where success depends o n high-volume , standardized production . Bu t by and large , th e situation s where th e purel y vertical model i s appropriat e

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have narrowed considerably . Ironically, this narrowing resides, in part, in what was once th e principa l sourc e o f strengt h o f th e vertica l organiza tion: namely , th e wa y in which it defines structure . By dividing large operation s int o functional departments, th e vertical design guarantees fragmente d tasks , overspecialization , fiefdoms , tur f wars, th e urg e t o contro l fro m th e top—al l th e negative s that foste r or ganizational paralysis. Regrettably for late-twentieth-century corporations, verticality spawns a host o f handicapped hierarchie s a t th e ver y moment when busines s can leas t afford th e resultan t los s of speed an d efficiency .

A Design for Today ... an d for Tomorrow With th e ol d order breaking dow n and organization s and thei r manage ment staff s enmeshe d i n seekin g ne w organizationa l forms , busines s thinkers hav e rushed i n t o fill the void , struggling t o conceptualiz e an d articulate wha t th e twenty-first-centur y organizatio n shoul d loo k lik e i n order t o respon d t o th e competitive , technological , an d workforc e de mands of the new age. Although their effort s were well-intentioned, many early theorist s often cloake d their valuable idea s in obscur e terminology and metaphors—clusters , orchestras, inverte d pyramids , and pizz a pies, to name a few10—that were more metaphorical than they were actionable. To be sure, trail-blazing conceptualization is an important first step in explicating fundamental change, bu t th e usefulnes s of metaphors is limited whe n addressin g th e basi c issue o f how to mov e from abstrac t ide a to workable design. At the en d o f the day , the questio n a manager needs' to be abl e t o answe r is: How do I pu t togethe r a performance-based or ganization for the new era? Metaphors aside, th e design solutio n remains firmly embedded i n th e wa y in which labor is divided int o task s an d th e tasks then coordinate d to deliver quickly and efficientl y a n organization's value proposition , whic h i s th e se t o f benefit s tha t a busines s offer s t o convince customers to buy from i t and t o differentiate itself from it s competitors. In short, structur e is still critical to designing an efficien t organizatio n for th e twenty-firs t o r any other century, and certain essential points must be considered: Who goes where? What do they do? What are the positions and ho w are they grouped? What is the reporting sequence? What is each person accountabl e for ? I n othe r words , how doe s authorit y flow? No w

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add to these th e questions about the organization's actua l business: What does th e compan y purport t o do best? How does it accomplish tha t work and delive r its value proposition t o the customer? 11 These question s lea d managers to th e ultimat e question : Ho w does a company's organization propel it forward in its creation and delivery of that value proposition ? Answering thes e basi c question s while also offering a n alternativ e se t of organizationa l buildin g block s i s th e ke y t o meetin g th e challenge s bombarding business . The horizonta l organizatio n ca n hel p provid e answers, an d i t doe s s o withi n th e framewor k o f a cross-functional , integrated alignmen t o f wor k and goals , "real-time " proble m solving , an d the continuou s improvement i n performance—the hallmark s of competitive advantag e i n th e future . Exactly wha t ar e th e fundamenta l principle s o f th e horizonta l orga nization? Simpl y stated, horizonta l organizations : • Organiz e aroun d cross-functiona l cor e processes , no t task s or functions • Instal l proces s owner s o r manager s wh o will tak e responsibilit y for th e cor e proces s i n it s entirety • Mak e teams, not individuals, th e cornerston e o f organizational design an d performanc e • Decreas e hierarchy by eliminating non-value-adde d wor k and by giving team member s who are no t necessaril y senior manager s th e authority to make decisions directly related t o their activitie s within the proces s flo w • Integrat e wit h customer s and suppliers • Empowe r people by giving them the tools, skills, motivation, and authority to make decision s essentia l t o th e team' s performanc e • Us e information technolog y (IT ) t o hel p peopl e reac h perfor mance objectives and delive r the value proposition t o the customer • Emphasiz e multipl e competencie s an d trai n peopl e t o handl e issues an d wor k productivel y i n cross-functiona l area s withi n th e new organization • Promot e multiskilling , the ability to think creatively and respond flexibly t o new challenges that arise i n th e wor k that teams d o

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• Redesig n functional departments o r areas t o work as "partners in process performance" wit h the cor e proces s group s • Measur e fo r end-of-process performanc e objective s (whic h are driven b y the valu e proposition) , a s well a s customer satisfaction, employee satisfaction , and financia l contributio n • Buil d a corporate cultur e o f openness, cooperation , an d collaboration, a culture that focuses on continuous performance improvement an d value s employee empowerment , responsibility , an d wellbeing This i s the horizonta l organizatio n i n a nutshell. When properl y applied, thes e mutually-consistent , mutually-reinforcing, aligned principle s enable a horizontal organizatio n t o perfor m effectively . The y yiel d a n organization capabl e o f respondin g t o today' s divers e challenges . What is more, a horizontal organization also leverage s an d integrate s the performance improvemen t capabilitie s o f many performance enabler s intro duced i n recent years. That is, a horizontal organizatio n reinforces—an d is reinforced by—thes e performance enablers . Reengineering, tota l qualit y management , high-involvemen t wor k systems, continuou s improvement—wonderfu l idea s all , but whe n ap plied i n isolate d fashion , the y provid e onl y limited performanc e gains . One o f th e mos t appealin g feature s o f th e horizonta l organization , however, i s th e wa y in whic h i t tie s togethe r th e variou s performanc e enablers int o a n integrated , coherent , mutuall y reinforcing whole rather tha n presentin g the m i n a laundry list of disconnected "one-offs. " A model o f th e ne w organizatio n i s finall y emergin g tha t help s mak e sense o f thes e enabler s an d give s each o f the m a plac e i n th e contex t of a n integrate d whol e where the y ca n actuall y b e see n a s reinforcin g one another. Reengineering, fo r example , produce s th e efficien t an d effectiv e processes an d wor k flows tha t ar e th e necessar y foundation o f the cross functional organization. 12 Th e reengineere d processe s als o facilitate th e identification o f th e skills , activities, and team s neede d t o achiev e overall performanc e goals . A t th e sam e time , th e cross-functional , process based desig n eliminate s th e structura l boundaries that perpetuat e hand offs, conflictin g objectives , an d functiona l grouping s o f employees , thereby makin g th e reengineerin g mor e successful . Most reengineerin g

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efforts, eve n i f the y ar e don e right , achiev e one-tim e improvement s in performance. Th e horizonta l organization , o n th e othe r hand , provide s the basi s bot h fo r immediatel y improvin g th e organization' s perfor mance an d fo r promotin g continuous improvemen t ove r th e lon g term . As those who have reengineered antiquate d cor e processe s an d work systems hav e learned, rea l transformatio n involve s a dua l focu s o n processes an d th e organizatio n a t large . I n a 199 3 Harvard Business Review article, Gen e Hall , Jim Rosenthal , an d Jud y Wad e confirme d tha t both breadth o f process an d dept h o f business levers, including role s and re sponsibilities, measurement s an d incentives , organizatio n structure , in formation technolog y an d share d value s and skills—meanin g consideration of all of the seve n S's of structure, systems (information, technology, measurement), skill s (people' s skills) , share d value s (behavior) , staff , style, an d strategy—wer e crucia l fo r achievin g performanc e improve ments a t th e 2 0 companies studie d fo r th e article. 13 Th e horizonta l or ganization i s th e lubrican t tha t facilitate s th e smoot h alignmen t o f al l these pieces . This sam e kin d o f symbioti c relationshi p occur s wit h high involvement wor k systems , too. Whereas empowere d worker s fin d tha t the fragmente d an d separate d department s commo n t o th e vertica l organization circumscrib e thei r solutio n spac e an d limi t th e kind s o f activities the y can work on, th e cross-functiona l work of redesigned processes withi n th e horizonta l organizatio n i s ideall y suite d fo r empow ered teams , abou t which muc h has been written recently . Whe n see n i n the contex t o f a horizonta l organization , team s ar e no t jus t a goo d idea, the y becom e a n essentia l componen t o f productivit y and contin uous improvement . Tha t i s because the y can combin e th e huma n skill s and experience s necessar y t o solv e problem s no t onl y in rea l tim e bu t in cross-functiona l flows o f work. Combining multiple skill s and experience s a s well as integrating activ ities across a flow o f work, these team s engage i n real-tim e problem solv ing and have the authority, information, training, and motivation to keep process performance o n trac k t o meet objectives . They help ensur e tha t the improvement s generated by reengineering wil l be ongoin g an d continuous. A s we will se e i n chapte r 12 , one o f th e hallmark s of th e hori zontal organizatio n i s continuous improvement , a n achievemen t which eludes man y reengineering efforts .

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By helping each o f the performance enabler s t o enhance an d suppor t the other s in a mutuall y reinforcing and cumulativ e pattern , the hori zontal organizatio n dramatically enlarges th e performanc e improvement possibilities envisioned by the creator s o f the various techniques. I t is the missing piece of the ma p showing where business has been headin g ove r two decade s of change. Moreover , each o f the 1 2 principles of the hori zontal organization reinforce s one anothe r i n an aligned , integrate d way that covers the broad range o f elements that hav e an impact on busines s performance. Indeed , thes e principle s ca n be use d t o maximiz e performance. Formulatin g strateg y first and the n shapin g th e organizatio n t o deliver th e valu e proposition, managemen t ca n use the horizonta l orga nization—and al l th e approache s tha t i t entails—a s an executiona l en gine t o engender futur e growth .

Strategy, Structure, Success A CEO , a middl e manager , o r anyon e els e involve d i n organizationa l design an d chang e need s a clear pictur e o f who goes where, what each person does , an d ho w different part s o f th e organizatio n relat e t o on e another. Whe n thes e structura l link s are missin g o r tenuous , manager s find a daunting impedimen t t o thei r attempt s t o transfor m th e organi zation. W e know , for example , tha t team s wil l pla y a n increasingl y important rol e i n th e twenty-first-centur y organization . W e also kno w tha t teams constitut e onl y one piec e o f the organization' s design puzzle . T o stop ther e withou t tryin g to understan d ho w the wor k o f teams can b e integrated t o advanc e th e performanc e o f th e corporat e whole , o r t o blindly assume that a large corporation ca n perform effectivel y wit h hundreds of disconnected teams , without any sense of how to ensure that die teams ar e workin g in a n integrate d wa y that advance s th e performanc e of the entir e entity , is nothing short of irresponsible. A large corporatio n simply cannot b e 20,00 0 disconnected teams . What organizationa l approac h ca n mak e sur e tha t al l the team s ar e heading i n th e sam e direction ? T o answe r tha t question , managemen t will nee d firs t t o formulat e a n appropriat e strateg y for th e entir e orga nization.14 They must lay out i n detail th e value proposition an d th e on e to five core processe s that either ar e already in place or, more likely, will need t o be identified , designed, an d aligne d i n order t o deliver compet-

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itive advantage . I n addition, manager s mus t mak e sur e tha t th e contri butions o f individual team s are full y integrate d towar d tha t deliver y and that team member s ar e held accountabl e fo r performance goals . For th e mos t part , suc h organization-wid e structure ha s bee n sorel y missing fro m transformationa l effort s i n recen t decades . Th e horizonta l organization, however , no t onl y present s a n actionabl e pictur e o f th e organization o f the future , but als o provides th e architectur e neede d t o pull togethe r al l element s o f organizationa l performanc e int o a n inte grated whole . Thi s nee d fo r a corporat e architectur e t o configur e th e organization o f th e futur e canno t b e ignored . Withou t it, would-be wizards ar e stymied . Structure i s not th e onl y thin g neede d fo r transformationa l organi zational design, of course, but it s importance mus t not b e overlooked. By itself, structur e can inhibit performanc e becaus e it touches upon a range of issues , fro m rol e clarit y to accountabilit y t o leadership . Structure , b y itself, ca n actuall y inhibi t proble m solvin g an d innovativ e thinking , especially when tha t structur e i s rigidly designe d s o tha t peopl e i n func tional area s think onl y of departmental goal s and performanc e measures rather tha n askin g what is best for th e organizatio n a s a whole. To b e sure , structur e can , and ofte n does , shap e wha t people fee l ought t o b e emphasize d i n a company' s strategy . Specifically, organiza tion ca n influenc e strategic choice . How ? A company may be examinin g a number o f strategies. I f these strategie s have equal probabilities o f success, it may make sense to select the on e th e curren t organization is most capable o f executing—tha t is , the on e tha t woul d requir e th e leas t or ganizational change , disruption , o r traum a and , therefore, risk . Another point : Where a person "sits " in th e organizationa l structur e influences wha t h e o r sh e see s a s important. Th e vertica l organizatio n provides many examples of what happens to people whose vision becomes more an d mor e narro w a s resource s allocate d t o th e productio n an d delivery o f th e valu e propositio n ar e limited . I t i s not unreasonabl e t o expect the m t o fight to protect thei r "turf " o r specia l interests , ofte n t o the exclusio n o f what is best fo r th e entir e organization . Th e horizonta l organization, o n the other hand, encourages people to broaden their lin e of sigh t i n orde r t o understand ho w their wor k benefits the entir e orga nization. Charting th e redesigne d cross-functiona l work and assignin g peopl e

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to carr y ou t particula r flow s o f work , for example , serv e t o defin e jo b descriptions an d clarif y roles . Thi s clarity , i n turn , help s peopl e under stand what their responsibilities are and what the measures of success are. People throughou t th e organizatio n ca n direct thei r attentio n t o what it takes t o achiev e competitiv e advantag e an d wi n customers , n o longe r wasting time in functions that focus o n thei r ow n internal goals and tha t may not trac k with what the compan y as a whole needs t o do to succeed . A horizonta l structur e als o encourage s communicatio n an d join t problem solvin g between areas that need t o work together. Cor e process grouping allow s employee s fro m varie d discipline s t o kno w and under stand on e another . I t encourage s th e developmen t o f "socia l bonds, " joint decision-making methodologies, an d collaborativ e approaches , thu s dissolving th e functiona l barrier s tha t hav e traditionall y thwarte d com munication. Ne w relationships an d ne w cross-functiona l responsibilities also promote a broadening o f workers' scope, skills, and decision-making abilities. The ver y act o f drawing an organizatio n char t alon g cross-functional lines formalizes the ne w structure an d send s a powerful signal, bot h in side an d outsid e th e company , about th e importanc e o f cross-functiona l approaches. Peopl e look at the organigramme and realize that relationships have changed . Dissolvin g the ol d functiona l associations makes it much harder t o slip bac k int o the former wa y of doing things. Furthermore, a new desig n mean s tha t ne w leaders ca n mor e easil y enable chang e an d drive th e cross-functiona l organization t o mee t new challenges. The firs t ste p i n actuall y designing th e ne w organizatio n require s a thorough understandin g o f long-term goal s because ultimat e succes s requires what Dichter, Gagnon, an d Alexande r cal l " a rock-soli d linkage " between wha t th e compan y ha s t o d o t o wi n desire d customer s i n it s chosen industr y an d th e vehicl e tha t is supposed t o delive r tha t perfor mance.15 I n othe r words , strategy must precede structure . To chart a horizontal organization aimed explicitl y at executing strategy, yo u mus t first: • Se t a stretch or aspirational goa l of where you want the company to b e in , say , ten years . (Thi s ste p seek s t o preven t th e a d ho c mindset and incrementa l thinking.) • Choos e new or existing businesses that support you r goal .

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• Determin e the desired custome r segment s in your chosen busi nesses. • Identif y a unique value proposition—defined a s the set of benefits you offe r a t a price attractive to customers and consisten t with your financial goals—tha t gives you a competitive edge . You nex t determine wher e your current organizatio n i s failing t o deliver the value proposition, and then design an engine to bring it about— complete wit h leading-edge performanc e enabler s tha t wil l remed y th e shortcomings and prope l yo u t o competitiv e success. After definin g th e value proposition , yo u structur e th e wor k o f th e ne w horizontal organi zation aroun d th e cor e processes , assignin g responsibilities t o groups o r teams o f empowere d workers . The activit y an d wor k flow s o f th e rede signed processes dictate what skills and trainin g the people who populate those cor e proces s group s wil l need . Th e resultan t organizatio n i s on e crafted specificall y t o delive r th e distinctiv e bundle o f benefit s tha t sets you apar t an d cause s consumers to see k out you r product o r servic e instead o f your competitor's . In a profound way, then, everythin g in the organizatio n is focused on executing the strategy . You start by determining what success for the company means, the n us e thos e criteri a t o evaluat e an d desig n ever y action and elemen t require d b y the winnin g strategy . This amount s t o a 180degree tur n from th e traditional way of designing an organization aroun d its functions, where there wa s a disconnect between the strateg y and th e people a t th e to p wh o planne d it , an d thos e furthe r dow n th e ladde r who actuall y executed it . In th e horizontal organization , everyon e meets in the middle and the strategy of the company becomes part of the everyday work. I d o no t mea n t o impl y that a functional organization i s totally incapable o f contributing t o th e deliver y of a value proposition. Fa r from it . Particularly noteworth y is its contributio n whe n a value propositio n re quires—in whol e o r i n part—th e deliver y of technica l expertise . Ther e are, however , specific characteristic s o f th e horizonta l organization' s focus on th e valu e proposition tha t distinguish i t from th e traditiona l vertical o r functional organization: • Th e horizontal organizatio n direct s th e attention o f every team, support group , database , technica l expert , an d functiona l group

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(retained fro m th e vertica l organization ) towar d th e productio n and deliver y of the valu e proposition. • Th e value proposition directl y drives the design and integration of all these elements, unlike the fragmente d efforts o f diverse functional group s i n th e traditiona l bureaucrac y o r vertica l organiza tion. • Th e horizontal approac h produce s a much mor e robust , versatile, an d finely tuned instrument . In contrast to the traditional bureaucracy, the horizontal organization does no t grou p peopl e accordin g t o monolithic skil l bases or hold the m accountable fo r functiona l goals. While a functional approach ca n con tribute technica l expertis e t o a value proposition, toda y there i s a much larger rang e o f value proposition s tha t requir e mor e tha n simpl y technical expertise . However , regardles s o f th e valu e proposition , th e pre dominant approac h t o organizatio n desig n t o thi s poin t ha s remaine d largely unresponsive t o th e cross-functiona l challenge s facin g today' s companies—insisting o n groupin g peopl e int o functiona l departments . The horizonta l approach , though , vastl y expand s organizationa l desig n "solution space" an d allow s organizations to be both determine d b y the value propositio n an d muc h more robustl y capable o f delivering th e ful l range o f value propositions (whethe r that requires horizontal, vertical, or some combination of approaches). To a large extent, and with the advent of th e horizonta l organization , organizationa l desig n ca n no w trul y b e tailored t o individua l valu e proposition s an d shape d t o delive r them . When the valu e proposition i s the startin g point—-jus t as it should be for all goo d organizationa l design—i t directly determine s whic h processes are chose n an d wha t the y ar e designe d t o achieve , whic h collection s of multi-functional, multi-disciplinar y competencies are needed, how people are arrange d withi n the cor e proces s groups, an d what the performanc e objectives shoul d be . I t eve n dictate s ho w enabling application s suc h as information technolog y system s should b e configured . For example, at the For d Custome r Servic e Division (FCSD), the cor e processes an d proces s group s deeme d critica l wer e thos e necessar y to deliver o n th e promis e t o "fi x i t right th e firs t time , o n time , a t a competitive price i n convenien t locations. " Tha t same value proposition was used t o identif y whic h processe s wer e critica l t o it s delivery , wha t th e

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processes wer e redesigne d t o achieve , whic h proces s group s ha d t o be formed , what skills team member s needed, what new accountabilities they would have, and wha t information-system requirements th e division needed. The horizontal mode l allow s designers t o identify individual s with required skills , combine (o r no t combine ) the m int o team s a t th e work unit level, and the n pul l togethe r team s or individual s into cor e proces s groups. Th e combination s are dictate d b y the redesigne d process , which is dictate d b y th e valu e proposition , whic h i s dictate d itsel f b y what is needed t o achiev e competitiv e advantage . I n othe r words , structur e i s derived fro m strateg y to delive r success.

When Solutions, Speed, and Service Count So who need s th e horizontal organization ? As I hav e already noted, it is not righ t i n ever y instance. Bu t in today' s competitive environment, th e situations where it can prov e valuable ar e s o numerous tha t I feel confi dent i n stating , a s in th e chapte r subtitle , tha t "almos t everyone " ca n benefit fro m th e horizonta l structure . Specifically, th e horizontal organization can dramatically improve performance fo r any company with cross-functional performance challenges . It i s appropriat e fo r companie s tha t offe r wha t I cal l "complet e solu tions"—that is , a produc t o r servic e tha t depend s o n close , reciproca l integration of various areas within the organizatio n such as procurement, inventory, marketing, an d s o forth. A horizonta l structur e woul d mak e i t muc h easie r fo r a consultin g firm to draw on it s cross-disciplinary skills in, say, information technology (IT), chang e management , and strateg y so as to solv e a client' s specifi c problem. "Customer-intimate " companies , too , would benefi t becaus e they specializ e i n providin g whateve r cross-functiona l expertis e i s re quired t o satisf y th e uniqu e needs of their customers. 16 In addition , whe n speed i s of the essenc e or when customer service is a central goal, the horizonta l organizatio n will prove invaluable. Speed is an intrinsic byproduct o f the horizonta l organizatio n becaus e of its crossfunctional nature . Cor e proces s group s wor k in paralle l an d ar e rivete d to a common goal , which eliminates handoffs an d unnecessar y steps, re-

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duces friction , and encourages joint proble m solving—al l elements that increase speed . Speed itself , alon g wit h fewe r handoff s an d a tighte r alignmen t o f goals, goes a long way toward improving custome r servic e and increasin g satisfaction. Bu t the horizontal organizatio n doe s not sto p there. Processbased team s ta p th e problem-solvin g capabilitie s o f thei r multi-skille d members—and, in som e cases , empowere d cas e managers—to craft th e integrated solution s tha t wil l delive r valu e an d satisf y customers ' needs . Frontline worker s not onl y have the skill s t o solv e problems an d satisf y customers in real time , they also have a greater sens e of responsibility for doing so . Afte r all , the inspiratio n fo r organizin g horizontall y spring s from th e concep t o f customer value: the desir e t o find out what the customer want s and need s an d the n t o do a superior job i n deliverin g it. If all the processes , i n other words , are not custome r focused, the redesig n effort wil l likel y disappoint al l stakeholders . Perhaps the singl e most useful featur e o f the horizonta l mode l is the way i n whic h i t allow s an organizatio n t o mi x an d matc h bot h vertica l and horizonta l element s s o a s t o customiz e a solutio n fo r a particula r situation. Eve n if you determin e tha t i t is not feasibl e for you r company to g o entirel y horizontal , yo u ca n stil l adop t th e desig n i n thos e area s where i t i s appropriate—creating wha t can b e calle d a hybri d organiza tion. For example, when th e Xero x Corporatio n decide d bac k in th e earl y 1990s to reposition itself as "the Document Company," it concluded that it needed , i n th e word s of Chairman an d CE O Paul Allaire, "t o chang e the basi c architectur e o f th e organization. " Tha t mean t movin g awa y from th e functional , top-down hierarchica l arrangemen t tha t hindere d responsiveness an d accountability , an d breakin g int o smaller , market logical pieces. Th e result , a s observed i n greater detai l i n chapte r 8 , is a hybrid organizatio n i n which basic research an d sale s operations remai n functional, while actual product desig n and development, manufacturing, and marketin g hav e bee n restructure d int o horizontal , cross-functional business groups . By splitting into five business divisions that are further subdivided into approximately 40 business teams, the $18 billion office-product s company has found th e bes t of both worlds : Like a small company it is quick an d

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agile i n it s accountability an d responsivenes s t o custome r needs , bu t i t still ha s th e big-compan y advantage s o f scope , efficiency , an d technica l expertise. These advantage s have been more than apparent o n the bottom line , too. Bot h sale s and earning s have risen dramaticall y since 1992 , and Xerox ha s expande d it s marke t presenc e wit h a n arra y o f ne w offerings . From Allaire's vantage point, the hybri d structur e i s a much mor e effec tive way of running a n organization . Elsewhere, such corporate leader s a s General Electric (GE), Motorola, and Barclay s Bank have adapted th e horizonta l design t o sui t thei r particular needs, developing hybrid structures tha t sugges t the robustnes s of horizontal organizations . An d i n the publi c sector , th e U.S . Department of Labor' s Occupationa l Safet y an d Healt h Administratio n (OSHA ) ha s turned t o th e horizonta l model t o addres s long-standin g problem s i n its field operations. Thes e example s will be discusse d i n detail in later chap ters. By givin g organization s a choic e o f bot h a horizonta l arrangemen t around core processes and a functionally oriente d vertical approach, the design too l ki t i s enlarged, an d design-tailorin g possibilitie s ar e greatl y increased.

Out of the Mist With companies no w able to use both functions and core processes where they are bes t suited, arranging the m s o that the y can work well together , the picture of the twenty-first-centur y organization i s coming more clearly into focus . No w managers ca n se e how the piece s actually fit together i n the redesigne d organization . Havin g a coheren t theor y als o provide s a platform fo r dealin g wit h issue s spawne d b y th e adven t o f a cross functional busines s environment . Toda y we ask questions tha t te n years ago would never have crossed ou r minds—fo r example, how to maintain technical expertis e i n a cross-disciplinar y world. And w e are comin g u p with innovative solutions suc h as technical pools, best-practic e databases , and technica l center s o f excellence, non e o f which existed a decad e o r so ago. Just a s the architectur e o f building s become s eve r mor e fantas tic with th e inventio n of new methods an d material s that offe r ne w possibilities an d solutions , th e architectur e o f th e busines s organizatio n

2O W H A T TH E H O R I Z O N T A L O R G A N I Z A T I O N I S

is becoming ever more productive and innovativ e as new tools and methods expand th e parameter s of design. Much of what I present with the horizontal organization is completely new. Bu t in developin g th e theor y of the horizonta l organization , I also have been prodde d b y the ideas and creative solutions put forth by others over the pas t 20 or more years. 17 In the end, I have crafted what I believe to b e th e optima l for m fo r redirectin g corporat e energie s towar d th e challenges of today and tomorrow. The horizontal organization unleashes the productiv e possibilitie s of new management concept s and refocuses the corporat e len s outward on deliverin g a distinctive value propositio n to customers . B y integrating performanc e enabler s an d reorganizin g them aroun d cor e processes , managemen t i s abl e t o dra w o n th e ful l potential o f a company' s focused energies t o bea t competitor s an d win customers—all th e whil e increasing the satisfactio n and participatio n o f its workers. Just a s th e vertica l hierarch y me t th e demand s an d maximize d th e productive potentia l create d b y the Industria l Revolution , the horizonta l organization is well suited to dealing with the challenges an d capitalizing on the opportunities of the Information Age. The design's adaptiveness— entirely horizontal i n som e situation s o r a hybridize d combinatio n o f horizontal, vertical , an d othe r organizationa l approache s elsewhere 18— means that managers need not doubt their ability to succeed in this world of constantl y changing demand s an d globa l competition . B y holistically aligning all organizational elements—processes, people , skills—to deliver a company' s crucial value proposition, th e horizonta l mode l produces a company tha t i s well equippe d t o proces s information, make decisions, deliver timely products an d services , and sustai n satisfyin g relationship s with its markets and suppliers . In short, it is a company perfectly attuned to our times. Recently, muc h attentio n ha s bee n pai d t o th e ide a o f a "balance d scorecard," i n which a company' s performance i s evaluated i n term s of shareholder return , custome r satisfaction , interna l busines s processes , and employe e fulfillment. 19 Th e holisti c approach o f the horizonta l organization extend s th e concep t o f balanc e beyon d measuremen t an d management systems to produce an entirel y balanced organization with all its element s aligne d t o delive r th e tripl e promise : Customer s win (the y get what they want when the y need it) ; management an d shareholder s

WHO NEED S TH E H O R I Z O N T A L O R G A N I Z A T I O N ? 2 1

win (increase d productivit y means highe r profitability) ; and employee s win (high-involvemen t wor k system s counterbalanc e worke r alienatio n and provid e th e gratificatio n o f participatin g i n a meaningfu l way in a successful concern) . Make n o mistake : The horizonta l organization , whe n applie d i n th e right wa y in th e righ t situation , ca n dramaticall y improv e a company' s ability t o ris e t o th e to p i n it s particular industr y (and/o r leav e other s behind). Al l of the organization s describe d i n thi s book hav e generate d improvements i n operatin g performanc e significan t enough t o impres s even th e mos t hard-nosed busines s an d financia l analysts . Besides impressing analysts, bottom-line succes s has the adde d benefit of helping organization s b e mor e successfu l i n fulfillin g thei r importan t missions. It also serves to validate the "fait h capital " tha t employees have invested in the ne w approach, a benefit that canno t b e overstated. Irreparable har m ca n b e don e i f heroic effort s t o chang e skill s and behavio r are squandere d o n a plan tha t lead s t o organizationa l failure . You must deliver o n performanc e t o maintai n employe e commitment . B y tying everything to the value proposition, the n makin g sure that you apply the horizontal organizatio n wher e i t i s appropriate t o achievin g tha t valu e proposition, you will not abuse the faith an d trust that people hav e vested in th e effort . A s discussed throughou t thi s book , th e 1 2 principles fo r designing an d institutionalizin g th e horizonta l structur e wil l serv e as a basic guid e bot h t o th e effort s currentl y underwa y at variou s organiza tions an d t o you r ow n effort s t o delive r a winnin g valu e proposition . Those 1 2 principles ar e liste d a t th e en d o f thi s chapte r an d discusse d more full y i n chapter s 11-12 . I believe that this new approach offer s muc h to be excited about . With its emphasis o n performance , th e ne w horizontal structur e ca n dramati cally improv e a n organization' s abilit y t o achiev e it s missio n a s well a s improve the quality of work life for its employees. Indeed, i t has the ability to d o bot h simultaneously . Furthermore , i t reinforce s wha t busines s thinkers sometime s refe r t o a s a "singl e nobl e purpose, " a n overridin g goal tha t peopl e i n a n organizatio n striv e to achieve , on e tha t i s challenging, valuable, and excitin g t o them. The horizonta l organizatio n ca n help your organization achiev e its single noble purpose, a s well as provide meaning, motivation , an d prid e t o thos e withi n it . Th e resul t i s a pas-

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sionate commitmen t from employee s and othe r stakeholders . Grounde d in basic business principles, that passion help s ensure tha t the horizontal redesign make s good o n it s promise t o delive r th e valu e propositio n t o customers. And tha t fulfillment , i n turn , increase s it s stock with employees an d shareholders . Ultimately , I believ e th e effect s o f th e horizonta l organization wil l prove to be so dramatic that social institutions—indeed, much o f society as a whole—will begin t o adapt th e structur e t o fit their own needs . Succeeding chapter s wil l describ e variou s type s o f horizontal organi zations, illustrated primarily by five well-known companies and one publi c organization: Ford Moto r Company' s Customer Servic e Division (FCSD), the Xero x Corporation , th e Genera l Electri c plant i n Salisbury , Nort h Carolina, the Suppl y Management Organization o f Motorola's Space an d Systems Technology Grou p (SSTG) , the Hom e Financ e Divisio n of Barclays Bank, and th e U.S . Occupational Healt h an d Safet y Administratio n (OSHA). Ford' s Custome r Servic e Divisio n (FCSD ) an d OSH A provid e examples fo r chapter s 2 an d 3 , which wil l b e followe d b y a discussio n (chapter 4 ) o f the generi c horizonta l organization . Chapter s 5- 8 explore in greater detai l th e architectures o f the other four specific organizations . The fina l portio n o f th e boo k (chapter s 9-12 ) is devote d t o discussin g how yo u ca n buil d th e horizonta l organizatio n tha t i s exactly right fo r your company' s particular needs .

Principles for Designing and Institutionalizing the Horizontal Organization DESIGN:

• Organiz e aroun d cross-functiona l cor e processes , no t task s or functions. • Instal l process owner s o r managers wh o will tak e responsibilit y for th e cor e proces s in it s entirety. • Mak e teams, not individuals, th e cornerstone o f organizationa l design an d performance . • Decreas e hierarchy by eliminating non-value-adde d work and by giving team member s who are not necessaril y senior managers th e

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3

authority to make decisions directly related t o their activitie s within the valu e chain . • Integrat e with customers and suppliers. INSTITUTIONALIZING:

• Empowe r people b y giving them the tools, skills, motivation, and authority t o make decisions essentia l t o the team' s performance . • Us e information technolog y (IT ) to help peopl e reac h perfor mance objectives and deliver the value proposition t o the customer. • Emphasiz e multipl e competencie s an d trai n peopl e t o handl e issues an d wor k productivel y i n cross-functiona l area s withi n th e new organization . • Promot e multiskilling , the ability to think creatively and respond flexibly t o new challenges tha t aris e i n th e wor k that team s do. • Teac h peopl e traine d primaril y in specifi c function s or depart ments t o work in partnership s with others . • Measur e fo r end-of-proces s performanc e objective s (whic h are driven b y the valu e proposition) , a s well a s custome r satisfaction, employee satisfaction , and financia l contribution . • Buil d a corporate cultur e o f openness, cooperation , an d collaboration, a culture that focuses on continuous performance improvement an d value s employee empowerment, responsibility , and well being.

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2

EACH HORIZONTAL ORGANIZATION

IS UNIQUE

FORD MOTOR AND OSHA SHOW THE WAY

Every horizonta l organizatio n i s different. T o b e sure , the y have som e fundamental trait s i n common—fo r example , al l deriv e thei r essentia l structures no t fro m narro w functions, but rathe r fro m th e broade r con cept o f core processes, whic h i n tur n ar e determine d b y the valu e prop osition. Bu t no tw o horizontal organization s ca n eve r be exactl y alike. Why? Because you customize your structure to meet your specific prob lems withi n your distinc t parameters—includin g competitiv e environ ment, size , corporat e culture , employe e skills , an d tha t most-importan t value proposition , what your organizatio n offer s it s customer s an d tha t affords yo u advantag e ove r your competition . Presumably , th e structur e you desig n shoul d b e th e optima l on e fo r deliverin g your value proposition an d executin g your company's long-term strategy. In som e situations , th e structur e mor e closel y resembles what can b e referred t o as the "pure" model, designed fro m th e ground up primarily around horizonta l principles . Mos t horizonta l organizations , however , will probabl y b e hybrids , drawin g th e bes t fro m bot h th e vertica l an d

25

horizontal an d combinin g th e performanc e capabilitie s of each . Note , however, that even in those organizations that come closest to being purely horizontal, some functional areas of competency will often remai n necessary, an d som e organization-wid e "vertical " managemen t processes— such a s strategic planning, finance , an d huma n resources—mus t be re tained t o integrate th e effort s o f the horizonta l operatin g processe s an d process groups . To understan d th e degree s o f distinctio n betwee n differen t organi zational configurations , i t help s t o thin k o f desig n a s a continuum : At one extreme , mos t people i n a n organization—th e vast majority—wor k in proces s groups , an d onl y a bare minimu m o f vertical hierarchy exists to carr y out fundamenta l management processes . At the othe r extrem e are organization s that ar e entirel y vertical. Mos t organizations , however, after carefu l analysi s of thei r valu e propositions, capabilities , an d skills , will choos e a positio n betwee n thes e tw o extremes, creatin g i n effec t a "hybrid" structure . A vertical structure, as previously noted, will continue t o be viabl e in businesses that depend on high-volume, standardized production carrie d out i n simpl e an d stabl e wor k environments . Problem s arise , however, when productio n requirement s becom e mor e comple x an d ar e bette r served b y integrating rathe r tha n fragmentin g tasks , o r whe n th e work environment become s s o dynamic that i t canno t b e predicte d o r mad e repetitive. When demand exceed s supply—as is often the cas e in emerging economies—and consumer s d o no t hav e th e luxur y of bein g discriminatin g buyers, verticalit y will stil l work well. Consumer s i n suc h situation s ar e caught u p i n just obtainin g a product— any product—and a company's main tas k i s simply to increas e production . A third scenari o tha t lend s itself to a functional arrangement occur s when technical expertis e i s critical t o attainin g competitiv e advantage—fo r example, i n a cerami c en gineering compan y whose industry position i s solely dependent o n th e superior capabilitie s of its engineers . In th e years ahead, onl y a few organizations will probably be found at either extreme ; mos t will resid e somewher e i n th e middle , full y under standing th e potential o f both th e horizontal and the vertical approaches and takin g advantage of both to improve performance. Where functional

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departments d o exist , the y will no t wal l themselve s off from th e res t o f the organizatio n a s they once did, concentrating onl y on thei r individual goals and performanc e objectives. They will become "partner s in proces s performance," activel y supportin g th e cor e proces s group s b y giving them what they need, when they need it to achieve process objectives. In fact, ensurin g tha t a successful partnershi p exist s between th e cor e process groups an d thos e outsid e the m i s one o f the operatin g principle s of the horizonta l organization . Thos e involve d in an y redesign effor t mus t address thi s issue. Xerox, which i s discussed i n detai l i n chapte r 8 , exemplifie s a com pany tha t ha s redesigne d itsel f t o tak e advantag e o f th e bes t o f bot h worlds—keeping researc h an d sale s in a functional mode whil e puttin g other area s o f the organizatio n o n a horizontal track . Equally important, it ha s institute d mechanism s suc h a s product-qualit y survey s t o mak e sure that its functional people keep on e ey e trained o n achievin g overall performance goals . Together , th e onc e disparat e part s ar e deliverin g Xerox's promis e t o provid e uniqu e valu e b y offerin g top-qualit y soft ware, hardware , an d servic e solutions backe d b y ongoing custome r support an d continuin g busines s proces s improvements . The Xero x 200 5 strategic inten t statemen t reads : "Xerox , Th e Document Company, wil l b e the leade r i n th e globa l documen t marke t providin g Documen t Solu tions tha t enhanc e busines s productivity." 1 Fro m thi s follow s th e company's value propositio n o f providing proprietary, leading-edge product s that quickl y and reliabl y deliver tota l documen t solution s o f the highes t quality. Like Xero x an d th e othe r companie s highlighte d i n thi s book , th e hybrid organizatio n o f th e futur e wil l emphasiz e multifacete d perfor mance improvement s an d robust , multidimensiona l valu e proposition s required t o win customers in a n eve r mor e demandin g competitiv e en vironment. In the process, hybrids will tailor their organizations' solutions by selecting those element s of vertical and horizonta l principles tha t best address th e particula r challenge s the organization s face. In thi s chapter , w e will loo k closel y a t th e redesign s o f For d Moto r Company's Custome r Servic e Division (FCSD ) an d o f th e Occupationa l Safety an d Healt h Administratio n (OSHA ) t o se e how this facet o f horizontal desig n plays out.

EACH H O R I Z O N T A L O R G A N I Z A T I O N I S UNIQU E 2

7

Specialization in the Workplac e Job specialization , th e predominan t for m o f th e divisio n o f labor , i s a primordial fac t of human life. Indeed, many anthropologists consider th e traditional male-femal e gende r roles—th e "breadwinner " an d "home maker" differentiations—t o be a divisio n o f labo r tha t wa s dictated b y the law s o f surviva l for a specie s i n whic h offsprin g matured slowly . We can imagin e how further divisions of labor migh t hav e emerged i n early societies: Individual s with unusual skill s were designate d a s the primar y doers of certain tasks , with other function s necessary to a group's surviva l apportioned among th e member s in some fashion, random o r otherwise. As human beings progressed ove r the centuries from hunter-gatherer s to crop-grower s to industrialists , th e division s became mor e distinc t an d were formally documented. Henr y Mintzberg, in Th e Structuring of Organizations, observe s tha t Eskim o seal hunter s divide d thei r boa t crew s int o harpooners, oarsmen , and helmsmen. Tenth-century English textile workers performe d specifi c spinning , weaving, dyeing, and printin g jobs.2 I n The Wealth o f Nations, publishe d i n 1776 , Ada m Smit h use d th e phras e "division o f labor " i n describin g th e variou s task s involve d i n makin g pins: One ma n draw s ou t th e wire , anothe r straighten s it , a thir d cut s it , a fourth point s it, a fifth grinds it at the top for receiving the head; to make the head require s tw o or thre e distinc t operations;... an d the importan t business of making a pin is , in thi s manner, divide d into abou t eightee n distinct operations , which , in som e manufactories , are al l performed b y distinct hands , thoug h i n other s th e sam e ma n wil l sometime s perform two o r thre e of them. 8 In France , ove r a centur y later, Henr i Fayo l applied hi s personal ex periences gaine d fro m 2 0 year s o f managin g th e coa l minin g fir m o f Commentry-Fourchambault (1888-1908 ) t o a n analysi s o f genera l man agement an d administration . Ofte n calle d th e "father " o f moder n management, Fayol enumerated 1 4 principles of administration. Headin g his list was the divisio n of labor, which "allows one t o reduce th e numbe r of object s t o whic h one' s attentio n an d effort s mus t b e directed." 4 Although Fayo l did not tak e into account the "huma n factor " i n evaluating

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highly repetitive work and th e nee d fo r increase d specialization , h e was an earl y advocate for assignin g task s to groups o f peopl e i n orde r t o in crease productivit y and quality . Division of labor, Fayol wrote, "is recog nised as the best method o f utilising the powers of individuals and group s of people. I t ca n b e applie d no t onl y to technica l jobs, bu t t o any kind of work which employs a fairly larg e numbe r o f people." 5 The drivin g force behind specialization , o f course, was increased productivity. Production becam e not onl y more efficient , bu t als o more uniform a s workers devise d method s t o ensur e tha t outpu t maintaine d a prescribed standard . I n th e earl y twentiet h century , a s enterprise s ad vanced in scale and size , they adopted th e vertical structure recommended by Frederick Winslow Taylor, who sought to apply scientific principles to th e philosoph y and practic e o f business management. Taylo r emphasized a strict division of labor, wit h work precisely segmented int o func tional departments, eac h devote d to making part o f a product o r provid ing the administrativ e infrastructure. Stringently applied, Taylor' s principles of scientific management often produced jobs with limited breadth an d depth . Tha t is , the tas k was narrowly defined, and th e worker had almos t no control ove r how to do th e work itself. Each part o f the divide d enterpris e concerne d itsel f with isolated fragment s of the wor k process, which, often b y choice, becam e de tached fro m th e externa l environment. 6 Thus, i n th e belie f tha t effectiv e managemen t require d a perspective broader tha n tha t o f th e worker , vertical organization s too k awa y th e worker's control over the work process. And, indeed, when a job i s highly specialized and th e tas k is very narrowly defined, the worker's perspective shrinks a s well, makin g i t har d fo r hi m o r he r t o relat e t o wha t others involved i n th e proces s ar e doing . Specialization , then , reinforce s th e need fo r a hierarchy to supervise and standardize . Limitin g the breadt h of a job virtuall y assures that it s depth must be limite d a s well.7

The Case of Ford Motor Company Nowhere was the vertical , specialized model o f organization mor e firmly entrenched tha n i n th e Hous e tha t Henr y Ford Built—th e Ford Moto r Company. It was Henry Ford, afte r all , who perfected assembly line techniques t o th e poin t where , earl y i n thi s century , on e o f hi s Mode l Ts

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9

rolled of f the assembl y line ever y te n seconds . Th e compan y eventually produced mor e tha n 1 5 million Mode l Ts , growin g int o a hugel y suc cessful enterprise , an d on e o f America's "Bi g Three " automakers . But a s the centur y neared it s end, For d a s a company encountered a perplexing problem : Sales were climbing, but s o was criticism about after sales service at its dealerships. Any dissatisfaction with service is troubling in itself, but th e inextricable lin k between a car buyer's ongoing relation ship with a dealer an d th e likelihood o f that customer buying again mad e the For d servic e complaint s al l th e mor e disturbing : Custome r service shortcomings posed a threat to Ford Motor Company's all-important newcar sale s figures. The roo t caus e of the discontent ? Performanc e goal s among th e various operation s comprisin g th e For d Custome r Servic e Divisio n (FCSD ) failed t o focu s attentio n wher e i t belonged: satisfyin g th e customer . For example , a singl e operatio n suc h a s technical suppor t migh t b e able t o delive r o n it s functional objectiv e o f getting trainin g materia l t o the dealers , bu t that , b y itself , woul d no t necessaril y lea d t o custome r satisfaction—which wa s mos t criticall y dependen t o n gettin g th e cus tomer's ca r fixe d righ t th e firs t time , o n time . Woul d th e materia l b e up-to-date, accurate , an d comprehensibl e (eve n t o th e poin t o f bein g in th e prope r languag e fo r non-U.S . dealers) ? Would i t b e provide d i n the mos t usefu l form—paper , electronic , o r otherwise ? Woul d i t b e provided whe n i t wa s needed? Woul d tha t informatio n describ e proce dures i n a way that woul d help th e technician s d o a better job o f making th e repairs ? Woul d ther e b e a continua l exchang e betwee n th e service technician s a t th e dealer s a s new information an d bette r meth odologies wer e developed ? Various other direc t an d indirect processes had t o be aligned in order to achiev e tha t customer-drive n objective : makin g sur e th e customer' s appointment wa s properly scheduled an d th e orde r writte n up correctly, having th e righ t tool s an d th e righ t part s availabl e a t th e dealership , which, i n turn , mean t tha t purchaser s ha d t o bu y the righ t par t i n th e first plac e an d tha t someon e ha d t o mak e sur e i t wa s delivered t o th e dealer's servic e location. At th e beginnin g o f 1995 , whe n th e compan y launche d it s "For d 2000" initiativ e to becom e th e world' s leadin g automotiv e enterpris e i n

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the twenty-firs t century , the nee d for a more efficien t an d integrate d ap proach t o service became eve n more pressing. Throughout FCSD , people from a variet y o f functiona l operation s worke d o n individua l piece s o f the custome r servic e process, an d the y worked i n differen t ways , a t different speeds , an d a t differen t level s o f quality . Processe s acros s th e regions had bee n develope d independently ; the y reflected differen t reasons for being , makin g it impossible fo r FCS D to deliver best-in-clas s service. Furthe r complicatin g thi s picture , th e compan y expande d opera tions worldwide , buildin g an d marketin g car s a s wel l a s servicin g customers in practicall y every corner o f the globe , thu s forcing FCS D t o make quic k and dramati c transformation s in it s core processes. Looking t o remedy the situation , Ro n Goldsberry, vice president an d general manage r o f global custome r servic e operations, an d a Ford 2000 transition tea m determine d tha t th e ol d chimney-lik e structure wa s not capable o f focusing on a n overal l objectiv e an d the n bringin g togethe r all th e resource s neede d t o delive r th e valu e proposition . Goldsberr y turned t o th e horizonta l organization , h e says , becaus e h e believe d i t provided th e "bes t opportunity " fo r accomplishin g th e three-pronge d goal of bringing speed, quality, and efficiency t o the customer transactio n and establishin g Ford a s the leader amon g automakers for superior after sales service. In addition , Goldsberr y an d th e For d 200 0 transition tea m saw an opportunity , no t coincidentally , o f providin g "a n ownershi p experience s o good that customers would naturally return fo r future vehicl e purchases and servic e needs." Having se t a stretch goal , Goldsberr y and othe r tea m member s nex t identified th e division' s valu e proposition , whic h the y termed , "Fi x it right th e firs t time , o n time , a t a competitiv e pric e i n convenien t loca tions." Summin g up th e competitiv e value that FCS D sought to provide, those word s becam e th e division' s mantra . Fro m there , th e divisio n mapped ou t al l o f it s direc t an d indirec t processes—a n analysi s that i t had neve r don e before—in order t o decide whic h of the processe s were critical t o achievin g its objectives. Goldsberry points ou t tha t a side benefit o f thi s scrutin y is the eliminatio n o f waste: Settling o n wha t is most important als o serve s to identif y processe s tha t ar e o f no importanc e i n delivering the value proposition, thereb y allowin g you to eliminate the m and reallocat e resources .

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Key Processes Identified The thoroug h analysi s of FCSD's activities pinpointed fou r core processes as critica l t o deliverin g th e desire d valu e proposition . Th e fou r end-to end work, information, and material flows that extend across Ford's business an d driv e th e achievemen t o f it s fundamental performanc e objectives are: • Business Development, which analyzes the competitive environment and set s price target s t o ensure tha t repair s ca n be don e correctl y at a pric e tha t i s competitivel y balance d fo r bot h custome r an d company • Parts Supply an d Logistics, which is responsible fo r acquiring parts from manufacturer s and distributin g the m t o th e dealership s i n a fast, efficient , low-cos t manner • Vehicle Service an d Programs, whic h gather s informatio n abou t current-model problems and how to repair them, then disseminates that dat a t o servic e departments; i t als o feeds this acquired knowl edge bac k into future-model desig n • Technical Support, whic h ensures tha t every service department is staffed wit h competent , traine d technician s who ar e provide d in a timely fashion with the technical information they need i n the form they requir e Once th e tea m identifie d cor e processes , th e compan y formall y re structured th e divisio n around them , setting up numerou s teams to handle operation s o r activitie s in Nort h America , South America , Europe , and Asia-Pacific , a s well as in new markets. Each of the fou r core proces s groups ha s a n "owner, " wh o i s responsible fo r overseein g th e wor k of the team s an d makin g sur e tha t the y mee t overal l proces s objectives. Goldsberry, as vice president, i s in charg e o f the entir e FCS D globa l op eration, whic h involve s 12,00 0 employee s servin g nearl y 15,00 0 dealer s worldwide. Next, th e transition tea m determine d wher e responsibilitie s over lapped and cross-functional work could occur. It then proposed a specific work plan fo r ever y individual in each process. Here's how the fou r cor e process group s contribute .

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Business Developmen t Whethe r i n Toled o o r Taiwan , FCSD ha d been treatin g ever y parts an d repai r issu e with equa l weigh t instead of emphasizing thos e repair s tha t woul d furthe r th e valu e proposition . Moreover, because pricing policie s in th e Unite d State s and abroa d di d not consistentl y focus o n providing the greates t value to Ford customers, dealerships wer e losin g ou t t o independen t shops . Consequently , many customers visited dealerships for warranty purposes only; with the quality and reliabilit y o f ne w vehicles improving, thos e sale s began fallin g off, too. Poo r sale s an d a n excessivel y complex se t o f noninterchangeabl e parts mean t tha t FCS D an d For d dealer s ende d u p wit h overstocked , obsolete inventories, the costs of which had to be passed on to consumers, further exacerbatin g th e pricin g problem . I n short , FCS D neede d t o make improvement s i n time , cost , an d deliver y a t eac h stag e o f th e supplier-to-customer process. Horst Hoyler, th e leade r of the proces s owner tea m fo r th e Busines s Development group , no w direct s hi s tea m t o loo k fo r opportunitie s t o improve relationships between Ford an d it s customers. "I n ever y market where we do business," Hoyler says, "we've found that automotive service customers have the sam e basic wants and needs. They need thei r vehicles fixed right th e firs t time , on time , and a t a price they'r e willing to pay. They want to b e treate d wit h respec t an d courtesy , an d the y want con venience." The group has set extremely high standards, including a "fixit-right-the-first-time-on-time" measur e of at least 95 percent of all orders. To improv e service and wi n back customers for Ford , Busines s Development i s charge d wit h thoroughl y understandin g eac h region' s competitive environment. It must set targets for each piece of the value chain that wil l allo w FCS D t o delive r a satisfactor y repair , i n a n acceptabl e amount o f time , a t a competitiv e price. T o tha t end , it ha s designed a process that integrates the key elements o f repairs—parts, delivery , labor, and pricing—while assuring high quality. The busines s development process group als o include s traditiona l functiona l areas lik e marketing an d sales. Th e entir e proces s group , includin g it s subgroups, i s one o f four horizontal core proces s groups depicte d i n Fig. 2.1 . To mee t th e company' s overall financial goals, For d dealer s neede d to capture a greater share of the retail parts and service market, especially business from owners of older vehicles. For d dealer s in the Unite d State s had a particularly low share o f the overal l retail after-servic e market . In-

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Fig. 2.1 Ford Customer Service Divisio n

deed, whereas 87 percent o f Ford owner s in German y remained loya l to a dealershi p durin g th e firs t yea r o f vehicl e ownership , tha t measure stood a t onl y 3 9 percent i n th e Unite d States . Afte r te n year s of ownership, 40 percent of German owners were still loyal, while a mere 4 percent stood b y their dealer s i n th e Unite d States. 8 At the sam e time , however , dealers were not competitivel y positioned t o service owners of older models because repai r cost s exceeded the residua l cos t of the vehicles. There was also the threa t fro m after-marke t repair chain s such a s Pep Boy s an d Auto Zone s to worry about . Business Developmen t devise d severa l way s t o dea l wit h thes e prob lems. Firs t o f all, team member s no w loo k a t eac h repai r proces s a s a product, the n the y put togethe r al l th e piece s necessar y to delive r tha t product. Fo r example, sa y the objectiv e is to deliver a brake repai r job a t a price o f $89 (o r whatever th e competitiv e benchmark i s in each partic ular market) . Business Development determine s the price at which parts must be purchased o r manufactured, delivered , an d installe d s o that th e total packag e cost s $8 9 and stil l allow s all people i n th e valu e chai n t o make th e righ t amoun t o f money. As part o f the process , th e grou p als o seeks to provide produc t consistency in th e specializatio n o f parts, labor , tools, an d repai r methods . The y prioritiz e repai r plannin g an d mak e i t market-driven, meanin g tha t th e tea m determine s th e price accordin g to its value for th e custome r rather tha n it s difficulty fo r th e repai r shop . Once a repai r produc t i s designed , th e nex t ste p i s execution . T o improve overall customer service and employe e efficiency an d to facilitate consistency, Business Development consults with dealerships for 40 weeks, revamping thei r operatin g practice s an d settin g up sustainmen t tools. The thir d le g of the proces s is to measure whether th e repai r produc t is effective. Th e tw o key metrics are custome r satisfaction an d efficiency . Are th e customer s happ y with the wa y that FCS D handle s repair s o r improvements? D o the y like th e wa y they are treated ? Are the y being adequately informe d abou t th e typ e of repair an d th e price ? Has efficienc y improved within the dealership ? How much time is idle? What causes the delay? (Worker s waiting for part s or looking fo r tools ? Poor scheduling?) How fast i s inventory turning a t th e dealerships ? Thos e ar e th e kind s of questions tha t Hors t Hoyle r o r hi s tea m o f senio r manager s ca n us e i n evaluating performance o f the cor e proces s group. Becaus e more peopl e now accep t responsibilit y fo r ensurin g tha t th e proces s run s smoothly ,

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accountability increases for ensurin g tha t suc h glitches are rectifie d immediately. In addition , Busines s Development encourage s th e sharin g o f bes t practices fro m aroun d th e world , increasing FCSD' s competitive advantage i n a number o f countries. Fo r example , th e FCS D tea m too k ideas on ho w to dea l wit h customer s from variou s cultures an d pilote d the m in Europe and North America, helping Ford and Lincoln-Mercury dealers achieve best-in-class customer satisfaction. As Goldsberr y puts it , th e entir e Busines s Development process ca n now b e viewe d as a three-stag e benchmarkin g process: Products ar e de signed, the n executed , the n measured . B y putting unifor m metric s i n place a t dealership s an d alignin g thes e wit h corporat e standards , th e group is closing the performanc e gap between Ford an d it s competitors. Parts Suppl y an d Logistic s Accordin g t o Ro n Turecki , leade r o f the proces s owner team, th e job o f FCSD's global Part s Supply and Logistics proces s grou p i s to "delive r th e righ t part , t o th e righ t place , a t the righ t time, and a t the righ t price—as defined by the customer. " Th e FCS2000 transitio n tea m initiall y found man y problems i n thi s area, including unstable, unmeasured depot-to-dealer orde r fulfillment, minima l concern for after-sales requirements, and no objective ratings in purchase cost efficiency, delivery , quality, and technica l support. High distribution costs resulted largel y from inventor y handoffs, lo w turn rates , and excessively long replenishment cycles. Ford dealers used any number of systems for enterin g an d processin g orders . A s a result , FCSD coul d no t consistently deliver th e righ t par t t o it s dealerships o n tim e o r a t a pric e customers were willing t o pay. As on e solution , th e Part s Suppl y an d Logistic s core proces s grou p designed a new order entr y and processin g method tha t all Ford dealer s can use. No matter what part of the world an order come s from, a dealer can now receive and proces s it directly and accurately . To improve order fulfillment results , the group stabilized the order cycl e and reduced turn around times . Teams replace d inventor y management wit h a process tha t monitor s supplier-to-dealer flo w an d increase s communicatio n fro m dealer s t o FCSD to suppliers. By providing its suppliers of vehicle parts with customer feedback , FCSD encourage s the m t o conside r customers ' after-sale s

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needs i n thei r initial designs . If team members see, for example , that an engine i s not easil y accessible for certai n repairs , the y can requir e a redesign s o that futur e customer s wil l no t incu r unnecessaril y high labo r costs. Furthermore, th e tea m ha s develope d globa l standard s fo r al l For d suppliers s o tha t everyon e i n th e suppl y chain use s th e "sam e se t o f wrenches," s o to speak. The standard s affec t performance , delivery, quality, an d technica l support. The y even apply to a repair manua l tha t provides near exac t translatio n equivalents . Early result s in Part s Suppl y and Logistic s are extremel y promising. Improved cycl e time, lowe r per-piec e costs , an d significan t gain s i n re plenishment tim e all point t o succes s for th e horizonta l makeover. Vehicle Service and Programs Member s of FCSD's Vehicle Service and Program s core proces s group collaborat e regularl y with designers of Ford vehicles to make sure tha t the customer' s "voice " is heard a t every stage o f production . Tea m initiative s for thi s proces s alread y existed i n Europe an d Nort h Americ a before th e makeover , but analysi s of futur e trends showed that more integration wa s necessary. As a result, the team's activities an d bes t practice s were made flexibl e enoug h t o cove r Ford' s operations worldwide. According t o Ton y Kaduk , leader o f th e proces s owne r team , "W e have t o align ourselves better with produc t developmen t if we are goin g to change product design. We have to voice the customers' requests while the engineer s ar e stil l working on pape r a s opposed t o rea l hardware. " In thi s statemen t Kadu k describes wha t Vehicle Servic e an d Program s must do t o improve its contributions t o FCSD's value proposition . The mos t innovative part of the ne w process, for instance, involves an "upstream customer service" program , which consists of two teams: One takes responsibility for upstream support o n future vehicl e programs; th e other is responsible for current and past model support, including recalls. The team s hav e developed a commo n proces s t o repor t custome r concerns an d captur e an y unique marke t requirements . I f th e nee d fo r a product recal l arises , th e proces s tea m make s sure th e recal l and repai r are handle d efficiently . In addition , th e Vehicle Service and Program s process group activel y seeks customers' complaints in order to discover when products and parts

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fail. Gatherin g dat a fro m dealers , ho t lines , an d warrant y records, th e team provide s informatio n tha t i s use d t o anticipat e custome r servic e concerns an d t o feed into futur e mode l design . Technical Support A company can have the best parts, delivery, and design team s in th e world , but non e o f that matter s if its technicians d o not hav e the skills , capabilities , an d tool s the y need t o service, maintain, and repai r th e products . Th e Technica l Suppor t cor e proces s grou p a t FCSD i s clearl y aligned wit h th e division' s share d objectiv e o f fixin g i t right th e firs t time , o n time . As leader o f th e proces s owne r team , Jim McDonald see s th e valu e propositio n o f th e Technica l Suppor t proces s group i n thes e terms : "Ou r job i s supporting, training , an d providin g information t o dealership technicians all over the worl d so that the y can meet thos e custome r expectations. " It ha s not alway s been so . In th e past , whe n Technical Suppor t published inaccurat e informatio n in its parts catalogs, it unintentionally added costs that had t o be spread acros s the entire value chain, forcing dealership technician s t o struggl e t o reac h cost-containmen t goals . A n inordinate numbe r o f repair schedul e option s complicate d th e repai r process for technician s and part s personnel ; in the Unite d States , for example, 60 0 defined operation s covere d 9 0 percent o f all warranty repairs, yet FCSD included ove r 3,250 repair options . Repai r manuals were geographically proprietary—that is, they were published eithe r in Europ e or North America, and were thus incompatible with each other and largely inaccessible to personnel i n othe r areas . Technical Suppor t employee s could no t shar e dat a efficientl y becaus e globa l translatio n effort s wer e driven b y funding rathe r tha n marke t needs , an d loca l market s had t o handle thei r ow n translation needs . Th e lac k of a global trainin g syste m hampered effort s t o monitor technicians or acknowledge a job well done. With the adven t of a common technica l information proces s that can support simultaneous global vehicle launches in an accurate, timely manner, muc h ha s change d i n FCSD' s Technica l Suppor t organization . Besides producin g mor e comprehensibl e manuals , th e tea m ha s devised a global training program t o assess, monitor, an d improv e the skills of dealership technicians . FCS D now requires competenc y testing in certai n ar eas before technicians can become certified. To ensure tha t proper train ing i s taking place , tea m member s trave l th e worl d visiting dealership s

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and arrangin g fo r video satellite instructio n when face-to-face teaching is impossible. What i s more , forma l link s hav e bee n establishe d wit h supplier s s o that man y Technical Suppor t employee s i n effec t "live " a t supplie r lo cations. This arrangement facilitate s product development—for example , by integrating its computer system s with a translation company , the Tech nical Suppor t proces s grou p ca n simultaneousl y incorporate an y change in a service manual int o al l manuals, regardless o f company or language . The en d result : lowe r cost s and mor e timel y information. Although the y cannot be seen in the depiction o f Technical Support (Fig . 2.1), a number of desig n principle s underpi n thi s process. While these wil l be discusse d later i n th e book , we can note here the use, for example, o f information technology to help people reac h performanc e objective s in delivering th e value proposition , th e empowermen t o f peopl e throug h informatio n sharing, training , an d th e grantin g o f authority t o mak e decisions , an d the integratio n wit h customers an d supplier s t o improve the process .

Making Sure FCSD Measures Up In it s ques t t o provid e th e bes t se t o f service s an d repai r value s t o it s customers, FCS D measure s itsel f on fou r dimensions : growth, efficiency , customer satisfactio n and loyalty , an d employe e satisfaction . In th e end, the dimension s ar e al l interrelated. "We thin k growt h i s th e grea t rallyin g cry, " explains Chri s Torres , manager o f business strategy and communications . "I f we're doing everything right , w e shoul d b e growing. " Bu t growth , o f course , mean s in creased marke t shar e an d revenues , an d "yo u can't gro w unless you'r e efficient," h e observes . Judging FCSD' s efficienc y involve s all the usua l financial yardsticks: return o n sales, return o n assets, number o f inventory turns, an d s o forth. Financial strength is , in turn, dependen t o n custome r satisfaction and loyally. A major portion o f the divisio n has been horizontally restructured specifically t o improve custome r satisfaction. With a 20 percent improve ment in overall satisfactio n results and a 90 percent improvemen t in th e area o f "quicke r servic e fix, " th e divisio n would seem t o be meetin g its goals, although Goldsberr y expect s these number s t o increase eve n faste r over the long term. But Torres consider s loyalt y to be the true measure of

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customer satisfaction . Is the new-ca r buyer coming back for servic e and, eventually, for another new car? That is the mindset the organization aims for, a s well as the relationshi p that ultimately will propel growth. The fac t that FCSD has been able to reduce its prices on selected repairs by up to 60 percent cannot help but encourage just that kind of customer loyalty. The final dimension of success, employee satisfaction, is, in some ways, the cornerston e fo r al l the others .

When people understand the mission and are committed to it, it's unbelievable what kinds of talent are unleashed. Chris Torres, manager of business strategy

Happy employees who are satisfie d with their ow n performance and wit h their rol e in the organizatio n are mor e likel y to have an emotional stake in th e organizatio n and it s objectives. It migh t be inferre d from th e 2 5 percent improvemen t in customer-handlin g scores that workers are happier i n thei r servic e roles. Suc h evidenc e further indicates that FCS D is attuned t o its workers' needs. FCSD use s training , coaching , an d annua l "pulse " surveys t o assur e that employees are as effective a s possible in providing stellar service. The pulse surve y measure s ho w employee s feel abou t such matters a s thei r training and development , work load and stress, reward and recognition, and management . Th e surve y allows Ford staffer s t o expres s thei r pleasure (o r displeasure ) wit h ho w wel l thei r immediat e superviso r help s them achieve a quality work experience. Bette r communication enhances the qualit y of work for everyone, thus helping to ensure a better produc t or servic e for th e customer. Indicative of the horizontal organization's positive impact on employees are th e result s of the puls e survey. The part s of the divisio n that have gone horizonta l scor e significantl y highe r tha n othe r area s o f FCSD , which as illustrated in Fig. 2.1 have remained vertical (specifically, finance , strategy and communication , and huma n resources) . Horizontal employees are 1 5 percent more satisfied with their work groups and teamwor k activities than are their counterparts in other FCSD areas that have remained vertical; in terms of rewards and recognition , the differenc e i s 12 percent;

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and employee s in horizonta l processe s rate thei r overal l job satisfactio n 13 percent highe r tha n thei r counterpart s i n othe r FCS D areas. Recognizing that the personal satisfaction of workers can go a long way toward determining the quality of their performance, FCSD puts heavy emphasis on cross-functiona l teams. The satisfactio n of an employe e in th e Parts Supply and Logistic s Group i s improved by knowing that he o r she plays a major rol e in the division' s value chain, while at the sam e time experiencing a first-hand connection t o people o n othe r teams . "Breakin g down the chimneys to get the right corporate solutio n is key," Torres says. "We're all on the same page, and need to think like it. "

Impact on Hiring and Worker Evaluations How people ar e chose n t o fill new jobs ha s change d significantl y since FCSD restructured . A personnel developmen t committe e tha t include s functional an d cor e proces s managers a s well a s human resource s representatives reviews all openings to determin e wh o is best qualified to fit each position . Th e committe e comes up wit h a list of required skill s for the job, the n recommend s fou r o r five candidates based o n thei r qualifications. Eac h i s evaluated i n th e variou s skil l areas , and th e candidat e with th e highes t overal l mar k get s th e job—pending a n intervie w and final approval fro m th e manage r involved.

What people can do becomes more important than simply the functions—the chairs they sat in before. Sally Wacker, capabilities development specialist

"It use d to be kind of an old-boy network, where one manage r would call another an d just say, 'I've got an opening. Have you got anybody?' " recalls Sall y Wacker , capabilitie s developmen t specialis t a t FCSD . Pro motions often depende d more on who you knew than what you did, thus excluding qualifie d candidates . "No w a whol e group o f peopl e get s t o review openings , an d decision s ar e base d mor e o n skills, " Wacke r says. People mov e because the y are abl e t o communicate effectively an d wor k well with others , skill s essential for the horizonta l organization.

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Because the horizontal structur e breaks down barriers betwee n differ ent departments , ther e i s much mor e cross-functiona l movement taking place. Previously , workers mastered an d remastere d th e sam e functional skills t o mov e u p a n increasingl y narrow vertical chimney . Eliminating much o f th e vertica l hierarch y encourage s peopl e t o b e multitalented . Cross-functionality increase s th e likelihoo d tha t the y wil l receiv e addi tional compensation . An d when a highly regarded FCS D employee lacks some o f the expertis e necessar y for a promotio n o r salar y increase, th e personnel developmen t committe e attempt s t o fin d th e righ t combina tion o f tea m assignment s an d trainin g t o hel p tha t perso n develo p th e needed skills . Although huma n resource s (a s well a s th e financ e an d strateg y an d communications units ) retain s a functiona l structure , FCS D ha s rede signed staffing , incentives , measurements , an d caree r an d developmen t approaches t o ensure that the function works as a partner-in-process performance t o suppor t th e cor e proces s objectives . This, w e recall, i s on e of th e 1 2 principles fo r designin g a successfu l horizonta l organization, and i t will be discusse d mor e full y i n chapter 12 . For the presen t illustration, however, it is important t o establish that core proces s teams cannot operate i n isolatio n fro m th e traditionall y vertical parts o f the organization: Those who are no t themselve s directly involved in horizontal teams must nonetheles s lear n t o "partner " effectivel y wit h their colleague s in core proces s groups. At FCSD, fo r instance , huma n resource s staff member s provide their expertise in addressing business problems at the earlies t stages. They are encouraged t o voice their concerns . Thi s input no t onl y gives the large r team mor e informatio n an d insigh t fo r us e i n th e decision-makin g process, it also allows the huma n resources representatives to develop a fuller understanding o f a project. Having become partners in the process , they are muc h more likel y to hire th e righ t people fo r th e righ t jobs. "Before th e transformation , technica l and busines s plans would have been develope d withou t an y consideratio n o f whethe r FCS D ha d em ployees with th e skill s t o d o a goo d job," says Wacker. Now the huma n resource departmen t i s being include d i n th e earl y stages o f planning . "We're getting better a t assessing the skills we have," Wacker notes, "and at asking questions up fron t t o hel p u s focus o n what we need an d ho w

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we ca n ge t it. " Huma n resource s i s becomin g a chang e agen t an d a partner i n designing the organization . To suppor t changin g managemen t roles , FCS D ha s determine d necessary leadershi p skill s an d behaviors—suc h a s integrity , trust, empowerment, an d communication . Th e divisio n has set up a process o f peerto-peer an d subordinat e survey s to assess managers' skill s and t o develo p an actio n plan t o address an y shortcomings. Wacker explain s that a leader deemed deficien t in listening skills, for example, migh t se t u p a n actio n pla n tha t call s for ongoin g feedbac k from peer s for a specified period, say six months. That mean s that at th e end o f each tea m meeting, othe r member s will evaluat e the manage r o n clarity o f communicatio n an d amoun t o f attentio n give n t o opposin g opinions. T o mak e sure tha t th e actio n plan s hav e teeth i n them , man agers ar e hel d accountabl e no t just fo r settin g u p th e plan s but fo r following throug h o n hones t chang e commitments . Those assessment s ar e not obviou s fro m a casua l glanc e a t a n organizatio n char t suc h a s th e one depicte d i n Fig. 2.1, bu t i t is important t o understand tha t the y are inherent i n successfull y institutionalizin g the desig n o f th e futur e company. The organization , i n othe r words , is never t o b e equate d wit h th e chart itself , an y more tha n on e shoul d confus e an X ray with a patien t or a portrait with its subject. On on e leve l after another, Ford Customer Service i s proving the ro bustness of the horizontal organization. Benchmarking his division within Ford Motor Company overall, Ron Goldsberry says it has significantly outachieved other segment s of the company's internal operations , and "thi s is very much a long-term solution." Elsewhere, in both th e public and private sectors, others are realizing the multiple benefit s o f this new concept in organizationa l design. Even th e most skeptical of readers wil l be pleasantl y surprised b y the change s taking plac e i n th e reinventio n o f th e Unite d State s governmen t an d it s bureaucracies lon g know n for thei r hardene d attitude s towar d change , efficiency, an d effectiveness . Th e Occupationa l Safet y and Healt h Administration (OSHA) , a regulator y agenc y within th e U.S . Department o f Labor, serve s a s a leadin g mode l fo r public-secto r performance-base d transformation, simila r t o what we have seen at Ford's Customer Servic e

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Division i n th e privat e sector . OSH A i s als o a benchmar k exampl e o f going dee p into th e basi c organizatio n an d operatin g mode l o f a publi c sector agency to dramatically improv e performance—servin g t o illustrat e that transformation i n the organization an d performance o f public secto r agencies i s possible.

A Horizontal Transformation at OSHA At the other end o f the spectrum fro m a well-known corporate giant with shareholder an d marke t accountabilit y an d a wealth of global resource s is th e cas e o f a beleaguere d federa l governmen t agency . Th e transfor mation o f OSHA , particularl y a t a tim e whe n th e public' s fait h i n th e competency of the governmen t a s a whole is shaky,9 could no t hav e come soon enough . OSHA was created i n 197 0 by an ac t o f Congress tha t authorize d th e U.S. Secretar y o f Labor t o se t workplace safet y an d healt h standards , in spect workplace s fo r compliance , an d issu e citation s an d penaltie s fo r noncompliance. Th e ac t also enabled state s to set up their ow n safety an d health programs . Today, 23 states operate suc h programs wit h 50 percent funding an d oversigh t fro m th e federa l office . Aroun d two-third s o f OSHA's approximately 2,20 0 employees work out of some 67 federal field offices i n te n region s acros s th e Unite d States . A s a regulator y agenc y within th e U.S . Departmen t o f Labor, OSH A is headquartered i n Washington, D.C. Fro m ther e i t issues regulation s while th e Complianc e an d Safety Health Officer s (CSHOs ) in regions throughout th e countr y travel to differen t companies , conduc t investigation s o f wor k sites , issu e cita tions fo r violations , an d conduc t educatio n an d outreac h activitie s o n workplace safet y an d healt h issues . The tol l tha t accident s an d illnesse s exact i n th e American workplac e is staggering: Occupational injurie s cause around 6,200 deaths a year, and work-related illnesses kill another 50,00 0 people. (Fo r perspective, tha t is equivalent to a plane crash with 150 casualties every day of the year. More people i n th e Unite d State s die eac h yea r from work-relate d injuries an d illnesses tha n ar e kille d i n highwa y accidents.) I n monetar y terms , th e reported 6. 6 million workplac e injurie s in 199 6 cost som e $6 0 billion i n annual workers' compensation, an d th e National Safety Council estimates that additiona l indirec t expense s such a s those tie d t o trainin g an d los s

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of productivity raise the total to $110 billion—and that's just for accident s alone.10 Prior t o OSHA' s redesign , man y of its field employee s ha d frontlin e responsibilities bu t very little empirica l knowledg e o f where th e injuries , illnesses, an d death s wer e concentrated , an d n o data-based , systemati c way o f focusin g thei r effort s o n th e high-ris k areas . OSH A relie d mos t heavily o n th e threa t o f inspection s an d fine s t o forc e safet y improve ments—a one-size-fits-al l approach—without attemptin g t o understan d underlying cause s s o tha t i t coul d tailo r it s action s t o addres s specifi c problems effectively . Wha t is more, th e arm y of crucial onsit e inspector s was distressingly small relative to the number of companies and industries that had t o be inspected . Under attack from on e quarter o r another almos t from th e beginning , the agenc y found tha t it s travails only increased a s new health car e chal lenges presente d themselve s in th e 1980s . Ergonomicall y incorrec t work spaces and equipmen t wer e widely recognized as a source o f health prob lems in many industries, and workers in health car e institutions and else where feare d exposur e t o biologica l infection s suc h a s hepatitis B an d AIDS. Poorl y equippe d t o dea l wit h suc h widesprea d danger s t o begi n with, OSH A found itsel f caught i n a catch-2 2 situation: The Reaga n ad ministration, inten t o n recastin g th e prioritie s o f government , actuall y decreased fundin g just a s th e public' s expectation s o f th e agency' s re sponsibilities were increasing . And the tur n o f the decad e brough t n o respite for OSHA's dedicate d but overextende d staf f a s observers calle d th e agenc y to tas k for it s slowness and it s tendency to react to workplace tragedies rathe r tha n t o prevent them. Eve n OSHA personnel ha d th e distinc t feelin g tha t they were forever lockin g th e bar n doo r afte r th e hors e wa s already out. Addition ally an d problematically , OSH A measured it s succes s o n th e basi s of its activities, linkin g succes s t o th e numbe r o f inspection s th e agenc y performed an d th e amoun t o f fines it collected. Succes s was not define d i n terms of results—the number o f injuries, illnesses, an d deaths th e agency prevented. OSH A employees derided thi s system as "the numbers game." Nay-saying fro m th e othe r sid e o f th e fenc e wer e member s o f th e business communit y who fel t tha t OSH A was "nickel-and-diming" the m over pett y matter s havin g littl e o r n o relatio n t o preventin g casualties . Typical o f th e bureaucrati c behavio r wa s the enforcemen t o f a rul e re -

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quiring ever y workplace t o pos t a n OSH A form statin g th e numbe r o f accidents reported i n th e previou s 12 months. Asking companies to post safety historie s does no t see m lik e a n unreasonabl e request , bu t wha t raised the ire of companies was the fact that failure to post the form drew a citatio n fro m inspector s eve n i f the numbe r o f accidents reported was zero. When CSHOs did find serious problems, they did not have adequate resources o r suppor t t o mak e sur e problem s wer e fixe d o r t o provid e adequate help t o those companies wanting to prevent safet y problems in the firs t plac e by implementing effectiv e safet y managemen t programs . Entangled by sometimes senseless bureaucracy and sufferin g fro m th e constraints of a classic vertical structure, th e agenc y was poorly informed about safet y condition s i n man y areas. Accordingly , i t to o ofte n waste d its limite d resource s o n symptom s rather tha n o n improvement s to it s research an d reportin g method s t o determin e wher e th e wors t safet y problems wer e occurring , wh y they were occurring , an d wha t could b e done t o increas e th e agency' s rol e i n preventin g them . Agenc y people chafed unde r arcan e rule s an d custom s tha t blocke d informatio n flow , delayed responses, and prevented them from carryin g out the meaningful and motivatin g work of saving lives and reducin g workplace injuries an d illnesses—the jo b the y wer e originall y mean t t o do . Supervisor s spen t inordinate amount s of energy on interna l staffin g problem s rathe r tha n external safet y problems .

I think there wa s a general belief tha t w e neede d to focus or become more coordinated. There were a lot of times when different parts of the organization were working on entirel y differen t priorities . S o th e resource s we ha d weren't bein g effectivel y used becaus e they were no t applied in a coordinated fashion. Leo Carey, co-leader o f the OSHA redesign team

As thi s litan y o f woe s indicates , OSHA' s transformatio n int o a higher-performing organizatio n cam e abou t ou t o f shee r necessity . Joe Dear, wh o wa s appointe d i n 199 3 t o hea d u p OSH A a s th e Assistant Secretary o f Labo r fo r Occupationa l Safet y an d Health , frankl y admit ted (a s did many others insid e an d outsid e th e agency ) that OSHA was "failing." Althoug h it s missio n wa s vitall y importan t an d it s peopl e

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were thoroughl y dedicate d t o thei r work , the agenc y was in rea l dange r of losin g it s political capital , withou t which it coul d no t protec t it s statutory authorit y t o operat e an d secur e appropriations . Th e recognitio n that OSH A migh t no t surviv e prompte d a radica l redesign o f it s en forcement operations .

A Push From the Top According t o Le o Carey , forme r hea d o f reinventio n a t OSH A an d co leader o f th e redesig n team , th e change s tha t le d t o OSHA' s transfor mation actuall y began wit h the 199 2 election. Vice President Al Gore ha d authored a book e n titled Reinventing Government, 11 an d earl y in th e ne w administration, Presiden t Clinto n an d h e bega n pushin g thi s initiative , targeting a n overhau l o f agencies suc h a s OSHA. As par t o f thes e efforts , Secretar y o f Labo r Rober t Reic h me t wit h OSHA employees to hear suggestion s on ho w the organizatio n migh t be improved. The y discusse d eliminatin g bureaucrati c layer s within the or ganization, reducin g th e numbe r o f supervisors, and eve n reducin g th e influence wielde d by OSHA' s nationa l headquarter s and managemen t staff. The n whe n Dea r cam e o n board , he , lik e Carey , saw that th e or ganization's fundamenta l proble m wa s too muc h responsibilit y an d to o little means . "Somethin g lik e 10 0 million working men an d wome n employed a t ove r 6. 3 million establishment s ha d right s unde r th e Occupa tional Safet y an d Healt h Act," says Dear. "OSHA' s budget i n 199 6 was $326 million, and i t had a staff of 2,200 people. S o there was an incredible gap between th e missio n an d th e resource s availabl e to the agency. " Launched durin g Dear' s tenure, th e redesig n aspire d t o eliminate al l preventable injuries , illnesses, and death s fro m th e America n workplace within ten years. 12 OSHA recognized, of course, the essential impossibility of eliminatin g al l preventable injuries , illnesses , and deaths . Bu t a t th e same time , thi s tal l orde r wa s one tha t coul d galvaniz e th e energie s o f OSHA employees and tha t would resonate wit h them—after all, they got out o f bed an d wen t to work in th e mornin g t o sav e lives , not t o fill out forms an d push paper. Although audacious , th e aspiration would requir e the agenc y t o determin e ho w it could dramaticall y improve it s ability to prevent injurie s an d respon d quickl y and effectivel y whe n injurie s an d illnesses di d threate n o r actuall y occur. Simila r t o an y private-sector or -

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ganization seeking a dramatic improvement in performance and contemplating a horizontal redesig n a s part of that transformation, 13 OSHA had to identif y it s overall goals and valu e proposition. I t ha d t o determine if and wh y its existing organizationa l approac h woul d be unabl e t o deliver the desired performance. It had to design and develop a new approach— if required—including a determination of which core processes were necessary for deliverin g the desire d value. 14 For an agency created specificall y to administer the Occupational Safe ty and Healt h Ac t of 1970 (amende d 1990 ) throug h regulation , enforce ment, and education , it s unique valu e could b e summe d up by restating its statutory mission—that is, to d o a superior job o f effectivel y an d effi ciently assuring "safe an d healthfu l working conditions fo r working men and women." 15 OSH A then identifie d strategic , o r preventive , proble m solving and problem response processes as being critical to delivering that value proposition. Ke y activities within these processes involved determining and rankin g the area s of greatest injury , illness , and death ; analyzing root causes ; tailoring specifi c solutions ; and, where possible , amplifyin g agency resources b y enlisting industr y or labo r unio n cooperation . Knowing h e wa s unlikely to ge t a budge t o r staf f increase , Dea r focused o n tryin g t o chang e an d enhanc e performanc e amon g OSHA' s current personnel . One proble m h e foun d was that man y employees believed that , a s government workers , they had n o recours e t o change th e variables affectin g thei r performance . Politica l oppositio n t o makin g changes ra n hig h becaus e th e primar y stakeholders o f OSHA, those re sponsible fo r its political suppor t an d protection , were largely wedded to its original approach an d structure . Their solution to safety problems was pure an d simple : Establis h regulations , the n enforc e them . Dear , how ever, attempte d t o expan d OSHA' s approac h t o safet y an d healt h no t only by continuing t o establis h regulations an d enforcin g them , bu t als o by maximizing the efficienc y with which OSHA used its limited resources. He focused OSHA's efforts o n those most pressing safety and health prob lems, identifying an d analyzing their root causes, and taking strong action against "ba d actors" a s well a s assisting other companie s i n developin g and implementin g thei r ow n safet y managemen t programs . H e als o sought t o work in concer t wit h industr y associations, unions , an d othe r government agencies t o solve problems .

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Internally, OSHA's peopl e ha d been battere d an d bruised b y years of political ad ministration. Individual s who ha d attempted to assert leadership for change generally were punished. The culture was rigid , hierarchical , bureaucratic, slow, protective. People were unwilling to step forward. Joe Dear , former assistant secretary of labo r for Occupationa l Safety and Health, and head of OSHA .

Dear estimate s tha t abou t 2 5 percen t o f OSH A employee s wer e "change ready." Another 2 5 percent o r s o strongly opposed an y tinkering wit h th e agency' s origina l approac h o r it s origina l command-and control structure . Th e latte r wer e either old-timer s who did no t wan t to make wave s o r peopl e wh o assume d tha t onl y top-management change s (or mor e money ) coul d cur e th e organization' s woes. The othe r 5 0 percent o f OSHA employees were ambivalent about takin g action, believing either tha t Dea r would not be around lon g enoug h t o enact real chang e (the averag e assistan t secretar y last s 1 8 months) , o r tha t thi s transfor mation woul d los e stea m (the y had see n othe r assistan t secretarie s at tempt othe r changes) , or tha t ther e would never be enough fundin g for new technology and trainin g anyway . Still, Dear went ahead wit h his plan t o fre e OSH A from it s inefficien t and ineffectiv e structure . Concentrating o n improving productivity of the field staf f a s quickly as possible, h e forme d a joint labor-managemen t re design tea m mad e u p o f OSHA managers and member s of its employe e union. The redesig n tea m wanted to improve significantly OSHA's ability to reduce workplace injury and illness by funneling resources into helping companies determine what their most serious risks to health were and how to correct them . Knowing that OSH A could neve r hope t o inspect al l industries and companies (indeed , the AFL-CIO had estimated tha t it would take OSHA with its current resource s more tha n 8 7 years to inspect every U.S. business), the redesign tea m sought to implement methodologies an d techniques tha t companie s could us e in analyzing root cause s and devel oping appropriate solutions . In short, Dear and the redesign team emphasized prevention an d reductio n o f injuries, illnesses, and deaths , not pen alty, the n wen t abou t buildin g a n organizationa l approac h tha t woul d support that value proposition.

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Learning from Past Success An important componen t o f any redesign i s to loo k at where an organi zation was successful befor e an d unde r what conditions. Studying the 1 8 years from 197 5 t o 1993, Dear' s design team found that workplace injury and illnes s rate s decrease d mos t markedl y i n area s wher e OSH A ha d made a focuse d effor t t o develo p an d enforc e standards : specificall y i n the construction , manufacturing , an d oi l an d ga s extraction industries , which accounte d fo r 8 4 percent o f the agency' s compliance inspection s during th e period. Th e tea m also discovered, however, that despite thos e documented successes , OSH A has no t traditionall y use d dat a t o defin e and prioritiz e specifi c healt h an d safet y problem s an d the n interven e appropriately t o solv e them— a particularl y difficul t proble m give n OSHA's limited resources. As Dear put it , nobody ever sat down and said, "The proble m we'r e going t o attack is how to protect constructio n workers from falls . We're going to do this by developing a new standard, the n going out and enforcin g it." Similarly, there was never a view towards the future, n o attempt , fo r example , to se t a goal of reducing fata l fall s b y a certain percentag e ove r a specified tim e period. The grou p postulate d tha t onc e OSHA' s redesig n wa s in place , re sources could b e allocate d a t th e loca l an d nationa l level s specifically t o define problem s an d conduc t interventions , carr y ou t education , for m partnerships, an d measure th e impac t o f those efforts . As Dear sa w it, th e wa y to improv e OSH A was to liberate th e talent , energy, knowledge, and skil l of its people. An approach tha t touche d al l facets o f the agenc y had th e greates t potential for findin g way s to unlock those qualities , giving people a stake in th e chang e an d th e opportunity to desig n i t themselves . Eve n short-ter m performanc e improvement s could d o wonder s fo r a worker's sense o f persona l empowerment , an d the momentu m gaine d fro m suc h incident s would flow throug h th e en tire organization . Smarte r wor k would lead t o better results . OSHA's ol d strateg y for fiel d office s wa s primarily inspection-based , with a littl e outreac h throw n in . Tw o o r thre e wor k group s organize d according t o functional expertise—either industrial hygienists focused on chemical exposure , radiation , an d noise , o r safet y specialist s focused o n manufacturing an d constructio n sites . Supervisors dictated assignments . Since its inception i n the earl y 1970s, the organizatio n comprise d various

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Fig. 2. 2 Occupationa l Safety and Health Administration (OSHA)—Fiel d Offic e Note: The first three stages—data collection, problem identification and prioritization, and cause analysis—are parts of a process tha t ar e often carrie d out i n other part s of th e organization as well, both at the national and the regional levels.

"silo" functions such as compliance, enforcement, training, consultatio n services, an d informatio n technology . There was no guarante e tha t on e section kne w or care d muc h what the other s were doing . With th e redesign , th e agenc y turned t o ne w ways of collecting data , namely b y identifying, denning , an d prioritizin g problems , the n devel oping solution s tha t maximize d leverag e an d extende d reac h bot h b y compelling complianc e an d b y encouragin g cooperativ e effort s t o de crease the numbe r o f workplace injuries. As part of its horizontal remodeling, OSH A spends more tim e on preventin g problems—as opposed t o a primarily reaction-based approac h of dealing with problems only as they arose. OSH A officials stil l respond , o f course, t o report s o f hazards, bu t that respons e is now much faster because of the process redesign an d th e elimination o f non-valu e adde d step s i n th e reactio n process . Ther e i s also th e specifi c assignmen t of respons e team s t o investigat e workplace dangers a t 3 8 of OSHA's 67 fiel d offices . Those team s are par t o f th e newl y redesigne d OSH A fiel d office s il lustrated in th e organizationa l char t shown in Fig. 2.2 . The ne w horizontal structur e retain s th e authorit y o f each fiel d offic e unde r a n are a di rector, wh o head s th e offic e teams . A proactiv e strategi c tea m take s responsibility fo r th e problem-solvin g processes , includin g dat a collec tion, identifyin g an d prioritizin g problems , analyzin g causes, and devel oping solutions. Handling custome r intake, assessment, and incident resolution, a respons e tea m take s responsibility for respondin g i n a timely and effectiv e manne r t o report s o f actual danger s t o worker safet y an d health i n th e workplace . What is more, th e team s are cross-traine d an d cross-functional: Bot h safety specialist s and industria l hygienists work to gether o n th e sam e teams . (Again , althoug h suc h qualitie s a s cross functional training , empowerment, and multi-skillin g do not sho w up o n the organizationa l char t depicte d i n Fig . 2.2, without the m horizontal organizational improvement s would be impossible.) The proces s leaders o f those tw o teams maintain constan t communication t o ensur e tha t thei r team s set goals tha t ar e i n syn c an d focuse d on resolvin g problem s effectively . Empowered tea m member s accep t greater responsibilit y fo r handlin g thei r caseloads . The y tak e car e o f many daily operations a t th e fiel d offices , wor k tha t use d t o b e don e by the are a director s an d assistan t directors. Free d fro m som e of their previous management an d hand-holdin g duties , thos e director s now devote

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more tim e workin g wit h th e communit y i n outreac h activities , forging relationships wit h businesses , chamber s o f commerce , an d othe r loca l organizations t o promot e safet y an d healt h issues .

The Fruits of Change OSHA's Atlanta offic e illustrate s man y of th e improvement s inspire d b y the horizontal structure . Fo r example , afte r identifyin g a proble m tha t existed betwee n th e Argonau t Insuranc e Compan y and Horizo n Steel , a local stee l constructio n business , th e ne w OSH A teams worked i n part nership wit h th e companie s t o devis e a practica l solution . Here' s wha t happened. A number o f Horizon workers had bee n seriousl y injured i n fall s o n the job, forcing Argonau t t o conside r withdrawin g as Horizon's insure r because it could no t affor d th e enormou s increase s in workers' compensation costs . I n response , OSH A assigned a CSHO who had n o enforcement jurisdiction—an d thu s coul d no t issu e citations—t o d o a walk around o f th e Horizo n facilit y an d poin t ou t hazards . I n exchang e fo r this nontraditional approach , Horizo n had to agree t o implement a "100 percent fal l protectio n program, " whereby all Horizon personne l woul d wear harnesse s whe n workin g o n buildings . Suc h protectio n measure s usually ar e no t institute d i n th e industr y becaus e worker s resis t the m strenuously, bu t OSH A convinced managemen t t o insis t that it s workers wear th e harnesses . The result s were dramatic. Three worker s who fell from height s above 50 feet al l walked away unharmed. Wha t is more, workers' compensatio n costs at Horizo n immediatel y dropped 9 6 percent. B y coming u p wit h a creative solution , OSHA' s Atlanta office save d lives an d cu t th e insurer' s costs without compromisin g any regulations—a triple win. OSHA's handlin g o f workers' complaint s ha s als o improve d dramati cally since the agency adopted a horizontal structure. I n the past, mounds of paperwor k fro m thousand s o f workers complaining o f unsaf e o r un healthy working conditions overwhelme d th e CSHOs , who faithfull y ex amined th e companie s i n question bu t ofte n no t unti l 30 to 60 days afte r the OSH A official s receive d complaints . I n th e cas e o f "informa l complaints" (letter s or call s fro m nonworker s o r unknow n sources) , OSH A staffers wrot e letters to th e companies , waited for response s (i f any), and

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then inspected 1 0 percent o f those companie s tha t bothered to respond. To cal l this system cumbersom e and inefficien t hardl y suffices . Under th e ne w structure, however , OSHA teams are abl e t o respon d immediately to al l informal complaints made b y workers. They call companies within 2 4 hour s afte r complaint s arrive , fa x copie s o f complain t letters, the n allo w five working day s fo r th e companie s t o respon d t o OSHA's directive that th e proble m o r hazar d be removed . Base d on th e acceptability of the response and further communication with dissatisfie d employees, OSHA response team s decide whether legal and policy guidelines justify a ful l investigation . Decision-makin g authority lie s with th e teams themselves, who are the principal building blocks of the horizontal structure. Since OSH A implemented it s horizontal design , team s hav e reduce d the time it takes to respond t o informal complaints by 90 percent. Positive assessments of the new structure continue to roll in: Workers are gratified to know that their complaints receive immediate attention; employers are happy t o be abl e t o tal k with OSH A representatives in a non-adversarial manner and take corrective measures; and OSHA does not waste valuable time doin g useles s inspections o f thing s lik e dirt y bathrooms . Now , in many cases , a singl e phon e cal l usuall y corrects th e problem , an d th e speed wit h which OSHA teams resolve relatively minor complaint s free s up thei r schedule s t o tak e o n mor e seriou s issue s affectin g workplac e safety. "The en d result of redesign for OSHA is an organization muc h more open t o it s customers, much mor e ope n t o ne w ideas, and on e tha t literally saves lives with its new approach," say s Dear. Apparently, Vice President Gor e agrees . Th e Vice President me t with the redesig n tea m for OSHA' s field organization an d presente d the m a Hammer awar d i n recognitio n o f thei r outstandin g contribution s fo r helping "reinven t government. " Good new s can hav e a wondrou s effect , particularl y in beleaguere d circles. Under the ol d structure, OSHA workers, for instance, felt trappe d in a routin e o f checkin g of f boxe s durin g a n inspection . Simpl y com pleting the inspection was the order of the day, and field-office employees found thei r work little better tha n tha t o f robots. I n th e ne w horizontal organization, according to Bob Kulick, director o f reinvention for OSHA, field workers are taking a more active role in helping people chang e their

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behaviors at work sites. "Compliance officers, " he notes , "whil e still able to be 'tough enforcers,' no w see it as a major part of their jobs to educate employers in ho w to develo p effectiv e safet y an d healt h programs , elim inate hazards, reduce injuries , and loo k for further opportunities t o work cooperatively t o improv e safet y an d healt h i n th e workplace. " Similarly , traditional supervisors , no longe r burdene d wit h conducting length y reviews o f employees , ar e no w better cas t a s the teams ' facilitators . Team members, Kulick adds, "have bee n empowere d t o conduct their own selfreviews." Given such visible improvement, it is clear why OSHA received a budget increase for fisca l 199 6 rather tha n th e cu t i t expected . In addition , hundreds o f appreciativ e letter s fro m bot h employer s an d employee s have poured i n t o OSHA.

Looking to the Larger Purpose While muc h ha s alread y bee n accomplished , muc h stil l remain s t o b e done. Fo r example , redesig n stil l need s t o b e "rolle d out " t o th e 2 9 remaining offices . Th e agenc y needs t o implemen t a results-base d mea surement syste m that wil l systematicall y and accuratel y measure OSHA' s impact i n curtailin g injury , illness , and deat h rates . And a n on-goin g senior managemen t steerin g committe e needs to be put in place to provide oversight an d leadershi p fo r futur e change s a t th e agency . Charle s Jeffress, th e ne w assistan t secretar y fo r OSHA , ha s state d tha t h e i s full y committed t o finishing the wor k begun b y Dear an d th e redesig n team , as well a s building commitmen t t o th e ne w horizontal structure . As Joel Sacks, forme r actin g directo r o f reinventio n a t OSHA , put s it , "Clearl y redesign ha s gotte n of f to a great start , an d ther e hav e been successes , but ther e i s a need fo r on-going commitmen t and focu s throughout th e organization i n orde r fo r roll-ou t t o b e complete d an d redesig n t o b e successfully institutionalize d throughou t OSHA. " OSHA's accomplishment s provide dramati c proo f tha t a governmen t agency can transform itself and tur n it s performance around , whil e helping it s employees deriv e greate r satisfactio n fro m thei r work . OSHA exemplifies th e kin d o f performance-based transformatio n tha t i s crucial if we are to solve the very real problem o f poor operating performanc e that now plagues our governmen t institutions .

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Internal focus , fragmente d objectives, overly complex procedures, insular bureaucratic levels—al l these element s of the vertical hierarchy significantly inhibi t performance an d frustrat e government employee s who sincerely want to do a better job an d hel p thei r agencie s succeed . On a larger scale , thi s under-performanc e seriousl y undermines th e fait h o f the American public in the federal government's general attempt s to do the "righ t thing. " I n fact , a s Vice Presiden t Gor e pointe d ou t i n hi s commencement addres s a t Harvard, such confidence has dropped fro m 60 percent in 1965 to 10 percent in 1994. 16 And for good reason : Despite their ofte n critica l missions—and the fac t tha t mos t government employees are skilled and dedicate d t o those missions—man y government agencies simply are no t deliverin g what they could o r should . The bureaucrati c approach, with its multiple level s and extensiv e system o f checks, is to b e commende d fo r providin g a bulwark against corrupt practices . But when the bureaucratic approac h predominate s t o the extent it does in most government agencies, it can and often does inhibit performance. Remedyin g the situatio n require s majo r change s i n al l of the dimension s tha t driv e performance—strategy , structure , style , systems, share d values , and skills . Th e redesig n o f OSHA' s fiel d office s il lustrates thi s kind o f holistic undertaking an d demonstrate s tha t a hori zontal makeove r can delive r just wha t citizens yearn for: responsive an d effective government . Bureaucratic shortcoming s ar e no t th e sol e provinc e o f th e publi c sector, of course, despite th e choru s of complaints about ineptitude . Red tape, rol e redundancy , misalignmen t of people an d skills—al l thes e an d more ca n b e foun d insid e an y numbe r o f large , verticall y structured , private-sector corporations. Some well-known organizations that have embraced refor m provide example s to be examine d i n chapter s 5-8. As w e loo k a t thes e companies , yo u wil l notic e tha t eac h on e i s different an d tha t eac h organizationa l char t reflect s a differen t se t o f priorities centere d o n eac h one' s valu e proposition. Al l these organizations, however, share a desire t o enhance th e cor e processe s for producing thei r respectiv e value-added product s o r services . Those valu e propositions, afte r all , help solidif y eac h company' s relationship s wit h al l stakeholders. Becaus e the horizontal model doe s no t demand a n either/ or choice , but instea d expand s design "solutio n space, " yo u will see how

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those companie s hav e blended horizontal and vertical elements t o arrive at the configuratio n tha t best suit s their goals . The challeng e fo r yo u an d you r organization , then , i s t o see k you r unique balanc e fro m amon g th e availabl e desig n approache s s o a s t o deliver optimu m performance . T o accomplis h tha t goal , yo u mus t be come familia r wit h th e desig n principle s tha t gover n th e horizonta l or ganization. Otherwise , 5 0 years o f exposur e t o onl y th e standar d orga nization chart s will prevail, making i t impossible fo r you t o arriv e a t th e ideal mix. Before embarkin g o n design , however, it is useful t o examine the distinctive features of and som e popular misconceptions about the horizon tal organization. Th e discussio n i n chapter 3 illustrates how the concep t works in conjunctio n with leading managemen t principle s t o defin e an d strengthen th e organizatio n o f the twenty-firs t century .

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3 HORIZONTA

L IS NOT THE SAME AS FLAT

DISTINCTIVE FEATURES O F THE HORIZONTAL ORGANIZATION

The initia l encounte r wit h the horizontal metho d o f structuring invariably create s confusio n abou t wha t th e resultan t organizatio n look s like and ho w it works . "Isn't a horizonta l organizatio n simpl y a vertical organization turne d o n its side?" I am often asked. "Aren't you just slotting reengineered processe s into a n existin g vertical structure?" An d for tha t matter, "Ho w doe s the horizonta l concept differ fro m reengineering? Is horizontals, synonym for flat? " Such question s are hardl y surprising , give n tha t ou r experienc e has , for s o long , bee n limite d t o th e hierarchicall y structured , functionally oriented vertical design. I t i s difficult fo r u s t o visualize an organizatio n cut loos e fro m th e traditiona l vertica l constraints . Bu t th e answer s t o these and othe r questions can be found by examining key features of the horizontal model . T o reiterate , n o tw o horizontal structure s ar e eve r exactly alik e becaus e eac h i s designed t o delive r a distinctiv e value propo sition, but certai n characteristic s that ar e no t foun d i n a vertical organi zation ar e commo n t o every horizontally structured one . Fo r example:

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• Cor e proces s group s cluste r employee s according t o the sets of multiple skill s neede d t o mee t process-base d performanc e objec tives and delive r a value proposition . • Teams—no t individual s grouped in hierarchical departments — constitute th e fundamenta l unit s o f th e organizatio n an d ar e en couraged t o be self-managing. 1 • Proces s owners, either team s or individuals, are responsible for leading an d managin g entir e cor e processe s fro m en d t o end. • Th e focus is largely external rathe r tha n "internal " in the sense that eac h departmen t seek s to satisf y measure s o f productivity that it ha s se t for itself . I n contrast , th e horizonta l organizatio n set s its sights on deliverin g a winning value proposition t o customers. These feature s clearly differentiate the horizonta l structur e fro m th e vertical, no matte r the viewing angle—sideways, right side up , o r upside down.

Core Process Grouping Sets the Stage The firs t o f these distinctiv e elements—clustering people aroun d whol e processes, no t individua l tasks—set s the stag e for al l that follows . The ide a o f grouping i s not new , of course, bein g on e o f the funda mental way s o f coordinatin g th e variou s type s o f wor k tha t tak e plac e within a n organization . A s Henry Mintzberg points ou t i n Th e Structuring of Organizations, groupin g strengthen s coordinatio n withi n a particula r unit by: • Providin g a system of common supervisio n • Requirin g resource sharin g • Creatin g commo n measure s of performance • Encouraging mutua l adjustmen t among workers2 The ne w twist that the horizontal desig n bring s to modern busines s is the way it coordinates the work of people around cor e processes. In the traditional arrangement , departmentalizin g ha s typicall y revolve d aroun d functions o r task s performed , suc h a s manufacturing , engineering , fi -

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nance.3 Peopl e who perform th e sam e range o f tasks and us e a homogeneous set of skills are assigned to the sam e functional department. On e of the main advantages of traditional functions is the cultivatio n of technical expertise. Core proces s groups, o n th e othe r hand , ar e very different fro m func tions: They encompass end-to-en d work , information, and materia l flow s that extend across many functional areas in a business and that are crucial to meetin g previousl y defined performanc e objective s aligned wit h th e value proposition. I n cor e process groups, peopl e are positioned accord ing t o a natura l flo w o f wor k determine d b y th e mor e comple x rede signed processes and directly related t o the needs o f customers. The jobs within the grou p incorporat e man y more task s and ofte n require a multidisciplinary se t o f skills , i n contras t t o th e tightl y define d role s prescribed by a single, specialized, functional activity. In addition , cor e processes along wit h the organization' s skill s ar e th e operation s tha t defin e an organization' s primar y capabilities, tha t distinguis h tha t organizatio n from other s i n its field, and tha t direct th e use of its strategic assets.4 The work itself is more integrated, unlike the narrow , fragmented tasks typical of a functional orientation . Grouping b y core proces s eliminates th e inefficien t cycl e of handoffs that occurs when work must bounce around betwee n various departments so that each can carry out its particular role . Anyone who has ever worked in a functional setting knows the routine: Becaus e the work seldom moves in any kind of natural order , spee d i s forfeited, confusio n reigns, and th e potential fo r losing information grows apace. Issues best handled throug h joint, real-tim e proble m solvin g end u p gettin g les s attention tha n the y deserve a s each departmen t operate s onl y from it s own perspective. Snafus invariabl y crop u p whe n on e han d doe s no t kno w what the othe r is doing: Order s are misplaced or wrongly canceled; production bog s down because crucia l parts ar e no t available ; conflicting goals put th e organi zation at odds with the custome r (recal l the exampl e o f Ford's Customer Service Division in chapte r 2) .

Winning the Customer Takes Precedence Core proces s group s hav e external, customer-drive n objectives based o n delivering valu e propositions , no t th e interna l concern s tha t s o ofte n

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take cente r stag e i n a vertical setup . S o rather tha n bein g a t odd s with the customer , cor e proces s groupin g facilitate s a tigh t alignmen t wit h what the custome r want s and needs . This unwavering emphasis on winning the custome r is one o f the major reason s why the horizonta l design i s the righ t desig n for tomorro w as well as today. In an y discussion o f what it will take t o inhabi t th e twenty first-century universe o f winning companies , certain characteristic s elicit nearly unanimous agreement . Leadin g the list is an almost single-minde d dedication t o the customer . Instant communicatio n an d technologica l marvel s have given today's consumers more option s tha n eve r before . I n thi s intensely competitive environment—where success is measured wit h a global yardstick—failur e to mak e customer s th e cente r o f a company' s orbi t exact s a heav y toll . The horizonta l organization i s the perfect vehicle, however, because fro m the outse t i t sets its sights on doin g a superior job o f delivering value to the custome r an d measure s it s performance accordingly . The measure s of achievement , i n othe r words , focu s o n whethe r custome r expecta tions are being me t and ho w satisfied customer s are with th e produc t o r service. The horizontal organizatio n seek s to satisf y bot h "internal " and "external" customers. I n effect , i t removes much o f the oppositio n betwee n these tw o groups. Thos e customer s interna l t o th e organizatio n receiv e the information an d products the y need, when they need them, in orde r to deliver the value proposition t o customers external to the organization . (Medical personnel insid e a hospital, fo r instance , ar e customer s of certain product s an d service s such as X rays or physica l therapy, which they then incorporat e int o th e valuabl e servic e they offe r thei r patients. ) I f internal customers keep performance goals on track, they can set as their primary goa l th e complet e satisfactio n o f externa l customer s an d hav e confidence tha t deliverin g th e valu e proposition wil l assur e bottom-lin e success. How doe s thi s philosoph y pla y out i n th e day-to-da y operation? Th e work flo w become s th e catalys t for channelin g al l energies towar d deliv ering a superior valu e proposition t o the customer . I t links the activities of employee s t o th e need s an d capabilitie s o f bot h customer s an d suppliers s o that al l three ar e aligne d i n th e company' s ques t t o achiev e its competitive advantage . Frontlin e peopl e ar e equippe d wit h th e skill s t o

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understand no t onl y how their ow n processes contribute t o th e deliver y of th e valu e proposition, bu t als o ho w the individua l work flows ar e re lated on e t o another . Because the work of a process is usually too much for an y one person , work is broken int o team-size d chunks, with the amoun t of work determined b y the siz e of th e team . Team s ca n rang e fro m 2 t o 2 5 people , but the typica l team comprises 15 to 20 members. Merely labeling a group as a "team " doe s no t mak e i t one , however. The tru e tea m bring s to gether peopl e wit h complementary skills who ar e committe d t o a common purpose—no t just a commo n assignment—an d who hav e specifi c and measurabl e performanc e goal s for whic h they hold themselve s mutually accountable. 5 The peopl e wh o populate th e teams , and ultimatel y the cor e process group, ar e chose n becaus e the y can perfor m th e task s and eithe r have , or ca n develop , th e skill s needed t o carr y out th e wor k of th e proces s now redesigned t o enhance th e value proposition. The y are then formed into team s accordin g t o ho w th e wor k flows . Sometime s one tea m ca n perform a n entire core process end t o end. However, there i s often more work or subprocesses than an y one team can handle. Accordingly, a chain of teams is organized t o perform the sequentia l work of the cor e process and constitut e th e cor e proces s group . Teams in th e horizonta l organizatio n als o assume real managerial responsibilities. Whe n team s ar e organize d aroun d wor k flows , i t i s only logical t o mak e the m self-managing . Afte r all , who know s better wher e the bottleneck s ar e an d ho w th e proces s ca n b e improve d tha n thos e frontline worker s who are responsibl e fo r i t from beginnin g t o end? Giving thes e peopl e th e ke y components of empowerment—that is, authority, information , training, an d motivation—enable s them t o solv e prob lems in real tim e an d kee p proces s performanc e o n track .

Hierarchy of a Different Kind Hierarchy i s no t completel y abolishe d i n th e horizonta l organization , however. Th e cor e proces s group s repor t t o proces s owners—typically teams o f leader s o r sometime s individual s (team s ar e preferred)—who are responsibl e for meetin g the specifi c performanc e objectives of eac h process. Th e owner s dedicate themselve s to buildin g capabilities , team-

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work, an d ope n communicatio n acros s th e wor k flows. They make sur e that problems are resolved and obstacle s removed before the work of the process i s impaired. There i s still some hierarchy overlooking th e whol e company as well. A certain amoun t o f hierarch y wil l alway s b e necessar y because huma n capabilities ar e naturall y limited : N o on e ca n kno w and d o everything, nor wil l everyon e in a n organizatio n alway s agre e abou t wha t ought t o be done. Consequently, all organizations—large or small , wealthy or limited—need leaders to make decisions for others. 6 The hierarchy retained after a transformation t o a horizontal enterpris e continues , fo r example , to shap e th e company' s overall strategic direction , identifying and artic ulating it s value proposition, providin g th e roa d ma p fo r busines s development an d organizationa l change , an d overseein g th e redefinitio n of cross-functional processes . Those leaders mus t keep their eyes trained o n developments i n th e externa l environment , assessin g threat s and oppor tunities wherever they arise. That said , hierarch y can b e kep t t o a minimu m s o long a s the hori zontal arrangement link s the various work flows directly to one another . Related bu t fragmente d task s are combined , an d non-value-addin g activities—such as repetitive inspections and unnecessary meetings—are abolished. Th e resul t i s a flatte r bu t stil l hierarchical arrangemen t o f team s that replace s th e steeper , mor e vertica l hierarchie s o f traditiona l func tional management. 7 Flatter, no t flat, is an importan t distinctio n t o mak e i n describin g th e horizontal organization. There are certainly fewer level s of hierarchy, but the organizatio n will no t b e totall y flat, nor shoul d i t be. Accountability and a value-adding hierarch y tha t directl y contributes t o achievin g performance goal s will still be evident in any organization structured around core processes . Although manager s retai n control , thei r emphasi s shift s t o leadin g teams, coaching employees, and facilitating relationships among customers, suppliers, and the organization. They allocate time differently now than they did in the past, developing capabilities in others, discovering new resources, improving processes , eliminatin g bottlenecks , an d lookin g fo r innovative ways to deliver value. Moreover, if those managers become process owners, they evaluate situations, make decisions, and apportio n resource s wit h a n eye toward continuous performance improvement. For employees, this re-

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balancing of power means that information and training are provided just in time o n a need-to-perform basis. Career path s follo w work flows, an d ad vancement goe s t o peopl e wh o maste r multipl e jobs, tea m skills , an d continuous improvement . Compensation reward s both individual skill development and tea m performance in suppor t o f process goals.8 The horizonta l model' s incorporatio n o f the principle s o f empowerment, proces s structure , multi-skilling , and proces s an d customer-base d performance measuremen t an d feedbac k has a wonderfully upliftin g effect o n employee s that counters th e alienatio n engendere d b y the mindnumbing specializatio n prevalen t in th e vertica l organization. A n explanation o f wh y thi s approac h s o enriche s th e workplac e i s offere d b y Hackman and Oldha m i n their book, Work Redesign. The author s cite five specific "cor e job dimensions" 9 tha t ca n alter a n employee' s psychological stat e and thu s promote greate r job satisfaction : • Skill variety, o r breadth, meanin g th e number o f different activities required t o do the job (appointmen t scheduling, record keep ing, word processing, an d s o forth ) • Task identity, o r depth , whic h refer s t o ho w much end-to-en d responsibility is involved. (I s the worke r charged wit h makin g on e whole ite m o r completin g on e entir e proces s fro m beginnin g t o end?) • Task significance, o r the perceived impact the job ha s on others • Autonomy, o r th e empowermen t tha t peopl e hav e i n plannin g and carryin g out thei r ow n work activities • Feedback, o r information shared with employees about how effective the y are i n performin g their tasks 10 This model ha s been th e focu s of many empirical tests, most of which support man y aspects of the model. 11 Jobs with those characteristic s are jobs that people enjoy, car e about , and ar e committe d to . Taking increase d responsibilit y for th e outcom e of thei r activities , peopl e ar e motivate d t o provid e high-qualit y performance, all of which translates into lower absenteeism, reduced turnover , and, ultimately, success for th e organizatio n a s a whole. The importan t poin t t o mak e i n discussin g organizationa l desig n i s that ever y on e o f thes e fiv e crucia l characteristic s i s implemented an d

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supported b y the principle s underpinnin g th e horizonta l organization . By utilizing high-involvement work systems, empowered workers grouped in teams , just-in-time feedback, and multidimensiona l trainin g practices , the horizonta l desig n create s a mor e human e wor k environmen t an d gives newfound meaning t o work itself. Consider, fo r example, th e experienc e a t OSHA. Before th e redesign , OSHA inspector s wer e simpl y evaluated o n ho w many inspections the y did an d ho w many dollars wort h o f fine s the y levied. Today , al l organi zational elements of the field offices' performance—th e strategy, the pro cesses, the organizational structure—hav e been redesigned t o enable th e agency t o reduc e injuries , illnesses , an d deaths . High-involvemen t work systems now empower workers to do a better job o f reducing injuries . As worker satisfactio n increase s a t OSHA , s o d o motivatio n an d perfor mance. A s a newl y designe d horizonta l organization , OSH A i s movin g toward measuring field officers o n th e impac t of the safet y measures they recommend an d o n th e succes s they have at reducing injury , illness , and death i n th e U.S . workplace. Th e inspectors ' wor k i s no longe r jus t a numbers game; they work in teams on whole tasks to deliver performance with rea l impac t o n achievin g OSHA' s aspiration s an d th e safet y an d health o f the peopl e o f the Unite d States. To see the reaction of these field workers, people who had worked in the system for 20 years , and no w for th e firs t time i t was almos t a s i f they themselve s ha d bee n reinvented. The y felt reinvigorated . The y told m e that thi s wa s why they ha d come to work as OSHA in the first place—to make a difference in how people worked, to make the workplace bette r an d safer, to save lives. Nelson Reyneri , former director of reinventio n at OSHA

What about Reengineering? Over th e pas t severa l decades , a numbe r o f performance enabler s hav e been advance d an d adopte d b y both larg e an d smal l companie s i n a n effort t o improve thei r performanc e and t o make themselves more competitive. The horizonta l organizatio n maximize s the gain s from man y of these enablers , suc h a s th e advance d us e o f informatio n technolog y t o

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provide computer-base d coordinatio n and communication , just-in-time inventory control, an d the like. It rests upon the broad shoulder s of such concepts a s reengineering, cross-functiona l teams, and high-involvement work systems . Of course, th e theor y and practic e o f horizontal organiza tions add insight s of their own, which will be evident from th e discussion of particula r organization s i n chapter s 2 and 5-8 , but i t i s significant to note tha t without its important antecedents, th e horizonta l organizatio n would neve r hav e evolved and commande d th e attentio n i t is receiving. Few proposals have had th e far-reaching effects tha t reengineering has had. In Th e Reengineering Revolution, Michael Hammer and Steve n Stan ton define reengineerin g a s "the fundamental rethinking an d radica l rede sign o f business processes to bring abou t dramati c improvements in performance."12 A key concept behin d th e horizonta l organizatio n a s well, performance improvemen t provides one o f the primar y means by which managers ca n measure th e succes s o f th e busines s transformation . I n reengineering processes , manager s see k immediat e an d dramati c im provement. Th e horizonta l model , however , look s t o improv e perfor mance an d to institutionaliz e th e capabilit y for continuin g thos e performance gain s while enhancin g th e qualit y of lif e fo r employees . And b y focusing o n th e relationshi p between strategy and organization , the horizontal organizatio n help s amplif y man y o f th e gain s mad e b y reengi neering b y making sure tha t performanc e improvement s are directe d a t leverage points tha t matter mos t to a company's competitive success. The horizontal model both utilizes reengineering t o change how processes work and support s the dramati c improvements that reengineerin g engenders. Bu t mor e t o th e point , i t explicitl y draws on reengineerin g within th e cor e proces s group t o achieve the value proposition t o guid e organization design . The horizonta l organization depend s o n th e reen gineered proces s t o hel p identif y wha t skills an organizatio n needs , fo r figuring ou t ho w t o us e individua l talents , an d fo r determinin g wh o should wor k togethe r o n teams . In neatl y synergisti c fashion, th e horizontal desig n i n tur n supplie s what th e organizatio n utilizin g reengineering needs t o scale the height s of success. It makes sure that the makeove r does not begi n an d end with merely a redesign o f processes bu t als o incorporates th e require d orga nizational changes , includin g developin g th e requisit e behavior s an d skills to make sure that performance improvement is continuous and on -

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going rather tha n just a one-shot occurrence . Researc h o n how to implement reengineering mos t effectively ha s stressed th e need to address concurrently al l elements o f organizatio n performanc e includin g structure , systems, skills , share d values , staff , style , an d strategy. 13 Th e horizonta l organization doe s just that . An additiona l distinguishin g characteristi c o f th e horizonta l organi zation i s that a t its inception, th e questio n tha t th e horizonta l organiza tion attempte d t o answe r was what the organizatio n o f the futur e migh t look lik e an d ho w i t woul d work . Thus , fro m th e outse t i t specificall y aligned al l seven of the factor s that affec t performanc e an d geare d the m toward deliverin g the valu e proposition. 14 I would be remiss, however, if I did not remind readers tha t companies adopting horizonta l structure s cannot possibly attain pea k operating performance unles s they have in place th e basi c requirements fo r an y highachieving company . Thes e includ e a demanding, aspirations-drive n senior leadership , a focu s o n ke y customers an d markets , a stron g perfor mance ethic , world-class capabilities i n a t least one dimensio n critica l t o delivering th e valu e proposition, an d othe r fundamental s suc h a s an effective balanc e shee t an d capita l structur e managemen t an d adequat e investment in researc h an d development. 15 Tha t i s a tall order . Bu t it is better t o know in advance that merely moving your people an d function s around wil l no t transfor m an ol d jalopy int o a Ferrari . All this may be s o familiar a s to seem obvious, but al l too ofte n i n th e race fo r th e mos t recen t cure , th e fundamental s ma y be overlooked . If that i s true o f your business, you must address thes e issues before—or a t least concurrently with—the adoption o f a horizontal approach .

Rethinking Downsizing While sometime s necessary , downsizing i s often o f limite d effectivenes s and don e thoughtlessly. 16 Give n the traum a suffere d b y those o n th e re ceiving end a s well as the tremendou s socia l cost s involved, 17 it is important t o conduc t an y downsizing activities as thoughtfully as possible an d avoid them when feasible. Indeed, companie s need t o exercise more creative thinkin g about alternative s t o downsizin g that the y can use. 18 Organizing horizontall y doe s no t mea n o r requir e downsizing . Yes , horizontal organization s reduc e bureaucrac y an d eliminat e non-valu e

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added work; but properl y conceived an d implemente d horizonta l organ izations develo p ne w role s fo r curren t an d futur e employee s a s well as new processes tha t provid e value to the custome r an d hel p support long term success . The horizonta l organizatio n doe s no t just reduc e bureau cracy an d non-valu e added work . Problems hav e arisen a t man y organizations tha t mak e drasti c cut s withou t thinkin g abou t wha t th e ne w organization shoul d loo k lik e an d withou t determining whic h skills, tal ents, an d asset s are neede d t o compet e effectivel y an d hel p assur e long range success . A horizontal framework, however, promotes ne w roles for employees that improv e their sens e o f worth, and i t develops new activities and processes that add value and deliver a winning value proposition . The employee s interviewe d for thi s boo k spea k i n glowin g terms of the ne w role s tha t the y pla y i n thei r horizonta l organizations . Man y of them no w serve as process owner s or member s o f teams responsibl e fo r identifying bes t practices , sharin g knowledg e an d skill s acros s th e orga nization,19 leadin g projects , supporting integratio n effort s wit h supplier s and customers , promotin g continuou s improvemen t an d proces s rede sign. Particularly disconcertin g abou t th e wave s o f downsizin g that hav e marked thi s decad e i s the remarkabl e thinnin g o f th e rank s o f middl e managers an d busines s professionals . Michae l Hamme r predicte d " a probable reductio n o f ove r 5 0 percen t i n th e numbe r o f peopl e with 'managerial'job titles." 20 To o much indiscriminat e cutting, however, has already sliced away valuable muscle along with the fat. Certain companie s have effectivel y forfeite d thei r abilit y to sustai n competitiv e advantag e because the y inadvertently o r unthinkingl y weeded ou t bot h th e bette r workers an d th e mid-leve l leadership necessar y to generat e chang e an d fuel futur e growth without thinking throug h wha t critical skill s ar e necessary for goin g forward.21 The horizonta l approach i s totally at odds with the quick-hit, wholesale slash-and-burn maneuvers that , b y their ver y nature, preclud e takin g th e time t o decide which personnel an d skil l sets are fundamenta l to achieving competitiv e advantag e an d long-ter m aspiration—le t alon e actively working to preserve an d replenis h thos e elements . On e o f the firs t step s in horizontal design, as a matter of fact, i s to figure ou t th e winning value proposition an d the n exactl y who an d wha t ar e neede d t o delive r tha t

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value proposition . The n th e designer s se t abou t developin g a clear , actionable pictur e o f how to proceed . While skills and role s may be different i n the horizonta l organization , leaders shoul d direc t thei r energ y to training curren t employee s to handle additiona l responsibilities . Thi s trainin g shoul d no t overloo k thos e people from othe r parts of the organization who can fill gaps in processes and expertis e tha t appea r elsewhere . A fundamental rule i n a horizontal makeover is that people should not be treated lik e disposable machinery . Employees who already have the skill s the compan y needs t o win in th e future shoul d b e retained , an d thos e wh o ar e willin g t o wor k t o gai n those skills should be supported with all the encouragement managemen t can muster . Of course, in som e situations external recruitin g wil l also be required. The emphasis on support and retraining speaks to the humane natur e of the horizonta l model. This new approach reflect s a desire t o reinstat e the socia l contract betwee n companies an d employee s that many observers believe ha s been severe d i n recen t corporat e dismemberments . Certainly people ca n stil l be le t g o i f they perform poorly o r i f they simply cannot adjus t t o a fresh approac h t o accomplishing th e wor k o f the or ganization, but companie s do hav e a responsibility to retrai n wher e possible an d t o tr y to fin d ne w opportunitie s fo r peopl e wh o mus t b e discharged. In term s o f leadership, suc h a philosophy instill s loyalty and groom s leaders wh o will mak e necessary accommodations t o implemen t neede d change. Bein g assured o f retention an d rewar d in th e ne w organization increases their courag e t o participate i n the revampin g and thei r willingness t o commi t t o th e transformation . Wha t i s more , sinc e long-ter m success ultimately depends o n institutionalizin g a new way of thinking i n the rank s o f management, companie s ca n mak e great stride s towar d assuring tha t outcom e b y rewarding thos e leader s who promote an d support th e chang e i n th e first place. It i s not enoug h just t o sa y that th e horizonta l mode l i s at odd s with mindless downsizing; in actuality , it ca n b e a platform for ne w growth. Many o f today' s mos t successful , fast-growin g companies, havin g or ganized horizontall y in whole o r i n part , ar e geare d t o successfull y execute strateg y and t o suppor t growth . They ar e attune d t o th e demand s

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of new technology and activel y work to keep employees up-to-date. Thes e cutting-edge companie s d o no t sa w off limb s without an y ide a o f what the surviving entity wants to be or should be, nor d o they operate without any understanding o f what types of skills and peopl e ar e necessar y to go forward. A problem typica l of, but certainl y not limite d to , a downsize d organization i s a seriou s mismatch o f skills . Constantly changin g technolog y demands constantl y upgrading skills. Companie s whose ranks have been thoughtlessly depleted ca n quickly find themselves short of the brainpower neede d t o mee t th e challenge . Th e multiskillin g expected an d pro moted i n th e horizontall y structured organization , however , more easil y accommodates a n environmen t tha t i s in flux .

Can Expertise Survive? Any mentio n o f multiskillin g o r cross-functiona l approache s inevitabl y raises th e questio n o f ho w functional or technica l expertis e ca n surviv e in suc h a setting. The answe r lies in the versatility of the horizonta l model. A s you wil l recal l fro m th e precedin g chapter , th e desig n doe s no t require a n either/o r choic e betwee n horizonta l an d vertical . A hybri d combination tha t draw s o n th e performanc e capabilitie s o f each easil y permits the retentio n o f a functional structure where technical expertis e is crucia l o r where a critical mas s is needed fo r economies o f scale. For example, a n insuranc e compan y might mak e cas e managers responsibl e for the end-to-en d customer-servic e process , whil e formin g dedicate d teams to handl e specialize d or technicall y difficult regulator y problems. Other approache s als o exist to help maintain technica l expertise. Bestpractice "diffusion teams " such as those at Motorola's Space Systems and Technology Grou p ca n help ensure tha t cross-functiona l teams are up to date o n th e lates t technologie s an d approaches ; the y als o provid e th e expertise an d bes t approaches fo r dealing wit h complex activities such as collaborating wit h supplier s an d customer s i n th e desig n o f products , marketing an d distributin g products , an d satisfyin g increasingl y discriminating customers. Specialists who are part of functional "pools" can provide needed expertise to cross-functional team s on an "as-needed" basis , and the n retur n t o the pool s t o refres h o r develo p ne w knowledge. On-

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line course s and training can help ensur e tha t teams are kept up to date on th e lates t technology and bes t practices. Networks ar e anothe r optio n fo r providin g expertis e tha t ca n b e quickly accessed—not just documentation bu t rea l peopl e wit h concrete experience handlin g simila r types of situations. Many companies already use best-practic e database s an d network s that includ e computerize d information categorize d according t o differen t kind s of challenges, a s well as online acces s to othe r peopl e wit h pertinent knowledge . Networking behavior also allows employees to work collaboratively to solve immediate problems, form a d hoc teams, or access the needed technica l knowledge, expertise, o r documents. In th e cas e o f OSHA, th e technica l challenge s i n th e fiel d wer e no t so dauntin g tha t peopl e neede d t o remai n divide d int o functiona l spe cialties. Rather, members of the cross-functional teams maintain requisite technical proficiency by attending conference s and trainin g sessions , accessing best-practice networks, and keeping up with the current technical literature. O f course , i n som e situation s technica l expertis e wil l b e s o challenging that highly specialized individuals must work on a n ongoin g basis alongsid e other s wh o ar e regularl y dealing wit h relate d technica l challenges. I n suc h situations , peopl e usuall y remain assigne d t o func tions (fo r example, a s we will se e i n chapte r 8 , Xero x ha s retaine d it s researchers i n vertical groups).

At Xerox, everybody up and down the line sees the post-installatio n survey s we ask our customers to complete. Eve n our research people see these responses , as well as those (the PhDs) who are designing and developing our products. Paul Allaire, CEO of the Xerox Corporation

Under such circumstances, people must remain in functions, but orient themselves not just t o the internal performanc e goals of functions but t o enabling/supporting th e performance of the core process groups and the company/organization a s a whole. Now they must learn to view themselves as "partners in process performance." The y will be evaluate d on ho w responsive they are to the needs of their internal customers, the core process groups: Do they give the processes what they need when they need it?

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In answe r to th e questio n o f whether technica l expertis e ca n surviv e in a horizontal organization , th e answe r is a resounding yes! Not only can it survive, but i t can als o thrive.

A Virtuous Circle Organizations tha t ar e performance-focuse d are th e one s tha t will lea d the way into the ne w millennium. These survivors will continue to provide meaningful work , and i n s o doing, the y will create what I like to think of as a "virtuous circle" : a n enriched environmen t that taps individual skills and creativit y to produc e eve r greater performanc e i n a n endles s round of progress an d productivity. But unles s companie s hav e bot h a pictur e o f th e ne w organizatio n and a well-thought-out, integrated theor y o f ho w it i s going t o work , it will b e frighteningl y eas y to retrea t t o th e familiar , t o th e mode l tha t worked in years past. Once people ar e sheltered fro m th e pett y tyrannies and tur f wars of th e vertica l culture, the y will fin d workin g horizontally to be liberating and enlivening . The nex t chapte r wil l discus s in greate r detai l th e desig n principle s behind th e horizontal organizatio n i n it s generic form. With those principles firmly in mind, you will begin t o se e how the generi c chart evolves into the actua l and distinctl y different image s of actual organizations discussed i n chapter s 5-8.

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THE HORIZONTAL OR GA NI ZATION EMPOWERS PEOPLE

HOW EMPLOYEES CONTROL THE COMPANY'S CORE PROCESSE S

Max Weber , th e nineteenth-centur y Germa n sociologis t renowne d fo r his stud y of socia l an d economi c organizations , cam e dow n foursquar e on th e sid e o f th e vertica l organizatio n heade d b y a singl e individual : "The monocrati c variet y o f bureaucracy, " Webe r wrote , i s "capabl e o f attaining th e highes t degre e o f efficienc y an d i s . . . th e mos t rationa l known mean s o f carrying ou t imperativ e contro l ove r huma n beings." 1 Weber's observatio n gre w naturally out o f hi s stud y of a rang e o f hier archical organizations , fro m politica l an d economi c institution s t o military forces t o ecclesiastica l orders . Nevertheless, his examinatio n was , by virtue o f it s plac e i n th e flo w o f history , rather limited : Few , if any , en terprises the n existe d tha t coul d offe r Webe r a n alternativ e t o th e tradi tional vertical organization. Weber's notions of bureaucracy, however, were innovative for hi s day. Whereas th e vas t majorit y o f hierarchies wer e built o n th e principle s o f nepotism, favoritism , eve n politica l corruption , Webe r propose d a bu reaucratic syste m comprisin g people who had prove n themselve s deserv-

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ing of authority and wh o had th e technica l expertise th e syste m needed to flourish. As organizations i n th e earl y part o f th e twentiet h century combined Weber's meritocracy with Taylor's principles of scientific management , a new organizationa l architectur e bega n t o tak e shape . Henr y Mintzberg calls this the "machine bureaucracy," a highly productive means of organizing and managin g that, a s previously discussed, ha s become th e domi nant model fo r organization s even in th e lat e twentiet h century. 2 In th e right situations, as mentioned previously , the machine bureaucracy offer s extraordinary efficienc y an d productivity . Characterize d b y inflexibilit y and slow to react to market forces, however, machine bureaucracies such as the one Henry Ford built cannot keep pace with the changes taking place today on a global scale. The horizontal organization, however, in which the emphasis shifts from to p dow n to focusing across at customers, from compliance with executive orders to meaningful participation i n the produc tion o f customer satisfaction, quality, and tea m excellence, is much more attuned to today's radically different busines s world. Part II I o f thi s book concentrate s o n showin g you ho w to adap t th e horizontal mode l t o fi t you r specifi c needs . T o la y the groundwor k for that transformation , thi s chapte r illustrates , so far a s possible, what th e new kin d o f organizatio n designe d aroun d cor e processe s look s like. I t uses generic chart s to represent a horizontally structured organization in general terms . A n organizatio n char t i s just a picture , o f course , an d cannot depic t th e skill s an d behavior s necessar y fo r organizationa l ef fectiveness. It should never be mistaken for the organizatio n itself . Despite its shortcomings and oversimplifications , it does serve a number of usefu l functions. B y examining thes e charts , for instance , you ca n ge t a better sense o f ho w som e o f th e ke y elements o f th e horizonta l approach , as outlined i n chapter 1 , fit together t o provide an actionable desig n for th e organization o f the future . Actually seeing th e desig n principle s a t work will hel p yo u t o dra w the char t tha t bes t describe s o r define s your own horizontally structured organization .

Why the Organization Chart? An organizatio n char t i s merely the visua l representation o f a n organi zation's features ; obviously , on e canno t reall y "see " th e interna l struc -

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ture o f a n enterprise . Bu t like a n X ray that show s the vertebra e o f th e spine or the body's skeletal system of joints and levers, the chart diagrams the various parts o f the organization and shows how they are interrelated , how individuals are grouped, and ho w tasks, authority, and responsibilit y are allocated . I t i s a useful too l fo r avoidin g confusio n an d fo r develop ing a share d understandin g o f the organizatio n amon g thos e wh o pop ulate it . But perhap s it s most interestin g an d usefu l featur e fo r organizatio n designers is the wa y it allows them t o play "what if"—that is, to problem solve on pape r b y trying out variou s structural permutation s an d peopl e placements. Fo r leader s seekin g t o transfor m thei r organization s b y adopting th e horizontal model, being able to work with a horizontal chart helps free thos e engage d i n organizatio n desig n fro m th e restriction s of the vertica l "template" tha t i s too ofte n "hard-wired " o n thei r subcon scious. No more do tal l authority structures with their multipl e reporting levels an d top-dow n decisio n makin g or functiona l department s hav e to predominate. No w leaders can begin t o visualize what a flatter, customer driven, team-based , empowere d organizatio n look s lik e and understan d how it might be structured . At th e sam e time, I must emphasize tha t th e horizonta l organization entails much more tha n a series of boxes and connecting lines on a piece of paper. Not al l of the 1 2 design principle s (outline d briefl y i n chapte r 1 an d discusse d i n greate r detai l i n chapter s 11-12 ) wil l b e visibl e i n a tangible wa y on th e chart . Fo r example , n o drawin g can sho w how empowered worker s exhibi t frontlin e problem-solvin g an d continuou s improvement skills , how they develop them , or ho w the whole organization is measured accordin g t o balance d performanc e objectives . The crucia l role tha t informatio n technolog y play s within a horizontal organizatio n is unchartable a s well. Be that as it may, certain structura l similarities will be apparent whether th e char t is a generic one, like the one s in thi s chapter, o r whether it is draw n t o illustrat e th e horizonta l organizatio n i n on e o f it s variou s incarnations, a s exemplified b y th e cas e studie s discusse d i n thi s book . The horizonta l organizatio n ca n potentially be applied : • Acros s more tha n on e company • A t the enterprise level , such as over an entire corporatio n

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• Acros s multiple business units within a corporatio n • Withi n an individual busines s uni t • Ove r a core proces s group within a business unit • A t the operating-unit leve l (say, a factory or office) withi n a business unit The cor e proces s group (CPG ) is, of course, the centerpiec e o f every horizontal organization , and i t is clearly visible on th e organizatio n chart (although th e reengineerin g o f processes and th e strateg y behind i t are largely invisible) . The CP G provide s th e architectura l framewor k tha t makes i t possibl e for a larg e organizatio n wit h potentiall y thousand s o f teams to work in a unified fashion. Without the concept of core processes, it i s virtually impossible t o coordinat e al l the activitie s that ar e require d to produce a product or service. Instead of departmentalizing people into functions, i t i s more logica l an d efficien t t o departmentaliz e the m int o core proces s groups . Core processe s tak e ra w material s (o r ra w dat a o r still-simmerin g ideas) an d tur n the m int o a n en d produc t o r servic e that has significan t value fo r a customer . A core proces s migh t includ e action s tha t rang e from procurin g neede d ra w materials, t o consultin g wit h supplier s an d customers o n new-produc t design , t o involvin g customer servic e repre sentatives in measuring how satisfied customer s are with the product. The overall core process, in other words, extends far beyond th e physica l limits of the conveyo r belt o r th e productio n room . I t reache s aroun d corners an d dow n corridors an d acros s floors. And i n man y organizations, the cor e proces s eve n extend s beyon d th e boundarie s o f th e physica l plant t o embrac e supplier s an d customer s in th e desig n an d marketin g of products an d services. Each organization's core processes are unique to that entity, of course, because they are designe d specificall y t o delive r the organization' s value proposition. Th e manufacture r of steel cases or the provide r o f financial services o r th e communication s gian t wil l eac h engag e peopl e i n th e unique an d not-so-uniqu e set s of activities required t o mak e its produc t or provid e it s service. Before yo u ca n begi n t o desig n your own organization an d for m formal organizationa l department s aroun d cor e processes , yo u mus t first

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determine what your core processes are. To do this, you have to start with a painstaking analysis of your objectives and your operations, a s described in chapter 9 . Many managers run into problems when attempting t o reengineer processe s because the y fail t o ask the har d question s about where they want the compan y to go, what businesses they want it to be in, what customers the y hope t o win, and wha t value propositio n the y can offe r to capture those customers. The answer s are not alway s so obvious. Stories are legio n abou t companie s tha t hav e jumped ont o th e Interne t band wagon befor e doin g th e necessar y homework an d strateg y setting , only to discove r too late tha t the y were not adequatel y prepared . A thorough analysi s of the operation s o f most any large organization , public or private, will uncover probably no more tha n thre e o r four cor e processes that capture th e essenc e of the business, its strategic objectives, and the customer segments it seeks to attract. Although the details of one company's core processes differ i n important way s from thos e of anothe r company (eve n in th e sam e industry) , certain primar y features of processes themselves can b e isolate d an d describe d t o illustrat e ho w a horizontal organization is charted an d ho w the wor k flows.

A Generic Picture of the Horizontal Organization Facing stif f opposition , eithe r imagine d o r real , a change-managemen t team ma y be tempte d t o tak e what seems to b e th e easy , nonconfrontational approac h t o transformin g a company into a horizonta l organization. Why not simpl y turn th e traditiona l stovepip e functions or depart ments (finance , R&D , and marketing ) o n thei r sides ? Thi s i s analogous to diggin g a tunnel in hope s o f striking oil. The proble m i s that thi s socalled solution is at odds with the concept of core process groups, without which ther e ca n b e n o horizonta l transformation . I t fail s t o tak e int o account tha t core process groups are typicall y flatter than function s and actually cut across multiple functions, requiring a team o r team s of people wit h cross-disciplinar y skills in orde r t o reac h th e end-of-proces s objective. Fo r example , a compan y wishing to delive r th e highest-quality audio produc t t o it s customers a t a competitiv e price mus t bring R&D experts into direct contact with suppliers, customers, manufacturing personnel, an d other s i n th e factor y t o determin e th e mos t cost-effectiv e means of assembling and testin g product .

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In place of (or, in some cases, in addition to ) th e departmentalizatio n found in the vertical hierarchy, groups or teams of employees representing various functions assume responsibility in a horizontal organizatio n for an entire process from its beginning point to its end result (or, in cases where the proces s i s especially complex, for a selection o f steps involved in tha t process). A core process group ma y comprise case managers, members of a singl e team , o r eve n hundred s o f teams . A typical core proces s grou p might include managers and staff from finance, R&D, manufacturing, marketing, and custome r service , but thei r overal l objective is no longer con fined t o the narrow parameters of their former functions. For example , theoreticall y minde d inventor s fro m th e R& D department migh t mov e ou t o f thei r closed-doo r office s t o join fello w tea m members o n th e sho p floo r wher e th e manufacturin g occur s o r i n th e laboratory where a new product i s assembled and tested. There the y meet others whose expertise ma y lie in creating great marketing campaigns, or in dealing effectivel y wit h customers, o r i n searching for th e leas t expensive, most reliable suppliers . Together the y become member s of the sam e organization department an d are held jointly responsible for making sure that th e en d produc t achieve s and maintain s the characteristic s o f cost, quality, an d timelines s tha t th e compan y ha s se t fo r it s production . I n this theoretical example , on e can see how the various design principles— core proces s grouping , teaming , performance-base d measurement , em powerment, an d cooperativ e culture—com e togethe r i n th e horizonta l organization. The objectiv e in charting the organizatio n is to group people together in cross-disciplinar y ways so as to achiev e the overal l goals of the process . That groupin g canno t b e dictate d b y convenience o f location o r b y individual personalities; instead, leaders must try to group people accordin g to th e exac t mixtur e o f skill s necessar y to realiz e th e primar y objectives of th e cor e proces s an d delive r th e organization' s valu e proposition . Fig. 4.1 depicts a core proces s grou p that cuts throug h severa l of th e traditional function s of a vertical hierarchy. Some departments, lik e Strategy or Researc h an d Development , a s indicated i n Fig. 4.1, that ar e no t incorporated int o cor e proces s group s an d remai n vertical , ar e stil l charged with working as "partners in process." This relationship between the vertical and horizontal parts of a hybrid organization canno t be charted, bu t i t is addressed i n th e horizonta l desig n principles .

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Fig. 4.1 A

Generic Horizontal Organization wit h One Core Process Group

Note that a t the to p o f the organizationa l char t in Fig. 4.1, there ar e still a few layers of vertical authority, here assigned t o genera l managers. These position s o f high-leve l hierarchical authority ar e hel d b y peopl e who guide th e organization's operations, determin e overal l performance goals for multipl e cor e process group s wher e applicabl e (a s depicted i n Fig. 4.2), and se t the company' s future strateg y for attainin g thos e goals. What is more, thes e manager s must mak e sure tha t th e cor e proces s groups are not operating a t cross-purposes and that the selected processes are indee d th e one s tha t ar e neede d t o produc e th e produc t o r service in a way that will satisfy th e desire d customer . In addition , a s leaders well know, som e day-to-da y responsibilities d o no t alway s len d themselve s to the tea m approach. Rewardin g or disciplining people fo r their behavior, for example , are dutie s ofte n bes t handled b y an individua l rathe r tha n by committee. And les t we forget, somebody has t o sig n the checks ! The thir d tie r o f th e generi c char t show n in Fig. 4.1, however, illus-

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Fig. 4.2 A Generic Horizontal Organization with Multiple Core Proces s Groups

trates a majo r departur e fro m a traditiona l hierarchy . I t depict s wha t traditionally woul d b e anothe r leve l of managerial supervision , but no w these managers ar e assigned, as indicated b y the thre e arrows , to a flatter position: tha t is , they becom e member s o f th e proces s owne r team . I n this position, the y are slightl y above tha t o f the cor e proces s group itself (their elevated position i s suggested by the 45 ° line extending t o the cor e process group). Although the y are "owners" of the process, in many cases they als o serv e a s member s o f th e cor e proces s group . Tha t is , thes e process owner s repor t t o th e to p managers , bu t join frontlin e workers from th e various departments t o form th e thre e teams that comprise the core proces s group . Eac h team take s responsibility for achievin g a set of performance objective s critical to th e cor e process . The generi c chart s i n Figs . 4.1 and 4. 2 assume tha t th e organizatio n in questio n operate s 2 4 hours a da y and employ s three shifts , o r teams , of workers . Peopl e tak e position s o n th e tea m correspondin g t o thei r shift. A t th e beginnin g o f th e firs t shift , th e proces s owner s mee t wit h members of Team 1 to set priorities for production, determine availability of resources, an d anticipat e problem s tha t ma y arise durin g th e day . A t 3:00 P.M., Team 2 takes over the cor e process group's work , accepting the set o f priorities establishe d b y the owner s or alterin g th e schedul e i f an emergency orde r i s received . Thi s secon d tea m hand s of f it s wor k t o Team 3 at 11:00 P.M. , which continues th e work of the proces s and order s parts o r ra w materials a s necessar y t o prepar e th e wa y for Tea m 1 t o resume th e wor k th e nex t morning . Representative s from Tea m 3 the n meet with the process owners to update the progress on meeting the core process group's objectives . I haste n t o poin t ou t tha t th e membershi p o f thes e team s i s not ab solutely fixed. People ca n mov e on an d of f a team when thei r expertis e is required t o reach performance objectives or when other team members are absent . I n som e organization s employee s ma y rotat e fro m shif t t o shift, agai n a s needs dictat e o r a s workers wish t o var y thei r schedules ; however, in mos t horizontal organization s it may be mor e reasonabl e t o ask frontline employees to move from tea m to team within the sam e shift . For special projects or when to p manager s determine tha t a new performance objectiv e is needed, th e team s can b e radically reconfigured. Furthermore, i n organizations with thousand s of employees, multiple linked

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teams can be assigned within each shif t t o coordinate th e work of a single core process . Vestiges of the vertica l organizatio n ar e suggeste d i n the dotte d lines of Fig . 4.1 tha t exten d fro m th e manageria l position s t o th e frontlin e workers. In the traditional vertical chart (se e Fig. 1.1), those workers were represented b y the for k tine s extending belo w mid- and low-leve l managerial positions, but i n the generi c chart, the y are mer e shadows of their former selves . (Fig . 4.1 indicates th e incorporatio n o f three representa tive employee s int o Tea m 1 , bu t i t shoul d b e understoo d tha t front line worker s can becom e member s o f any team tha t need s thei r specia l skills or expertise. ) Cor e process grouping mor e full y utilizes these front line worker s a s tea m player s wh o ar e muc h les s narrowl y focused o n internal functions . In th e moder n horizontal organization , with its emphasis on empowerment , multiskilling , and evaluatio n base d o n processengendered performanc e goals , these peopl e d o work tha t i s more grat ifying an d mor e clearl y directe d t o achievin g a valu e propositio n an d winning customers.

An Actionable Alternative The initia l significance of th e generi c horizonta l char t i s evident in th e way i t provide s a n actionabl e alternativ e t o wha t most o f u s hav e lon g believed was the onl y way to organiz e a n enterprise . With late-twentiethcentury theorists suggesting all sorts of organizational schemata but with out providin g a reasonable approac h a s to ho w they should actuall y be put i n place , to o many leader s hav e bee n i n th e dar k a s t o wh o goe s where and , even mor e important , wh y this o r tha t arrangemen t i s th e best. Eventually , without a visua l clue a s t o ho w th e piece s o f th e ne w organization shoul d fi t together , the y have ended u p retreatin g bac k to the ol d vertical standby . This ha s been a n actua l impedimen t to leaders who wis h t o transfor m thei r organization , bu t wh o lac k a n actionabl e picture o f wha t th e transforme d organizatio n migh t actuall y look like . Among th e man y virtues of the horizonta l organizationa l char t i s that it finally shows leader s ho w to lin k peopl e t o cross-functiona l process ob jectives rather tha n t o interna l functiona l goals and ho w to use empowered, multidisciplinary work teams effectively . Organizing a compan y horizontally by core proces s group s help s di-

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rect informatio n t o th e peopl e wh o need i t a t th e tim e the y must have it. At Team 1' s daily meeting, for example, manager s and employee s map out precisel y what they will need t o mee t th e group' s objective s for tha t day, the upcoming week, or the next thre e months . Information—in substantial measur e provide d b y appropriately designe d informatio n tech nology systems—about availability of raw materials, suppliers' inventories , and customers ' specifi c request s remains in ful l vie w before all members of the cor e proces s group. Wherea s such informatio n ha s a tendenc y in a vertica l hierarchy t o becom e distorte d (o r t o fal l throug h th e crack s completely) a s it passes from on e leve l to another, thi s does not happe n in a horizontal organization . I n mor e sophisticate d version s of the hori zontal approach , a s we will se e in chapter s 5-8 , suppliers and customer s actually participate o n some teams, working hand in hand with employees to design products tha t mee t their specifi c needs . Informatio n from suppliers and th e customer s could hardl y be mor e direc t o r pertinent . A horizonta l organizatio n als o overcome s problem s relate d t o frag mentation. Whe n traditiona l hierarchie s promot e interna l functiona l goals and rewar d employees for individual achievement, there i s no guarantee tha t thos e departmenta l goal s will ad d u p t o a product o r service that actuall y deliver s a valu e propositio n and meet s customers ' needs . More than likely, each stovepipe will simply blow its own smoke. And what good is it to redesign work processes in a cross-functional manner , only to suboptimize the performance improvements possible? This happens when people remai n departmentalized i n functions, an d handoff s an d conflict ing objectives remain betwee n the differen t functiona l departments. Because th e horizonta l approac h o f organizin g aroun d processe s brings togethe r peopl e fro m variou s departments or functions, fragmentation become s muc h les s of a threa t t o a company' s unit y of purpose . In fact , whe n to p manager s se t directio n an d coordinat e th e effort s o f multiple cor e proces s groups, th e fragmentatio n s o familiar i n vertica l hierarchies disappears . Th e newfoun d unity of purpose, i n turn , reduce s coordination costs . A horizontal organizatio n als o avoid s th e cost s tha t inevitably accompany an excessiv e number o f handoffs, whic h pass work or parts of products from on e departmen t t o another. Withou t the nee d to re-do , re-format , re-train , an d re-program , th e compan y ca n realiz e significant saving s in shor t order . Perhaps mos t important, when empowered employee s have the infor-

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mation, training , an d authorit y to make process decisions , the y begin t o see that thei r inpu t ha s real results, that they are part of a company-wide effort t o achieve articulated goals , and tha t they are responsible for building qualit y into th e product s an d service s they offe r customers . Job sat isfaction necessaril y improves when peopl e understan d wha t value thei r contributions hav e in overal l performance. Although i t does not sho w up o n a n organization chart , this improvement o f the qualit y of employees' lives is of no smal l significance. Several years ago , I spok e wit h a 62-year-ol d grandmother wh o worke d o n a n empowered tea m wit h what was then th e Marti n Mariett a Astronautics Group (no w part o f the Lockhee d Corporation) . Whe n aske d whethe r the ne w system had change d anything , sh e pu t i t thi s way: "Yes, first of all, we're winning. Second, for th e first time in my life, I'v e got meaning and I participate. My input means something. I make a contribution an d have sa y over what is done." One tea m member, an employee of the Genera l Electric plant in Fort Edwards, New York, responded thi s way to the sam e question: "Yes, " sh e said, " I n o longe r g o home fro m wor k crying." Because i t offer s mor e peopl e th e opportunit y t o shar e th e responsi bility for getting work done an d achievin g the value proposition, th e hor izontal organizatio n answer s on e o f th e age-ol d problem s inheren t i n Weber's machin e bureaucracy , especiall y when imbued wit h Taylor's scientific managemen t principles . Tha t mode l fo r organizationa l structur e assumed tha t mos t frontlin e worker s ha d nothin g t o contribut e (othe r than thei r back-breakin g labor ) an d woul d tak e n o interes t i n makin g decisions or judgments abou t a business process, a customer's needs , o r a value proposition.3 The horizontal organization, in contrast, abhors the vacuum of this assumption. I t presents an argument, i n real-life situations, for worke r empowermen t throug h share d information , direc t contac t with supplier s an d customers , involvemen t in decision-makin g authori ties, self-supervision , and accountability . This empowerment, o f course, represents a major departure fro m th e way we used to conduct business. Accordingly, core process groups within many horizontal organizations experienc e regula r change s in personne l and i n performanc e objectives . I t shoul d b e expecte d tha t manager s would reorder prioritie s or assign new ones when the company' s markets or product s or competitio n changes . They ma y then reassig n individua l

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workers who hav e th e specia l skill s neede d t o mee t th e ne w objectives, or they may bring new members onto the team if customers change product specification s or supplier s canno t mee t delivery deadlines. Although ther e i s some danger tha t cor e proces s groups will become insular, manager s o r proces s owner s can kee p rotatin g personne l fro m one tea m t o anothe r t o preven t it . Workers gain a broader perspective from multiskilling , working collaboratively with other s insid e th e orga nization a s well a s with customer s and suppliers . The y com e t o under stand bette r th e company' s objectives, as well as those o f core processes, and the y develop skill s in frontlin e problem solving . Thus, the y become more adaptabl e an d read y to respond t o changin g conditions . Trainin g employees to acquire ne w skills, the n givin g them a chance t o use thes e skills in creating, building, testing, and marketin g new products can also help energiz e the m t o achieve their bes t results. In sum , the horizonta l organizatio n integrate s the bes t effort s o f numerous people o n cross-functiona l teams. Centerin g thei r skill s an d ex pertise o n a singl e cor e process , thes e employee s take greate r contro l over tha t proces s an d th e produc t the y create. B y structuring th e orga nization around a small number of integrated cor e processes, those three or four cor e process managers help eliminate barriers and handoffs while providing the space and mean s for frontline people to engage in creative problem-solving. Thu s empowered , thos e worker s willingly accep t mor e responsibility fo r improvin g proces s objective s and buildin g int o thei r products the highes t possible leve l of quality. If Webe r i s correct i n hi s assertio n tha t th e monocrati c hierarch y is the mos t efficien t structur e fo r controlling people, th e obvers e has greate r validity fo r ou r times : The horizonta l organizatio n i s the mos t efficien t means for peopk t o control the product s o f the organization . As we will see in th e fou r organizations examined i n chapter s 5-8, when th e righ t employees tak e contro l o f a company' s core processes , th e outcom e i s an extraordinary increase in efficiency , energy , and involvement.

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Fig, 5.1 Motorola' s Space and Systems Technolog y Group (SSTG) — Supply Managemen t Organizatio n

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ORGANIZING AROUND A CORE PROCESS THE SUPPLY MANAGEMEN T ORGANIZATION OF MOTOROLA' S SPACE AND SYSTEM S TECHNOLOG Y GROU P

When astronau t Nei l Armstrong relayed hi s first words from th e moo n in 1969 , h e use d a Motorola-designe d an d -manufacture d transponder . That transmissio n cam e throug h with remarkabl y littl e stati c despit e its having t o trave l som e 200,00 0 miles . Twent y years later , however , th e Motorola Space and System s Technology Group (SSTG) might just as well have considere d communicatin g fro m th e moon , give n th e amoun t o f static that interrupted th e interchange betwee n employees, suppliers, and customers. Vertically organized, th e SST G was too fragmente d an d inef ficient i n it s procurement o f supplies. SSTG is one o f four businesses within Motorola's Communicatio n enterprise whic h also include s paging, land-mobil e product s (e.g. , radios), and cellula r phones. Th e group produce s high-en d satellite s for telecommunications and dat a managemen t customers , as well a s test equipmen t for communication s product s suc h a s cellular radio s an d telephones . I t is als o a majo r militar y supplier o f tactica l radio s an d secur e products ,

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and it s communications systems division specializes in battlefield imagery. Besides th e U.S . Department o f Defens e an d NASA , Motorol a SSTG serves various commercial users including th e Iridiu m LLC and th e Raytheon Company . Prior to the 1989-199 0 redesign o f the suppl y management operation, procuring material s within SSTG—then known as the Governmen t Electronics Grou p (GEG)—wa s a complicated, predominantl y vertical, functionally divide d affair . Som e 1 2 departments i n variou s separate group s within GE G were each engaged i n locating suppliers, taking bids, obtaining supplies , an d ensurin g quality . Thi s fragmentatio n resulte d i n a n enormous an d inefficien t bureaucracy , makin g a tas k a s simpl e a s th e selection o f a supplie r fo r a ne w produc t a complicate d an d time consuming undertakin g tha t require d th e involvemen t and approva l of many different departmen t heads . Moreover, because th e entir e group was separated b y function, it s various department s an d division s seldom ha d commo n goals . I f th e engi neering departmen t designe d a n electrica l part, fo r example , it was not required t o mak e sur e tha t a supplie r coul d actuall y produce th e par t efficiently an d wit h hig h quality . Another departmen t assume d tha t re sponsibility. Qualit y engineers wer e expecte d t o polic e operation s an d intercept bad parts before they got to the production floor—no t solve the problems, min d you, just find them! Onc e found , thos e problems coul d be analyze d for roo t causes , which Motorola worker s could correc t an d prevent fro m reoccurring . Buyers too k responsibility for obtainin g specifie d supplie s in th e correct quantit y at th e lowes t possible price . Lookin g "upward" a t supervisors an d departmen t manager s rathe r tha n "out " t o customers , thos e buyers had littl e concern fo r issue s of quality and timeliness . By the sam e token, desig n engineer s wer e obligate d onl y t o suppl y the desig n o f a new product. Whether th e compan y could ge t needed part s at the righ t time o r th e righ t price o r whether the part s required fo r a design would themselves caus e qualit y o r manufacturin g problems rarely , if ever , en tered thei r thinking . There wa s no cross-functiona l responsibility or op timization o f cross-functiona l objectives, no sharin g o f skill s o r perspec tives, an d littl e concer n anywher e for ho w individual functiona l actions would affec t eithe r upstrea m o r downstrea m effort s t o delive r th e value

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proposition. I n short , n o on e wa s really responsible fo r overal l perfor mance. The old supply procurement approac h wa s mired in hierarchy. A decision or order would filter dow n from th e group's genera l manage r t o th e divisional genera l manage r t o th e operation s manage r t o th e material s manager to the section manager, an d so on down the ladder t o the lowest buyer level—seve n to nin e level s overall. Thi s organizationa l hierarch y made it especially difficult for frontline employees to voice their opinion s and suggestions , or t o act in real-time t o solve problems. Seve n hundre d workers performed variou s supply management tasks , but coherenc e an d cross-functional teamwor k wer e virtuall y nonexistent . No t surprisingly , the communicatio n line s between the suppl y management organizatio n and it s suppliers crackle d with static . Something ha d t o b e done .

The SSTG'S Value Proposition The firs t ste p was for Motorol a t o determin e wher e it wanted th e grou p to go , what it wanted t o offe r customers—tha t is, the divisio n needed t o define it s valu e proposition . Afte r analyzin g it s strengths , weaknesses, and long-term goals , the company concluded tha t it had a "commitmen t to emplo y leading-edg e technolog y t o provid e tota l custome r solution s with th e highes t possible quality , reliability, and spee d t o market"—an d to d o tha t b y fully integratin g it s suppliers an d subcontractor s int o th e process. Wit h this value proposition clearl y spelled out , Motorola identi fied supply management a s a core operating proces s within the group — that is, this process was critical to providing th e desire d valu e to customers. Takin g suppl y managemen t horizonta l b y viewing it a s a n end-to end, cross-functiona l process an d designin g a ne w organization aroun d it seemed lik e the bes t way to achiev e the company' s goals. "Ownership" o f this process is assigned t o a team of four commodity process and technolog y managers headed b y Larry Burleson, a vice pres ident o f SSTG and th e directo r o f operations an d suppl y chain manage ment. Th e actua l responsibilit y for carryin g ou t th e end-to-en d work — including suppl y management—of the newl y integrated proces s an d fo r meeting its time, cost, and qualit y objectives is vested in commodity teams that report to th e tea m o f process owners . In th e Motorol a SST G supply

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management organization , thes e commodit y teams comprise purchasin g agents, buyers, supplier managers , an d variou s types of engineers—commodity, component , product , quality , and s o on. The team s are not just groups o f people who work side by side on th e same shift ; rathe r the y are highl y empowered employee s who receive th e necessary internal informatio n (vi a team meeting s and onlin e sharin g of project dat a an d knowledge ) and, most important, hav e the authorit y to make timely decisions as to which purchases they should mak e and which suppliers ca n provid e th e mos t appropriat e components . T o reac h thi s level o f empowerment , suppl y managemen t employee s are encourage d to acquire multiple skills through Motorol a in-house training sessions and actual cours e wor k a t Motorol a University . This kin d o f organizationa l support help s ensure tha t employees have the skill s to improve their performance an d th e abilit y t o delive r th e all-importan t valu e propositio n more effectively . Aptly illustrating th e powe r an d promis e o f this integrated approac h is a real-lif e exampl e i n whic h a proble m wit h fault y part s wa s spotte d and correcte d b y an empowere d team . Alerte d t o a proble m indicate d by rising defect rates, the suppl y management team s went about systematically searching fo r the roo t causes. As Cindi Wong, a purchasing agen t with th e Motorola suppl y managemen t electromechanica l commodit y team, recount s it , investigator s discovere d part s wit h ben t leads , which rendered the m useless . I n th e ensuin g root-caus e analysis , a Motorol a components engineer led th e suppl y managemen t team i n determining that th e culpri t was the supplier' s packagin g process . Under th e old dispensation, Motorola employees would have come up against familia r barrier s tha t frustrat e communications wit h suppliers . With the ne w horizontal approach , however , in which teams of suppliers work jointly wit h th e commodit y team s a t a Motorol a facility , man y of those barrier s fall , an d team s ar e abl e t o correc t defect s quickly and ef ficiently. In thi s particular event , the Motorol a team devised a new way to package the delicat e part—complete with a drawing of what type of packaging should have been use d and eve n how the supplier shoul d hav e positioned the par t i n th e bo x i n orde r t o ensur e it s saf e shipment . Delighte d t o receive thi s exper t help , th e supplie r foun d tha t a ver y costl y proble m was resolve d quickl y an d efficientl y becaus e th e multiskille d Motorol a

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team di d no t nee d t o wade through multipl e layers of administrative approval befor e i t coul d act . Even better, th e suppl y management organi zation's defec t rate went down an d th e grou p mad e goo d o n th e valu e proposition i t promised it s customers . This packagin g solutio n illustrate s a problem-solvin g approac h t o working with a supplier in order to enhance th e value proposition, saving customers bot h tim e an d mone y the y woul d hav e spen t i n repair s o r replacements. Empowerin g SSTG employees with control o f th e suppl y management proces s proves to be muc h more tha n payin g lip service to fashionable trends and persnickety customers. In the supply management organization o f th e Spac e an d System s Technology Group , th e shif t t o the horizontal organization represent s a significant rearrangement o f the business landscape .

Organizing a Core Process Horizontally Fig. 5.1 at the beginnin g o f this chapter present s a schematic view of the supply management organization's new horizontal structure. Managers of various commodity teams (e.g. , electronic components and assembly , mechanical/electromechanical, an d softwar e an d system s integration) combine force s wit h managers o f production t o streamlin e standar d off-the shelf purchases and engineering . The y coordinate th e activitie s and carry out th e step s of the end-to-en d suppl y management cor e process . Thes e commodity teams—alon g with teams for streamlin e purchasing , systems and software , an d operation s support—ar e arraye d beneat h th e proces s owner team , which comprises vice presiden t an d directo r o f operations and suppl y chain managemen t Burleso n and th e thre e commodit y managers. "Our overal l strategy is to take our interna l capabilitie s o r competencies and ad d the m togethe r with the cor e competencie s o f our supplier s for competitiv e advantag e an d differentiation, " explain s Burleson . "I n order t o win customers, we try to provide the highest quality at the lowest total cost , wit h th e adde d valu e bein g ou r problem-solvin g capabilities. That's where we stand out, and where this horizontal structure most helps us." To prepar e employee s for cross-functiona l decision makin g and em powered problem solving , Motorola gives each o f its teams a tool kit that

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includes th e Ishikaw a "fish-bone" diagrams , an d i t train s the m i n area s such as cost-risk assessment, setting objectives, and problem-solving methodologies. Team members and leaders alike are required t o take 40 hours of training a year. Classes range from "Workforc e Diversity," which everyone takes , to "Manage r o f Managers." Instructio n run s th e gamu t fro m technology t o strateg y to interpersona l relations , an d som e classes such as Pro-Engineer ar e availabl e on CD-ROM.

Knowing ho w to get people to speak instead of listen t o you is very important. You need to get that two-way conversation going. Larry Burleson, SSTG vice president and director of operations and supply chain managemen t

The compan y put s suc h emphasi s o n cross-trainin g tha t eve n nonengineer type s such as purchasing agent s and suppl y managers underg o technical instruction . Givin g those employee s a better understandin g o f the company' s high-tech product s allows them t o take a more activ e part in issu e resolutio n (eve n i f the y d o no t completel y understan d al l th e scientific an d mechanica l intricacies of a particular product) . Fig. 5. 1 suggest s how th e ne w horizontal desig n ha s dramaticall y re duced the inefficiency o f the old hierarchy. Organizing around th e supply management process, implementing cross-functional work flows, and vesting decisio n makin g i n empowere d team s ar e directl y responsibl e fo r paring eigh t o r nin e managerial level s down to three. Now when an empowered Motorol a supply management tea m need s a supplier o r ha s to change supplier s fo r a n existin g product , i t ca n g o ahead o n it s own to find one . Tea m member s communicat e freel y wit h developmen t an d quality engineers, visi t various suppliers, the n mak e thei r decisio n base d on th e first-han d information . Even thei r ow n team manage r nee d no t be informe d until afte r a change i s made. In th e popula r imagination , "freedom " connote s th e absenc e o f responsibility. A t Motorola, however , the suppl y management team s demonstrate tha t the revers e hold s true : Increased freedom to act brings with it adde d responsibilit y an d accountability . Equippe d wit h th e informa tion, training , authority , an d motivatio n tha t distinguis h tru e empower-

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ment fro m merel y symboli c sanction, th e Motorol a team s are evaluate d on ho w well they are usin g thos e tool s to achiev e proces s objective s an d continually improv e thei r performance . In orde r t o monitor ho w well its actions suppor t SSTG' s overall strategy, eac h tea m continuall y receive s informatio n tha t track s it s perfor mance alon g a number o f dimensions critica l to success in delivering th e value proposition. Tracke d daily , weekly, or monthly, a s the cas e may be, those measure s include defec t rates , deliver y requirements (on-tim e de liveries) , cycle time , an d costs . Beneath th e goal s appears a roster o f organizational imperatives—strategie s an d specifi c action s tha t Motorol a needs t o accomplish by predetermined completio n dates . The ne w horizontal structur e reward s team s tha t mee t thos e perfor mance imperative s helpin g t o guarante e th e hig h qualit y o f Motorol a products. Tea m member s attribute muc h of their personal growth , not to mention merit raises and promotions, to evaluations that they receive from process owners and other managers each quarter. In addition, annual peer evaluations point out in nonthreatening way s how teams members can improve both thei r own work and th e products the y make. Evaluations from supervisors an d peer s focu s o n overal l tea m performanc e goal s an d o n what individual member s ar e doing t o meet them. An employee working on a software commodit y team migh t be evaluated , for example , o n how well the entire tea m writes up a procedure and develops metrics for rating software suppliers , as well as on ho w effectively h e o r she personally works with suppliers an d other tea m members. The focu s is always on enhancin g personal growt h and development , as well as specific individual behaviors deemed importan t t o th e team' s hig h leve l o f performance .

Working on a team allows m e to draw resources together and focus on the precis e task a t hand . I'v e becom e muc h mor e time-conscious an d efficient . The ne w horizontal organizatio n i s much les s bureaucrati c .. . I have a greater sens e that I can control m y own destiny . Brett Traube, supplie r manager o f the electrical commodit y team

More efficien t wor k habits enhanc e employees ' sens e of personal an d team accomplishment , a centra l featur e o f th e horizonta l organization .

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As a n adde d benefit , manager s ca n no w reallocate tim e an d resource s formerly spent on supervision. That is not to say that management canno t or wil l no t interven e i f team performanc e goe s of f track or i f other per formance barrier s arise . But now the self-directe d team s assume many of the forme r managerial tasks : They fix their ow n work schedules, evaluate their peers , an d se t thei r ow n performance goals . Managemen t is the n freed u p t o pursue othe r activitie s that ad d value such as improving processes, setting strategy, and understandin g custome r needs . Each one of us can use the skills that we have rather than working in a micromanaged environment. We ca n flow in our ideas of how to improve a certain ste p or process, then actuall y hav e a chance t o implement thos e idea s int o the process . Cindi Wong, purchasing agen t wit h the electromechanical commodit y tea m

Suppliers Are Part of the Process A joint effor t betwee n the suppl y management organizatio n an d it s suppliers a t th e earl y stage s o f desig n an d productio n inevitabl y improves quality, performance , an d custome r satisfaction . Anothe r virtu e o f th e horizontal structur e i s that i t enable s th e suppl y management organiza tion t o involv e supplier s directl y i n cor e processes . Thi s relationshi p is illustrated i n Fig. 5.1 by the dotte d lin e tha t joins joint Motorola-supplier problem-solving teams, product engineers , commodit y teams, and majo r subcontractor teams : All four wor k togethe r o n th e suppl y management core process , maintainin g end-to-en d contro l ove r th e variou s segment s of that proces s an d ensurin g it s quality. Chosen supplier s wor k directl y wit h Motorol a employee s an d mee t face-to-face wit h en d user s o r intermediat e customers , tacklin g produc tion issue s suc h a s improvin g cycl e tim e an d devisin g mor e coheren t plans to manage risk . Motorola representative s explai n ever y facet o f th e company's requirement s an d ofte n sen d "qualit y notes " t o suppliers— messages on purchase order s tha t aler t supplier s t o points in the proces s where they might need t o handle parts with particular sensitivit y or schedule a n inspectio n wit h Motorol a before completio n o f a project.

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In th e are a o f design , informatio n technolog y system s allow a Motorola tea m t o e-mai l a desig n databas e directl y to a supplie r fo r review. Within a matte r o f hours—not week s as would have been th e cas e only five years ago—th e supplier' s change s ca n b e returne d an d th e desig n updated accordingly . Th e interchang e give s supplier s a bette r under standing of the manufacturing process and allow s them to plan their own operations wit h an ey e toward accommodating Motorola' s future needs . Every month, Motorol a sends eac h primar y supplier a summar y documenting metric s dating bac k a s far a s one year . In addition , th e com pany evaluate s eac h supplier' s qualit y (i n term s o f defective parts pe r million an d rate s eac h accordin g t o deliver y criteria fo r th e 12-mont h period. Motorol a and it s suppliers reach mutua l agreemen t o n goal s for quality, price , an d design , an d thos e goal s become a part o f Motorola's continuous improvement process, which it calls "Six Sigma." 1 Now widely adapted by companies o f every stripe, Six Sigma has become synonymous with th e mos t exacting standard s of quality that ar e practical and achievable. Suc h a n assessmen t o f supplie r performanc e enable s Motorol a SSTG an d it s suppliers t o integrat e thei r problem-solvin g capabilitie s t o track ho w effectivel y the y ar e meetin g objectives , then t o develo p way s they can work collaboratively to improve their collectiv e performance. The compan y disseminate s thos e evaluation s eac h mont h t o ever y team i n th e suppl y managemen t cor e proces s group , notin g anomalie s and assignin g a team's purchasing agen t and commodit y engineer t o investigate an y problems. "Th e pla n i s developed wit h suppliers , an d w e have buy-i n fro m the m eac h ste p o f th e way, " explain s Bret t Traube , supplier manager for the electrical commodity team. "Together, we study root cause s o f a potentia l problem . I s it a softwar e problem ? I s it a tes t problem that' s reducing th e yield? Are the test s incorrect? The situation s vary, bu t th e focu s i s alway s o n identifyin g opportunities fo r improve ment." Motorola's suppliers provide suc h high-tec h part s as semiconductors, printed wirin g boards, microelectronics , capacitors , and resistors—components tha t chang e rapidl y as technology makes new advances. Merely trying t o keep u p wit h thos e change s requires a tea m commitmen t because no on e perso n coul d hope to master al l of them. The suppl y management organization' s cross-functional , horizontal structur e allow s it t o have immediat e acces s t o th e expert s wh o ar e a n integra l par t o f th e

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teams before, during , an d afte r th e component s ar e designe d int o a system. In the resultin g synergy , Motorola expert s wor k with suppliers not only t o anticipat e a problem befor e i t occurs , bu t als o t o brin g abou t a speedy resolutio n whe n a problem i s found. Althoug h no t alway s visible to customers , thi s open an d cooperativ e cultur e extending acros s Motorola's boundarie s add s grea t value t o the company' s products .

The Iridium Project Motorola's Satellit e Communication s Grou p (SCG) , par t o f Motorola' s SSTG, i s a prime exampl e o f how horizontal desig n principle s com e together in a cross-disciplinary environmen t t o delive r a comple x tota l solution effectivel y an d efficiently . Designe d t o provid e globa l wireles s voice, paging, facsimile, and data services by late 1998, the Iridium project called fo r Motorola SC G to build , launch , integrate , an d contro l a 66satellite constellation . No t onl y were th e number s daunting , the y were simply unheard of . As Burleson point s out , "Prior t o this , ther e wa s no such thin g a s a satellite factory . Th e traditiona l metho d wa s to build satellites on e a t a time. " I n 1 1 month s Motorol a launche d 6 5 satellites . Motorola use d 4 5 percen t o f th e world' s satellit e launc h capacit y with nine launches in three countries. Th e closes t to this performance was the Global Positionin g Syste m with 2 4 satellites i n fou r years. In gearin g u p t o tak e o n suc h a monumenta l task , th e SST G supply management organizatio n ha d t o evaluate carefully it s supplier processe s and figur e ou t ho w to reduc e cost s to one-tent h o f thei r histori c level s while als o meetin g requirement s fo r quality , durability , an d reliability . Reliability engineers , quality-contro l specialists , buyers , commodit y engineers, as well as representatives fro m th e subcontractors , al l brought special expertise t o the decision-makin g process a s they worked to marry the needs o f the projec t with what the supplie r bas e coul d offer . This multidisciplinar y expertis e wa s particularly crucia l becaus e thi s project involve d a majo r shif t i n th e wa y things ha d bee n don e i n th e past: Commercial, off-the-shel f part s were to be used, for example, rathe r than part s specificall y crafte d for the project . Sinc e plasti c part s would be flown into spac e for th e first time, everyone involved needed t o know that decisio n maker s were bringing t o th e tabl e th e bes t availabl e multidisciplinary knowledge an d informatio n about processes , parts reliability,

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cost, suppliers' deliver y time, and cycl e time. A satellite whirling around the eart h a t 17,00 0 mile s an hou r i s not easil y repaired, s o with a lot of Motorola mone y a t stake , i t wa s imperative tha t th e bes t decision s b e made o n th e ground . All Iridium tea m members armed themselve s with a checklist of technical and business requirements an d th e too l kit of problem-solving skills (such a s cost-risk analysis) tha t Motorol a give s to ever y employee. "W e spent a long time with our team s in training. . . . We knew [problem solv ing] wa s something the y were comfortabl e with, " say s Sandr a Hopkins , manager o f streamline purchasing and hea d o f systems and softwar e procurement fo r SSTG . The tea m member s drew on thei r individual exper tise an d th e historica l dat a o n supplier s an d design s availabl e t o the m through Motorola' s information technology system. The I T syste m als o prove d extremel y usefu l whe n tea m member s needed to know the characteristics o f particular parts . Purchasin g agents and suppl y management engineer s gathere d fact s on cost, lead time, and performance characteristic s fro m suppliers , an d the n immediatel y disseminated the m vi a e-mai l t o al l othe r tea m members . Thi s capability made fo r a much speedie r an d mor e effectiv e decision-makin g process. Without th e cooperativ e involvemen t o f supplier s an d multidisci plined, cross-functional SSTG teams, the company would never have been able t o mee t th e performanc e requirement s involve d i n buildin g an d launching th e Iridiu m satellites , the firs t five of which roared int o spac e in Ma y 1997.2

The Proof in the Pudding Although th e cross-functiona l commodit y teams have helped transfor m Motorola SSTG' s suppl y managemen t organizatio n int o a cost-efficient and productiv e operation , a s th e Iridiu m projec t indicates , Burleso n and othe r leader s believ e ther e ar e som e area s where a function-based, vertical structur e i s stil l preferabl e t o th e horizontal . Physica l desig n and highl y specialize d area s suc h a s microwav e development , fo r ex ample, ar e bes t lef t a s functions within traditiona l departments , i n or der t o provid e th e requisit e technica l expertise . Nevertheless , thes e functions cooperat e i n furtherin g th e performanc e o f th e overal l orga nization.

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Not surprisingly , the tea m member s an d leader s interviewe d a t Motorola wer e unanimou s i n thei r prais e fo r th e horizonta l organization . They derived thei r satisfaction with their statu s as highly empowered employees with a newfound sense of growth and expande d opportunitie s t o integrate an d appl y expertise. A s Hopkins put s it , "No w I have th e bes t of bot h worlds : purchasing knowledg e an d th e technica l knowledg e to make th e decisions. " Burleso n adds , "She' s been doin g giganti c things in process improvement." Fo r Kris Krishnaswamy, engineering an d qual ity manager, havin g empowered team s working on specifi c problem s has freed hi m t o concentrat e o n ke y technical issue s an d strategi c matter s that need his attention. Team members, too, voiced appreciation fo r their ability to solv e problem s in a mor e timel y manner withou t waiting for managerial approvals .

It's jus t a lo t easie r t o manag e th e supplier , wor k wit h customers . . . . Folks ar e working together. They're communicating together, an d they're all after a main goal. We're no t pulling against each other . It' s a big difference. Karen Chapman , supplie r manager o n the mechanica l commodit y team

The succes s o f Motorola' s reorganizatio n find s it s measur e no t onl y in workers ' increase d perceptio n o f thei r empowermen t an d thei r ne w enthusiasm, but als o in th e reductio n o f supply management costs . The supply managemen t operatio n ha s cu t cost s 6 0 percen t a s a resul t o f implementing th e main element s of the horizonta l organization . At th e same time, the percentage o f rejected parts has dropped from 2 0 percent in 198 9 to les s than 1 percent today . Delivery performance, which once showed a 40 percent delinquenc y rate, now checks in with just 8 percent of tota l deliverie s arriving behind schedule . As th e Motorola SST G suppl y managemen t organizatio n cas e stud y makes abundantly clear , th e 1 2 principles o f horizontal organizatio n ar e not one-tim e tool s t o b e discarde d onc e th e structur e i s in place . They are interwove n throughout th e entir e organizatio n and, in fact, com e t o define wha t th e organizatio n i s and ho w i t works on a day-to-da y basis. The makeove r ha s meant that all supply management employees are now responsible fo r actuall y carryin g ou t wha t th e valu e propositio n pro -

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claims: t o "emplo y leading-edg e technolog y t o provid e tota l custome r solutions with the highes t possibl e quality , reliability, and spee d t o market." Th e integratio n o f horizontal desig n principle s with performance enablers ha s changed Motorol a team members from mer e problem find ers into trul y empowered proble m solvers . "That isn't m y job" i s an excuse you will no longer hear at Motorola.

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GE SALISBURY

The Genera l Electri c plant a t Salisbury , North Carolina , produce s elec trical lightin g pane l board s designe d fo r industria l an d commercia l ap plications. Althoug h mor e complex , thes e panel s ar e simila r t o th e bo x of circui t breakers o r fuse s yo u likely have in your basement . Up throug h th e mid-1980s , G E Salisbur y manufacture d th e pane l boards i n a costly and rather inefficien t job sho p manufacturing process . Organized vertically , GE Salisbury required a t leas t a six-wee k lea d tim e to manufacture an d shi p a n electrica l lightin g pane l board . Complicating matter s wer e th e realitie s o f th e productio n process : Bottlenecks playe d havo c wit h schedule s an d mad e synchronizatio n o f manufacturing subprocesse s an enormous challenge , particularl y in a traditionally vertical, fragmented organization . When all was said and done , the produc t lin e cost s were too high , servic e commitment s to customer s were no t consistentl y met, an d the y were losing marke t share . In 1984 , however , GE Salisbury began a n extensiv e transformatio n t o

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restructure an d consolidat e th e lightin g pane l constructio n proces s into a ne w horizontal structur e tha t would link multiskilled team s and mak e them responsibl e fo r th e entir e build-to-orde r process . "W e decided th e only way that G E Salisbury could surviv e was to expan d th e flexibilit y o f our workforce and integrate thei r efforts with a better technolog y to manufacture th e pane l boards, " say s Phi l Jarrosiak, forme r manager o f hu man resource s a t G E and on e o f th e origina l architect s o f th e ne w organization. Jarrosia k wa s joined b y Roge r Gasaway , a t th e tim e th e manager o f th e G E Salisbur y plant an d currentl y genera l manage r o f manufacturing a t G E ED&C (Electrica l Distribution and Control) . Under th e directio n o f thes e leaders , th e changeove r t o a cross functional, team-base d organizational approach bega n t o take shape. New technology was investigated tha t coul d hel p tea m member s achieve th e production an d performanc e result s require d t o establis h th e plant' s competitive position . Bu t more tha n just bringin g i n th e nut s an d bolt s of technologica l systems , thes e leader s undertoo k th e arduou s tas k o f instilling a ne w philosophy amon g al l employees, on e tha t emphasize d teamwork, responsibility , continuous improvement , an d empowerment. As a result o f thei r efforts , G E Salisbury completed it s transformation t o a horizontal organizatio n b y 199 1 (althoug h som e fine-tunin g o f management an d productio n continue s today) , and th e plan t ha s become a model fo r a highly involved and empowere d workforce . "A transformation this extensive of an existin g plant was virtually unheard o f a t th e time, " say s Gasaway . "Skeptic s gav e i t littl e chanc e o f success, but th e G E environment an d philosophy established by CEO Jack Welch encourage d u s to tak e the risk. And we did. " The performanc e an d productivit y improvements have been nothin g short of remarkable. Production bottleneck s rarely disrupt the flo w at the plant thes e days , an d th e si x weeks' cycle tim e for lightin g panel board s has been drasticall y reduced: Typically , the proces s teams build th e electrical panels i n a 2.5-day cycle, although the y can regularly complete th e manufacturing proces s in onl y one day , if an emergenc y order arrives . The G E operating uni t a t th e Salisbur y plant comprise s tw o fundamental fabricatio n processes: Employee s construct a stee l bo x t o hous e the electrica l components ; then , the y assembl e an d tes t th e electrica l parts that for m th e interna l circuitry . But because n o tw o GE customers

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have identica l needs, ther e th e uniformit y ends. Eac h panel bo x with its contents i s configured an d buil t t o order , an d th e Salisbur y plant ca n build a s many as 70,000 variations o n th e basi c design . Since it s transformation t o a horizonta l operatin g unit , th e Salisbury plant ha s establishe d a n industry-wid e reputation fo r it s abilit y to fine tune it s manufacturing process to fit the specifi c needs of its customers— namely, t o mak e th e highes t qualit y product precisel y t o custome r re quirements an d t o do s o in a way that i s economical, efficient , an d competitive. Moreover , i n th e firs t year s afte r th e facilit y switche d to a hori zontal operation , variabl e cost s declined an d hav e continued t o drop .

Transferring ownershi p to the shop floor has helped create a culture based on pride, responsibility, cooperation , and self-management. Th e teams understand both personal and company goals, and drive the change s neede d to get there. Dan MacDonnell GE Salisbury plant manage r

Inventory turn s hav e increase d sixfold , while outpu t an d operatin g margins have both doubled . G E product qualit y has also improved. Cus tomer complaint s hav e fallen from 2 percent t o 0.02 percent, wit h plans initiatives. Production numbers , however , constitute onl y a par t o f th e picture . Employees repor t a muc h highe r degre e o f satisfactio n with their work now as opposed to what it was ten o r mor e years ago; turnover i s lower, and frontlin e workers and managemen t ar e unite d i n thei r effor t t o sta y well ahea d o f the competition . How di d G E Salisbur y achiev e such strikin g results ? The answe r t o that questio n i s complex , embracin g no t onl y a ful l assessmen t o f th e company's key capabilities, bu t als o a deep commitmen t t o competitiv e excellence o n th e par t o f both managemen t an d th e fron t line . At th e heart o f the transformatio n ar e th e process-oriente d teams , horizontally organized agains t a backdrop o f employee empowermen t an d desig n ef-

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The tea m concep t an d th e flexibilit y o f rotation—w e d o mov e aroun d an d chang e jobs—those ar e pluses . Yo u ge t a chanc e t o d o you r jo b an d t o tr y othe r jobs . Nobody has to do the sam e jo b all the time . Tha t i s a big plus . Harold Driver, automated equipment operator and production representative

ficiency. And apparent i n a multitude o f ways (even when not easil y visible in a n organizatio n chart ) ar e th e othe r principle s o f horizontal organi zation. They work singly and in combination t o enhance performanc e o n a daily basis . GE Salisbury' s multiskilled , highl y empowere d team s receiv e infor mation abou t sales, backlogs, inventory, staffing needs , productivity, costs, quality, an d variou s other dat a relate d t o objective s critical t o deliverin g the value proposition a t intervals ranging fro m ever y eight hours to every month, dependin g on what kin d o f goals ar e involved ; i n thi s case , th e customer service objective was included i n a monthly review. These team s fully understan d tha t the y ar e strictl y accountable fo r performanc e re sults, s o once the y were informe d o f th e problem , the y called int o play their company-provide d trainin g i n problem-solvin g an d analysi s to pro duce som e workable suggestions . One tea m zeroe d i n o n th e sequencin g o f various part s i n th e pro duction process—b y changin g th e sequence , a customer' s orde r coul d be complete d mor e quickly . Both o f thes e team-devise d solution s con tributed significantl y to achievin g G E Salisbury' s inten t t o delive r th e product precisel y a s the custome r wants it, promptly an d cost-effectively .

The Value Proposition Before i t could for m an y teams for th e build-to-orde r proces s o r under take a transformationa l makeover , however , the G E Salisbury operatin g unit ha d t o defin e it s value proposition . Afte r assessin g its own capabilities, a s well a s those o f competitors, th e organizatio n cam e u p wit h th e following objective encapsulating the promise of the value the plant offer s its customers: To produce lightin g pane l board s "o f th e highes t possibl e quality, i n th e shortes t possibl e cycl e time , a t a competitiv e price , an d with th e bes t possibl e service. " Wit h tha t goa l i n mind , employee s were

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then abl e t o pinpoin t th e build-to-orde r proces s a s critical to delivering its value proposition, desig n it to achieve that value proposition, an d the n to organiz e th e plan t and themselve s around it . As depicted i n Fig. 6.1, GE Salisbury's horizontal organizational char t highlights the concerted work of four teams in the build-to-order process . These ar e represented i n the char t a s "links" in a chain, suggesting tha t they wor k i n concer t wit h eac h other . Eac h tea m comprise s 1 0 t o 1 5 people, bu t th e actua l composition changes every eight hours a s employees fro m th e nex t shif t tak e over . Fo r purpose s o f thi s discussion , th e teams are identifie d as follows: • Th e electrica l component s tea m (Tea m 1 ) assembles an d test s the lightin g pane l (thi s team no w includes a former tea m devote d to shipping). • Th e fabrication tea m (Tea m 2 ) cuts , builds , welds, and paints the part s tha t form the stee l boxes . • Th e maintenanc e tea m (Tea m 3 ) perform s heav y equipmen t maintenance tha t canno t be don e a s part o f the productio n process. • Th e "production control " tea m (Tea m 4 ) takes responsibility for receivin g th e orders , plannin g an d coordinatin g production , purchasing, workin g with supplier s an d customers , solvin g customer complaints , an d keepin g trac k o f inventories. On th e righ t sid e o f Fig. 6.1 appears a group of "associate advisors, " former manager s wh o now bring thei r expertis e t o th e team s o n a n advisory basi s and serv e more o r les s as guides an d coache s o n problem s that may arise. Because they are individuals, they appear i n Fig. 6. 1 within a rectangle, an d thei r "a s needed" relationshi p t o the tea m i s indicated by the dotte d lin e extending t o the linke d operatin g teams . Solid line s extend fro m th e linke d operating team s to the wedge representing th e actua l part s o f the build-to-orde r proces s tha t leads t o th e delivery of the value proposition. Thes e lines suggest both the teams' new authority an d contro l o f th e entir e proces s a s well a s the spa n o f thei r responsibility.

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Fig. 6.1 Genera l Electric—Salisbury Plant

A New Focus on Teamwork As Fig . 6.1 suggests , hierarch y coul d hardl y b e flatte r a t G E Salisbury. Team 4 act s a s the proces s owne r and , in additio n t o th e dutie s cite d above, i s responsibl e fo r makin g sur e tha t th e frontlin e team s sta y o n track in term s o f speed, cost , quality, and flexibilit y s o as to meet overal l process objective s linked t o th e deliver y of the valu e proposition. Teams 1 and 2 , perhaps more tha n an y of the others, directl y perform the actua l productio n i n the build-to-order process . Bot h Teams 1 and 2 share informatio n wit h Tea m 4 about logistics , bu t onl y Teams 1 and 2 are responsible fo r parts production , an d onl y Team 1 actually assembles the electrica l pane l boxes . A number o f factors help t o ensure a smooth integratio n o f the work of the tw o fabrication teams , including regularl y schedule d joint produc tion meetings , job rotation , cross-trainin g o f employees, and a work flow that ha s been designe d t o procee d i n a sequence tha t facilitate s coordi nation o f th e teams ' effort s despit e th e fac t tha t differen t tim e frames are involved . A t G E Salisbury , thes e highl y involve d team s assum e re sponsibility fo r settin g thei r ow n performance target s i n alignmen t with the valu e propositio n (withi n an d i n suppor t o f strateg y an d perfor mance guideline s se t b y ED&C, o f course) ; the y determin e productio n and wor k schedules, a s well a s th e assignmen t o f overtim e duties ; the y hold themselve s responsible fo r plant-wid e safety , communications , an d housekeeping concerns ; the y identify problem s an d devis e corrective action; an d the y ca n eve n purchas e equipmen t withi n budgete d guide lines. Due t o th e varyin g product demand s dictate d b y the customers , GE Salisbury cross-trains employees to move easily from one tea m to anothe r when a backlo g occurs . B y one estimate , som e 9 0 percen t o f frontlin e employees kno w how t o perfor m approximatel y 9 0 percent o f th e task s in the Salisbur y facility . Furthermore , the y understan d the task s and roles o f bot h fabricatio n teams ; thus , th e absenc e o f on e worke r doe s not threate n th e entir e process . I f a machin e break s down , a mainte nance tea m o f cross-traine d worker s i s read y t o solv e th e proble m im mediately. Much of the trainin g at GE Salisbury comes in the form of community

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college course work that provides employees with the foundation to work effectively i n hig h involvemen t team s an d hon e thei r specialize d skills. They tak e course s i n basi c tea m surviva l skills, team developmen t skills, meeting skills, interpersonal skills , and communication techniques. Tea m members als o receiv e technica l trainin g an d instructio n i n problem solving methodologies. Th e bul k of the trainin g come s in a n employee' s first two years, although follow-u p training occur s in area s such as safety , Six Sigma quality, and continuou s improvement. For their part, associate advisors receiv e additiona l instructio n i n conflic t resolution , proble m solving, coaching , an d settin g performanc e objectives , amon g othe r things. Team 4 consist s o f te n cross-trained , broadl y skille d member s wh o rotate amon g variou s roles : On e perso n act s a s th e maste r scheduler ; three peopl e are i n charg e o f purchasing; fou r handl e custome r service; and tw o work o n logistics . Collaboratin g wit h eigh t associat e advisors , Team 4 takes responsibility for seeing tha t th e entir e build-to-orde r process flow s withou t bottlenecks from th e firs t contac t wit h a custome r t o the satisfactor y installation o f th e electrica l lightin g board s a t tha t customer's site . A process tha t coul d becom e a logistica l nightmare i s kept runnin g smoothly because Team 4 calls together th e key players every eight hours . At 7:0 0 A.M., 3:0 0 P.M., an d 11:0 0 P.M. , productio n representative s fro m each team meet with two members of Team 4 . Together the y make plans for th e next eight hours of production an d ensure tha t component part s are read y for assembly. What makes these teams so efficient an d productiv e i s their commo n commitment t o th e build-to-orde r process . True , th e employee s mus t have th e skill s an d trainin g t o allo w the m t o rotat e betwee n jobs a t a moment's notic e an d t o mee t an y challenge tha t arise s o n th e factor y floor. Bu t just a s important i s their sens e o f ownershi p o f an d prid e i n the productio n proces s i n which they participate. Of course, th e espri t d e corp s exhibite d b y the team s at GE Salisbury did no t fal l lik e a n appl e fro m th e tree . I t too k har d wor k t o achieve , and i t must continually be renewe d t o keep the factor y a t peak capacity. In the first few years afte r the horizonta l organizatio n was introduced , some GE Salisbury employees found th e tea m approac h to o demanding ,

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and the y left t o pursu e othe r jobs; stil l others ha d t o underg o extensiv e training t o bring the m u p t o the standard s se t by their peers . Tim Deal, production scheduler , recounts how the team rallied aroun d an employee who was having difficulty with his work and coming up to standards. A team facilitator, a training coordinator , an d th e production representative met with the individual to begin identifyin g roo t causes for his problems, absenteeism , an d difficult y i n workin g productivel y wit h a group. Th e employe e was receptive to this analysis and undertook on-the job training . H e eventuall y improved hi s job performanc e t o th e poin t where he was either meeting or exceeding the team's average production . Employees can receiv e on-the-jo b trainin g i n th e productio n o f lighting pane l boards . An d al l employees rotate betwee n job assignment s t o avoid burnout an d t o promote cross-trainin g throughout th e productio n process. Thi s job rotatio n i s essential i n meetin g G E Salisbury's perfor mance goals .

A critical par t of the origina l concept—an d on e that I believe i s still integra l t o the high performanc e level s tha t hav e bee n achieve d a t Salisbury—is tha t the peopl e who are on the floor, on the job, doing their wor k eight hour s a day, ar e the peopl e who know best what the needs are, what the problems are, and how best to go about correcting them, makin g improvements . Phil Jarrosiak, architect of the GE Salisbury reorganizatio n

From the employees ' poin t o f view, the tea m approach i s empowering in tha t i t reassign s overal l responsibilit y fo r th e smoot h functionin g o f the process t o the workers themselves rather tha n t o managers who exist in a hierarchica l vacuum . Decisio n making—whethe r it i s a question o f material suppl y (a s when th e compan y need s t o replenish it s inventory of raw material) o r of personnel (suc h as the nee d t o reassign fou r workers from the assembl y team to the fabrication team)—becomes a responsibility jointly share d b y th e productio n rep s an d th e tea m members . Some issues such as disciplinary actions an d approva l fo r large-scal e purchases still reside within the managerial ranks, but at GE Salisbury, people know tha t eve n thos e issue s ar e ope n fo r discussio n an d tha t thei r suggestions will be take n seriousl y by those i n authority .

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Management's New Rol e It almost goe s without saying that th e rol e o f management take s on new dimensions in an environment like that at GE Salisbury. The former plant manager reporte d tha t hi s position ha d "drasticall y changed, " an d h e described himsel f as the "loca l on-sit e representativ e o f th e tw o key customers o f th e facility. " Besides th e custome r wh o buy s and utilize s th e end product , curren t plan t manage r Da n MacDonnel l thinks of GE as a customer a s well because i t "source s fro m u s the activit y of building thi s product" an d expect s som e financial return. Th e plan t manage r ha s to "negotiate between G E and th e outsid e customer , and al l of his responsibilities are, in effect , relate d t o meeting customer requirements. " Within tha t broade r scope , however , the G E plant manage r als o per forms certai n traditiona l leadershi p role s such a s integrating plan t an d corporate financia l goals , motivatin g employees an d overseein g discipli nary actions , negotiatin g wit h customers an d suppliers , an d makin g investment decisions. Dennis Milbrandt, associate adviso r of shop operation s an d a proces s leader a t the G E Salisbury plant, points up th e contrast s between his role now and hi s former role as a manager for 23 years in a traditional vertical hierarchy. Th e primar y differenc e lie s i n th e willingnes s t o relinquis h authority, he says . "You have to be willing to let go, empower people, fo r instance, t o contac t vendors on thei r own , ask them t o fl y in fro m Ital y to Nort h Carolin a t o discus s a new technique fo r weldin g or improving components." Initially , many frontline workers think themselve s incapable o f contacting a vendor abou t a fabrication process , bu t wit h trainin g and assurance that the company values their contributions, most process team member s willingl y tak e up the challenge . "Afte r all, " Milbrand t adds, "the y ar e th e expert s wh o wor k o n th e equipment , s o i t make s sense tha t they , not I , should mak e the contact. " On th e othe r hand , many traditional managers bal k when the y have to give up tha t muc h authority . Fearing tha t thei r ow n jobs wil l be eliminated, the y imagine tha t frontlin e workers will no t b e u p t o th e tas k of negotiating, planning , ordering, an d dealin g directly with customers and suppliers. After a time, however, they find that when given the appropri ate training , information , and motivation , employee s can handl e man y of thes e responsibilities , thereb y freein g manager s fro m th e administra -

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tive burden s an d allowin g them t o concentrat e o n matter s tha t brin g additional valu e t o th e compan y and it s customers . Sinc e th e Salisbury plant ha s gon e horizontal , fo r example , Milbrand t spends muc h mor e time learning what his customers need an d developin g ideas for improving custome r service, running continuou s improvemen t projects , coaching, and budgeting. He spends much less time strictly overseeing the work that employee s do. Harold Driver , an automate d equipmen t operato r a s well a s a pro duction representative , agrees . I n fact , h e speak s of "retraining management" to teach the m effectiv e tea m skills such as coaching, listening, and working one-on-on e wit h tea m members . A s Driver observes , " A lo t o f talk abou t tea m concept s wil l neve r ge t th e job done . I f manager s o r process owners are not full y committe d t o those concepts, i f they are no t open-minded enoug h t o give the teams a chance to work, then the whole transformation wil l fail. " An d her e i s a twis t o n th e usua l concep t o f training: Drive r says a team often experience s a setback when a new manager takes over because th e people on the frontline have to train the new manager bot h i n how the proces s works and i n how the team s operate .

A View of the Operating Process Modern information technology plays a significant role in the Salisbury plant's abilit y to operat e horizontally . In fact , th e build-to-orde r pro cess begins when a field sales engineer take s an orde r a t a customer' s site, enter s i t int o a laptop computer , an d transmit s it t o the plan t i n Salisbury. The orde r arrives with all parameters specified : amperage, number of circuits, voltage, size an d shap e o f panel box , an d perhap s hundred s of other specification s each custome r makes . Onc e logge d in , th e orde r proceeds t o th e productio n team , which evaluates its priority and set s a production schedul e ( a high-priorit y item ca n ente r productio n imme diately and b e complete d an d shippe d withi n 24 hours). In th e horizonta l organization , everybod y own s th e en d resul t an d works in a fully coordinated environment . A linchpin in this coordination is the dail y production meeting , where members from th e variou s teams report thei r standing in relation t o the daily production schedul e to meet the customer requirements. Given this goal, the teams set about to decide

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how best to allocate personnel an d material s for th e nex t three shifts . I n addition, tea m members share information about ideal production rates , sales dollars generate d i n a particular month , and , mos t important, customers' order s an d th e specia l needs eac h custome r has . Helping employee s to keep abreast of the proces s is an electri c scoreboard, fully visible to all on the shop floor. Here are recorded such things as th e progres s mad e o n tha t day' s order s an d th e numbe r o f panel s completed. Th e team s have also added e-mai l capability to keep on e an other informed about customers' expectations, the number of new orders, and any backlog. If one team—say , the bo x fabrication group—begins to fall behin d i n th e schedule , th e team s ca n quickl y readjust themselves and sen d on e o r mor e member s t o join th e proble m grou p t o tak e u p the slack . "This is the advantag e of multiskilling," say s Milbrandt.

I would rather be on a team. I f you have a problem, you have other people who will come and help you. Opal Parnell, automated equipment operator

The build-to-orde r proces s continues t o work smoothly because tea m members hav e authorit y t o keep i t tha t wa y and becaus e the y have developed a supportive culture tha t emphasize s trust, openness , and coop eration. They evaluate their peers' performance , order part s for th e machinery a s wel l a s material s fo r th e process , wor k with customer s an d suppliers, and tes t the qualit y of the product s the y make. Let on e emphasize , however , that non e o f thes e newfoun d responsibilities came easily into acceptance. All met initiall y with some resistance. When th e principle s o f the horizonta l organizatio n wer e first put t o work, there were some people, even some who had seniority , who decided that they did not want to accept the new responsibilities. Thus, they either retired o r foun d work elsewhere. Gradually, they've been abl e t o recrui t new peopl e wh o ar e willin g to tak e o n mor e responsibility , work wit h others in a team setting, and make the decisions necessary for the process to run smoothly . Today, they all see that this is a large part of what makes the job s o satisfying fo r workers. The G E Salisbury experience offer s a corrective to Weber's ideal of a

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highly productive bureaucracy that arises from th e impersona l fac e o f an organization structure d alon g strictl y hierarchical lines . Tea m member s at the North Carolina plan t exhibit a n uncommon commitmen t to maintaining an d continuousl y improvin g th e hig h qualit y o f thei r product . Evidence of their succes s lies not onl y in th e premie r plac e tha t G E Sal isbury holds vis-a-vis other competito r companies , but als o in the extraor dinary degree o f customer satisfactio n tha t ha s been achieved . The desig n principle s o f th e horizontal organizatio n ar e ofte n wel l suited t o a manufacturin g process , eve n on e a s complex a s that a t th e GE Salisbury plant where team members work to satisf y hundred s o f customers with thousands o f specific needs. A s we will see in th e nex t chap ter, thos e sam e design principle s als o successfully underpi n th e horizontal organizatio n o f the Hom e Finance Divisio n of Barclays Bank around an integrate d sale s and servic e delivery process. No matter which side of the Atlantic (o r th e Pacific ) yo u explore, you will see the positiv e results of organizations, both publi c an d private , that hav e taken th e bold, courageous move s toward the horizonta l organization .

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7 ORGANIZING A DIVISION AROUND A SALES AND SERVICE DELIVERY PROCESS BARCLAYS BANK'S HOME FINANCE DIVISION

In today' s financial marketplace, bank s no longe r hav e a monopol y on the lendin g business . Just abou t anybod y with a littl e extr a mone y can , and does , offe r credit . Automobil e manufacturers , retailers , insuranc e conglomerates—a consume r ca n borrow money from mos t any business that come s t o mind , an d long-standin g institution s lik e Barclay s Bank have foun d tha t i t i s increasingl y difficul t t o distinguis h product s i n a marketplace o f look-alikes. Indeed, customer s tak e th e pat h o f leas t "insistence. " The y choos e the lender who offers th e lowest interest rate or the biggest discount, and then jump to someone else just as soon as the short-ter m interest bargain lapses. Th e loya l custome r i s somethin g o f a rarit y in thi s industry . As Michael Ockenden, managing director o f Barclays Bank's Home Financ e Division, puts it, "People come t o you for price and leav e you for price." For mortgage lendin g i n particular , th e situatio n i n th e Unite d King dom i s clouded by the publi c mind-set: When the Britis h think of buying a home , the y think of the buildin g society , an institutio n comparabl e t o

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thrifts i n th e Unite d States , bu t wit h a nea r loc k on mortgag e lending . "People just ar e not generally aware that banks do mortgages," say s Ockenden. It wa s in thi s crowde d aren a tha t Barclay s firs t sough t t o achiev e a standard o f operationa l excellenc e i n th e earl y 1990s . Lik e many of its competitors, the Barclay s Bank home mortgage operatio n was, to say the least, inefficient. Multipl e layers of hierarchy, an inconsistent, fragmented approach t o customers , unnecessar y steps, delays , and hand-offs , a s well as a lac k o f commitment , planning , an d follow-throug h mean t tha t i t could tak e month s t o ge t th e initia l mortgag e approved , thre e t o fou r additional week s to ge t a forma l offe r o n th e table , and stil l more tim e to clear the titl e and proces s th e insurance . When all was said and done , moving from on e hous e t o another too k four or five months. So in mid1992, Barclay s set ou t t o differentiat e itself by launching it s "Bein g th e Best" initiative . Communication channel s wer e opene d up , clea r busines s objectives were lai d out , and th e busines s processe s wer e redesigne d t o improv e efficiency an d qualit y of service. Not surprisingly , turnaround time s di d improve. Borrower s receive d approval s within thre e day s an d a formal offer withi n a week. Yet, because mortgag e lendin g i s not a repeat business in th e sens e tha t peopl e po p i n ever y week to tak e ou t a loan (average tim e fro m on e purchas e t o th e nex t i s seven years), operationa l excellence was, by itself, insufficient t o capture a larger share of this pricedominated market . Thus, Barclay s decided t o leverag e it s newfoun d strengths o f speed , accuracy, an d qualit y by developing a n intensel y customer-focused, integrated operatio n tha t would aim to become th e preferred plac e for hom e financing b y offerin g a value-adde d package . Wit h tha t goa l i n mind , Barclays Hom e Financ e Divisio n (HFD ) was formed i n Apri l 199 5 as a strategic business unit within the Persona l Secto r o f the Barclay s Group.

The Value Proposition Armed wit h researc h showin g that movin g fro m on e hous e t o anothe r ranks third behin d deat h an d divorc e in term s of the amoun t o f stress it generates, Barclay s determined tha t i t could achiev e its objective of "being the best" and winning customers by delivering " a tota l solutio n tha t

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de-stresses the hom e ownershi p process." Usin g that uniqu e value proposition a s its guide an d recognizin g that structur e ha s t o follo w strategy, Barclays HFD undertook th e tas k of organizing itsel f horizontally around an end-to-en d mortgag e sale s and servic e delivery process. "We were 45,000 people in various disconnected group s or functions , each wit h it s own strategy an d busines s objectives , but w e had nothin g that integrate d th e variou s part s o f th e Hom e Financ e Division, " Ockenden recall s of th e forme r functionall y organized hom e mortgag e op eration. The loos e confederatio n o f geographically separated enterprise s was organized chiefly around traditiona l business functions that included: • Underwriting , the initial processin g tha t receive d mortgage applications and bega n a lengthy investigation of creditworthiness • Ris k management , a divisio n base d i n Londo n tha t se t the parameters for lending (whil e actual risk approval wa s taking place in ove r 2,000 local facilities ) • Marketing , a business function centere d i n Coventr y that han dled othe r product s besides mortgage s • Processin g an d informatio n technology , a Manchester-base d function • Peopl e management , which was controlle d fro m Londo n The actua l deliver y of servic e i n th e ol d operatio n include d initia l processing, whic h mean t takin g application s a s they cam e throug h th e door and dealin g with them t o the poin t where they were actually established a s a loan . Th e loa n wa s then hande d of f t o mortgag e services, which was concerned wit h maintaining the account and makin g sure that it was not redeemed o r moved elsewhere. Mortgage services also provided customer suppor t an d help , suc h a s answering any questions. Finally , a third area—referre d t o a s custome r assistance—actuall y dealt wit h de faults. Eac h o f thos e area s require d employee s with very differen t an d specific skil l sets. As Gregory O'Mahony, project manager fo r enterpris e design, observes, "There was little or no flexibilit y for managers and ou r people t o wor k within eac h o f thos e stovepipes . I t wa s very difficul t t o balance th e suppl y to the demand. " Today, Barclay s has mad e significan t steps towar d formall y reorgan -

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izing around a cross-functional, end-to-end sale s and servic e delivery process in which one salesperso n working with a team handles a home loa n from star t t o finish . A t thi s point , multifunctional , multiskille d service delivery teams comprising sanction officers , ris k advisers, and administra tors wh o handl e accoun t openin g an d maintenanc e ar e se t up i n fou r different regions . Eventually , th e team s wil l includ e salespeopl e (als o called "mortgag e specialists" ) an d custome r assistants , and wil l operat e in 1 2 regions al l across Britain. An intriguin g part o f the Barclay s HFD vision is the value-adde d "extras" availabl e to mortgage customer s with their loans . Recognizin g that there wa s practically a 10 0 percent invers e correlatio n betwee n a prod uct's pric e an d marke t shar e (tha t is , a 5 percen t ris e i n pric e ha s a predictable 5 percent decreas e i n market share), Barclays focuses on differentiating it s product b y the rang e an d integratio n o f services offere d to attrac t an d retai n customers . After analyzin g the element s tha t mak e home ownershi p so emotionally trying, it now offers titl e guarantee, lega l services, and movin g assistance. If the custome r wishes, the HFD can even switch on the utilitie s at the customer's new location, arrang e t o have the grass mowe d an d th e garde n tended , o r write into th e loa n a provisio n for paintin g th e hous e i n five years. I t i s the customer' s choice : Selec t the services , an d th e cost s wil l b e writte n int o th e monthl y mortgag e payment. Also intriguing is the wa y Barclays HFD now designs payments around individual needs . Youn g familie s appreciat e th e optio n o f skippin g a mortgage paymen t i n Augus t afte r a summe r vacatio n o r i n Decembe r when holida y giving strains pocketbooks. Loyalt y i s rewarded, too . After five years o f faithfu l mortgag e payments , customers becom e eligibl e fo r a six-mont h hiatus ; a ten-yea r record wit h Barclays HFD gives customers the optio n of skipping an entire year of mortgage payments. These added options appeal t o customers who recognize that predicaments such as job loss or majo r medica l expenses can disrup t eve n the mos t stable lives, or to thos e who ma y wish t o tak e a sabbatica l or chang e careers . I n short , in a n industr y where distress i s th e expectation , Barclay s HFD, by delivering a range o f services, is de-stressing th e proces s o f home ownershi p from beginnin g t o end. This par t o f th e HF D valu e propositio n coul d neve r hav e bee n achieved by the fragmented functions of the ol d vertical structure. Under

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the ne w structure , however , th e team' s cross-functionalit y enables i t t o deliver thi s rang e o f services . As we will se e i n th e nex t section , tea m members from variou s areas of mortgage financin g bring thei r expertis e to bear o n eac h customer' s specia l needs or requests.

Early Results of Organizing Horizontally Currently the sixth-largest mortgage business in the United Kingdom, the company i s meetin g it s goa l o f increasin g nationa l marke t shar e b y a t least on e percentag e poin t eac h year . Thi s figur e represent s approxi mately an 1 8 percent increase in revenue s an d a 20 percent increase in profits sinc e the reorganizatio n began. What is more, Barclay s is beating the competition by spending less—£70 million, or the equivalent of about $123 million—t o generat e ne w customers ; othe r industr y leader s ar e spending significantl y highe r sum s (£82-9 5 million , equivalen t to som e $143-166 million) t o captur e a n equa l shar e o f the market . As for turn around tim e o n mortgag e applications , Barclay s HF D issues more tha n 95 percen t o f forma l offer s withi n 2 4 hours, an d it s current recor d fo r processing a mortgag e applicatio n an d deliverin g th e mone y int o th e customer's hands is a mere three days. Tha t speed, of course, helps relieve the customer' s anxiety, which increases with every day he o r sh e ha s t o wait for a loan approval . Barclays HF D ha s achieve d many o f thes e successe s by initiatin g its restructuring along th e horizonta l lines shown in Fig . 7.1. Although it is still very much in th e proces s o f transformation, it i s committed t o completing th e redesign ultimately to match the structure depicted here, and has alread y completed significan t steps toward that end . Tw o key operations, sale s marketin g an d servic e delivery , are bein g combine d int o a single end-to-en d cor e proces s labele d a s "Sales/Servic e Delivery. " Empowered teams of employees are groupe d accordin g t o the 1 2 geographical region s s o a s t o provid e th e bes t understandin g o f th e customer s being served. The teams ' accountabilit y for achieving end-to-end performance goals is illustrated i n th e char t b y the line s tha t exten d fro m th e larg e circl e to the ends of the process arrow. Selected fro m various areas of the Home Finance Division, the tea m members bring valuable skills and degree s of expertise t o bear o n th e wor k of the process . What i s more, th e team s

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Fig. 7.1 Barclay s Bank—Home Financial Division . The figure show s ho w the Home Financia l Divisio n intends ultimately to b e organized .

already supporting area s a s diverse as Manchester, Coventry, Leeds, an d London tak e responsibility for thei r geographica l region s by setting performance objective s and measurin g th e exten t o f successful compliance . In comple x processe s such a s sale s and servic e delivery for hom e fi nancing, thes e team s of ten o r twelve people requir e th e suppor t of functions in order to perform its work efficiently. Thus , aspects of the vertical organization remain i n place at Barclays HFD to support th e horizontally organized team s in th e performanc e o f their work. Labeled in Fig. 7.1 as "Business Enablement/Share d Services, " th e bloc k include s nonhorizontal service s shared wit h other division s of Barclays, such as thirdparty compliance, th e financ e area , an d I T architecture. Thes e busines s functions ar e t o th e sales/servic e deliver y proces s wha t th e stationar y board i s to th e movin g pieces in a game o f Parcheesi o r Monopoly.

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A fourteen-member tea m o f leaders "owns" the proces s in th e sens e that they take responsibility for keeping the various teams clearly focused on deliverin g th e valu e proposition—which , o f course , mean s makin g sure th e team s provide th e speedy , accurate , an d financially viable sanction o f mortgage s t o qualifyin g customer s wh o wil l als o receiv e th e nu merous added-valu e benefit s describe d above . Th e proces s owner s als o make sure that—unlike the situation that existed in the vertical hierarchy, where multipl e department s ha d multipl e goal s an d multipl e measure s of success—the metrics are consisten t acros s the units . The proces s owners determine whethe r th e performanc e objective s o f the tw o teams ar e in line with the overall strategy set by the senior leadership team , to whom they answer. This traditional lin e of reporting is represented b y the placement o f th e senio r managemen t tea m abov e th e proces s owners . Th e connecting line shows the hierarchica l arrangemen t o f authority implicit in th e traditiona l vertica l organizationa l chart . Those to p managers—Mik e Ockenden plu s the leader s o f service delivery, sale s an d marketing , an d busines s enablement—ar e responsibl e for overal l busines s performanc e an d fo r makin g sur e tha t th e HF D is delivering it s value proposition . Ockende n als o looks to hi s senior man agers t o develo p a n externa l focu s tha t allow s the m t o benchmar k Barclays vis-a-vis th e competition . Thes e senio r managers , however , are no t faceless name s o n close d oa k doors . I n th e Barclay s corporat e culture , nobody has a private office , no r ar e ther e executiv e parking spaces . Every employee sit s in the sam e siz e chair behind the sam e siz e desk. Titles are forbidden, an d peopl e us e first names whe n the y addres s on e another . In short , democratizatio n a t Barclay s ha s a viable , tangibl e presence , which promote s a corporate cultur e tha t values everyone's contributions.

Corporate Culture . . . It's trying to create a spirit that says we are all one group of people working towards the customer imperative . Mike Ockenden, Barclays HFD managing directo r

An informally structured leadershi p tea m with representatives from all over th e divisio n act s a s an interfac e wit h th e res t o f th e Barclay s orga -

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nization and serve s as HFD's agent o f change. I n th e latte r role, its members ar e expecte d t o mode l desire d behavio r throughou t th e organiza tion. Onc e o r twic e a year , al l 5 0 o r 6 0 member s com e togethe r a s a group, bu t muc h mor e frequentl y they network with on e anothe r whe n the nee d arises . All report int o an d ar e enable d b y the senio r manage ment team.

A Flatter Hierarch y Hierarchy has been flattene d throughout the organization by redesigning and restructurin g roles an d eliminatin g muc h non-value-adde d work, by integrating work flows, an d b y vesting decision makin g in lowe r levels. In the service-deliver y operation, fo r example , what were 45 different role s four years ago have been compressed t o around te n roles today. Pat Flanagan, the directo r o f service delivery, believes that broadening dutie s and responsibilities increases the teams ' ownership of the end-to-en d process, which, i n turn , translate s to greater flexibility . Although bringin g peopl e togethe r o n team s establishe s thei r real world presence , merel y situating them i n on e offic e o r forcin g everyone to sit around a single table doe s no t mak e them function as a real team. The tru e cross-functionality o f th e tea m manifest s itsel f in th e effective ness of collaboration, the commo n spiri t of cooperation, and the regard for other s tha t th e member s themselve s develop a s the y lear n ho w t o relinquish thei r hol d o n proprietar y issue s an d matter s o f persona l "turf." Thus , a specialis t in ris k management , wh o might otherwis e be restricted t o evaluatin g a mortgag e applicatio n accordin g t o stric t nu merical requirements , ca n gai n a mor e complet e understandin g o f th e applicant with information provided by sales representatives, sanction officers, and custome r assistants . Decision-makin g guideline s ar e stil l provided t o th e teams , o f course , bu t th e mor e complet e pictur e an d un derstanding o f th e applican t situatio n grante d b y th e cross-functiona l approach enable s th e tea m t o render decision s that mor e effectivel y op timize ris k an d revenu e objectives , for example . To instil l th e behavior s an d value s centra l t o th e horizonta l organi zation, all 800 HFD employees go through a formal team learning process designed by Human Resources . Th e firs t stag e involves basic trainin g i n how team s work together, personalit y profiling, an d preferre d learnin g

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styles. After masterin g the theoretica l principle s of the team-oriente d ap proach, people break into groups and spend three days off-site, explorin g how the tea m dynami c works in practice . Furthe r classroo m work and a team projec t related t o a business issue that cut s across th e entir e orga nization wrap up th e first stage o f training . The secon d stage , aimed primaril y at th e senio r leadership team , involves dilemm a managemen t techniques , cognitiv e mapping , an d meth ods of stakeholder management .

We encourag e people to develop themselves. We offe r a series of support mecha nisms to hel p people to learn . Steve Morris, HFD resources manage r

Skills trainin g a t Barclay s HFD extend s fa r beyon d team-buildin g specif ics. A list o f the courses , books , interactiv e videos, workshops, and one on-one coachin g availabl e t o employee s run s t o 5 0 entrie s an d range s from communicatio n skill s t o leadershi p techniques t o chang e manage ment methodologies . Ockende n unequivocall y supports providin g training—be i t development o r skills—fo r anyon e who wants it, s o long as it helps tha t employe e perfor m a job better : "I f somebod y comes t o m e and say s that, for finge r dexterit y so that h e o r sh e can better operat e a [computer] terminal, that person has to go to the local college and lear n how to knit, then I will give them tha t training. " Ockenden points out that it is not unusual for the bank to invite 1,000 employees in th e persona l bankin g facility t o attend a conference in Birmingham, where they study market trends an d revie w quarterly financial statistics. H e bes t capture s th e HF D attitud e towar d trainin g whe n h e notes tha t beside s increasin g jo b satisfaction , thi s cross-trainin g ha s helped th e tea m slic e repossessio n losse s i n half . How ? Mor e efficien t handling o f custome r problem s fo r on e thing , an d avoidin g th e infor mation los s that so often accompanie s a handoff. Also peer competitio n naturally grow s amon g tea m member s an d spur s the m t o bette r thei r performance. The division is prepared t o help people maste r the right skills in order to execute thei r responsibilitie s more effectively . Fo r example, to enabl e

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empowered team s to make correct lending decisions, Barclays HFD provides a structure d trainin g cours e tha t involve s basic lendin g principles . That is followed by what is known as "after care," in which team members sit with a lending manage r for two or thre e weeks , tal k through all their cases, an d receiv e coaching o n th e spot . The ai m is to develop analytical skills that will allow a team membe r t o weigh pros and con s of cases and decide whether the division s should approv e a loan application . Five years ago, the organizatio n didn't just discourage peopl e from thinking, i t told them no t t o becaus e ther e wer e lot s o f rule s tha t di d tha t fo r the m an d lot s o f managers to tell them what to do. Now, the organization says, "Don't come to work unless you're prepared to think." Mike Ockenden, managing director of Barclay s HFD

Basically, ther e ar e onl y tw o hard-and-fas t polic y rule s i n mortgag e lending: (l)Ca n th e custome r affor d th e loan ; and (2 ) has the custome r demonstrated tha t he o r she will repay the money . Team member s learn to analyz e a potentia l borrower' s abilit y and characte r using th e appli cant's financial statement, credit report, and bank accounts. They can also access a help file that provides a set of guidelines to be used in specific cases, such as an applicant' s lookin g to rent out th e mortgage d property . Bringing all the department s together an d having an overall view of the whol e process has allowed u s to give each individual more responsibility for decision makin g because they are more aware of the full process, exactly what happens at every step. Steve Wilson, HFD service delivery manager for custome r assistanc e

An interestin g resul t o f thi s ne w empowere d lendin g atmosphere — and indicative of how horizontal principles promote continuous improvement—is tha t tea m member s who are handlin g th e end-to-en d process , from applicatio n stage to sending ou t th e money , maintain thei r interes t in an d oversigh t o f individua l case s six , nine, an d twelv e month s later . Gathering tha t information allows Barclays HFD to set up feedback loops so that front-en d behavior ca n b e adjuste d i f necessary.

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In th e are a o f customer assistance (als o known as arrears), collections once comprised six different teams . As Steve Wilson, service delivery manager describes it, "What we tended t o find was a lot of handoffs. Basically, if you answere d a phone cal l an d ther e was work to d o afterward—you might find that a customer sen t a piece o f correspondence in—the n th e correspondence sectio n would deal with it and not the telephone section . The responsibilit y belonged t o someone else. " Today, multiskillin g has reduce d si x teams involved in collection s to just one . And quite often, the sam e person wh o takes the phon e cal l will deal with a customer from th e first unpaid penc e al l the way back to th e customer's not bein g i n arrear s anymore ; or, when that outcom e fail s t o materialize, th e proces s continue s al l the way to the poin t a t which foreclosure—the least desirable solution , i n Barclays ' view as well a s the cus tomer's—seems to b e th e onl y way out. Befor e that alternativ e is taken, however, HF D representatives do everythin g they can t o hel p customer s meet obligations . Fo r instance , a representativ e ca n identif y customer s who ar e payin g more mortgag e tha n necessary , then visi t the m i n thei r homes to help the m understand way s they can sav e money on payments. If a customer appear s interested , th e representativ e ca n say , "We've pre approved yo u fo r th e lin e o f credit , an d yo u ca n hav e the schedul e i n place for the next month's payment." In contrast to complex refinancing arrangements require d b y mortgag e lender s i n th e Unite d State s an d elsewhere, thi s service makes Barclays the env y of industry leaders.

A Partnership with Human Resources In a n unusua l twis t for a top executive , Mike Ockenden i s also accountable fo r Huma n Resources , what he like s to cal l the "peopl e initiative. " He meet s regularly with the directo r o f Human Resources , reviews progress, discusse s any problems o n variou s projects , an d work s closely with this functional par t o f the divisio n t o mak e sure tha t i t is a value-added part o f th e overal l process. Huma n Resource s has input o n strategi c decisions, offerin g it s assessment of ho w the y might affec t it s ow n policies and processe s an d ho w in tur n the y ca n hel p suppor t th e (division's ) strategy. A fin e exampl e o f it s integrate d rol e withi n th e organizatio n i s th e performance managemen t syste m that i t devise d a t Ockenden' s behes t

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and i n conjunctio n wit h representatives fro m ever y area o f the business . In order to link performance managemen t with the overall organization's strategic objectives , everyone (Ockende n included ) come s up with a personal developmen t pla n tha t outlines what he o r sh e will specificall y d o to mak e goal s a reality . "Our senior manager s say , 'This i s where we'r e going, folks,' " explain s Sarah Moody , Human Resource s manager. "And our peopl e say , 'Okay , this is how I think I can help u s to get there.' " Besides setting personal objectives , employees decide wit h Human Resources ho w thei r progres s wil l be measured . Wil l i t b e throug h time , quality, quantity ? Every quarter , employee s si t dow n wit h a Huma n Re sources representativ e t o revie w objective s and mak e sur e the y ar e o n track. Plans can be change d i f they prove t o be to o eas y or to o hard . At the en d o f the year, employees are graded equall y on what they achieved and th e behavior s the y exhibite d alon g th e way . The result s o f thi s assessment, i n conjunctio n wit h a 360-degre e appraisa l comprisin g feed back from colleagues , supervisors, and customers , affect bot h regula r pa y and year-end bonuses . This persona l developmen t system , then, no t onl y solidifie s th e Hu man Resourc e function's rol e a s a partner i n th e overal l process, i t also demonstrates ho w the horizonta l organization hold s employee s accountable for achieving performance objectives. The new structure grants them more authority , but it links their evaluations and rewards to their achievements. As a rather extraordinar y asid e to the ne w design, Ockende n no t only develops hi s ow n personal plan , h e als o willingl y shares hi s profile an d evaluation wit h everyone in the organization . Hi s behavior illustrates how a leade r set s an exampl e i n orde r t o promot e corporat e value s of trust , openness, an d cooperation . Some of Ockenden's leadershi p role s are more traditional , o f course. He makes strategic decisions a s to where and ho w Barclays HFD will compete, coordinatin g th e wor k o f th e sale s an d servic e proces s deliver y teams. He also monitors th e organization' s performance , bu t h e believes that the criteria for success in a horizontal organizatio n are different tha n those i n th e traditiona l vertica l hierarchy . H e look s first at the custome r imperative—what customers think about Barclays HFD, how it is performing, an d whethe r adde d valu e i s bein g delivere d consistently . H e als o considers ris k performance an d financia l return s t o stakeholders, a s one

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might expect , bu t a third , not-so-typica l elemen t o f measuremen t ha s been added that involves regular "temperature-taking" : Ho w do employees feel abou t th e organization ? D o the y feel the y ar e makin g a significant contribution? D o the y enjo y thei r work ? D o the y respec t co-workers ? "These ar e th e cornerstone s o f th e wa y we measure ourselve s now," h e says. If the comment s of Barclays HFD employees are an y indication, most of the m fee l quit e please d t o b e workin g i n a n empowered , cross functional, team-base d horizonta l organization .

I definitely lik e [th e horizontal organization] better . I feel like it' s a lot more fun now. It's a lot more open. I feel like I' m adding value now. Sue Ward, HFD service deliver y leader fo r the Southeast regio n

Echoing Su e Ward , th e servic e delivery leade r fo r Barclays ' Southeas t region, man y employees describe d thei r wor k lif e a s " a lo t mor e fun " these days . And althoug h Marti n Johnson, servic e delivery leader fo r th e Premier mortgag e product , admitte d t o feelin g less secur e becaus e hi s role i s still evolving, he readily acknowledged tha t "it' s muc h better tha n the ol d wa y and I wouldn't want to g o back . I ca n se e tha t th e action s that I tak e an d m y team take s actually make a differenc e and increas e the numbe r o f sales that w e do. I n th e ol d way , I didn' t fee l a s thoug h that was even on m y radar chart. " Ockenden work s har d t o le t peopl e kno w the y mak e a difference . Sometimes tha t mean s just stoppin g b y a n employee' s des k t o offe r a compliment o n a job wel l done. Bu t he als o seek s to foste r a culture of values an d purpos e tha t let s employee s know that learnin g experience s are importan t an d mistake s are okay , s o long a s they are no t th e resul t of negligenc e o r repeate d error s an d ar e use d a s learning experiences . He tell s a story about the tim e th e compute r syste m crashe d a t 3:30 o n a Friday afternoon, on e o f the busies t periods fo r completing mortgages for customer s wantin g t o mov e o n th e weekend . Wit h concerne d em ployees fluttering around hi s desk offering reassurance s that things would be "fixed, " Ockende n chos e t o confron t th e employe e responsible fo r information technology . Shaking in hi s boots because h e expecte d t o be

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reprimanded, tha t employe e mus t hav e bee n stunne d whe n Ockende n asked him hi s name and the n said , "John , I would like to than k you for pointing ou t th e bigges t single systems weakness we have in this business that coul d damag e ou r relationshi p wit h ou r customers . No w that we know what it is, we can fix it and i t will never happen again . Thanks very much, indeed." This example coul d not hav e been lost on th e many other employees who witnessed Ockenden's behavior . Without makin g a speech or circulating a directive , Ockende n le t the m kno w that, a s he put s it , "i f th e wrong thin g happen s fo r th e righ t reason , I don' t min d a s long a s we make sur e there' s no t a second time. "

To me, the mos t reengineering you need to d o is of mindsets. I f you reengineer the mindsets, then people will chang e th e proces s appropriately t o meet the customer imperative, whether it' s a big or a small change . Mike Ockenden, HFD managing director

In today' s technologicall y advanced bu t stil l imperfec t world, where customer servic e sometimes take s on th e element s o f a n absurdis t dra ma (wh o has not trie d t o resolv e a custome r servic e issue by telephone , only to be shunte d fro m operato r t o operator, perhaps being cut off in the mids t o f a transfer?) , Barclay s HF D ha s se t it s sight s o n a muc h higher leve l o f performance . From it s "touc h an d resolve " service , whereby a custome r who call s with a questio n o r complain t wil l receive an answe r or a resolutio n i n a singl e contac t wit h a tea m member , t o one-stop, no-hassl e shoppin g fo r product s rangin g fro m homeowner' s insurance, t o utilitie s management , t o propert y assessments , Barclays is singing a multitextured, polyphoni c son g that customer s like to hear. I t is determined t o becom e th e first choice i n hom e finance , selectin g th e principles o f horizontal organizatio n a s it s mean s o f transpor t t o tha t ultimate destination . An d th e Barclay s experience t o date , thoug h stil l in th e earl y stages , indicate s tha t succes s i s well withi n it s grasp . Hori zontal desig n ca n delive r a winning value proposition o n eithe r sid e of the Atlantic. As we will se e in th e nex t chapter , th e Xero x Corporatio n ha s take n

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horizontal design to even more complex levels, expanding its reach practically company-wide. Although majo r portion s o f Xerox remain vertical and hav e thei r ow n interna l functions , th e corporatio n ha s develope d what i n effec t i s a "hybrid " organizationa l structure , par t vertica l an d part horizontal , an d integrate d th e ne w with the ol d s o seamlessly that the ne w Xerox has given all stakeholders much t o be excite d about .

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8 ORGANIZING AM ENTIRE COMPANY HORIZONTALLY

XEROX

Among ou r examples , Xero x stand s apar t becaus e th e initia l move s in its transformatio n starte d i n a serie s o f change s tha t dat e bac k t o 1982 , when Xero x foun d itsel f i n wha t Chairma n an d CE O Pau l Allair e calls "deep trouble. " Facin g stif f oppositio n i n th e documen t an d facsimil e market fo r th e firs t time—primaril y from Japanese competitors—Xero x needed t o underg o fundamenta l chang e i n orde r t o maintai n it s hol d on th e market . I n on e o f th e firs t well-documente d example s o f a n American compan y applying tota l quality management t o a large degree , Xerox bega n a qualit y initiative tha t focused , i n part , o n changin g pro cesses. Allaire set an extraordinary goa l for the ne w Xerox when he took over the rein s o f the compan y as CEO in 1990 : t o become th e bes t company in it s industry and on e o f the bes t companies i n th e world. In thi s phas e of it s journey, th e compan y focuse d al l it s effort s o n bein g world-class , emphasizing especiall y its productivity and th e qualit y of its products an d

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services. The key , as Allaire saw it, was to get all employees to utilize their capabilities. Ther e woul d have t o b e a tremendou s shif t i n th e wa y the company define d it s "business" : Xero x woul d n o longe r vie w itsel f a s only a "copier" company, but rather a s a "document" company, so that it could meet th e challenge s o f digital technology . By 1992 , Xerox foun d itsel f standing o n th e precipic e o f truly transformational change . Confronte d with , in Allaire's words, a "crisi s o f opportunity," th e compan y determined tha t i t could no t tak e advantage of new market s so long a s it remaine d organize d primaril y around depart mental functions and mire d i n a complex hierarchy with many handoffs and approva l mechanisms . In short , it s corporate structur e ha d becom e an important impedimen t t o its success. In orde r to grow, it determine d that i t had t o change t o a more horizontal, process-oriente d company .

On the one hand, we see attractive markets , and we have superior technology. O n the other hand , we won't b e able to take advantag e o f this situation unles s we can overcome cumbersome, functionally driven bureaucracy and use our quality process to becom e more productive . Paul Allaire, chairman an d CEO of Xerox Corporation

As Allair e explains , "W e wer e a $1 0 billion-plu s organizatio n [no w billion] , and we were functional in nature. So every function—sales, service, administrative , manufacturing, engineering , researc h an d devel opment—all came up th e lin e and, in the end , reporte d t o me. Short of ordering offic e supplie s and conductin g mino r day-to-day activities, I was the onl y one responsibl e fo r anythin g in it s entirety." If a product wen t to market and di d no t succeed , ther e wa s no clea r way to see what went wrong. Finger-pointing an d shiftin g the blam e were inevitable. Peopl e i n th e manufacturin g divisio n contende d the y ha d merely followed the order s o f engineers, who, in turn, said they did onl y what thos e i n produc t desig n an d marketin g ha d requested . Marketing blamed salespeople , wh o insisted the y could no t sel l something th e customer neve r wanted in the first place. "Th e onl y one responsible for th e failure o f that product , therefore , was me," Allair e says. $18.2 18.2

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The functional organization was no t going to give u s the ne w world that we ha d to get to. Hector J. Motroni , vice president o f human relations at Xerox

The stag e was set for th e majo r transformatio n that would produce a more full y integrated , horizonta l organization— a ne w Xerox . Bu t firs t the compan y had t o identif y it s value propositio n an d restat e i t i n suc h a way that it would b e clea r t o al l stakeholders, a s well a s the publi c a t large, an d serv e as the beaco n markin g the company' s voyage to it s destination. Recognize d later for its achievements, Xerox received a Baldrige award i n 198 9 fo r havin g institute d company-wid e managemen t pro cesses, extensiv e problem-solvin g capabilities , an d qualit y managemen t systems. I n 199 7 th e compan y receive d a secon d Baldrig e awar d in th e services category.

The Value Proposition As examples in previous chapters have demonstrated, a horizontal makeover is impossible without first formulating the unique se t of benefits tha t will make customers choose on e compan y over its competitors. What value coul d Xero x offer tha t would entice customers to come to it for thei r document solutions ? Th e "Xero x 200 5 Strategi c Intent" statemen t expressed th e company' s mission thi s way: "Xerox, Th e Document Company, will b e th e leade r i n th e globa l documen t marke t providin g Documen t Solutions tha t enhanc e busines s productivity."1 Th e compan y more spe cifically define d it s objectiv e a s a promis e t o provid e uniqu e valu e by offering leading-edg e product s usin g privilege d technolog y tha t ar e o f the highes t qualit y and delive r tota l documen t solution s quickl y an d re liably. Goin g severa l steps beyon d it s competition, th e compan y als o offered top-qualit y software, hardware , and servic e solutions backed by ongoing customer support and continuing business proces s improvements . As Allair e accuratel y recognized , deliverin g th e tota l solutio n de scribed i n tha t valu e propositio n require d tha t th e busines s b e reorga -

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nized int o a numbe r o f horizontal , cross-functiona l group s organize d around work flows. Theorist s hav e identified th e importanc e o f compa nies understandin g thei r "valu e chain"—th e strea m o f activities a company performs i n designing , producing , marketing , delivering , and supporting it s products an d services—an d how the activitie s in the chai n ar e performed an d interac t a s sources of competitive advantage. 2 In th e variation applied a t Xerox, th e compan y elected t o focus on th e activitie s it needed i n order to design and delive r value to its customers. Rather tha n splitting up thos e activitie s into discret e functions and assignin g each t o a separate department , i t chose to organize itself around th e entire chain . In th e variation applie d a t Xerox, the compan y organized thes e activities around set s of tw o linked teams—Busines s Group team s an d Custome r Operations Grou p teams—which together carr y out the work of the value chain.

An Integrated Composite of Mini-Businesses Fig. 8. 1 depict s th e ne w Xerox , a n organizatio n o f fou r divisions : Cor porate Finance , Busines s Operations, Custome r Operations (no w calle d a group), and Corporat e Researc h an d Technology . Insofa r as each business division reports to an executiv e vice president who , in turn , report s to CE O Allaire an d ne w presiden t an d CO O Richar d Thoman , Xero x 2005 i s a vertica l organization . Bu t beneat h th e leve l o f executiv e vice president, the organizatio n takes on an entirely ne w face. After a n initial transformation i n th e lat e 1980s , Xero x managemen t sough t t o mov e decision makin g out o f the corporat e cente r an d int o Busines s Divisions and th e Custome r Operation s Division , which coul d operat e acros s th e organization an d accep t end-to-en d responsibilit y fo r suppl y manage ment, products, and services. In order to inspire an entrepreneurial spiri t among employees , increas e custome r responsiveness , decreas e tim e t o market, an d thereb y enhanc e it s competitive advantage, Xero x empowered employee s to brea k dow n th e wall s o f the traditiona l vertica l organization. In 1996, the company made further refinements to this structure. Specifically, i t streamlined Business Operations int o th e five Business Groups shown i n th e whit e boxes i n th e lowe r hal f o f th e char t i n Fig . 8.1. In addition, th e Custome r Operation s Divisio n was renamed th e Custome r

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Fig, 8.1 Xero x 2005: The Hybrid Organization Chart

Operations Grou p an d place d unde r a n executiv e vic e presiden t wit h direct reportin g t o CE O Allaire. The ne w Busines s Operation s Groups constitut e wha t Allair e call s "mini-businesses," whic h have been integrate d int o th e Xero x 200 5 design. A specialize d ar m o f th e Xero x Corporation , eac h mini-busines s devotes its attention t o meeting its own objectives (formed in conjunction with thos e o f th e whol e company) , developing it s special product s an d services, serving its customers, and exceeding financial expectations. Each mini-business is composed o f a number of multiskilled, empowered teams or linked chain s of teams focused on th e value chain, including busines s planning, produc t desig n an d development , manufacturing , marketing, sales, distribution , an d custome r servic e an d support . An d a s a mini business, eac h account s fo r al l o f it s ow n profits an d losses , engage s i n contracts an d agreement s with third partie s outsid e Xerox , and cooper ates with other business groups within the company . Business Operation s Group s thu s work i n conjunctio n wit h the Cus tomer Operation s Grou p (eac h report s t o an executiv e vice president a s illustrated i n Fig . 8.1) . Supporte d b y Corporat e Strategi c Services , for example, the five cross-disciplined busines s units form the vital organs of the ne w organization: th e Documen t Service s Group (DSG) , th e Offic e Document Product s Group s (ODPG) , th e Productio n System s Grou p (PSG), the Supplie s Group , an d th e Channel s Group . These five groups ar e further subdivide d int o cross-disciplinar y teams headed b y general manager s who ac t a s core proces s owner s an d wh o take responsibilit y for seein g tha t performanc e objective s are met . Th e teams—individually o r collectively , dependin g o n th e situation—hav e end-to-end accountabilit y for takin g a n ide a throug h al l the stage s nec essary t o produc e a marketabl e product . Tha t is , th e team s hav e th e information, training , an d authorit y to undertake task s that traditionall y would hav e been divide d amon g separate , multi-leve l functional depart ments. For example, some linked teams can themselves go directly to th e market throug h thei r ow n sale s force s o r channe l deliver y units. Thi s authority i s pictorially represente d i n Fig . 8. 1 by the lowe r branche s o f the bifurcate d arrow s that exten d across the Custome r Operation s Grou p directly t o market s an d customers . Th e uppe r branch , extendin g int o Customer Operations , indicate s tha t th e group i n question ca n also work

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directly with th e Custome r Operations Grou p in delivering its own products and services . Each business group depicte d in Fig. 8.1 focuses on a different marke t or handles a special set of products an d services . The Documen t Services Group (DSG) , for example, take s responsibility for larg e accounts. It develops and deliver s a number o f services to big clients, such as document consulting, process reengineering , an d th e integratio n o f document systems. Th e latte r include s th e design , installation , an d suppor t o f loca l and wide-area networks (LANs and WANs , in the parlanc e o f information technology). Although Fig . 8.1 does no t g o int o suc h detail , ther e exis t four business units within the DSG itself, each of which is responsible for a product or service offering. Thes e includ e Xerox Business Services, the Document Solutions Unit , th e Softwar e Solution s Unit , an d th e Networ k Services Unit. Because the business activities for each unit can change rapidly, the structure must remain flexible . Som e units are large; others, small . Some units are self-contained; others invite experts t o join th e tea m as needed. And even the numbe r o f these business units can increase o r decrease as markets and customer s change . The ne w Xerox, th e organizationa l skeleto n o f which is depicted i n Fig. 8.1, is a hybrid organization that takes advantage of both vertical and horizontal approaches . Althoug h th e to p manageria l layer s remain vertical, responsibility for daily operations, productivity, marketing, customer relations, and other traditional functions no w resides within horizontall y aligned group s that have the support o f the entire company behind them . This structur e afford s eac h grou p tremendou s leverag e i n working with clients and suppliers , i n reachin g ou t t o ne w markets, and i n becomin g more efficien t an d profitable .

The Horizontal Aspect of the New Xerox Each o f th e fiv e group s follow s th e sam e basi c procedur e i n handlin g issues tha t fal l withi n that group' s province . After firs t identifyin g a customer's needs , tea m member s determin e wha t technologie s exis t bot h inside an d outsid e o f Xerox t o hel p mee t them . The y conside r compe tition an d cos t structure, a s well a s the feasibilit y o f bringing ou t a new product o r addin g ne w features t o a n existin g on e i n orde r t o satisf y a

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customer's needs. Cross-functionality enables group members to ascertain how the y can efficientl y manufacture , advertise , and brin g a product to market. "They hav e tota l responsibilit y fo r a piec e o f Xero x i n a worldwide sense," say s Allaire . "Th e team' s genera l manage r ha s ver y muc h th e same kin d o f responsibility I have . Basically, they make all the decision s from th e beginnin g righ t t o th e end . They're clos e t o thei r customers , and somebod y can alway s be hel d accountable. " Accountability a t Xero x mean s tha t peopl e ar e assesse d o n bot h a results an d a behavioral matrix. According t o James Lesko , president o f Xerox Supplies Group an d a corporate vice president, Allaire devised th e model an d i s quite adaman t abou t th e importanc e o f the behaviora l element. Lo w behavior an d lo w performance mean s definit e dismissal , as does poo r behavio r wit h medium performance . Interestingl y enough, a poor performance i f accompanied b y medium-level behavior wil l not ac tivate th e hook . Th e employe e so evaluated, however, will receive coaching and perhap s a n opportunity to relocate t o another group . Goo d performance plu s good behavior , o n th e othe r hand , put s a n employe e i n line fo r reward s an d form s th e basi s o f a compensatio n mode l aligne d with an d supporte d b y the eigh t dimension s of the Xero x corporate culture (se e sidebar). The rol e o f empowere d worker s o n cross-functiona l team s i s mor e demanding an d obviousl y require s ne w skill s an d competencies . Ji m Lesko say s tha t th e nee d fo r superio r technica l skill s i s much highe r a t Xerox sinc e th e transformation , just a s there i s increased nee d fo r general manage r skill s (particularl y a stron g financia l understanding ) fo r team leaders . Accordingly , the compan y ha s se t u p a proces s t o assess which skills individuals lack and giv e them the trainin g they need t o meet those ne w challenges. Skills training include s quarterly sessions for team manager s in which speakers fro m outsid e Xero x tal k abou t industr y best practice s o r tech nological changes , o r president s o f othe r horizontall y oriente d compa nies share thei r experiences. Ke y representatives from th e various Xerox operating group s ar e selecte d b y thei r peer s t o atten d session s a t th e corporate trainin g cente r i n Leesburg, Virginia. Since th e horizonta l realignment , man y more peopl e a t man y more levels, dow n t o an d includin g secretaries , participat e i n sliding-scal e in-

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Xerox 2OO5: Cultural Dimensions 1. Marke t connecte d 2. Actio n oriente d 3. Absolut e results oriented 4. Lin e driven 5. Tea m oriented 6. Empowere d people 7. Open , honest communications 8. Organizatio n reflection and learning

centive bonus plans. The bonu s is tied to the organization' s goals as measured b y both custome r satisfaction surveys and financia l results . Surveys conducted worldwide assess how satisfied Xerox customers are with products and ho w the compan y stacks up agains t th e competition . Th e financial measure varies by position, but i t is based on profit or revenue growth or o n cas h and asse t management. Customers don't care about your functional silos. Customers care about what you're giving them, how you're addressing their problems. Norman E . Rickard, Jr., president , Xerox Document Service s Grou p

Managers also receive evaluations reflecting, in part, ho w satisfied th e people who work under the m are. Each year employees report their levels of satisfaction in term s of four work parameters, liste d her e from larges t to smallest : corporate, group , team , and individual . Managers meet with employees t o addres s concern s an d agre e upo n a pla n fo r improvin g relationships an d behavior . Eac h year both manager s an d frontlin e em-

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ployees wh o mee t objective s receive appropriat e bonuse s o r othe r rec ognition. Whil e such mechanisms allow for monetary rewards, an equally significant product is the increased sens e of power and participatio n tha t employees fee l i n th e horizontall y oriented organization . N o longe r d o they fee l a s i f the y hav e t o avoi d criticis m o f thei r supervisor s o r thei r peers an d kee p suggestion s t o themselve s abou t ho w to improv e opera tions. Instead o f handin g ou t $25 checks , w e hav e a dinner onc e ever y three month s i n order to recognize those people who have contributed significantl y to solving a customer's problem or helping ou t a team. There's no limit to how much recognition w e can give and the thanks w e can show. Norman E. Rickard, Jr., president , Xerox Documen t Services Group

Because th e horizonta l mode l empower s the workforc e an d foster s a culture of openness an d cooperation , i t promotes a greater sens e of contentment amon g frontlin e workers. At Xerox th e satisfactio n score s fo r employees ar e at or near th e to p o f the industry .

A New Role for Remaining Vertical Segments of the Organization Extending throughou t th e hybridize d structure , althoug h no t apparen t in th e organizationa l schematic , ar e man y vertica l enablin g processe s such a s th e time-to-marke t process , th e integrate d suppl y chain , th e market-to-collection process, and customer service. People do not actuall y reside withi n thes e enablin g processes , but ther e ar e process champion s who ar e charge d wit h making sure tha t the y work effectively . Time-to-market, for example , provide s produc t developmen t suppor t by helping teams do a better job o f taking an idea, evolving it, and bringing i t t o manufacturing . On e o f it s responsibilities i s t o maintai n engi neering excellence . T o thi s end, th e champio n develope d a plan unde r which al l engineers o n Xerox' s 40-plu s teams follow a commo n proces s for designin g products. This commonality ensures that each engineer ha s access to technical tool s shared acros s the compan y and allow s for easie r

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movement o f engineer s betwee n differen t team s a s custome r demand s require. In a n Asia n joint venture calle d "Japa n 50/50, " fo r instance , Xerox and a Japanese compan y work in simila r engineering environment s tha t allow Xerox to take designs from th e partne r compan y and manufactur e those product s i n Xero x factories. As is true at other organization s discussed in this book, Xerox engages in activities—specifically , research an d produc t deliver y (whic h encom passes sales)—that continue t o be functionall y organized. Thes e remai n as function s because o f th e natur e o f th e wor k an d als o becaus e the y must maintain needed economies of scale in skills to sustain leading-edg e expertise an d technica l knowledge . The researc h function' s primar y responsibilit y (Xero x make s a distinction betwee n "pure " researc h an d produc t development) , fo r ex ample, i s t o develo p ne w technologie s tha t ar e restricte d neithe r t o a single marke t no r t o a specifi c tim e frame . Xero x doe s no t wan t it s PhDs hemme d i n b y nex t year' s marke t demands . Th e technologica l options mus t b e flexibl e an d numerou s enoug h t o allo w eac h o f th e business team s t o dra w from them . Th e innovation s migh t b e i n computer scienc e or colo r technology , but th e option s wil l b e suc h that various team s ca n fin d way s t o us e the m i n thei r products . T o maintai n and replenis h technica l expertise , Xero x als o support s specia l interes t groups an d make s both best-practice s information an d extensiv e cours e work availabl e o n it s IT networ k comprisin g si x intranets. Planning fo r this interna l communication s networ k too k seve n month s (April October 1996 ) as th e compan y surveye d eac h busines s uni t o n suc h matters as its expected return s o n investment , the product s an d services it woul d mak e availabl e o n th e website , it s securit y requirements , an d its measure s fo r trackin g usag e b y and application s t o bot h employee s and customers . Since Octobe r 1995 , the Fiel d Informatio n Researc h System s Team (FIRST), locate d i n Lewisville , Texas, ha s managed on e intrane t sit e for Xerox. That site logged approximately 75,000 hits a month, enabling over 25,000 field representatives, salespeople, an d othe r Xero x employee s t o find an d retriev e th e kind s of information the y need t o solve customers' problems an d increas e sale s by means o f sharing best-practice s information. According to one count, during the Memorial Day weekend of 1997,

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Xerox employees an d managers downloaded files from a FIRST site near ly 4,500 times. 3 The reasonin g behin d leavin g produc t deliver y as a functio n stem s from Xerox' s desire t o presen t on e fac e t o th e customer . If a custome r has a need fo r ten differen t office product s tha t come from te n differen t business groups , tha t custome r doe s no t wan t te n differen t Xero x technical representatives coming around t o handle th e business , Allaire says . Or, if products brea k down, one technicia n shoul d hav e the expertis e t o fix whatever need s fixing. Similarly, when a sales representative make s a call on a customer, the customer often does not know exactly which product he o r she needs. Both efficiency an d th e custome r relationship suffe r if the salesperso n ha s to say, "I'm sorry, I'm fro m Busines s X, and i t turns out yo u need Produc t Y . I can't sel l you tha t s o you'll have to wai t unti l my colleague can stop in."

Before ou r transformation , man y o f ou r functiona l unit s ha d th e attitud e o f "not invented here. " Ou r Pal o Alto Researc h Center (PARC) pushed hard for us to move into ne w P C ico n applications, bu t much of this neve r mad e it out to the custome r because n o one along th e valu e chai n though t i t was important . That would eventually prov e very profitable for Microsoft, Apple , and IBM. Hector J. Motroni , vice presiden t of human relation s and corporate vice president o f Xero x

Xerox doe s recognize , however , tha t differentiatio n b y expertis e i s sometimes necessary. Thus, on the sales side, ther e ar e broad distinction s between printin g system , production system , and cop y duplicator sale s representatives, an d the y are supporte d b y color specialists , systems spe cialists, an d s o forth. Reporting lines , however, do connec t up throug h the sam e leaders . In th e cas e of the researc h function , Xerox has implemented various mechanisms to make sure that new ideas do not lea d t o "an outpu t looking fo r a customer, " a s Jim Lesk o call s it . Th e technolog y decision making boar d i s the prim e vehicl e for bringin g ne w opportunities int o the business groups, but Xero x also makes use of a business development forum, comprisin g the group presidents, th e head s of corporate researc h

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and o f strategy, and som e leading technica l experts, a s well a s a team t o assess industry trends an d hel p determin e wher e futur e investmen t dollars shoul d b e directe d s o a s to alig n pur e researc h profitabl y wit h th e needs of business. Xerox als o ha s worke d t o mak e th e researc h ar m muc h mor e customer-oriented. Wherea s th e technica l wizards once viewe d thei r jo b as just developin g interesting technology , no w they interact with interna l customers i n th e busines s group s a s well as with externa l customer s so that the y can better understan d wha t the need s are. This newfoun d connection mean s tha t technologists , spottin g area s o f opportunit y amon g certain customers , might now suggest that a business group move a product t o market more quickly or use their understandin g t o redirect a line of research . Both o f th e remainin g functions , i n fact , wel l understan d tha t the y must work a s effectiv e partner s i n proces s performance . A s Lesko says , "The functiona l parts recognize tha t their survival depends on providing value to the organizatio n at this horizontal tea m level. They now have to ask themselves, 'How do I become a world-class supplier of my functional expertise to these teams?' " And if they don't? The teams will look outside to find what they need . There's a tension between a totally separat e [horizontal] business team and a group that is more functionally oriented wit h expertise in a particular area . The right mix of the horizonta l and the vertical i s something you struggle with . Paul Allaire, CEO, Xero x Corporation

Impressive Results at the New Xerox Allaire though t a t th e outse t o f th e restructurin g tha t thes e mini businesses migh t b e abl e t o respon d faste r an d mor e effectivel y t o customer needs . H e was right: Since 1992 , no t onl y has Xerox increased its presence i n market s where it had formerl y ha d littl e or n o visibilit y (for example, personal product s and color copiers), but th e company has also launched an impressive array of some 170 new products in six years. That increased marke t presence ha s been visibl e on th e botto m line , too: Be -

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tween 199 1 an d 1996 , earnings pe r shar e sho t up almos t threefold, while revenues per employe e increase d on e an d a half times. Results are not alway s measured in dollars and new products, however. More subtle changes have taken root in the fertile soil of the new Xerox's corporate culture . Employees report a much highe r sens e of satisfaction with thei r work , thei r greate r responsibility , an d th e mor e immediat e response fro m customer s whos e problem s the y solve . Moreover , thes e employees fin d tha t wit h th e ne w skills Xerox help s the m acquire , the y can have an eve n greater impac t on the company' s ability to develop new products, reac h ou t t o new markets, and attai n stretc h goals . In additio n t o ne w skill sets , working in a n empowere d environmen t requires a certain mind-set . Managers must learn to look not just at func tional responsibilities ; instead , the y must take a holistic view of the busi ness. Lesko notes that Xero x encourage s bot h managers an d team members t o wor k an d thin k proactivel y i n a n open , cooperative , an d collaborative environment . The y hav e t o leav e behind th e mindse t tha t an employe e first seeks permission t o work on a n ide a o r problem .

The Personal Copier Success Story Indicative o f ho w th e 1 2 principles for designin g an d institutionalizin g the horizontal organizatio n work in a mutually supportive way to improve speed, flexibility, and qualit y is the stor y of Xerox's personal copier prod uct. Prio r t o 1992 , when Xerox create d it s personal documen t product s division, th e compan y wa s a distan t playe r i n a marke t dominate d b y foreign companie s an d a handful o f domestic ones . Bu t by 1996, i t ha d emerged a s number one in market share of personal copiers sold through retail outlets in the United States. (I n 1997, the personal documen t prod ucts divisio n becam e par t o f th e Channel s Group , show n i n Fig . 8.1 , which now comprises three busines s units: Channel Operations , th e Networked Product s Unit , and th e Persona l Product s Unit . Th e latte r busi ness unit ha s responsibilit y for personal copier s an d severa l other prod ucts designe d fo r individual s and smal l businesses.) When Xerox began it s personal copie r initiative, its experience i n tha t marketplace per s e was limited, but throug h carefu l researc h an d customer survey s i t achieve d a kee n understandin g o f what customer s wante d and what kinds of product coul d be made t o work. Based on this analysis,

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Xerox determine d tha t i t woul d b e importan t t o offe r customer s th e choice o f multiple servic e options , includin g self-servic e repai r whereb y customers, arme d wit h 24-hou r telephon e suppor t an d a Xero x repair kit, ca n fix the mos t common problem s wheneve r the y occur, eve n lat e on Saturda y night when repair shop s ar e typicall y closed o r a n hour before a bi g presentatio n whe n ther e i s not enoug h tim e t o as k a repair technician t o make a house call. As fo r th e 24-hour , do-it-yoursel f repair ho t line , caller s t o th e 80 0 number ar e guarantee d a huma n voic e i n 1 5 seconds o r less—an d no t just any voice, but th e voic e of a knowledgeable helpe r wit h creativ e solutions tha t wil l ge t a customer' s copie r u p an d runnin g again . Lesko , who ha d significan t experience i n th e persona l document s busines s before movin g t o th e supplie s group , tell s o f a lette r fro m a 71-year-ol d woman wh o had neve r fixe d anythin g in he r lif e unti l sh e repaire d he r copier i n 1 0 minute s usin g a telephon e helpe r an d part s tha t Xero x shipped overnight . In orde r t o brin g suc h a servic e int o reality , Xerox approache d po tential supplier s with specifications for a new modular produc t with multiple servic e options . Beside s workin g closel y with third-part y supplier s and utilizin g it s extensiv e custome r knowledg e t o desig n th e personal copier product , Xero x als o bega n t o develo p th e channe l infrastructure needed t o sel l t o small-busines s or home-us e customers . Previously , the company ha d sol d onl y on a business-to-busines s basis , s o the switc h to retail sale s require d a ne w structure. Th e compan y develope d a cross functional approac h tha t mad e linke d team s jointly responsibl e fo r th e end-to-end chain o f activities from settin g strategy to selling products an d delivering service . The "upstream " tea m focuse d o n th e genera l management of the business , including developmental strateg y and planning , vendor selection , manufacturing , and produc t pric e positioning . Mean while, a "downstream " tea m ha d go-to-marke t responsibility , which included retai l sellin g strategy , custome r service , logistics , shipping , an d certain administrativ e functions. To marry these team s in an effective , collaborativ e partnership, Xero x gave overal l end-to-en d responsibilit y to on e busines s manager. I n addi tion t o being a part o f the day-to-day workings of the teams , this manager had responsibilit y for bringin g th e ne w copie r t o marke t worldwide, as

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well a s ful l profit-and-los s accountability . H e wa s empowere d wit h th e necessary information and authority to make tactical decisions and tradeoffs quickl y tha t allowe d Xero x t o jump-start thi s mini-busines s every where aroun d th e world . What i s more, th e manage r share d a staf f an d reporting relationshi p wit h the tea m members as well as a compensatio n plan linke d t o th e project' s success. Both team s were held accountabl e fo r commo n end-of-proces s objectives suc h a s custome r satisfaction , produc t profitability , an d marke t share. To track customer satisfaction , the compan y monitored cal l acceptance according to the percentage o f customers who hung up before their calls were answered and th e lengt h o f time before they received answers to thei r questions . A formal survey process checke d t o se e ho w satisfie d customers were with th e eventua l servic e response an d wit h th e overal l Xerox experience . Xero x too k stoc k o f thos e result s an d complete d follow-up studie s t o mak e sur e improvement s materialize d an d satisfac tion increased . The clos e proximity of the team s to each other and t o thei r manage r (there wer e n o hierarchica l layer s separating th e wor k of th e processe s from th e authorizin g agent ) mean t tha t critica l information was quickly shared an d acte d upon . Gathere d aroun d one table , manufacturing representatives met with vendors, logistics experts, sale s and servic e personnel, an d others t o determine what features actual customers had request ed. Feedbac k a s t o produc t acceptanc e an d competitiv e challenge s rapidly translated int o retooled produc t o n retailers ' shelves . In on e suc h example, a retail field operations perso n i n Canad a went to th e team' s genera l manage r whe n sh e spotte d a competito r test marketing a copie r bundle d wit h a fre e cartridge . Sh e feare d tha t th e competitor's strategy , if it were rolled ou t o n a broader basis, would hurt Xerox sales. The busines s team agreed an d o n it s own decided t o launch the same strategy across the United States in a preemptive strike designed to protect Xerox' s competitiv e position . "That was one o f the catalyst s that go t us to the numbe r on e marke t share positio n i n 1996, " Lesk o says with admiration. " A customer oper ations uni t talke d to the retai l channe l operation s unit , which , in turn , talked t o th e busines s operations unit . The y all recognized th e proble m and collaborate d t o com e up wit h a solution ver y quickly."

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The sam e customer research an d analysis that determined th e benefi t and valu e to customers in relatio n t o th e self-servic e ide a prompted th e empowered persona l copie r team s to offe r othe r distinctiv e value-added features, too . Betting tha t it s customer-car e initiativ e would cove r most repair eventualities , Xerox stepped ou t to become th e only personal copier maker to offer a three-year service and replacemen t guarantee. Xerox is still the onl y copier make r to offer thi s long a guarantee. I t pledged t o provide easy , flexibl e servic e options—such a s overnight exchange o f a defective produc t o r depo t repair—fo r any problem tha t coul d no t b e handled ove r the phone . Looking down the road , Xero x expects soon t o use new information technology to enable persona l copier s to diagnose themselve s and begin self-repair over the phone. What might have been material for a futuristic novel som e year s bac k i s alread y a realit y for som e o f Xerox' s larger business customers. The Channels Group has developed sophisticate d remote diagnosti c capabilitie s tha t trave l throug h modem s t o trac k down existing problems or fin d an d preven t problems before they occur. Sim ilar t o compute r program s tha t ca n spo t a potentia l failur e o f a car' s brakes, th e Xero x softwar e provide s immediat e solutions s o tha t a personal copier, for example, can be repaired i n minutes—sometimes before the custome r even suspects a problem exists. Information technolog y continues to prove invaluable to the personalcopier team s just a s i t doe s dail y t o everyon e acros s th e organization . "The abilit y to have a PC/client server platform is a tremendous collaborative tool," Lesko says. E-mail allows empowered employees in remot e locations to share information, tap into data related t o the statu s of programs, busines s results , and suppl y and demand . As with the fiel d operations perso n i n Canad a wh o spotted th e copie r marketin g threat , i t is not alway s feasibl e t o mee t face-to-face ; ye t quic k actio n ca n mea n th e difference betwee n disappointment and success. The Xerox phenomenon, of course, is not limited to personal copiers. Its growt h across the whol e business spectrum i s directly attributable t o its application o f horizontal principle s acros s a broader are a o f its operation. "W e use d t o hav e on e larg e funne l i n th e corporatio n an d yo u could gro w as fast a s you could mov e things through tha t on e funnel, " says Lesko, echoing Allaire's observation abou t Xerox' s inefficient struc ture befor e the makeove r to th e horizontal . "Now, you may have ten o r

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20 paths , alon g whic h move product ideas , creativ e solutions , timel y responses t o the marketplace. "

Lessons from the Horizontal As the account s of Motorola's Space and System s Technology Group , th e General Electri c production plan t i n Salisbury , North Carolina , th e Barclays Bank Home Financ e Division , and th e ne w Xerox Corporatio n sug gest, th e shif t t o th e horizonta l organizatio n i s far les s a matter o f orga nization siz e or typ e than i t is a question o f organization will. Whether i t is a single operatin g uni t withi n a company , a n entir e division , a whole company, or even , as in th e cas e of the Occupationa l Safet y an d Healt h Administration, a governmen t bureaucrac y tha t i s bein g transformed , whether th e enterpris e i s product-focused o r service-oriented , th e hori zontal structur e introduce s fresh , value-adde d approache s t o solvin g problems grea t an d small . It ca n hel p tur n stale , unprofitabl e organiza tions into dynami c enterprises . The fina l fou r chapter s addres s th e mean s fo r dramaticall y improvin g performance a t your company by taking it along a transformation to th e horizontal organizatio n simila r t o wha t we hav e witnesse d i n thes e ex amples. Leading tha t makeover entails a three-phase proces s that focuses attention o n setting a clear direction, formulate s the right organizational design t o mee t th e desire d objectives , an d institutionalize s th e change s by buildin g i n th e require d skill s an d behaviors . Th e initia l direction setting phases will be the subjec t of chapter 10 . The subsequen t two chapters outlin e th e 1 2 principles fo r designin g an d institutionalizin g horizontal organizations . Although painstakin g and sometime s initially uncomfortable for managers an d frontlin e workers, the organization-wid e redesig n hold s grea t promise for each. It is not t o be undertaken lightly , nor shoul d it be seen as a stop-ga p measure . I f begun half-heartedly , allowed t o languish , un dertaken without adequate planning , discipline, or refinement, the makeover is likely to have disastrous results. But if undertaken wit h enthusiasm and care , an d presente d i n a way that inspire s the peopl e o f the organi zation t o suppor t th e effort , th e transformatio n ca n achiev e its primary purpose o f restructuring th e work that people do , the way they do it, and

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how they feel abou t it . Rather than treatin g people a s mere functionaries with narro w departmenta l quotas , th e horizonta l organizatio n invite s them t o becom e empowere d tea m member s with far-reachin g responsibilities—or, i n some cases, to become process owners themselves—peopl e who ar e read y t o collaborat e wit h other s t o design , make , an d sel l th e products that win customers and ensur e succes s for your company.

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9 THRE E PHASE SET DIRECTION, FORMULATE DESIGN, INSTITUTIONALIZE THE APPROAC H

Several years ago, a major European natura l resources company decided to undertake a transformational change tha t manager s hope d woul d significantly improv e performanc e an d presen t a flexibl e alternativ e t o a strict command-and-control patter n of behavior. Management also hoped to improve the company' s position vis-a-vi s competitors in the oi l and gas markets, then as uncertain as the earthquake-prone landscap e ove r which some o f its pipe s wer e lai d o r it s tanker s sailed . N o on e coul d predic t which supplier s would be aroun d i n a year or what the nex t unforeseen setback in th e Middl e East would mean fo r industr y survivors. Although thi s Europea n resource s compan y concocte d it s transfor mation i n th e mids t of uncertainty, it was not th e unpredictabl e natur e of th e externa l environmen t tha t le d t o th e company' s problems. Th e chief culprit was a lapse of leadership within the corporate domain. True, management ha d inherite d hig h debt s fro m questionabl e acquisitions , but the CEO's management style—describe d as abrasive and dictatorial— was ofte n single d out a s a leading caus e of the troubles . Whil e frontline

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employees watche d th e spark s fly as top manager s cu t an d welde d th e company's structure , n o executiv e eve r bothere d t o as k the m fo r thei r ideas o r ho w they felt abou t th e reorganization , le t alone explai n wh y it was necessar y an d wha t role s thos e employee s migh t hav e i n th e ne w company. In short , th e reorganizatio n effor t ha d commence d withou t a thorough understandin g fro m everyone , particularl y frontlin e workers . In othe r words , ne w behaviors and skill s were require d i f the ne w company wer e t o b e successful , bu t th e effor t t o develo p thes e skill s too k place onl y at the time . Frontline workers weren't directly involved in developing th e ne w behaviors an d skill s tha t would lead t o th e creatio n of a ne w organization an d improve d performance . Feeling exclude d an d disenfranchised , th e company' s employees reacted i n a predictably human way : They resisted al l change. As the com pany's transformation unraveled , its main stakeholders pulle d eve n harder a t th e fraye d ends . Stockholder s proteste d th e new s o f a cu t i n th e dividend. Th e chairma n lef t th e company . Frontline peopl e becam e in creasingly confuse d abou t wher e th e compan y wa s going an d whethe r they either wante d t o g o with i t o r would be aske d t o continu e i n thei r work. What new skills might be needed? Would the company even remain viable lon g enoug h t o mak e attainin g ne w skill s worth th e effort ? Wit h the compan y in th e throe s o f majo r leadershi p changes , n o on e coul d provide answers , easy or otherwise , to suc h pressin g questions. Why di d thi s Europea n compan y fai l s o miserabl y i n it s attemp t t o change? (Incidentally , this particular compan y i s not a n anomaly : Many efforts en d u p o n th e scra p hea p o f defeat, an d th e source s o f disaster often ru n deep. 1) Eve n th e casua l observe r coul d spo t th e erro r here : Management neglected t o win support fro m frontlin e workers and othe r stakeholders an d activel y engage the m i n th e transformation . Organizations contemplatin g a realignmen t nee d no t despai r a t th e odds against success, however. Although eac h situation is different—afte r all, eac h organizatio n start s fro m a differen t plac e an d face s differen t challenges dependin g o n it s readiness fo r change—ther e ar e guideline s for increasin g the chance s for success and decreasin g th e likelihoo d tha t an organization will stumble on a land mine. This chapter discusse s those guidelines an d introduce s th e thre e sequentia l phase s tha t ar e ke y to pulling of f a successfu l transformationa l change . Manager s mus t alway s

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bear i n mind , however , tha t th e detail s hav e to be tailore d t o thei r indi vidual circumstances .

Getting from Here to There As shoul d b e clea r b y now, horizontal reorganizatio n canno t b e under taken half-heartedly or as if it were merely a cosmetic makeover. It usually involves a majo r performance-base d "transformation " encompassin g all tha t th e wor d implies—tha t is , dramati c an d ongoin g chang e tha t cuts a broa d swat h acros s a n organization , affectin g th e broa d expans e of employees , ho w the y conduc t thei r jobs , wha t responsibilitie s the y take, an d wha t behaviors an d value s the y demonstrate. Th e goa l o f this transformation i s t o achiev e a dramati c an d on-goin g improvemen t i n performance. A n overhau l o f thi s magnitude , needles s t o say , require s total commitment from everyone : top executives, middle managers , front line workers. But ho w can leader s determin e whethe r a horizontal structur e i s the best wa y of meetin g th e challenge s o f th e future ? Perhap s the y shoul d opt for a hybrid structure, combining th e best features of both th e vertical and th e pur e horizonta l design ? Or maybe they should concentrat e thei r improvements i n area s that d o no t requir e suc h a major restructuring? Deciding what road t o tak e require s tha t leader s first conduct a strategic analysis to determine what the company's winning value propositio n is. Once tha t value propositio n i s clearly identified an d articulated , the y can the n decid e i f developing a horizontal organizatio n i n part o r al l of their enterpris e i s appropriate . Questions t o be answere d to determine i f a horizontal organizatio n is appropriate include : • Is dramatic , ongoin g performanc e improvemen t reall y neces sary? Fo r example , som e situation s ma y simply require a company to fine-tun e it s strategy . Thi s i s importan t t o answe r sinc e devel oping a horizontal organizatio n ma y require significan t change. • Ar e meeting cross-functional challenges (for example, improving speed, providin g "tota l solutions," o r improving custome r service )

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a critica l part o f delivering the winnin g value proposition an d improving the company' s performance? If leader s answe r yes to thes e questions , the n the y need t o focu s o n issues that wil l lead the m t o possible solutions . Fo r example : • T o what extent wil l th e makeover require change s i n the multiple levers of organization performance—i.e. , strategy, structure, systems, skills , share d values , staff, an d style ? Will skills and behavio r changes b e require d o f a significan t portion o f the organization' s members? Th e result s o f th e strategi c analysis , a s wel l a s th e 1 2 principles o f th e horizonta l organization , ca n b e compare d wit h the present strateg y and organization t o help determine th e exten t of the change s required . To be sure, th e horizonta l organizatio n i s not a n all-purpos e panace a for whateve r ail s a n organization , bu t affirmativ e answer s t o th e abov e questions indicate tha t it can profit from a horizontal realignment. Befor e leaders ca n begin an y transformation, however, they must consider ye t a second se t of questions : • Doe s the organization have significant problem s tha t need t o be dealt with first? For example, is it burdened by a desperate financia l situation tha t require s immediat e firs t aid ? Remembe r tha t re sources an d energ y are finite . Th e horizonta l makeove r may have to tak e a bac k sea t whil e leader s focu s o n other , mor e pressin g needs. • Ar e the fundamental s of high performanc e i n place ? In othe r words, does th e organizatio n hav e leaders with a clear understand ing of the company' s core markets , a strong, company-wide performance ethic , world-class skills (i n a t least one dimensio n critica l to competitive advantage) , adequate investmen t in ne w products an d services, an d a n appropriat e capita l structure ? These ar e som e o f the fundamentals that are applicable t o every organization, whether vertical, horizontal , o r hybrid . Without them , n o metho d o r magnitude o f redesign wil l help. 2 • D o company leaders understan d wha t adoptin g th e horizonta l organization wil l entail ? Leader s mus t recogniz e tha t th e change s will b e significan t and multidimensional , touchin g th e entir e or ganization. Are company leaders prepare d t o address th e personal changes an d action s require d o f them ? Leaders , i n othe r words ,

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must hav e th e persona l courag e an d long-ter m commitmen t t o drive and suppor t a change o f this magnitude . Assuming tha t al l system s are go , ther e ar e thre e sequentia l phase s that requir e attention : Managemen t must (1 ) se t a direction, (2 ) desig n the appropriat e organizationa l structure , an d (3 ) tak e step s t o institu tionalize th e changes . Each of these phase s will be addressed in detail in the followin g three chapters , bu t i t i s important t o gai n som e sens e o f what lie s i n stor e fo r a managemen t tea m tha t undertake s majo r trans formational change . The poe t Rober t Brownin g perhap s state d i t best : " A man' s reac h must exceed hi s grasp, o r what's a heaven for? " That sentiment informs what man y a manager mus t lear n i n settin g a direction, namely the importance o f establishing a n aspirational goal . Although ofte n overlooke d in th e too l kit of design, aspirational thinkin g is a useful instrumen t of change becaus e i t build s a health y tensio n an d establishe s th e prope r atmosphere fo r change . Fo r example, aspiration-base d plannin g inspire s people i n a n organizatio n t o stretc h beyon d wha t the y thin k the y ca n achieve. I t encourages out-of-the-bo x thinkin g an d th e settin g o f performance target s hig h enoug h t o foste r innovation . I t motivate s member s to inves t th e tim e an d energ y require d t o mak e significan t change s i n their behavior s and skills , which is, of course, crucia l t o implementing a horizontal organization . What i s more, afte r reviewin g the competitiv e an d dynami c environment, management is challenged t o articulate transcenden t goal s for th e organization an d t o project where it should b e in, say , eight t o te n years if all goes as planned. OSHA, for example , admirabl y aspire d t o th e im possible: "t o eliminat e al l preventable injuries , illnesses, and deaths fro m the American workplace in ten years." Xero x aimed to become a "worldclass" documen t provider , indee d th e world's leader i n documen t solu tions. By making future achievemen t important i n the present , manager s headed of f th e kin d o f incrementa l thinkin g tha t ofte n mire s a n orga nization i n a swam p of mediocrit y and underperformance . Thes e long term aspiration s als o shape d th e multileve l design change s tha t OSH A and Xero x wer e implementing , assurin g tha t the y would becom e plat forms fo r growth. As we have seen i n previous chapters, high-performance companie s as

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disparate as Motorola, Ford, and Barclay s Bank have achieved remarkable results by asking all employees to stretch beyond what they thought themselves capable o f achieving. Although initiall y pressed fro m outside , employees eventuall y internalize thes e stretc h target s an d com e t o fee l a greater sens e of both prid e an d accomplishmen t in thei r work . Before movin g on t o th e secon d phas e o f designing th e appropriat e organizational structure , leader s canno t bypas s the strategi c analysi s that will hel p the m bette r understan d thei r environment s an d potentia l outcomes. (Rigorou s and discipline d analysis , of course, i s required a t every stage of horizontal design, implementation, and operation.) I n thi s initial direction-setting phase, strategi c analysis ensures tha t th e change s intro duced a s part o f th e redesig n an d transformatio n effor t wil l contribut e to competitive success and overal l strategic goals . Standar d tool s suc h as market/customer research , analyse s of competitors' cost s and capacities , Michael Porter's five-forces framework,3 scenario planning , gam e theory , economic modeling, an d so forth enable an organization t o make choices that creat e differentia l valu e t o customer s an d competitiv e advantag e while deliverin g thi s valu e a t a pric e an d withi n a cos t structur e tha t provides desire d financia l returns . Wit h its value propositio n thu s iden tified, th e organizatio n i s now ready t o determin e i f a horizonta l structure, or some hybrid approach, i s appropriate, eithe r fo r certai n parts or throughout th e entire organization .

Formulating Design: Performance Is the liaison d'etre As leader s begi n th e proces s o f actuall y designin g th e organizationa l structure, i t i s essentia l t o remembe r tha t improve d performance i s th e overriding objective : The horizonta l organization i s simply the mean s to that end . And strategi c analysis , onc e again , i s th e too l tha t wil l hel p leaders t o articulate desig n criteri a and performance targets , thus providing the linkage between organizational design an d th e en d results , which are mos t critical to customer s and stakeholders . For eac h o f the organization s highlighte d i n Par t II , a value proposition an d th e element s require d t o achiev e th e desire d performanc e served as the embarkation poin t for the redesign an d change effort. Lead ers helpe d articulat e th e aspirationa l goal s an d identif y th e valu e prop ositions t o pinpoin t whic h competencie s an d processe s wer e neede d t o

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execute strateg y and thu s delive r superio r valu e t o customer s an d wi n competitive advantage. Th e Hom e Financ e Division of Barclays Bank, for example, aspire d t o become th e preferre d plac e fo r home financing. To achieve that lofty goal, it sought to design " a tota l solution tha t de-stresses the home ownershi p process." Having articulated tha t value proposition , Barclays HFD was then abl e t o identify th e cor e proces s critical to deliver it, determine whic h competencies wer e needed, and pla n ho w to desig n and implemen t th e othe r principles o f horizontal organization . I n short , its structur e evolve d from th e demand s o f its strategy t o produc e it s desired performanc e goals . Logically speaking , ho w coul d i t b e otherwise ? Ho w coul d Barclay s even kno w what constitute s succes s i f it s performance target s wer e no t derived fro m a value proposition tha t would win desired customers ? How could i t choose th e correct cor e processe s o r determine tha t its structural design would fit its needs without first laying out what it wanted to achieve and th e valu e proposition require d t o achiev e it? When i t i s feasible t o se t them, har d measure s provid e th e bes t performance targets . Quantifyin g potential benefit s allows senior executive s to make informed decision s about investmen t i n the transformatio n process an d it s priority i n thei r overal l managemen t agenda . Precis e measures als o ca n brin g focu s an d clarit y of directio n t o th e fron t lines , as exemplified b y the experienc e o f GE Salisbury.

Institutionalizing Change The thir d stag e o f transformation, i n which management seek s to institutionalize the changes it has made by building a companywide commitment, as well as "locking in " th e require d ne w behaviors, skills, and values, depends on a combination o f strong leadership an d performance. It is crucial that th e organizatio n hav e leader s wh o can inspir e employee s an d persuade the m that the changes are required b y market forces rather tha n by personal whim, that they are designed t o achieve positive benefits for everyone and not just a few top executives, and that they are designed accordin g to sound business practices to empower workers in a way that will improve both th e company' s performance an d tha t of individual workers while at the same time enhancing th e quality of life in the workplace. Change o f any sort, bu t particularl y on e s o fundamental a s a shif t t o

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the horizonta l organization, requires th e creatio n o f a sense of urgency. Typically, managers lay out a business case for th e transformatio n by detailing fo r worker s and shareholder s th e challenge s an d opportunitie s that exist . These migh t include curren t o r anticipated disruption s in th e supply chain, threat s pose d b y competitors, superior product s or services of competitors, rea l o r anticipated threat s o f customer defections, or un tapped opportunitie s fo r growth. In thei r articl e "Mem o t o a CEO: Leadin g Organizationa l Transfor mations," Dichter , Gagnon , an d Alexande r recommen d creatin g a special group (e.g. , a steering committee ) o f senior stakeholders t o take the lead i n managin g th e chang e effort. 4 Comprisin g thos e lin e an d staf f executives whose support i s critical an d wh o ar e willin g to pu t thei r ca reers a t ris k t o hel p assur e success , this grou p ca n als o coordinat e th e efforts o f what in effec t become s two organizations existing side by side: the organization tha t was and th e one tha t is being created. The old-style organization mus t continue t o exist , produce, an d functio n even as th e new on e i s being created . As in successio n myth s found in practicall y all cultures, however, the old grows more feeble and outmode d a s the young takes on ne w and vibran t life. Fo r th e interi m i n which the old-styl e bureaucracy exist s sid e b y side wit h th e horizonta l organization , th e com mittee o f senio r stakeholder s ca n provid e th e bridg e fro m on e t o th e other. It i s also importan t t o understan d tha t fundamenta l transformations emphasize leadershi p rathe r tha n jus t management . A s John Kotte r points ou t i n a recen t boo k o n leadership , th e tw o activities are vastl y different: Wherea s manager s engag e primaril y i n planning , budgeting , staffing, an d solvin g problems, leaders (whethe r in politics, business, the military, or any other area ) focu s o n setting direction, persuading other s to accept th e change , an d motivatin g them t o overcome barriers, poten tial and real , to the chang e effort. 5 O f course, this is not t o say that great leaders canno t als o b e grea t managers , bu t leadershi p make s itself fel t when a clea r directio n i s marrie d t o a forcefu l strategy , backed u p b y adequate resource s in time , funding, and training . Manager s who would also be leader s mus t inspire peopl e t o work constructively as team members, in part by building commitment to the change effort an d entrustin g those team s to tak e responsibility for a core process . Marmol an d Murra y reiterate th e nee d fo r demandin g leader s who

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may appear, particularly to an outsider , excessiv e and driven . At the to p of high-performanc e companies , on e i s likel y t o fin d single-minde d in dividuals committe d t o directin g th e transformation . Thos e leader s ar e perhaps "unreasonable, " a s Murray puts it , when judged accordin g t o standards se t outside thei r companies , bu t no t whe n judged b y internal measures.6 As a genera l rul e o f thumb , the y spend 2 0 percent o f thei r time o r more leadin g the chang e effort—motivatin g peopl e an d garner ing suppor t from al l areas o f the organization , shapin g an d establishin g performance goal s and action s required, holdin g people accountabl e fo r meeting thei r commitments , setting examples t o help communicat e th e values of the ne w organization, providing resources, reshapin g attitudes , solving problems , and breakin g dow n th e barrier s o f old standard s an d entrenched practices . No matte r ho w strong th e leadership , however , any change effor t in evitably will encounte r resistance , cynicism, and resentmen t over the in vestment o f time, energy , an d require d change s i n skill s and behaviors . That i s where performanc e come s into play . Positiv e results overcom e nay-saying, o r a s I like to pu t it , "performanc e trump s ideology." When customers are being won and stakeholder s ar e reaping the benefits, who can argu e with the horizonta l engin e o f success? The achievemen t o f performanc e objective s also confirm s tha t th e principles of horizontal organization are much more than just a nice idea. They ar e a consisten t set o f aligned, mutuall y supportive element s tha t work togethe r t o achiev e bot h a dramati c step-u p in performanc e an d on-going, continuous improvemen t in performance . Fo r example , when members of cross-functional, empowere d teams who have developed new skills and receive d new tools for meeting an important performance challenge achiev e thei r goals , the y recognize th e connectio n betwee n those new enablers an d success . Inevitably they want more. Thus begins a positive, self-reinforcin g circl e o f progress , productivity , and performanc e that reinforce s new behaviors and attitudes , which , in turn , strengthe n the ne w structure and generat e eve r increasing levels of performance.

Balancing the Effor t It bear s repeating tha t discipline d analysi s is necessary throughout th e change effort . Leader s must think carefully abou t the specifi c challenge s

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Fig. 9.1 Th e Transformation Triangle Source: Steve n F. Dichter, Chris Gagnon, and Ashok Alexander, "Memo to a CEO : Leading Organizational Transformations," McKinsey Quarterly , no . 1 (1993): 91.

their organization s face an d ho w best t o mee t thes e challenges , how to redesign processe s fo r maximu m impact , ho w t o identif y an d fil l skil l "gaps," ho w t o manag e th e chang e effor t tha t wil l lea d t o a successfu l transformation. A chang e effor t o f thi s magnitud e canno t b e accom plished unless leaders recognize at the outset that change initiatives must flow i n al l directions—up, down, and acros s the organization—i n a single, full y integrated , an d supportiv e effort . The story of the European resources company that opens this chapter shows that th e top-dow n approach almos t invariably spells disaster when applied b y itself. Bu t that describe s only one pane l o f the triptych . Dichter, Gagnon , an d Alexande r not e tha t transformatio n ofte n fall s apar t because of a breakdown along one o r more o f the thre e axe s of change:

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top-down, bottom-up , an d acros s cor e processes. 7 Together , th e thre e form a "transformatio n triangle " (se e Fig. 9.1) tha t th e author s defin e as a "balanced , integrate d framewor k for combinin g separat e initiatives into a coherent overal l program." 8 To preven t th e chang e effor t fro m wreckin g the company , manager s and visionarie s (preferabl y the sam e people ) hav e t o sprea d th e trans formation throughou t th e organization . And they must begin with them selves because th e firs t plac e th e chang e effor t wil l ru n int o problems is in th e boardroo m o r th e CEO' s suite , whereve r th e strategi c plannin g takes place. (Incidentally , the misconception tha t al l top manager s have the sam e assumptions about th e business' s current stat e or its future i s a portent o f impending doom . I t i s a distinct likelihood tha t manager s of individual functiona l units o r division s will b e concerne d abou t protect ing their ow n turf.) When conflic t amon g managers occurs, the CEO , or a group o f managers empowere d by the CEO , must be prepare d t o step in, se t priorities, an d coordinat e objectives . The outcom e of a major transformation als o depends o n establishing a "languag e o f change," on e tha t al l stakeholders ca n speak and under stand. It is important fo r leader s t o develop a set of consistent initiatives, to refine the chang e processe s as they require, t o determin e a t frequent intervals what is and i s not working , and t o mak e sur e tha t neede d im provements/refinements ar e put i n place. To be sure, change effort s succeed whe n critical stakeholder s fundamentall y agre e o n th e majo r assumptions relevan t t o busines s condition s an d futur e marke t realities , share value s such a s mutual trus t an d responsibility , an d believ e in th e power o f peopl e workin g collectively to solv e problem s an d discove r a better wa y of producin g value-adde d product s fo r thei r customer s (se e sidebar 1) . If top-down failures commonly result when managers hav e not devot ed a minimum o f 20 percent o f their attentio n an d tim e t o leadin g th e change effort , bottom-u p disaste r is virtually assured when large numbers of peopl e throughou t th e organizatio n ar e no t activel y engaged i n th e effort t o improve performance an d canno t agre e o n performanc e objec tives or understand ho w these effort s suppor t th e long-range goal s of the organization (se e sidebar 2) . To o often , bottom-u p initiative s focus onl y on immediat e desires—improve d productio n levels , bette r qualit y control, greate r autonom y fo r workers , highe r salarie s an d benefits—that

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Top-down change initiatives to be undertaken by management: Establish a rationale for the change. Set performanc e goals tha t ar e aspirationa l an d quantifiable targets wit h clear milestones firmly linked to the value proposition. Form a cohesive, high-performance steering group. Design a disciplined, integrate d change process. Oversee the quality of progress i n the change effort. Open up bottlenecks to change wherever they appear. Take symbolic and visible actio n (say, in hiring and promotions) to demonstrate the require d new behaviors and skills. Establish a well-honed communication and integrated measurement system that includes feedback loops and that cascades throughout the organization. Draw up tough but doable performance goals and hold people accountable for meetin g them, and also for meetin g change commitments (for example, managers might be measured on whether they have devoted sufficient time to skil l and behavior training and on how well they have exhibited new values). Foster continuous improvement b y raising performance objectives. Maintain the focus on performance.

may no t directl y link o r suppor t th e organization' s strategi c needs . Sad to report , man y frontline employees have no clu e abou t long-ter m strategies because management ha s kept them in the dark. And while change efforts drive n fro m th e to p mus t als o engag e "bottom-u p support, " bottom-up effort s requir e top-dow n support a s well. Chang e effort s tha t

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Bottom-up change initiatives to be undertaken by lower-level organization members: Establish individual and team performance targets that support overall objectives. Introduce a wide array of tools to enabl e frontline proble m solving and effective empowerment . Actively engage in problem solving focused on improving performance. Redesign work units and levels to operat e in an integrated fashion. Build new skills through rea l work and just-in-time training.

are exclusively or primarily bottom-up lack the top-dow n support neede d to be "rolled-out " across the organization . They tend to exist in isolated pockets of the organizatio n wher e the effor t meet s with inbred resistanc e in othe r part s o f th e organization . Littl e wonder , then , tha t s o many bottom-up chang e effort s fizzl e ou t befor e the y have any significan t im pact on compan y structure o r performance . The thir d axi s (see Fig. 9.1 and sideba r 3 ) represent s thos e linkage s across functions directed by people who take responsibility for a relatively small number o f core processes. 9 As discussed in previous chapters, thes e cross-functional cor e processe s are a t th e hear t o f a company's effor t t o deliver it s value proposition. The y ar e th e mean s b y which it fulfill s it s promise to design and produc e a value-added product o r service that will win customers. Even large organizations such as Ford have only a handful of core processes , usually no mor e tha n fou r or five, around whic h their overall goals and busines s effort s revolve . But if those cor e processe s ar e not firmly linked t o company objectives, any attempt at transformation is likely to end i n disaster. Each leg of the triangl e bear s its own portion o f responsibility for th e success o f th e chang e effort . Fo r example , top-dow n directio n settin g

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Change initiatives to be undertaken across the functions: Redesign core processes. Set up "diagonal-slice" redesig n teams comprising multiple skills and functions. Provide team training. Promote a cooperative, collaborative culture. Establish organization-wide best-practice workshops. Establish cross-functional performanc e objectives . Evaluate and reward cooperative, cross-functional behaviors. Design cross-organizationa l communication sessions or town halls. Rotate jobs. Develop whole-job understanding through multidisciplinary training.

creates focus an d accountabilit y throughout a company and help s t o ensure that newly acquired knowledge , skills, and behavior s will not remain isolated in the pilo t area bu t will be spread throughou t th e organization . Encouragement fro m the to p doe s not, b y itself, guarantee success, however. T o bu y i n t o an d suppor t th e change , peopl e a t al l level s o f th e organization mus t witnes s ne w behavior , inspire d b y th e principle s o f horizontal organization , tha t th e leader s o f the organizatio n themselves exhibit. Above all, everyone must be allowe d to become a n activ e participant i n th e chang e effort . Broad-based , bottom-u p involvemen t is necessary to get people a t all levels to engage i n and lear n a fresh approac h to solving problems and improving performance. Otherwise , organizatio n members ma y begin t o fee l a s if the chang e i s being force d down thei r

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throats, an d the y will resist the initiativ e as surely as did th e rank-and-file employees at th e Europea n resource s company . The importanc e o f this cross-functional emphasis i s apparent bot h i n the initia l redesig n stag e an d i n th e ongoin g chang e effort . Linkin g activities and informatio n i n ne w way s a s part o f th e redesig n ca n brin g about breakthroug h improvement s i n quality , timeliness, an d custome r satisfaction. An d a s th e chang e effor t proceeds , cross-functionalit y provides peopl e wit h ne w way s t o communicate , lear n fro m on e another , and work cooperatively to solv e problems .

Drawing the Road Map Although transformationa l chang e is iterative and marke d b y continuous learning, improvement , refinement , an d adjustment , th e sequenc e fo r getting fro m her e t o ther e doe s matter . I n th e nex t thre e chapters , I discuss the sequentia l phases as they relate to the experienc e o f the path breaking companie s cite d throughou t thi s book . Thes e phase s ca n b e seen a s a road ma p tha t wil l lea d organization s on thei r journey. While th e exac t flow of activities will vary with the specifi c challenge s facing a n individua l organization an d it s degree of readiness for change , leaders mus t proceed a s with an y other mission-critica l endeavor : The y must determin e an d identif y adequat e resource s fo r th e chang e effor t (training o f employee s is typically given shor t shrift ) an d establis h milestones, accountabilities, responsibilities , an d quality-contro l checkpoints. The bes t leader s wan t to kno w at al l times how people throughou t th e organization ar e respondin g t o th e changes ; thus , the y insis t on estab lishing a communication syste m that includes "feedbac k loops, " a mechanism that allows employees, customers, suppliers, and other stakeholders to point ou t wha t is working and wha t is not. Such feedbac k loop s serv e t o empowe r peopl e b y increasin g thei r sense that they are making important contribution s to the transformation itself a s well a s to th e product s an d service s the organizatio n produces . Whatever communicatio n channel s ar e pu t int o place , the y absolutel y have to run i n multiple directions, not onl y within the organization itself , but ou t t o peopl e i n th e organization' s suppl y chain an d it s custome r base. No change leader ca n afford t o alienate o r exclude any of the company's stakeholders .

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In addition , discipline d thinkin g mus t b e applie d t o designin g th e specific chang e activitie s and th e enablin g structures—suc h as mapping required skills , developin g an d refinin g pedagogica l approaches , plan ning th e migration path to the new organization, designin g in details th e new jobs required , an d s o forth. Chapter 1 0 takes up th e initia l stag e of establishing direction fo r th e change effort , beginnin g wit h a thorough assessmen t of your business's current markets, customers, and cor e processes. Chapters 11 and 1 2 focus in greater detai l on th e 1 2 principles tha t underlie th e transformatio n to a horizonta l organization : Chapte r 1 1 develops five of th e 1 2 principles which are concerned primarily with the design of the new structure; chapter 1 2 takes u p th e subsequen t seve n principles , which addres s th e be haviors and skills necessary for a horizontal organization t o be successfull y institutionalized. Whether the principles are applied t o an operating unit such a s G E Salisbury's build-to-order process , t o a singl e divisio n a s a t Ford Customer Service, or t o an entire compan y as in th e cas e of Xerox, horizontal approaches ar e working effectively t o solv e business problems from th e to p floo r t o the sho p floor .

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10 PHAS E ONE—SET DIRECTION WHERE AND HO W WILL YOU COMPETE?

As an y seasoned travele r knows , gettin g th e mos t ou t o f a tri p t o a faroff destinatio n neve r visited before require s a bit of work prior t o board ing th e plan e an d preparin g fo r takeoff . I t help s t o devis e an itinerar y and t o bone up o n th e climate , the culture , an d th e people wh o inhabit the place . Otherwise , ho w will you kno w what kind o f clothing t o pack, how much mone y to take along, o r what kind o f opportunities an d activ ities will b e availabl e onc e yo u ge t there ? Withou t som e pre-tri p effort , you are liable t o waste valuable time and energ y upon arriva l just gettin g the la y of th e land , instea d o f takin g advantag e o f al l th e plac e ha s t o offer. In much th e sam e way, an organization preparin g to undertake trans formational chang e mus t us e th e analytica l tool s mentione d i n chapte r 9 (scenari o planning , five-forces modeling, market/custome r research , and s o on), or som e reasonable alternatives , to chart it s itinerary for th e journey ahead . Thi s assumes , of course , tha t yo u kno w first where i t is you want to go , and a s discussed i n chapte r 9 , the preliminar y work o n

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setting direction—tha t is , identifying the value proposition an d definin g your aspirations for your organization—needs to have your full attention . Only then can you determine i f "going horizontal" i s the most appropriat e decision. Afte r makin g thi s determination, yo u ca n the n surve y the ter ritory and begi n t o evaluate what you need t o d o next t o determine th e nature o f th e performanc e challenge s yo u fac e i f you ar e t o delive r a winning value proposition . This up-front strategic planning proces s focuses organizational desig n on thos e thing s tha t ar e critica l t o achievin g competitiv e advantage . By providing a distinct linkag e between strateg y and design , i t ensures tha t the entir e enterpris e wil l be marching in the same direction an d tha t th e targeted performanc e gain s wil l b e achieved . Th e proces s involve s two intertwined activities : understanding the competitiv e environmen t and articulating th e organization' s long-rang e aspirations . Thi s chapte r dis cusses how an organizatio n shoul d procee d o n thes e tw o fronts an d con siders specifi c example s fro m th e si x major cas e studies .

Understanding the Environment The environment i n this case has two components, externa l and internal . The "external " par t comprise s th e fundamenta l force s a t wor k i n th e industry—that is, competitors, suppliers, technology, the society at large— whereas the "internal " environment focuses directly on the organizatio n itself i n term s o f its structure, culture, resources, an d people . By taking a broa d vie w o f where it compete s an d ho w well equippe d i t i s to mee t the challenge s o f the future , an enterprise mus t seek to assess realistically its strengths, weaknesses , opportunities, an d threats . Assessment begins with management's askin g what industry the com pany wants to compete in . Which customers does i t want to attract? What value proposition ca n i t offe r thos e customer s tha t would cause the m t o want t o d o business with the compan y rather tha n a competitor? At the same time , ho w ca n th e compan y captur e attractiv e return s fo r itself ? What core processe s ar e critical to the deliver y of that value proposition? Is th e organizatio n properl y designe d an d resource d t o delive r th e winning value proposition? I f not, ho w can i t get tha t way? Although som e o f thes e question s ma y seem simplisti c and straight forward, further examinatio n reveal s their complexity. Take the questio n

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of customers , for example . As Mark H. Moore , a professor a t Harvard' s John F . Kennedy School o f Government, points ou t i n hi s book Creating Public Value, customer s ar e importan t fo r a n obviou s reason : A n enter prise's ultimate success depends o n its producing something that customers want. 1 Marketin g an d custome r researc h wil l hel p a n organizatio n discern curren t custome r want s and needs . Bu t what is not s o easily discerned i s what those want s and need s wil l b e nex t month , nex t year, or several years into th e future . For an y number o f reasons customer s may change thei r mind s abou t what they consider t o b e valuable: Situations, lifestyles, expectations , an d experience s var y ove r th e longe r term , ye t being abl e t o mak e reasonable , long-ter m prediction s whil e remainin g flexible enoug h t o accommodat e ne w insight s int o customers ' ever changing need s an d want s is crucial to an organization' s success. To accomplish these feats , th e compan y must build ongoin g relation ships with its customers. In a horizontal organization , wher e all energies are channele d towar d satisfyin g th e customer , ongoin g relationship s ar e second natur e an d bea r frui t i n a variety of ways. At the For d Custome r Service Divisio n (FCSD) , fo r example , informatio n uncovere d throug h multiple customer contacts is continuously fed back into an activity called "Upstream Custome r Service, " whic h works closely with produc t devel opment. As they develop ne w models, designer s addres s custome r reac tions an d complaint s t o earlie r product s an d thei r suggestion s fo r im proving them. I f customers stipulate an upper-limi t price for a particular repair, for instance, FCSD can work with suppliers, designers, technicians, and other s to factor in all costs so that it can meet its customers' requests. At th e G E Salisbury plant, feedbac k from customer s come s not onl y through traditiona l avenues , such a s focus groups, but als o through conference call s and meeting s with team members . Forme r plan t manage r Jeff Trave r describe d i t a s a n "in-your-face " relationship : G E Salisbury customers often interact directly with production team s on the plant floor or work with them at their own facilities. The plant has such close contact with its customers that any relevant change in their outlook o r experienc e is communicated i n shor t order. This direct, personal relationshi p wit h customer s is a hallmark of th e successful horizonta l organization . Xerox , for instance , maintain s close, ongoing customer contacts, including even sending its research PhDs out into th e field to visit with customers in order t o get a better understand -

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ing o f who the y ar e an d wha t thei r futur e need s ar e likel y t o be . Ji m Lesko, corporate vic e president, describe s the ne w horizontal Xerox as a system o f multipl e "funnels " directin g th e flo w o f ne w ideas , creativ e solutions, innovativ e products , an d timel y response s t o marketplac e changes. "I t i s practically impossible," h e explains , "fo r one perso n t o keep trac k of all that activity . The amoun t of energy, scrutiny, and focu s is ten times what might have passed throug h a single funnel i n th e pre1990 command-and-control approach t o managing the organization. " The nee d t o gai n a n understandin g o f competitor s i s important fo r an obviou s reason, too : Having a desirable produc t o r servic e is of little use, a s Moore observes , if someon e els e ha s a bette r one. 2 An d eve n a breakthrough produc t that soundl y beats the competitio n toda y may be matched by another produce r tomorrow . So what is a company to do? Managers and planner s not onl y have to identify a competitive advantage, they also have to monitor regularl y the products an d service s of competitor s an d d o thei r bes t t o understan d where competitor s ar e likel y t o hea d i n th e future . I n orde r t o mak e proper use of that understanding, o f course, your organization needs to be so well integrated internall y that it can innovate in order t o stay ahead of th e competition , no t just reac t to it. A valuable reminder fo r management , then , a s it attempt s t o understand it s competitive environment, is that chang e an d uncertaint y are a critical part of the equation. "Observe constantl y that all things take place by change.. . . [T]he nature o f the Univers e loves nothing s o much as to change the things which are and t o make new things like them," advised Marcus Aurelius , Roma n empero r an d philosophe r o f th e secon d century.3 To be sure , leaders who have opted t o reorganize horizontally already understan d tha t nothing remains static—neither customers , no r competitors, no r technology , nor resources . Tha t recognitio n is , in fact , one o f th e ver y reason s the y have chose n t o abando n thei r inefficien t vertical structures . But as they prepare th e wa y for transformation , these leaders must constantly remain focused on th e future an d thin k in terms of positionin g thei r organization s bot h t o recogniz e an d t o creat e op portunities a s well a s bein g abl e t o respon d speedil y and efficientl y t o threats. The Xero x Corporation di d just tha t in 199 0 when it began planning for it s majo r transformation . CEO Paul Allaire and a tea m o f to p man-

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agers undertoo k a thoroug h assessmen t o f the company' s condition, including it s financial state, industr y position, an d productio n capabilities . They considered projecte d developments in technology and imaging, color and photographi c reproduction , ne w standards in quality, digital compatibility, an d man y other change s i n th e busines s environment . Tea m members spen t hour s hammerin g ou t a collective "View of the World, " reconciling economi c forecasts and contradictory assumptions about market trends . I n group s an d i n one-on-on e sessions , the y me t wit h Xero x employees, suppliers , an d customer s t o uncove r widel y disparat e assessments about thos e trend s an d t o incorporate a s many viewpoints as possible into th e overal l company strategy. In it s "Xerox 2000 " document , manager s formulate d a statement of clear forward direction an d strategi c intent. Although i t appeared i n various forms—print, audio, film, and electronic—th e documen t itsel f conveyed a single , consisten t messag e abou t th e directio n th e Xero x Cor poration ha d se t for itself . Reproduced i n Fig . 10.1 , th e "Xero x 2000 " strategic inten t guide d th e compan y fo r approximatel y fiv e year s a s i t constructed a mosaic of businesses, competencies , an d infrastructure. But what took place nex t underscores th e fac t that things change an d transformations mus t be ongoing . T o fix objectives in ston e i s to build a monument t o th e past . Instead , manager s mus t constantl y wor k at th e business of refining objectives, searching for ne w sources of value, anticipating change , an d respondin g appropriatel y i n th e marketplace . Th e transformation mus t b e flexibl e an d subjec t t o redirectio n a s opportunities and economi c condition s warrant. This i s not t o impl y that Xero x zigzagge d across th e busines s land scape. O n th e contrary , th e strategi c inten t state d i n Xero x 200 0 (Fig . 10.1) remaine d largely unchanged a s the company developed and refined its structure. Based on changes the compan y observed in customers, competitors, and technology , it revised its initiatives to reach thos e goals more efficiently. Bu t becaus e market s ca n chang e i n th e twinkl e o f a n eye , Xerox recognize d tha t a shif t t o a strateg y emphasizing globa l busines s solutions ha d becom e increasingl y important. Thus , compan y managers undertook a majo r restructurin g o f business divisions, transforming traditionally vertical function s into horizontall y oriente d busines s divisions in 1992 . Then, in 1996 , th e compan y refined its strategy and directio n i n a documen t entitle d "Xero x 2005 " (se e Fig. 10.2).

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XEROX 2000 STRATEGIC INTENT Xerox, The Document Company

will be the leader in the global document market providing Document Services that enhance business product

• Xero x wt lea d by providing innovative, intelligent document services products , systems, solutions, and support tha t enable individuate and organizations to be more effective and productive. • Ou r leadership wiii be based on superior document technologies, linked to a superior understanding of the document and its rate in our customers' business processes. W e wifi understand and anticipate customers' document needs and provide services that exceed their expectations. • W e will be the leader in customer satisfaction, productivity, quality, and technological excellence and recognized as leaders in the use of innovative management approaches. « Wit h the quality and dedication of our people in this direction, Xero x wil l be the largest and most profitable company in the gtobai document market Th e Document Company .

Fig. 10. 1 Xero x 2000 Strategic Inten t

The tw o documents offe r contrast s in content, presentation, an d business philosophy. When a company as large and comple x as Xerox refine s its strategi c intent , i t face s th e tas k o f creatin g somethin g tha t a t onc e conveys the company' s message t o thousand s o f employees and present s a persuasive argument t o supplier s an d customer s worldwide. Xerox change d th e "documen t services " wordin g of its 2000 mission statement t o "documen t solutions " i n th e 200 5 statemen t o f intent , a subtle bu t powerfu l evolutio n designe d t o appeal to th e busines s sector , which had nee d o f Xerox's hardware and softwar e products . Whereas the earlier documen t distinguishe d betwee n "individuals " an d "organiza -

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Xerox,

Xerox,

The Documaent Company

2005

global document market providing

Will be the leader in the

Document Soloutions that enhance business productivity business productivity

» Xerox, with Fuji Xerox ,will distingush itself by providing cohererent enterprise document f ISolutions --hardware and software product, services, and supplies --that meet the needs ofof i oisteni w wrtt*fe cumentp«ctet$ products * ^ n a wsrisfintense ofosmpatttisft,terfwwtogteal srtar^ e toart f doojmwt that sf» ai! «»f»cs»^» diptai, sn«f ate"»s^^« s*«i m*^»iM «]»-«!**, M^ *« wi*a^»8«l tte^c^ttrt ^» s*i*ratar^«g ol ft « steojmw» l and hai wig S « our cwstwners' mkroiatkwI an d toswferti»4i^» d pw:«^^ i— Our wtxiwwe prodac* a?rf iserweas, !n«^ow^^ ad¥an^«l feeHras^s — Our d«leat»d p«^« and p*wJy€8» m»srwa proewse

m Xes-ew , wdh Fujs SCarox, wil €itetlfig«« N its* b^ pf0«ds«g co*ter«tvt afSerpnss d«;«fnsnf wititiom — hardw&» and s^tws* p*«lu*. ser«e«s, ano suppfews • *a? ttW. Sn« nse* of ojs»nef» ! *Cfl«JW8«f

e

Fig. 10. 2 Xerox 2005 Strategic Intent

tions" i n th e firs t bullete d item , th e latte r documen t refer s simply and universally t o "customers. " Moreover , th e mor e recen t statemen t pairs Xerox wit h Fuji Xero x t o poin t u p th e ne w emphasi s o n globa l stretc h and expertise . Indeed , eac h sentenc e i n th e 200 5 statemen t contains ei ther th e wor d "global " o r "worldwide. " Contrast this to th e 200 0 statement wher e th e ter m "global " appeare d onl y once i n th e fou r bulleted items. By taking the strategic intent statement out of the upward-pointin g wedge i n Fig. 10.1 and placing it alongside th e box with rounded corner s and a "horizon" desig n throug h th e year 2005 (Fig . 10.2), th e designer s of th e secon d Xero x documen t conve y a sens e o f balance , depth , an d

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reach acros s time. Taken ou t o f the "attic " in the 200 0 design, the state ment o f strategic inten t i s presented a s a "window' ' t o th e futur e i n th e 2005 design . Both substantiv e an d symbolic , the Xero x 200 5 strategi c inten t provides a clear example o f a powerful statement that set s a direction fo r an entire organization .

Articulating Aspirations A favorite tacti c of many therapists is to ask clients to describe themselves, say, te n year s down th e road : Wha t d o yo u want to b e doing ? What d o you want your life t o look like? Where will you be? If you were to be very happy with your life , wha t would yo u nee d t o b e doing , o r wha t would need t o happen ? An d the n come s th e kicker : The therapis t alway s says , "Okay, s o what do you do no w to get yourself t o tha t ideal? " A similar questio n i s a key component t o th e aspirations-base d plan ning that is critical in setting directio n fo r a performance-based transformation. Havin g gained som e understanding o f the competitiv e environment, leader s no w set about envisionin g th e futur e the y desire fo r thei r organization an d identifyin g its core ideology , which wil l allo w them t o answer thei r ow n version o f th e therapist' s critica l question : "Okay , s o what d o you do no w to get th e organizatio n t o tha t ideal? " To envision the organization's future, management must identify bold stretch goals , the n articulat e vivi d description s o f what achievin g the m will mean. 4 Articulating a vision provides a centerpiece aroun d whic h an organization ca n marsha l al l o f it s resources . A s the wor d "vision " im plies, ther e ar e n o artificia l boundaries , bu t rathe r a n effor t t o embrac e the futur e i n al l it s wondrou s possibilities . Thi s kin d o f out-of-the-box thinking give s an organizatio n a needed sens e o f purpose an d allow s it to make th e mos t of its opportunities . Some CEOs describe thei r role , a t least in part, a s resembling tha t of the therapis t wh o engage s peopl e i n th e kin d o f visioning exercise s described above . The CE O gives people the luxury and freedom to imagine what ideal state they would like to reach by some specified date. Prepare d in 1996, th e Xero x 2005 statement, for example, presents a vision for th e company te n year s int o th e future . Afte r projectin g te n year s out , an organization works backward to determine wha t it has to do to make th e

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stretch goa l a reality. If XYZ Company, currently a $1 billion operation , is going to be a $10 billion operation b y 2008, what does it have to achieve by 2003? By 2000? "The conventional approac h o f starting from th e pres ent ma y move a company toward its intent," say Gouillart and Kelly , "but usually too slowly . The tendenc y is to sketch out incrementa l move s that preserve to o much an d alte r to o little." 5 As Collins and Porra s discuss and describ e it , core ideolog y is that set of implici t and explici t values and belief s that ar e th e essenc e o f an or ganization's culture. 6 Tha t ideolog y come s into pla y a s the omnipresen t navigational forc e i n th e transformatio n t o a horizonta l organization . I t is the North Star of dos and don't s tha t guide th e organization's decision making and hel p t o determine ho w the ne w strategic direction wil l affec t specific constituencies . It i s the leader' s job t o translat e th e aspirationa l goals into action s tha t ar e consisten t wit h the cor e values . And just a s in the hom e o r th e schoolroom , communicatin g values in th e workplace is best achieve d by living them, da y in an d da y out. Nowhere is this philosophy more apparen t tha n a t the Barclay s Home Finance Division . As you wil l recal l fro m chapte r 7 , th e Barclay s HFD managers hol d ver y distinc t value s relating t o statu s an d privilege , an d starting a t the to p wit h managin g directo r Mik e Ockenden , the y readily exhibit the m i n thei r day-to-da y dealings. They no longe r conduc t business behin d close d offic e doors ; eac h ha s a des k n o larger , n o smalle r than an y other employee's ; and everyone' s job titl e has been replaced by a first name. Moreover, values and behavior s carr y equal weigh t with performance results when employees are evaluated on how well they have met the goals set forth i n thei r persona l developmen t plans . Ockende n i s so vested in promoting a democratic cultur e tha t promote s trust , openness , an d cooperation tha t h e willingl y shares bot h hi s personal profil e an d hi s evaluation wit h the entir e organization . Barclays HF D aspire s t o b e th e Unite d Kingdom' s preferre d hom e mortgage lender , an d i t believes—accordin g t o it s officia l statemen t o f strategic intent—that its most important resourc e fo r achieving that goa l is its people. Becaus e Ockenden want s his employee s t o kno w just ho w important the y are t o th e company' s strategy, he goe s out o f his way, in his own words, to "create a spirit that says we are al l one grou p of people working toward s th e custome r imperative. " A s empowere d frontlin e

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workers at Barclays (and at other horizonta l companies where core values are embedde d i n th e ques t t o achiev e aspirational goals ) tak e responsi bility for th e end-to-en d processe s tha t produc e thei r value-adde d prod ucts an d services , they ar e increasin g thei r persona l investmen t i n th e organization's missio n and strategi c intent. That investment, in turn, pays off i n greate r commitmen t b y the employee s t o th e value s the compan y wishes to promote .

Staking a Claim As in a n interlockin g puzzle , the piece s must come togethe r t o hel p you identif y you r organization's centra l strength , th e source s of its competitive advantage , apar t fro m al l others i n th e field . A rigorous analysis of th e environmen t ha s helpe d yo u decide wher e you want to compet e and wha t your strengths an d weaknesse s are. Yo u have also assesse d th e "critical buyin g factors " o r "custome r breakpoints, " thos e dimension s of value that really make a difference to customers (an d will attract those customers to you rather tha n someon e else) , as well as what your poten tial competitor s wil l offe r t o customers . Yo u kno w what yo u aspir e t o achieve if everything "goes right." The tim e ha s now come t o stak e ou t a competitiv e territory an d t o stat e your differentiable value in term s of a specifi c valu e proposition . As we have seen , th e valu e propositio n i s a clear , simpl e statemen t of th e benefit s a particula r organizatio n wil l provid e t o a targe t grou p of customers . I n orde r t o maintai n it s competitiv e edge , th e organiza tion mus t se t a pric e attractiv e t o thos e customer s an d consisten t with its financia l goals . Th e valu e propositio n i s base d o n exhaustiv e re search int o custome r wants , needs , an d pric e requirements , a s wel l a s the organization' s capabilitie s for meetin g thos e want s and needs . Managers nee d t o complet e a n economi c analysi s of th e potentia l return s from specifi c busines s line s an d marke t segment s a s wel l a s a n assess ment o f th e likel y challenge s the y will fac e fro m competitor s an d ho w the industr y migh t evolve . Performing th e necessar y analysis on a con tinuing basi s helps ensur e tha t th e organizatio n maintain s a cris p defi nition o f it s valu e propositio n an d understand s th e ke y benefits tha t targeted customer s want.

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The valu e proposition i s also important becaus e it : • Give s direction an d purpose t o the organization's activities • Focuse s the organization's work directly onto th e customer • Articulate s th e nature o f the performance challenge s inheren t in winnin g customers , thereb y allowin g yo u t o determin e i f an d where i n you r organizatio n a horizontal , vertical , o r som e othe r approach i s appropriat e • Identifie s the critical core processes of an organization and what they are designe d t o achieve • Shape s th e design o f all elements o f organization performance , such a s structure, skills , an d systems • Serve s as a goal against which the organization measures its success • Redirect s the organization's activities if the need arises As I mentioned i n chapter 1 , this method o f organization ensures that every step and elemen t is purpose-built i n carrying out a winning strategy. And at this point, strategy can be seen as a set of actions that deliver superior value to desired customer s at a cost that provides desired returns . Although th e ter m "value " is usually associated with th e worl d of private business, the concep t o f a value proposition i s applicable to the pub lic sector a s well. In Creating Public Value, Moor e argue s tha t on e o f th e three critica l tests in developing strateg y for a public secto r organization is that i t be "substantively valuable in th e sens e tha t th e organizatio n pro duces thing s o f value t o overseers , clients , and beneficiarie s at lo w cost in term s o f mone y an d authority." 7 Clearly , publi c secto r agencie s d o bring thing s of value to society. OSHA, for example, protects human life , which i s valuable in term s of both th e live s themselves and o f the saving s to the genera l econom y from avertin g lost work time, medical expenses, workers' compensation costs, and s o forth. As noted i n chapter 2 , besides 6,200 deaths, a reported 6. 2 million workplace injuries occurred i n 199 6 (albeit the lowest rate sinc e the Burea u of Labor Statistics began tracking such statistics ) .8 These injurie s directly cost som e $60 billion annuall y in workers' compensatio n an d indirectl y anothe r $5 0 billio n o r s o i n ex penses suc h a s thos e tie d t o los s o f productivity . Program evaluation ,

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benefit-cost analysis , and simila r tools can help identify th e net value that an agenc y such as OSHA offers . Public agencie s suc h as OSHA are compelle d t o offe r a strong value proposition becaus e they , too, fac e "competitiv e threats. " Fo r example , Congress can discontinue a n agency's funding (and has made such threats to OSHA in the past) if other alternatives offer what the legislators perceive to b e a superio r valu e proposition . Additionally , the valu e propositio n identifies the goals against which the organization measures its success and redirects its particular strategic approach i f conditions warrant: For example, i f the agenc y fails t o achiev e its value proposition o f significantly re ducing injuries, illnesses, and deaths, or if the costs of doing so exceed th e benefits, the organization ca n and should redirect its activities. A pertinent exampl e occurred earl y in the OSHA redesign effort when an attemp t to use a partnership wit h poultry companies to drive needed safety changes in the poultry industry itself caused an uproar in organized labor. A s Joel Sacks , former acting director o f reinvention a t OSHA , describes it , labor ha d vali d reasons fo r it s opposition. First , unions developed th e perceptio n tha t inspection s o f the poultr y companies were to be relaxe d i n return for their participatio n i n th e program , which labor viewed as an infringemen t of workers' rights. Second, poultr y was targeted b y OSHA because i t was considered t o be particularl y dangerous. Labor countere d wit h th e argumen t tha t th e hig h leve l of danger wa s precisely the reaso n wh y poultry inspections shoul d no t b e discontinued . Rather tha n allowin g labor's objection s t o sin k th e whol e initiative, OSHA head Joe Dea r acted quickl y to adjus t th e strategi c approach an d keep the program movin g forward. He calle d togethe r al l the stakehold ers and engage d the m in working toward a common goal consistent with OSHA's aspirations. As Sacks points out, "Th e upsid e of the stor y is that by sittin g wit h thes e stakeholders , gettin g the m involved , an d helpin g them recreat e th e program , we now have a [poultry ] program in Atlanta that organize d labor i s using as a model o f what we need t o be doin g i n other parts o f the country. "

Laying the Groundwork for Change You ar e no w prepared t o undertak e th e secon d phas e o f buildin g th e horizontal organization, that of actual design. Before beginning to design

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the appropriat e organizatio n t o mee t your particular needs , however , it will serv e you wel l in th e futur e i f you star t layin g th e groundwor k fo r the behavio r an d skil l change s tha t mus t accompan y an y performancebased transformation . Mos t o f th e specifi c skill s will no t becom e clea r until afte r yo u hav e identifie d an d redesigne d th e cor e processes . Nev ertheless, no w is the tim e t o begi n buildin g th e cas e fo r majo r change . Leaders must : • Creat e a sense of urgency • Lin e up broad-based suppor t • Se t up a means of quality control • Creat e enablin g structure s In creatin g a sens e o f urgency , i t i s important t o stres s tha t imple menting a horizontal organization , eithe r b y itself o r i n an y hybridized combination, is not the main objective. Improved performance, as I noted earlier, is the overriding goal, and stakeholders must understand u p fron t exactly why you ar e undertakin g transformationa l chang e an d wha t you are aimin g t o achieve . It i s important t o dra w on th e result s o f th e disciplined analysi s done in the initial stages of direction settin g to illustrate the soli d lin k betwee n desire d performanc e gain s an d th e benefit s o f horizontal organization . At Xerox , for example , extensive analysi s o f customer requirements , new technology, the economic environment , an d competitor s provide d a clear understanding tha t th e compan y could no t achiev e its desired level of succes s as i t wa s structured i n 1992 . Functional roadblock s wer e impediments t o achievin g strategi c goals . " A ver y centralize d decision making organization," a s corporate vic e president Jim Lesk o describes it, prevented th e compan y fro m competin g effectivel y i n th e fac e o f ne w industries, ne w competitors, an d changin g custome r requirements . Wit h every decision ultimately funneling throug h a very narrow channel at the top, th e compan y essentially had reache d th e limit s of growth. Although financial return s wer e adequate , th e compan y was not u p t o th e chal lenges posed b y new technology an d ne w markets. Communicating the case for change i s primarily the job o f top leaders . At Xerox, CEO Allaire was "all over this," Lesko says. People understoo d

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that Allair e wa s behind th e organizationa l changes , tha t h e ha d bee n closely involved in ever y detail. So, too, at th e For d Custome r Servic e Division, where vice president and FCSD general manage r Ro n Goldsberry decided tha t transformational chang e wa s needed i n orde r t o shor e u p badl y sagging customer satisfaction rates . As related i n chapte r 2 , the proble m becam e s o severe as to undermine custome r loyalty, which, in turn , bega n t o threaten overal l Ford Moto r Company sales. Calling FCSD diverse, fragmented, and "ver y chimney-oriented," Goldsberr y saw that a horizontal organization offere d him th e bes t opportunity t o align processes, goals , and objectives . Goldsberry ha s travele d aroun d th e worl d communicatin g th e nee d for th e chang e an d enlightenin g stakeholder s a s to th e benefit s o f hori zontal organization . I n fact , h e list s "teacher " as one o f hi s main role s these days. And one o f his greatest accomplishments as a teacher i s helping FCSD employees come to understand just ho w serious the threa t was to the company, to help build the commitment from the m to accomplish the structura l an d behaviora l changes require d a t the division . Tony Kaduk, manager o f FCSD's vehicle service program, say s that Goldsberry has "delivered a ver y consisten t message " i n perso n an d throug h memo s about th e nee d t o focus o n custome r satisfaction . At eac h o f th e organization s examine d i n thi s book , performanc e problems wer e define d afte r exhaustiv e analysi s of th e externa l an d in ternal environment , an d the n th e cas e fo r majo r chang e wa s communicated by the to p and throughout the organization from the top down. A pro-active communicatio n strategy , like that use d b y Joe Dea r a t OSHA, is critica l fo r addressin g th e divers e point s o f vie w o f ke y stakeholder s and fo r enlistin g broad-base d suppor t fo r th e chang e effort . With the first set of plans and objective s that Dear drew up for OSHA, he clearl y spelled ou t th e threa t th e agenc y faced fro m los s o f politica l support a s a result of its failure to fulfill it s mission. He the n lai d out th e specifics o f needed performance improvements an d targete d certai n programs fo r change . Travelin g aroun d t o th e variou s OSHA fiel d offices , Dear sat down with staff member s and talke d one-on-one abou t th e nee d for chang e an d invite d thei r suggestions . H e als o communicate d with OSHA staffers throug h speeche s an d memos . First, Dear mad e i t clea r tha t i f OSHA managers did no t chang e th e organization themselves , then somebody—perhap s one or another mem -

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her o f Congress—wa s likel y t o d o i t fo r them . Bu t afte r layin g ou t th e threat, h e the n quickl y moved to provide a meaningful vision. "Joe could paint a n inspirin g pictur e o f where OSH A needed t o be i n th e future, " Joel Sack s recalls wit h obviou s admiration . "H e go t peopl e excite d an d interested i n working to make th e redesig n a reality. Dear als o formed a cohesive, high-performanc e desig n tea m an d 'gav e them a clear charter' to d o thre e things : Creat e a redesig n model , tes t it , an d star t imple menting i t nationwide , al l o f which wa s critical t o th e succes s of th e ef fort," Sack s adds. Dear obviousl y ha d mor e tha n on e grou p o f stakeholder s tha t h e needed t o convince , an d hi s effort s reflecte d that . H e gav e speeche s t o outside labo r and employe r groups , wher e he emphasized bot h th e nee d for majo r change an d th e benefits that would accrue t o the various stakeholders. Bu t perhap s th e mos t crucia l sellin g effor t wa s the on e Dea r conducted fo r Congres s becaus e h e recognize d tha t h e ha d t o bu y sufficient tim e t o keep th e agenc y operating until positiv e result s could be gin t o appear. For his part, Dea r believe s that th e ke y to sellin g a change effor t i s the leader' s leve l o f persona l commitment . "Leader s hav e t o expos e themselves t o incredibl e persona l an d professiona l risk . Peopl e nee d t o know tha t ever y leader i s at leas t a s far ou t o n th e lim b a s they ar e i n terms o f havin g t o mak e th e chang e work . If people se e genuin e commitment, your change-ready folk s wil l come forward. They will commit. " Controlling the qualit y o f the chang e effor t depend s not onl y o n establishing checkpoint s an d desig n parameter s fo r th e change s t o b e implemented bu t als o o n establishin g quantifiabl e measure s an d target s wherever feasible , an d makin g sur e tha t stakeholder s understan d ho w these measure s an d target s suppor t th e objective s of the company' s overall change effort . Motorola develope d it s famed Six Sigma quality control measures , representing a nea r infinitesima l ratio o f defectiv e part s pe r millio n part s produced. T o measure custome r satisfaction and its own productivity, and as part o f its drive to achiev e its value proposition, G E Salisbury adopte d this performance measure , seekin g to hold complaint s to an equally small percentage o f all its transactions with customers. What distinguishes these companies' directio n settin g i s th e specificit y o f thei r quantifiabl e outcomes.

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Successful communication requires a strong senior management role to: Develop a communications plan and make sure that plan is faithfully executed Communicate openly; tell the truth Listen to and take advantage of feedback Use clear, direct language Dedicate sufficient support resources , both people Ca n internal champion and a multifunctional task force) and money Devote persona l time and attention Make importan t decisions that visibly reinforce message (e.g., people, resources)

Likewise, a s part o f the 200 5 initiative, Xerox establishe d a "manage ment model " t o embe d an d measur e quality— a critica l elemen t o f its value proposition—throughou t it s organization . Tha t mode l comprise s six categories : leadership , huma n resource s management , busines s pro cess management , custome r an d marke t focus , informatio n an d qualit y tools, an d results . In th e are a o f results, Xerox collect s empirical dat a to measure custome r satisfactio n and loyalty , employee motivatio n an d satisfaction, marke t share, financia l results , productivity, and profitabl e revenue growth. Consisten t with the Xero x 200 5 strategic intent an d value proposition, thes e areas present quantifiabl e and ambitiou s objectives for the compan y which are nonetheles s achievable . Such performanc e objective s serve a s a measur e o f progres s towar d your goals . They are no t th e only measure , o f course, but the y represent powerful argument s a s t o whethe r th e directio n yo u hav e se t fo r you r company is the righ t one. I t is important t o note, however , that althoug h

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the step s outlined i n this chapter ar e designed t o help you formulate the correct strategy , ther e ar e n o guarantees . Settin g th e correc t cours e i s complex an d difficult , bu t even a course that i s correct for today must b e constantly revisited to make sure that it is still correct for tomorrow. You are no w ready to begin designin g a horizontal structur e t o reac h your performance targets , a challenge that will occupy us in the final two chapters of this book. Some departments in your organization, o f course, can—and in many cases should—remain functional, but th e primar y objective in transformin g your company to a horizontal organizatio n will be to build cross-functionalit y i n order t o improve performance. The checklist that end s thi s chapter summarize s the mai n step s you should tak e in setting th e futur e directio n o f you r organization . Th e journe y ca n b e arduous, bu t lik e th e seasone d travele r mentione d a t th e beginnin g o f this chapter , yo u ca n prepar e yoursel f an d you r fello w traveler s so tha t you d o no t arriv e at a place tha t i s totally unfamiliar.

A Checklist for Setting Direction • Us e rigorous, discipline d analysis to understand your competitive environment. • Articulat e aspirational goal s and identify cor e values. • Defin e you r valu e propositio n fo r those market s o r customer s you want to win. • Us e the value proposition t o determine th e critical processes that need to be i n place. Thi s is the initia l poin t where strategy actually starts to driv e organization design . • Creat e a sense of urgency and inject passion to rally your people behind th e transformatio n t o a horizontal organization . • Buil d a strong lin e of communication to all stakeholders so that everyone i s aware o f objectives, overall progress , an d tangibl e successes. • Establis h a limited se t of quantifiable performance targets .

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• Establis h a steerin g committe e o f senio r stakeholder s t o hol d people accountable , secur e resources , identif y problems , an d provide buffers . • Evaluat e and refine your organization's strategi c intent as market conditions an d compan y results warrant.

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11 PHASE TWO-FORMULATE DESIGN HOW WILL YOU DO WHAT YOU DO?

Even a cursory glance a t the organizationa l chart s i n chapters 2 and 5-8 reveals that no tw o are exactly alike. What works well for OSH A or Xerox should not , indee d cannot , b e adopte d wholesal e b y the like s of a GE Salisbury plant o r th e Suppl y Management organizatio n withi n Motorola's Spac e an d System s Technology Grou p (SSTG) . After all , each orga nization mus t devis e it s own horizontal structur e accordin g t o th e cor e processes i t design s t o creat e an d delive r it s value proposition . N o two organizations will have the cor e processes designed th e sam e way (despite surface similarities) , just as no tw o individuals have the sam e personality, history, and purposes (eve n though the y may share the same name). And since organizations will not hav e the sam e core processes designed i n th e same way, their horizontal organizational chart s will accordingly differ i n often subtle , but nonetheles s distinct, ways. Also affectin g th e compositio n o f each cor e proces s group i s the spe cific combinatio n o f skill s an d experience s neede d t o delive r the valu e

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proposition. N o tw o organizations, however similar they may appear, wil l need exactl y the sam e set of skills and expertise . Thus each structur e will reflect the organization's strateg y by grouping togethe r certai n employees and teams , manipulatin g th e valu e chai n t o hel p the m perfor m a t th e highest leve l possible , an d constantl y improvin g thei r performance . A cheerful, patient , and knowledgeabl e customer servic e representative, for instance, ca n pla y a n importan t par t i n winnin g customers for th e com pany, just a s the bes t designe d value-adde d produc t o r servic e can. Multidisciplinary team s a t Motorola , for example , posses s the integrate d se t of skill s require d t o execut e th e wor k o f th e suppl y management cor e process, thereby improving quality and reducin g cycle time. Both of these objectives ar e centra l t o Motorola' s value proposition . Individual difference s aside, al l horizontal organizational chart s have in commo n severa l importan t features , som e o f which ar e carrie d ove r from th e traditional hierarchy or bureaucracy. For instance, in each char t a genera l manage r o r senio r executiv e retain s oversigh t responsibilities . Authority stems from tha t executiv e an d extend s dow n throughou t vari ous organizatio n area s o r sometimes , indeed , throug h th e entir e orga nization. In th e horizonta l organization , tha t executiv e continue s t o exercise traditiona l responsibilitie s includin g settin g strategy , allocatin g resources an d control , eve n whil e spendin g ne w o r additiona l tim e i n tasks such a s coaching, leadin g change , an d buildin g consensus . In th e cas e o f Ford's Custome r Servic e Division (FCSD) , th e lin e o f authority and responsibility runs from Ro n Goldsberry, vice president an d general manager , t o the four process owners, thence t o the cor e proces s groups comprisin g literally thousands of frontline Ford workers who take responsibility for th e end-to-en d proces s an d achievin g its performance goals (se e Fig. 11.1). Those fou r core proces s groups, comprised o f multiple cross-functiona l teams, work side by side with people in various vertical or functional areas and departments, who are responsible for vertical activities. Area s suc h a s finance , strateg y and communications , an d hu man resources remain "outside " the main core proces s groups, althoug h all thre e contribut e analytica l data , planning , an d othe r supportin g in formation essentia l t o th e proces s group' s performance . The y become , in short , "partner s in process performance. " Another feature common t o horizontal organizations and visible from

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Fig. 11. 1 Ford Customer Service Division

the organizatio n char t i s bein g formall y structure d aroun d a process . Core proces s group s (CPGs ) ar e th e forma l organizationa l department s of the horizonta l organization. They are no t functions. Indeed , the y diffe r from traditiona l vertica l silos in thre e important ways: • Th e core proces s grou p i s designed t o deliver external , end-of process performance objectives , which are themselves part and parcel o f th e valu e proposition . CPG s are no t focuse d o n deliverin g internal functional objectives . In orde r t o suppor t th e overal l value proposition o f FCSD (fi x it right th e firs t time , on time) , the part s supply and logistics CPG, for example, needs to have the right parts available s o that properl y traine d frontlin e worker s can repai r vehicles righ t th e firs t tim e an d o n time . Integra l t o th e efficienc y and effectivenes s o f th e fou r cor e proces s group s o f FCSD , o f course, ar e th e effort s o f functional units such as human resources , which finds the right people to work on the teams , and the finance function, which supplies resources neede d for th e CPG s to achieve their process-base d performanc e objectives. • A s a result of process redesig n an d the vesting of more employees (no t just thos e a t th e senio r managemen t level ) with decisionmaking authority , th e CP G is "flatter " tha n a functiona l depart ment. It integrates the work of various people in highly coordinated efforts t o mee t performanc e objectives . In a cor e proces s group , team member s ar e peer s workin g either i n individualize d task s or in concert . Emphasi s fall s o n th e wor k o f th e grou p a s a whole rather tha n o n individual performance, althoug h th e grou p o r the process owne r will interven e when performance, fo r whateve r reason, goes of f track . • Th e traditional functiona l departmen t i s composed o f individuals with a relatively narrow, homogeneous se t of skills (for instance, an engineerin g departmen t employ s only people traine d i n engi neering) regardles s o f th e company' s value proposition . Bu t th e CPG typicall y arranges peopl e i n multidisciplinar y ways—dictated by wha t i s require d t o delive r th e valu e proposition . Whil e cor e process group s prefe r tha t thei r member s hav e broader , mor e multidisciplinary skills , the y can als o includ e thos e specialist s who can handl e task s of a more challengin g technica l nature tha t arise within th e cor e process . Fo r example , desig n engineer s o n Moto rola's Supply Management commodity teams work directly with suppliers. The y ar e thu s in a bette r positio n t o ensur e tha t part s wil l meet quality specifications and Motorola's "ease of manufacturing"

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requirements, an d tha t the team s continue to perform at the highest level as they work with the othe r link s in th e valu e chain. These distinction s between core proces s groups an d traditiona l func tional department s ar e crucia l t o understandin g ho w to transfor m your company into a horizontal organization . It is not enough merely to move one structura l "box " t o another plac e in the organizational chart; essential t o th e horizonta l organizatio n i s th e creatio n o f ke y process-base d groups. A s discussed in chapte r 10 , you must firs t create th e visio n an d establish th e strateg y you thin k wil l ge t yo u t o wher e yo u wan t t o go . Obviously there are no guarantees that this strategy will work, but without it n o amoun t of horizontal design wil l help you. Nor wil l th e simplisti c exercise o f "movin g boxes " aroun d i n th e or ganizational char t answe r th e questio n o f which employee s an d team s work bes t i n whic h situations o r a t which tasks. In addition , organizin g horizontally require s tha t you consider th e specifi c skills an d behavior s necessary—as wel l a s ho w t o develo p thes e skill s an d behaviors—t o achieve the highes t level of productivity and continuou s improvement in the delivery of your value proposition. It is both inadequate an d infeasible to substitute a movement of desks and office s for purposeful development of a successful organization . Once yo u see how the valu e proposition determine s which processes are critical to the new organizational structure—what those processes are designed to achieve and which combinations of skills and experiences are important—you ca n se e explicitl y ho w i n th e horizonta l organizatio n strategy directly drives the desig n o f the whole. This chapter presents the initial design and change managemen t steps that wil l hel p yo u creat e a horizonta l structur e tha t i s perfect fo r your organization. Unlik e man y recent an d fashionabl e imperative s to alte r radically both what you d o an d ho w you d o it , thi s chapter present s a n approach tha t you can us e o r adap t t o you r specia l circumstances . Underpinning tha t design ar e twelv e principles, 1 five of which we discuss in this chapter : • Organiz e aroun d cross-functiona l cor e processes , no t task s or functions. • Instal l proces s owner s or managers who will tak e responsibility for th e cor e proces s in it s entirety.

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• Mak e teams, no t individuals, th e cornerstone o f organizationa l design an d performance . • Decreas e hierarch y by eliminating non-value-adde d work and by giving team member s who are no t necessaril y senior manager s th e authority to make decisions directiy related t o their activitie s within the proces s flow . • Integrat e with customer s an d suppliers. Using thes e five principles (plu s th e seve n discussed i n chapte r 12), you ca n develo p a n organizatio n structur e t o brin g togethe r th e righ t people t o perform th e righ t processe s an d delive r the valu e propositio n to you r customers . Th e five principles take n u p i n th e presen t chapte r constitute th e "design " phas e o f the transformation , whereas the seve n principles discusse d i n chapte r 1 2 speak to th e issu e o f how best t o de velop thos e behavior s and skill s necessar y to institutionaliz e th e chang e and hel p assur e th e succes s of your horizonta l organization . Informin g these twelv e principle s mus t b e a pla n fo r managin g th e large-scal e change tha t movin g to a horizontal structur e entails . To achiev e success in thi s effort , busines s leader s mus t do mor e tha n mak e pronounce ments an d issu e order s fro m ato p th e organizationa l pyramid ; the y must be willing to be personall y involve d in leadin g th e chang e an d en listing th e suppor t an d involvemen t of all key stakeholders i n th e trans formation.

Organize around Processes While undertakin g a chang e o f thi s magnitud e ca n b e bot h risk y an d intimidating, doin g nothin g ca n b e worse . Th e firs t step , therefore , i n deciding whethe r an d ho w you shoul d begi n a majo r transformatio n i s to stud y carefull y wha t your compan y doe s bes t an d compar e tha t wit h what yo u want i t t o do . I n mos t cases , th e end-to-en d cor e processe s fundamental t o your business ca n be enumerate d o n th e finger s o f one hand: Whethe r yo u lea d a globa l telecommunication s compan y or op erate a smal l family-owne d business, yo u wil l fin d n o mor e tha n five , more likel y tw o o r thre e (an d occasionall y one , a s i n th e cas e o f Barclays), cor e processe s tha t for m th e essenc e o f you r busines s (see sidebar 5).2

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A Test for Core Processes 1. Doe s eac h process o r interdependent se t of activities, information, decisions, and material flows, significantly impact the delivery of value? 2. Ha s the entir e chai n of relate d activities, information , decisions, and material flows extending even across functional, geographic, business unit, an d company boundaries been included? Note: This means that all upstream— thos e close to suppliers—a s well as those downstream — those close to your customers—have been integrated int o the core process. 3. Doe s th e core process account for a significant portion o f the company's costs or revenues? 4. Whe n fully optimized, does the core process exis t independently o f other core processes yo u have identified? 5. Doe s th e process hav e measurable outcomes?

Some organization s hav e relativel y simple cor e processes ; other s ar e extremely complex. Som e produc e tangibl e product s tha t ca n be immediately shippe d t o customers ; other s perfor m task s i n a service . Som e processes, whe n redesigne d for maximu m efficiency , can be performe d by on e tea m o r occasionall y even b y a singl e individual. 3 In othe r case s such a s Ford's Custome r Servic e Division, the complexit y and lengt h o f the cor e processe s require s multiple team s comprising thousand s o f employees and man y process owners . The activitie s and skil l sets required by the cor e processe s dictate how many and wha t types of teams you shoul d establish . I f the processe s ar e relatively simple , wit h fewer steps , on e se t o f teams ma y be al l that you need. I f th e processe s remai n relativel y consistent , bu t thei r product s change—say, yo u mak e th e sam e produc t with specifi c refinement s fo r

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different customer s o r differen t geographical regions—yo u may decide to install parallel teams to handle th e work. As we have seen in the example of Motorola' s Spac e an d System s Technolog y Grou p (SSTG) , differen t commodity teams manage th e entir e suppl y process, each takin g responsibility for a particular commodity. If you r organizatio n ha s a cor e proces s tha t i s too lon g o r comple x for a singl e tea m t o handle , yo u ca n us e linked teams t o carr y ou t th e process sequentially. Ford Customer Service Division (FCSD) provide s an excellent exampl e o f suc h linkage , whereb y team s o f expert s i n part s supply an d logistics , fo r instance , engag e i n analyzin g the part s supply network, purchasing , directin g th e flo w o f materials , an d distributin g parts to dealerships worldwide. Meanwhile, these teams work directly with teams i n busines s developmen t an d technica l servic e to buil d th e righ t capability i n al l dealership s tha t encourage s proble m solving , proces s mapping, an d other activities designed t o fulfill Ford' s promise t o fix the problem righ t th e first time on time . A third possibilit y is the adjunct team, which is illustrated by the Xero x product developmen t team. This group has end-to-end responsibilit y for each ne w product's evolution , but th e tea m ofte n borrow s people fro m other team s whenever it needs their special skills and expertise. Although the cor e membershi p o f th e tea m remain s stable , th e numbe r o f team members can fluctuat e whenever new skills are required . As illustrated in chapter s 2 and 5-8 , process teams 4 may exist at prac tically an y level within the organizatio n an d ma y integrate technica l ex pertise an d multidisciplinar y skills. At th e simples t leve l (not to b e confused wit h a "simple " process! ) i s the tea m focuse d o n a singl e se t of activities comprising a process withi n a larger cor e process . Th e G E Sal isbury plant , fo r instance , i s organized aroun d th e build-to-orde r process tha t ca n b e viewe d as a critica l par t o f a mor e extensive , "end t o end," "orde r generatio n throug h fulfillment " cor e process . Buildin g over 70,00 0 variations o f on e product , team s within th e build-to-orde r process brin g thei r effort s an d expertis e t o bea r o n creatin g an d deliv ering th e company' s value proposition. Bu t thei r wor k also cut s across functions an d compan y boundaries t o include engineers , suppliers , and customers. Companies such as Motorola and Barclay s Bank must decide whether

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to establish separat e busines s units for each line o f business and whether to focus thes e busines s units along dimension s such as geography, products, or customers. Once the decision has been reached, however , leaders are stil l lef t wit h the questio n o f whether t o "g o horizontal " o r remai n vertical in some part of all of the business units that are established. Some units o f Ford , fo r instance , hav e remaine d largel y vertical, whil e othe r units suc h a s FCSD have elected t o restructur e themselve s horizontally. The ne w Xerox 200 5 provides a sligh t variation to th e mor e conventional redesig n aroun d cor e proces s groups. While it incorporates man y features o f horizonta l organizatio n (th e forma l organizatio n structure d around cross-functiona l teams , a n integrate d flo w o f activitie s without boundaries betwee n functions, and multiskilled , cross-disciplinary teams, and s o forth) , Xero x represent s a n integrate d syste m o f "mini businesses," som e o f which hav e organize d cross-functionall y around a section of the value chain of activities. The company has kept the researc h and sale s sections of the value chain largel y functional. Meanwhile, other activities—from produc t developmen t through sale s planning (includin g product planning, development, engineering, and manufacturing)—hav e become th e focu s o f th e variou s cross-functiona l business team s within the busines s group s unde r th e executiv e vice president fo r busines s operations. Horizontal desig n ca n exten d acros s the boundarie s o f an individual company a s well . Th e suppl y managemen t organizatio n o f Motorola' s SSTG illustrate s tha t horizontalit y ca n exten d eve n acros s compan y boundaries t o integrat e wit h suppliers an d othe r element s i n th e valu e chain. Such permutation s o f the horizonta l structur e ar e determine d b y the specific valu e propositio n an d performanc e challenge s o f th e organiza tion a s well as the imaginations , th e wills , and th e need s o f those respon sible for analyzing, designing, and implementing the changes. Organizing around cor e processe s rathe r tha n function s establishes a mor e natura l fit between work and structur e than th e traditiona l vertica l structure ca n achieve. Eac h functiona l department, afte r all , siphon s of f tha t portio n of th e wor k flo w tha t i t i s designe d t o process , thu s fosterin g i n man y organizations an attitud e o f "It's no t m y responsibility." Th e horizonta l organization, o n th e othe r hand , integrate s th e proces s teams , openin g

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up th e sluice s and enablin g th e wor k to flow vigorously but no t uncon trollably.

Install Process Owners To regulate tha t flow and coordinat e th e wor k of its core proces s teams, the horizontal organizatio n establishe s agents for oversight, control, an d accountability. These are , o f course, traditiona l characteristic s of the vertical hierarchy , but the y do no t disappea r whe n a company elects t o go horizontal. Although the actua l lines of reporting ma y be redrawn, there must remain a level of managerial responsibilit y even in the smalles t and simplest core proces s group . The responsibilitie s of "owning" a core proces s fall sometime s to on e person, sometime s to a n entir e tea m o r a small number o f team mem bers. I n mos t cases, th e burde n o f responsibility is borne b y senior managers representin g differen t activitie s in th e cor e process . Th e precis e configuration wil l depen d o n a numbe r o f factors , includin g th e com plexity of the process , th e availabilit y of experts i n th e proces s itself who can als o demonstrat e leadershi p abilities , an d th e willingnes s of tea m members t o follo w th e instruction s o f th e proces s owner s or t o se t tha t agenda fo r themselves. The owne r or owners , however, must be willing to tak e responsibility for th e entir e end-to-en d proces s (se e sidebar 6) . Managers cannot oversee only tha t par t o f th e proces s tha t the y happe n t o lik e th e mos t o r know the mos t about. Thei r regulation s mus t apply to all or t o none . Ideally, th e senio r peopl e wh o are proces s owner s should themselves work a s a process-owne r tea m (se e sidebar 7) . The y should ai m fo r co operation, no t competition ; fo r effectiv e joint problem-solving, not one upmanship; for adde d valu e to the end product , not salar y increases for themselves alone. B y actually participating a s team members , these pro cess owners benefit from th e experiences an d collectiv e knowledge of the team, com e t o shar e values , an d for m realisti c expectation s abou t th e amount and qualit y of work that ca n be performe d by the various teams, as wel l th e challenge s t o buildin g an d achievin g effectiv e tea m performance. In Ford' s Custome r Servic e Division , four individual s alon g wit h a

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6 Characteristics of the Process Owner 1. Predispositio n t o overse e and work wit h the teams within the process group 2. Experienc e as a senior manager—i t i s preferred tha t the process owner be a team of senior managers 3. Majo r equit y i n the process grou p 4. Clea r understandin g of activities an d challenges in the core process 5. Knowledg e of upstream and downstream activities, suppliers , and customers 6. Abilit y to influenc e people, t o act as coach, to support th e teams' effort s 7. Abilit y to personify values, particularly th e adherence to continuous improvement an d learning

team o f senio r manager s hav e complet e oversigh t ove r thei r respectiv e core proces s groups . The y stan d betwee n th e to p level s of FCS D man agement an d frontlin e employees . I n a horizonta l organizatio n suc h as Motorola SSTG' s supply management organization , however , the senio r managers o n th e proces s owne r team s themselves have what they would call thei r senio r staf f o r manager s wh o make it part of their job descrip tions t o deliver th e valu e proposition an d kee p th e teams ' focu s o n satisfying customer s an d maintainin g th e highes t qualit y standards . Bu t there is no manageria l leve l between th e proces s owne r team an d front line teams . Process ownership , therefore , depend s largel y on factor s such a s th e demonstration o f leadership , th e abilit y to delegat e authorit y as well a s to work with both frontline employees and top managers, and a thoroug h understanding o f the relationship betwee n the value proposition and th e

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Process Owners' Responsibilities 1. Defin e performanc e objectives—in suppor t o f the company's overall value proposition—for th e core process group. 2. Monito r team members' performance and resolve disputes . 3. Promot e and drive continual performance improvement and effective collaboration throughout th e core process group . 4. Develo p proces s plan s and budgets. 5. Serv e as a process "champion." 6. Buil d a sense of share d objectives and support within the core process group; hel p members develop complementary skills and mutually beneficial working methods . 7. Evaluat e and certify progress toward the goal. 8. Identif y and remove bottlenecks an d impediments to performanc e in the core process itself as well as any unhealthy resistance among team members (not all resistance is necessarily bad). 9. Represen t all areas of activity along the core process . 10. Recogniz e and reward the good work of team members ; hel p coach those who are having trouble meetin g objectives, or i n the worst case, remove or reassign them to other jobs.

work o f th e team s under one' s direction . I f th e ke y objective of a horizontal transformatio n i s to improv e performance, the n th e architect s of that structur e mus t determin e wha t lines o f oversight an d directio n ar e best suited t o th e particula r valu e proposition, th e particula r mi x of human skill s an d experiences , an d th e variou s element s i n th e organiza -

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tion's valu e chain . I t i s much mor e difficul t t o buil d a hous e an d the n look for a place t o put i t than t o adapt th e architectura l desig n t o make the bes t use o f the lan d o n whic h that hous e wil l sit.

Make Teams the Cornerstone of Design One o f th e primar y assumption s abou t team s i s tha t i f tw o heads ar e better tha n one , 2 0 or s o heads wil l b e bette r tha n two . The validit y of this assumption, of course, rest s with the qualit y of the peopl e wh o for m the tea m i n th e firs t place , their willingness to devot e themselve s to fulfilling the need s o f the tea m and t o relinquish thei r individual desires to elevate themselves at the expense o f others or the produc t the y are working on . It s validity also rest s on th e organization' s abilit y to desig n an d support team s so that they perform at the highest and mos t efficient level possible. All teams do no t functio n equall y well, as the sport s page s tell us ever y day (se e sidebar 8) . O n th e whole , however, if process owners and thei r advisor s act wisel y an d purposefully , they can creat e team s of excellence whic h wil l b e th e principa l buildin g block s of th e entir e or ganization an d it s new design. With few exceptions, the complexity of the cor e proces s requires highly skille d team s wit h stron g expertis e an d th e confidenc e t o b e self starters. If vertically structured organization s are immobilized by multiple hand-offs an d delay s for authorizatio n fro m o n high , horizontall y structured companie s wil l founde r whe n team s lac k the necessar y skill s an d confidence t o engag e full y i n th e organization' s cor e processes . In th e lat e 1980 s an d earl y 1990s , fo r instance , th e Occupationa l Safety an d Healt h Administratio n (OSHA ) wa s an organizatio n pulle d apart b y its attempts t o satisf y variou s priorities while cost-conscious politicians attacked its budget at every opportunity. Both its internal bureau cracy an d it s positio n withi n th e federa l governmen t helpe d creat e a n unwieldy se t o f authorizatio n channels : The organizatio n simpl y had t o please to o man y masters. During th e earl y years of th e Clinto n adminis tration, however , Secretary of Labor Rober t Reic h began holdin g "tow n hall" meetings with OSHA employees to hear their concern s abou t rein venting government and reorganizing OSHA in the wake of some 250,000 layoffs i n the federa l government. Reich appointed Joe Dear , well known

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Requirements for High-Performing Teams 1. Membershi p o f no more than 25 employees, although most teams number perhaps 10-1 5 members 2. Complementar y skill s 3. Commitmen t to a single purpose or performance goal

4. A n attitude of mutua l accountability (that is, no finger pointing) 5. Mutua l respec t fo r each other's expertis e and contributions Source: Jon R . Katzenbach and Douglas Smith, Th e Wisdom of Teams (Boston: Harvard Busines s Schoo l Press , 1993) , p . 45.

for hi s governmental reform s at th e stat e level , to head u p th e change s at OSH A which were designe d t o improv e OSHA' s abilit y to mak e significant reduction s i n workplace injuries, illnesses, and deaths . Dear aske d Le o Care y an d Kennet h Maglici c t o lea d a multi functional, multileve l (tha t is , "diagona l slice" ) redesig n tea m tha t fo cused o n redesignin g th e 6 5 OSH A fiel d offices , wher e approximatel y 1,500 employees worked. Merely setting a new set of standards for workers would no t hav e adequatel y addresse d OSHA' s problems . A s Dea r ex plains, "Redesign i s a great method fo r getting an organization t o rethink how it performs its work. We were trying to break this rigid, hierarchical, change-resistant, bureaucrati c cultur e an d replac e i t wit h team s autho rized t o evaluat e ever y aspect o f fiel d operation s an d t o mak e whatever changes the y needed, within the limit s of the law. " In OSHA' s new horizontal structure , a n are a directo r retain s th e au thority o f eac h are a offic e an d direct s th e wor k o f tw o type s o f offic e teams: A strategy team take s responsibility for collectin g data, identifyin g and prioritizin g problems , analyzin g causes, an d proposin g solutions ; a

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response tea m handle s report s o f actua l dangers , respond s t o workers' complaints, an d take s account of safety and healt h violations in the workplace. Moreover , bot h type s o f team s ar e cross-traine d an d cross functional, wit h bot h safet y specialist s an d industria l hygienists , fo r ex ample, residin g o n th e sam e teams . Althoug h suc h principle s a s cross-functional training , empowerment , and multiskillin g do no t sho w up o n th e organizationa l char t depicte d i n Fig . 2.2, they ar e essentia l means of developing th e needed behavior and skills for teams to perform to thei r maximu m potential—an d continuall y improv e on tha t perfor mance i n a horizontal organization .

Flatten the Hierarchy "Breaking th e bureaucrati c culture, " a s Dear puts it, is an essentia l ste p in th e transformatio n process . To o often , however , it ha s been equate d with th e wholesal e eliminatio n o f manageria l ranks . I n bot h larg e an d small companies, senior manager s continue t o make deep cuts in person nel a s a quick-and-easy solution t o thei r companies ' problems . This "solution," however, just as often becomes a continuation o f the problem . As illustrated b y all the cas e studie s i n thi s book , th e purpos e o f th e horizontal organizatio n i s no t to d o awa y wit h al l manager s belo w th e CEO. Inevitably , companies tha t g o horizonta l wil l se e som e flattenin g of thei r hierarchies . Th e reason s fo r thi s ar e clear . First , th e reengi neering o f cor e processe s t o delive r th e valu e propositio n require s th e elimination o f an y work o r activit y tha t add s n o value . Second , whe n decision-making authorit y i s veste d i n frontlin e employees , the y tak e over responsibilitie s typicall y hel d b y middle managers . Bu t a transfor mation t o th e horizonta l organizatio n doe s no t necessaril y mean a los s of jobs. Ro n Goldsberry , general manage r o f FCSD, point s ou t tha t th e makeover t o th e horizonta l i n hi s division a t Ford, althoug h i t resulte d in som e transfer s and reassignments , i t did no t forc e th e terminatio n o f any employee . As we have see n i n th e cas e studies , som e hierarch y remain s eve n i n the mos t radica l o f horizontal changes . Peopl e stil l need leader s t o de velop strategy, resolve problems wit h personnel an d production , allocat e resources, and hold employees accountable. Mintzberg's anatomy of man-

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agerial role s i s by n o mean s overturne d b y th e company' s decisio n t o develop a horizontal structure ; indeed , thos e roles—figurehead , leader, liaison, monitor , disseminator , spokesperson , entrepreneur , disturbanc e handler, an d negotiator—ar e neede d a s much a s ever.5 Mike Ockenden o f Barclay s Bank's Hom e Financ e Divisio n (HFD) , for example , has intentionally expanded th e provinc e in which HFD employees act to solve customers' problems. Although their decision-making authority ha s vastl y increased , Ockende n stil l a t th e en d o f th e da y remains in charge and has the final say on major capita l investments, credit accounts, and loa n approvals . In som e cases , traditionall y place d manager s ar e i n lin e t o becom e the owner s o f cor e processes . The y wil l direc t th e wor k o f th e team s assigned t o each process an d keep watch over the team' s activities, intervening when necessary to handle a personnel issu e or hel p solv e a problem wit h th e suppl y chain . Wit h thei r manageria l skills , knowledge o f market trends , an d understandin g o f personnel procedures , thos e managers ar e ofte n th e bes t candidate s t o tak e contro l o f cross-functional processes tha t creat e th e valu e proposition . I n othe r cases , som e managers will nee d t o remai n i n contro l o f functional units or vertica l processes, s o long a s they adopt th e attitud e o f becoming tru e partner s i n process—that is , working sid e b y side wit h th e cor e proces s group s t o deliver th e value proposition . In developin g a chang e managemen t strategy , it i s important no t to treat this reorganization initially or fundamentally as a traditional huma n resources issue. You should base you r decision t o decrease hierarch y o n the identification of the core processe s that deliver the value proposition, not o n th e individual s who have the mos t seniority at your organizatio n or th e bes t sale s records. Whil e thos e trait s ar e important , th e identifi cation o f core proces s owners should hing e o n th e questio n o f who can best motivat e and empowe r the peopl e i n the group , remov e barriers t o their work, and coordinat e th e team' s work with that of other team s and stakeholders in th e organization . Before th e desig n an d implementatio n o f the horizonta l suppl y management organizatio n a t Motorola' s Spac e an d System s Technolog y Group, a s many as seven or eigh t levels of management migh t have been involved in the purchase o f supplies. A senior buyer reported t o a section manager wh o reported t o a purchasing manager , an d o n u p th e lin e t o

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the divisio n manager. Afte r reorganizing int o horizonta l proces s teams , the ne w supply management organizatio n reduce d thes e manageria l levels to one o r at most two: a process manager and , i n certain non-exemp t areas, a supervisor. "Other than those, " say s Larry Burleson, SSTG's vice president an d directo r o f operation s an d suppl y chai n management , "there are no management levels." This decrease in hierarchy is possible largely because proces s teams absorb man y of the forme r responsibilitie s of managers . During th e transformatio n itself , man y companies find it necessary to install a steering committe e t o provide leadership , hel p se t strategy, and facilitate th e redesig n process. As a change management tool, this steering committee can help break bottlenecks an d overcom e resistanc e fro m stakeholders i f it occur s (an d i t probabl y will) . A s the hierarch y is flat tened, th e steerin g committe e can act temporarily to make sure tha t th e design team s are adequately staffed , thoroughl y motivated, and provide d with th e resource s they need t o design a new organization tha t ca n do a superior job o f delivering the winning value proposition. Above all, senior executives must keep clearly in their minds that the fundamental purpos e of th e mov e to a horizontal structur e i s no t th e change itself bu t the delivery of th e value proposition. Th e organizatio n mus t continue performing , even while th e transformatio n is taking place .

Integrate with Customers and Suppliers Organizing aroun d cross-functiona l cor e processes , installin g proces s owners, making team s th e cornerston e o f design an d performance , an d flattening hierarchy—al l thes e desig n principle s ar e confine d primaril y to element s internal t o th e organization . Th e fift h desig n principl e ask s you t o mak e sure you loo k beyon d th e wall s o f your enterpris e t o thos e elements in th e value chain tha t hav e a direct impac t o n th e deliver y of your value proposition. I n particular, you need t o ask how you can bette r integrate your customers and suppliers into the core processes that define the wor k you do an d delive r th e valu e proposition . At Motorola , fo r instance , th e suppl y managemen t team s regularl y meet wit h bot h supplier s an d customers , thereb y exercising contro l o n both sides o f the production process. Karen Chapman , a member o f the

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mechanical commodit y tea m withi n th e suppl y managemen t organiza tion, notes that team members set up the metrics, assess risks, and gathe r the informatio n they need t o compar e variou s suppliers in orde r t o determine which ones t o do business with.

We wor k with ou r suppliers and track what they ar e doin g to decrease cycl e time and focus on continuous improvement . We wan t to see what they are doing at their facilities to improv e work with their subcontractor s becaus e ho w they work affects how w e work . The quality of our suppliers' products , o f course, affect s the qualit y of our products, s o if we ca n identif y a problem they ar e having , we ca n develop a plan to hel p them correct it and keep it from happening again . Karen Chapman , membe r of the mechanical commodit y subteam, Motorola SSTG

Although it may initially seem like an intrusion into the organization' s privacy, suc h clos e an d direc t wor k with supplier s an d customer s often pays for itsel f in shor t order. Inviting customers an d supplier s into your facility—or, o n th e othe r side , sendin g you r peopl e ou t t o visi t thei r sites—increases your chances of delivering the righ t value proposition t o the righ t customer . At GE Salisbury and Motorola , fo r example , other s in the value chain have the opportunity to spell out exactly what products and service s they can provid e o r nee d fo r themselves. As we have seen i n th e cas e o f Motorola's suppl y management organization discusse d in chapte r 5 , certain supplier s work directly with company representative s o n team s an d mee t fac e t o fac e wit h en d user s o r intermediate customers , tackling production issues such as improving cycle tim e an d devisin g mor e coheren t plan s t o manag e risk . Motorol a representatives alert suppliers t o points in the proces s where they might need t o handle part s with particular sensitivit y or schedule a n inspection with Motorola before completio n o f a project. I n addition , ever y month Motorola sends primary suppliers a summary documenting metrics dating back a s far a s on e year . The compan y evaluates each supplier' s qualit y (in term s o f defectiv e part s pe r million ) an d rate s eac h accordin g t o delivery criteri a fo r th e sam e 12-mont h period . Afte r reachin g mutua l agreement with suppliers on goals for quality, price, and design, Motorola

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teams establish those goals as part of the company's Six Sigma continuous improvement process. Likewise, Ford' s Custome r Servic e Divisio n has fine-tune d it s repai r processes with teams responsible for parts design and availabilit y and standardized service s so that customer s now receive bette r servic e for lower prices. According to Ron Goldsberry, FCSD's focus o n bein g th e world's best customer servic e organization ha s helped th e divisio n reduce prices in som e case s b y a s muc h a s 5 0 percent . I t accomplishe s thi s goa l b y managing its value chain with eagle-eyed presence. I f customers indicate through surveys , for instance , tha t they are willing to pay X dollars for a repair, bu t n o more , an d i f FCS D determine s tha t th e competitio n i s offering tha t repai r i n tha t pric e range , the n th e variou s process teams at FCSD will work with suppliers to find the right parts at the righ t price, as well as negotiate with technicians over labor costs and wit h dealerships over profi t margin s until th e uni t ha s arrive d a t a competitiv e price for the repair. A s Goldsberry puts it , h e spend s a grea t par t o f his tim e i n just thi s kin d o f activity , helpin g hi s peopl e manag e th e overal l value chain i n orde r t o provid e th e bes t servic e a t th e bes t pric e t o Ford' s customers.

I spen d a significant amoun t o f my time makin g sur e that w e ar e aligned wit h th e totality o f Ford Motor Compan y a s well as with our dealers and our customers. Ron Goldsberry, vice presiden t and general manager , Ford Custome r Service Divisio n

No doubt, thes e five design principles , lik e th e othe r principle s discussed i n chapte r 12 , will mee t with no smal l degree o f resistance when change managers introduce them . Typically, 10 to 25 percent of the peo ple a t any organization will be ready for change, in fact eager to embrace it. Bu t a t leas t hal f th e employee s i n th e organizatio n are likel y t o have mixed feelings about the redesign and resist committing to it wholeheartedly unti l eithe r som e tangibl e result s ar e availabl e o r a concerted , thoughtful effor t i s made t o enlist their support . Perhaps another fourt h of them will resist change, no matte r how well the busines s case supports

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the nee d fo r th e change . A t OSHA , for example , Joe Dea r foun d tha t approximately on e i n fou r employee s activel y resisted th e change s an d remained full y skeptica l even after th e result s started comin g in. As Dear notes, OSH A workers asked why bother t o generat e a lot o f enthusiasm for a change tha t mos t of them would not be around lon g enoug h t o see implemented. Suc h a "wait-and-see " attitud e i s not uncommo n amon g employees at both publi c an d privat e organization s undergoin g a majo r change. Although i t does present som e anomalies—the averag e assistan t secretary in mos t governmen t agencies, fo r instance , last s only about 1 8 months in that position—OSHA offer s man y lessons to change managers involved in the transformation of a public or private enterprise tha t needs to prepare for thi s resistance t o change . Formulating a horizonta l design , especiall y on e tha t yo u ca n the n "sell" to the employee s i n your organization, require s rigorou s thinkin g about the assumptions you and other managers in your organization hol d about busines s processes, performance , an d people. Th e trul y horizontal organization i s not simpl y comprised of teams of employees within certain business functions , suc h a s custome r servic e o r huma n resources , an y more tha n i t installs just anothe r leve l o f management a s "process owners." Havin g broken dow n th e wall s o f man y functions withi n a n orga nization, horizontal team s must work productively and cooperativel y with people stil l working in an y remaining functions. After determinin g tha t thei r compan y ca n profi t fro m a horizonta l structure, afte r al l the plannin g and discussion , chang e manager s nee d to mak e th e cas e fo r a n urgen t shif t t o a newl y transforme d compan y and creat e a guiding coalition o r steering committe e of stakeholders who can hel p mak e that change . A s we will se e in th e nex t chapter , thi s coalition ca n hel p introduc e way s fo r empowerin g peopl e throug h cross functional trainin g and multiskilling . Larry Burleson o f Motorola SSTG's supply managemen t organizatio n succinctl y describes th e idea l attitud e of managers towar d empowering employees when he says, "To b e a good manager i n a horizontal organization , you have to be a person wh o gets fulfillment ou t o f watching other peopl e succeed. "

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12 PHASE THREE-INSTITUTIONALIZE THE APPROACH

HOW WILL YOU MAINTAIN MOMENTUM?

Football coaches can tel l you how relatively easy it is to get thei r players to memorize the rul e book an d lear n th e plays , but ho w difficult i t is to get the m t o execut e th e en d swee p or th e onsid e kick . Neithe r athleti c agility nor behaviora l change s happen by fiat. It i s no les s difficult fo r th e visionar y CEO or a change managemen t team intent upon restructuring an organization horizontally . Such a thorough makeove r requires months , often years, of cooperative effort , som e trial an d erro r (n o matte r ho w well you plan fo r th e transformation) , a commitment t o learn fro m th e trial s and errors , an d a concerted effor t to enlist and obtai n suppor t fro m to p managers , from frontlin e workers, and fro m mos t everybod y in between . After th e initia l burs t o f energ y following your call for a horizontal makeover , how can you maintain th e momentum t o carr y the organizatio n throug h th e month s an d year s of incremental change? In thi s chapte r w e look mor e specificall y a t som e o f th e technique s you can use to persuade employees , managers, customers, suppliers, and

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other stakeholder s t o suppor t th e ne w horizonta l structure . Bu t thes e should b e distinguishe d fro m th e seve n additiona l principle s discusse d in thi s chapter, principle s tha t exis t on a n on-goin g basi s for th e lif e o f the organization , no t just durin g th e brie f perio d (whic h some organi zations measure in years) when the changes are being implemented. On e way of thinking about thi s distinction is to note tha t change managemen t principles hel p yo u get fro m her e t o there , fro m inefficien t bureaucrac y to streamline d horizonta l structure , wherea s the seve n additional principles addres s th e behaviors , skills , and cultura l issue s that ar e necessar y for a horizontal organizatio n t o succee d o n a n on-goin g basis. In partic ular, thos e seve n principle s underlyin g th e transformatio n t o th e hori zontal ar e a s follows: • Empowe r people b y giving them the tools, skills, motivation, and authority t o make decision s essentia l t o the team' s performance . • Us e information technolog y (IT ) to hel p peopl e reac h perfor mance objectives and deliver the value proposition t o the customer. • Emphasiz e multipl e competencie s an d trai n peopl e t o handl e issues an d wor k productivel y i n cross-functiona l area s withi n th e new organization . • Promot e multiskilling , the ability to think creatively and respond flexibly t o new challenges tha t aris e i n th e work that team s do. • Redesig n functiona l department s o r areas t o work as "partners in proces s performance" wit h th e cor e proces s groups . • Measur e fo r end-of-proces s performance objective s (whic h are driven b y the valu e proposition) , a s well as customer satisfaction, employee satisfaction , and financia l contribution . • Buil d a corporate cultur e o f openness, cooperation , an d collaboration, a culture tha t focuses on continuous performance improvement an d value s employee empowerment, responsibility , and wellbeing. These principle s wil l hel p maintain , i f not increase , th e momentu m you have initiated b y organizing you r organization aroun d processe s and teams. In contras t t o th e five principles discusse d i n chapte r 11 , each of which is concerned primaril y with the design of the makeover , these seven

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are oriented more toward the institutionalization of the skills and behaviors that ar e require d fo r a successful horizonta l organization. As we sa w in chapte r 11 , the principle s mus t work i n tande m i f th e horizontal organizatio n i s to be successfull y institutionalized . More than just "movin g boxes " aroun d th e organizationa l chart , eve n mor e tha n doing th e desig n i n th e firs t place , th e institutionalizatio n o f th e hori zontal structur e represent s a challeng e o f developin g th e necessar y values, behaviors , and attitude s i n al l employee s so tha t the y can wor k i n tandem and increase thei r performance. Note that these are not so much sequential "steps " as they are a set of guidelines to organizational thinking, planning , an d coaching . That said , however, it is essential t o note tha t underpinnin g th e firs t five principles which focus on design is the fundamental need to organize around cor e processe s rathe r tha n task s o r functions . Directe d b y th e requirements o f your value proposition, yo u must decide first what your organization's core processes are, redesign them, and restructure around them, befor e you ca n identif y an d buil d th e appropriat e teams , under stand how best t o integrate with customer s an d suppliers , decreas e hier archy, and install process owners. This chapter recognize s that mere "de sign" i s not enough . T o mak e organizin g aroun d cor e processe s work, you mus t develop th e necessar y supportive skills and behaviors. To get fro m "her e t o there"—tha t is , to manag e th e chang e itself — requires layin g ou t t o al l stakeholder s th e vision , th e urgency o f th e change, and its consequences. Resistance is sure to come from all corners, but yo u ca n stav e of f some o f it—perhaps a great dea l o f it—by keepin g people informed , inviting their comments , and listenin g t o their suggestions. It is, after all , a cardinal principle o f human natur e tha t excluding people i s one o f the sures t ways to build thei r distrus t and resistance.

The ke y to unlockin g the potentia l o f the horizonta l organizatio n i s giving people a stake i n the chang e an d an opportunity to design it . Then achieve performance improvements i n the shor t term tha t demonstrat e i n concrete, measurable , and personally satisfying ways that th e change s these peopl e are involve d in are actuall y working for them. Joe Dear , former assistant secretar y of labor fo r Occupationa l Safet y and Health

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Empower People Although i t has become one o f the cliches of choice in the lat e twentieth century, th e ter m empowerment ha s significan t consequences fo r th e horizontal organization . Bu t fo r thos e consequence s t o hav e meaning , th e notion o f empowerment cannot b e inflated with puffy promise s and feel good fabrications. When managers trust employees to evaluate the supply chain o r redesig n th e step s i n a cor e process , for instance , the y enabl e those tea m member s t o mak e valuable contribution s t o th e produc t o r service th e compan y offers it s customers . Empowerment lies at the heart of implementing and institutionalizing a horizonta l makeover : It directs th e kin d an d degre e o f training, multiskilling, an d performanc e measuremen t tha t th e redesig n team/chang e management tea m establishes . Withou t empowere d employees , a n orga nization ha s littl e hop e o f creatin g a corporat e cultur e o f continuou s performance improvemen t an d collaboration , whic h is necessary to de liver the value proposition successfully . After all, if employees do not hav e access t o th e tool s an d material s o f production , includin g share d dat a and critica l informatio n affectin g performance , the y canno t mak e in formed decision s and b e hel d accountabl e fo r them . Throughout hi s writings, Karl Marx faulted capitalis m for fostering a sense of alienation fro m th e proces s of work and it s products. If , as Marx argued, peopl e are define d b y the wor k they do, the n strippin g the m of any meaningful connection t o their labo r deprive s them o f their human ity, thei r sense of purpose an d inclusio n i n th e wor k they do.1 Socialism, Marx's alternative , ha s i n mos t o f it s manifestations proven equall y unsuccessful i n ennoblin g worker s and increasin g th e car e with which they do thei r work. The traditional vertical hierarchy also failed, by and large, to engender the desire d psychological , emotional , an d creativ e connection s betwee n workers an d th e product s the y produced . Frederic k Taylo r an d hi s followers could measure workers' productivity but no t guarante e tha t thos e workers woul d b e an y mor e committe d t o wha t the y produce d an d actually believe , a s th e For d Moto r Compan y proclaims , that Qualit y is Job 1 . It has long been th e assumption among enlightene d business managers that workers fully an d seriousl y committed t o their work will, eithe r for materia l o r psychologica l rewards , take pains t o ensur e thei r work is

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of th e highes t quality . But the dee p sens e o f "ownership " continue s t o elude bot h manager s an d worker s in mos t vertical organizations. B y entrusting employees to carry out many of the traditional dutie s of the manager, however , the horizonta l organizatio n offer s a n antidot e t o th e dis piriting an d demoralizin g sens e o f alienatio n tha t plague s man y a modern organization . In vertical organizations, people ofte n us e information t o control oth ers an d protec t themselve s o r thei r turf , no t t o suppor t th e frontlin e employees an d improv e th e company' s performance . Patient s shunte d from on e department t o another i n the local hospital o r from on e service representative t o anothe r a t a larg e departmen t stor e experienc e th e nerve-fraying dysfunctio n o f the vertica l organization a t its worst. In hor izontal organizations, b y contrast, informatio n flow s freel y whereve r it is needed. Informatio n i s the indispensable fue l tha t drive s the value proposition an d empower s people t o do thei r bes t work. Some kinds of information, such as the just-in-time (JIT ) approach t o inventory control from whic h it takes its name, can arrive "jus t i n time." That is, team members do not need to concern themselves with inventory control unti l th e momen t the y have to make decisions about settin g pri orities i n production , substitutin g parts , respondin g t o sudde n change s in th e market , an d th e like . Similarly , job trainin g itsel f ca n tak e plac e just i n tim e fo r employee s t o mee t newl y se t performance objectives , especially when the organizatio n ha s set "stretch" targets. 2 This is what happened at OSHA, for example, when area offices iden tified short-ter m objectives critical to improved performance. Teams within eac h geographica l are a develope d actio n plan s for "movin g th e ball " and meetin g thei r challenge s withi n a specifie d eight-week period. On e office, fo r instance , se t a stretc h targe t fo r a 5 0 percen t reductio n i n response time to workers ' complaint s abou t unsaf e condition s in the workplace. The tea m developed a n eight-week action plan, received "Justin-time" trainin g i n proces s improvemen t an d proble m solving , an d achieved its goals. Key t o thi s success , th e OSH A workers had t o hav e a context —a real life situation—fo r masterin g th e skill s the y needed . Whe n the y recog nized th e immediat e need , the y kne w that ther e wa s a significan t pur pose t o thei r work . Placin g th e trainin g i n th e contex t o f meetin g a performance goa l tha t bot h th e organizatio n an d th e worker s them -

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selves conside r importan t i s an idea l wa y to achiev e measurable result s from th e training . OSH A workers themselve s coul d observ e th e cause and-effect linkag e betwee n performin g an d obtainin g th e necessar y skills a t precisel y the righ t moment . When OSH A workers, not t o men tion th e publi c a t large , sa w this linkage , the y recognize d th e immedi ate benefit s of training a s a key enabler o f better performance . Accordingly, OSH A personne l foun d tha t thei r wor k ha d benefit s i n th e "real" world , no t jus t o n someone' s wor k completio n chart . Thes e workers, newl y empowered , wer e actuall y protecting thei r fello w workers fro m seriou s injuries , even death .

Last Christma s w e ha d customers clamoring fo r a ne w Xerox machine. Whe n ou r supplier pointe d out that on e of its gears would freeze i f not properly lubricated, a group o f three Xerox engineers hoppe d o n a plane fo r the West Coast an d worked in a warehouse late o n Christmas Eve , unpackin g al l the machines , lubricatin g th e gear, and then repacking the m for immediate shipment. Ou r engineers simply realized that ther e wa s a proble m and they se t ou t to fix it. Without asking anybody's permission, the y took ownershi p o f the situation , hire d some peopl e t o hel p them with the unpackin g and loading, and got the proble m fixed. Jim Lesko, president of Xerox Supplie s Group

Contrary t o on e popula r misconception , the horizonta l organizatio n does no t transform people int o "generalists" who are unable to deal with technical issue s tha t aris e durin g th e process . A s Larry Burleson , vice president o f Motorola's SSTG, notes, "In formin g teams, you do not want your people t o sacrifice thei r expertis e i n thei r specifi c areas . It's important that they're perceived as the experts." To accomplish this goal, th e organization need s t o engag e i n continuou s trainin g o f it s employees, not only because technology keeps changing, but also because people do . Actual instructio n o n th e intranet , fo r example , take s place every day at Ford's Custome r Servic e Division , where servic e technician s i n farawa y locations ca n receiv e th e mos t up-to-dat e trainin g i n vehicl e repair an d service. The horizonta l organization has to allow its employees t o have mean ingful inpu t into the agenda of the core process group itself. At Motorola,

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this inpu t begin s t o b e realize d a s early a s th e interviewin g process fo r new employees . Purchasin g agent s an d supplie r manager s fro m th e teams, fo r instance , participat e full y i n thos e job interviews . Up unti l a few year s ago, manager s a t Motorola conducte d al l the wor k in schedul ing, hiring , firing , buying , an d proble m solving . Now , however , tea m members themselve s tak e par t i n thos e activities , assessing th e need s o f the tea m t o mee t custome r demands , an d ultimatel y increasin g th e employees' sens e o f empowerment and satisfaction . Successfully empowerin g peopl e als o depends o n motivatin g them t o take th e initiativ e a t an y point i n th e wor k process , t o solv e problem s wherever the y occur, in order to keep performance on track . To achieve this goal, employees cannot function i n the dark : Depending on th e par ticular process , the y mus t have direct , immediat e acces s t o informatio n concerning thing s like materials availability, production statu s and break downs, customers' specia l requirements , an d suppliers ' cost s (t o name a few). Fo r thi s reason alone , informatio n technolog y has been a boon t o horizontal organizations , bot h larg e an d small . At G E Salisbury, for in stance, tea m member s hav e direc t contac t wit h supplier s an d ca n mak e decisions o n th e spo t abou t whic h parts t o orde r an d a t what price. In creases i n authority , properl y supported , ca n hav e a direc t bearin g o n rewards, bot h monetar y an d psychological , as employee s a t man y hori zontal organizations suc h a s GE Salisbury can verify .

Use Information Technology to Support Process-Based Performance "Nothing ha s change d th e wa y we work," say s Richard Sparks , manager of Motorola's production purchasing , "mor e than e-mail . That i s the single biggest information technology tool Motorola has installed in the past 10 years. " While ther e ma y be piece s o f information technolog y tha t ar e mor e sophisticated and costly , certainly there is nothing t o compare with e-mail in the distribution o f information to large numbers of people both inside and outsid e th e organization . A s Sparks explains, a Motorola purchasin g agent an d a supply management enginee r ca n gather informatio n fro m a supplie r o n th e cost , lea d time , an d performanc e specification s for a

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certain product , the n distribut e tha t informatio n t o 5 0 people instanta neously so that they can evaluate the product an d plan for contingencies. At Ford' s Custome r Servic e Divisio n (FCSD) , problem s wit h sharin g information ra n deep . Ninety percent o f all warranty repairs ar e covere d by approximatel y 60 0 define d operations . Bu t a t on e tim e FCS D published a manua l tha t detaile d nearl y 3,25 0 possibl e option s fo r repair technicians an d salespeople . Th e excessiv e duplicatio n an d complexit y helped t o creat e unnecessar y costs an d confusio n fo r FCS D personnel , not t o mention a lot of irritation an d extr a expense fo r Ford customers. In par t a s a resul t o f the dramati c increas e i n th e numbe r o f error s in warrant y claims, FCS D sa w the nee d fo r improve d way s t o mak e th e best us e o f information technology . Sinc e there was no globa l transmission protocol , dat a fro m on e operatio n coul d no t b e re-use d efficientl y by repair personne l in othe r locations . Additiona l inefficiencie s delaye d publication o f the FCSD operations manual , which each local market had to se e throug h a translatio n fro m th e origina l Englis h int o a languag e technicians elsewhere coul d understand . As par t o f it s transformatio n proces s t o a horizonta l organization , FCSD create d a common technolog y base tha t coul d suppor t simultane ous vehicl e launches accuratel y an d swiftly . Th e proces s include d common formats , automati c "translation" int o loca l languages , an d faste r cycle times . FCSD als o installe d informatio n technology to allo w it s personnel t o complete competenc y testing and t o receive online instructio n either a t othe r dealership s o r throug h satellit e transmissio n when face to-face instructio n i s either impossibl e o r impractical . I n short , FCSD's transformation t o a horizonta l organizatio n coul d neve r hav e bee n achieved withou t the foresigh t of managers who provided a robus t an d accessible informatio n technolog y network on a global scale. 3 Moving th e chang e effor t t o cente r stag e i n th e min d o f each stake holder i s hardl y conceivabl e withou t informatio n technology , bu t i t i s essential t o remembe r tha t I T i s merely a tool , no t th e en d i n itself . As always for th e desig n o f the I T system, including th e technolog y enablers chosen an d th e informatio n provided , the prope r en d i s the impact that technology wil l hav e o n th e organization' s abilit y t o delive r th e valu e proposition. Th e ne w FCSD commo n technolog y was important no t be cause the technolog y was "nifty," but becaus e it helpe d reduc e error s

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and cycl e times, both critica l parts of FCSD's value proposition. At Ford's service center s i n Germany , fo r instance , custome r satisfactio n with re pairs an d cycl e times went from a disma l las t plac e t o th e numbe r on e ranking i n tha t market , largel y becaus e o f th e best-practice s operation s processes tha t make widespread us e of information technology . Change manager s o r th e steerin g committe e i n charg e o f the chang e management effor t wil l nee d t o weigh carefull y bot h th e kind s of information t o be shared an d the degree to which that information should be accessible. The impac t o n improvin g the company' s ability to deliver on its value proposition shoul d ac t as the "aci d test." Through trainin g and other mean s o f helpin g employee s develo p th e require d skill s an d be haviors, manager s ca n hel p employee s accep t wholeheartedl y th e ne w responsibilities tha t th e horizonta l organizatio n wil l requir e o f them . While no t ever y piece o f informatio n nee d b e share d wit h ever y tea m member, it is essential to provide th e right information to the right people in th e tim e fram e neede d t o improve performance . The organization s profile d i n chapter s 2 an d 5- 8 show that information technolog y i s a centra l featur e o f th e successfu l horizonta l organi zation i n a t least four main areas : 1. I T makes information available on a "real-time" basis to monitor performance . G E Salisbur y teams , fo r instance , us e a n elec tronic monitor , visibl e to al l on th e sho p floor , t o trac k their pro gress in meeting productio n requirements . O n a daily, weekly, an d monthly basis, the suppl y management organizatio n o f Motorola's SSTG utilizes leading-edge technolog y to supply information on defect rates , cycl e times , an d orde r fulfillment , al l i n th e nam e o f delivering a winning value proposition. Suc h examples demonstrate the varie d uses that organizations ar e makin g of improved IT. 2. I T supplie s th e tool s neede d t o solv e problems critica l t o th e value proposition. FCSD , for example , uses IT to identify problem s and trac k the progres s i n solving them. According to Salvador Psaila, manage r fo r Ford' s Worldwid e Technical Suppor t Operations , FCSD has reduced th e numbe r o f calls from it s technical assistance centers b y as much a s 1 5 percent. Wit h th e ne w horizontall y empowered teams , technicians can more easily locate th e information

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they need . A t th e sam e time , th e cos t o f developin g information for it s globa l processe s ha s decline d b y 5 percent , accordin g t o Psaila. 3. I T make s best-practice knowledge readily accessible. As we saw in chapte r 8 , Xerox's FIRST system provide s information instantaneously at any time to salespeople i n th e field, thus enabling them to answer customers' questions and provid e up-to-the-second information abou t ne w products and services. 4. I T enable s tea m member s t o collaborat e effectively , crossin g traditional departmenta l o r functiona l boundaries tha t i n the pas t would hav e hindered thei r communication . Xero x uses "COLAB " software t o powe r som e o f it s I T systems , allowin g users t o sen d data t o eac h othe r an d plac e comple x materia l o n large , high resolution compute r screens . Participant s ca n scribble , draw , o r make notation s that ar e visible to others o n th e system. 4 These ar e a few of the way s that information technology gives peopl e the powe r to d o wor k that a few decades ag o was unheard of . As e-mail has changed the way we communicate both personally and professionally, so larger, more complex IT systems are changin g the way we do business.

Emphasize Multiple Competencies As Hall, Rosenthal, and Wad e point out i n a 1993 Harvard Business Review article, many reengineering efforts fai l becaus e manager s define too nar rowly the processe s to be redesigned. Limitin g a process to its functional area—for example , accounting o r huma n resources—i s not th e wa y to address the organization's primary problems, especially those that extend across functions . Accordin g to th e author s o f the study , the redesigne d process "ha s littl e discernibl e impact on overal l performance. Still more distressing, many managers . . . analyze improvements relative to the process being redesigned rathe r tha n th e busines s unit a s a whole." 5 One implicatio n of this argument is that many managers find it tempting t o restric t proces s redesig n t o functiona l areas. Perhap s the y are so tempted becaus e th e functiona l structur e continue s t o dominat e bot h

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their thinking and tha t of frontline employees . It is much harder to imagine ho w accountant s o r huma n resourc e specialists , for instance , ca n learn about eac h other's work to the exten t that the y develop a t least an appreciation fo r what others d o i n thei r jobs. Developing that degree of cross-functionality i n th e horizonta l organizatio n demand s a concerte d effort fro m bot h to p managers an d workers . Ideally that effor t shoul d produce a grou p o f committe d tea m member s wh o kno w and respec t each other' s wor k so well tha t with some agility they can mov e from on e position t o another, wheneve r the nee d arises . In som e cases , of course, developin g tru e expertis e an d competency in a job reall y does require specialization : The challeng e o f maintaining and nurturin g th e competencie s require d fo r Xero x t o attai n a leadin g edge was an argument for keeping Xerox researchers specialized in areas of grea t technologica l complexity . In othe r cases , however, people ca n learn t o maste r differen t kind s of work. Where th e expertis e challenges are especiall y daunting, thi s ma y not b e possible . Othe r area s tha t ar e not s o challenging can probabl y be readil y mastered b y others a s part of multiple skills they possess. On team s such as those a t OSH A or G E Salisbury, th e expertis e requirement s ar e no t s o daunting tha t tea m members cannot master mos t of them themselves . But not al l team members can b e engineer s lik e th e specialist s a t Motorol a SSTG . Hence , team s need t o be open t o new members (o r visitors), often o n a n ad hoc basis. Engineers can absorb a lot of what procurement people d o on the team s without compromisin g thei r ow n knowledg e of engineering ; thus , they can help th e tea m develop solution s with suppliers or customers. To encourag e peopl e t o becom e committe d workers ready to accept broader responsibilities, you have to give them the trainin g the y need t o perform i n o r t o manage horizonta l processes . At GE Salisbury, employees ar e rewarde d fo r improvin g thei r skills , eithe r b y taking classes at a local community college o r b y receiving on-the-job training a t the plant. Members o f Motorol a SST G commodit y team s hav e acces s t o onlin e courses i n bot h manageria l an d technica l areas . Usin g CD-RO M tech nology, fo r instance , employee s ca n brus h u p thei r skill s wit h softwar e such a s Pr o Engineer , Applicatio n Specifi c Integrate d Circuit s (ASIC) , and Desig n for Manufacturing . According t o Sandr a Hopkins , manage r of system s and softwar e tea m an d streamlin e purchasing, the purpos e i s to satisf y th e company' s need t o giv e its people " a hands-o n knowledge

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of managin g intellectua l property. " I n th e ag e o f sophisticated technol ogy and communications , which allows Motorola t o partne r wit h it s customers an d suppliers , th e compan y recognizes that i t must train it s own people t o conduct suc h correspondence acros s secure lines . It i s easy to se e thi s agility in actio n a t a facility suc h a s GE Salisbury, where workers team u p t o manufacture lighting panel boards . Although there ar e thousand s o f variations for a single board, peopl e a t G E Salisbury have learned eac h other' s wor k so thoroughly tha t the y are abl e t o switch fro m tea m t o tea m whe n productio n need s arise . A s we sa w in chapter 6 , som e 9 0 percen t o f G E Salisbury employees in th e build-to order proces s know how to operate approximatel y 90 percent o f the tasks on the productio n floor . This is known as the "9 0 by 90" rule , and goin g beyond thi s degree o f shared expertis e woul d be impractical . Team 4 at GE Salisbury works both inside and outside th e actual manufacturing cycle . Their jobs require experienc e i n negotiating and excel lent communicatio n skill s s o tha t the y ca n tal k directl y with customer s and suppliers , kee p trac k of material s flow , an d handl e inventor y problems. Accordingly, GE Salisbury provides the resource s for thes e employees t o receiv e trainin g an d certificatio n so that the y can tak e control o f a higher orde r o f activities such as purchasing, scheduling, an d customer service. As note d b y the forme r plant manage r abou t Tea m 4 , "I f ther e ar e 10 individuals, one act s as a master schedule r fo r th e entir e plant ; thre e others are purchasers; four take on custome r service responsibilities; on e works in logistics; and anothe r handle s stee l suppliers. Virtually all those people hav e conducted eac h other' s jobs a t one poin t becaus e the y have been thoroughly cross-trained." No t only does trading off responsibilities keep tea m member s more activel y engaged i n thei r work, bu t i t also ensures tha t th e build-to-orde r proces s continue s t o functio n smoothl y whenever tea m member s are awa y from thei r jobs. In th e cas e o f GE Salisbury's build-to-order process , the primar y performance challeng e i s cross-functional (Team 4 offers a clea r example) , yet a t th e sam e tim e th e direc t productio n par t o f th e proces s itsel f requires a high degre e of technical proficiency no t just i n one are a but in several. G E Salisbury's 90/90 rule say s that 9 0 percent o f frontline workers kno w how t o perfor m 9 0 percen t o f th e tasks . As Opal Parnell , au tomatic equipmen t (robotics ) operator, put s it, "I f I get caught u p with

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my ow n work, I kno w of other jobs i n th e plan t tha t nee d t o b e done , and I just go do them." Harold Drive r agrees: "I ca n fill in for the robots or fill in a t on e o f the othe r lines , eve n helpin g ou t o n maintenanc e if necessary. That is, I can work either wit h or on the equipment , an d I like that par t o f my job." The degre e of job rotatio n eviden t a t G E Salisbury, however, will no t necessarily be matched b y every company adapting a horizontal structure. Nor doe s i t spel l th e en d o f technica l expertise . Eve n a t G E Salisbury, teams hav e t o mee t requirement s fo r technica l competenc y in buildin g the lightin g panel boards . Beyon d that , the y must develo p th e persona l skills they need t o function well as team members working with customers and supplier s to build product s t o exact specifications. Instilling thi s degree o f cross-functional competency demands a concerted effor t fro m everyon e in th e organization . Not only does th e train ing permit job rotation , but job rotatio n itsel f helps broaden the workers' appreciation o f the work' s complexity. New hires a t G E Salisbury attend day o r nigh t classes , dependin g o n whic h shift the y work, two or thre e times a wee k an d enrol l i n a s man y as thre e classe s eac h semester . I n addition, al l GE Salisbury associates receive Six Sigma training. Employees attend classe s provided b y the compan y to improve communication skills and tea m skills , learn ho w to work better wit h customers, sharpen thei r knowledge o f busines s economics , an d maste r ne w technica l skill s an d problem-solving techniques . Similarly, to review training offering s an d sig n up fo r on-the-job training, Motorol a employee s consul t a n onlin e compendiu m equivalen t i n size to the telephon e boo k for a medium-sized metropolis. At Ford's Customer Servic e Division , employees workin g o n th e Technica l Suppor t Core Process Group hav e unlimited access—eithe r through multimedia , satellite, o r intranet—t o trainin g tha t i s fully funded b y the company . According t o Salvado r Psaila, manager fo r FCSD' s global technica l suppor t operations, employee s simply secure thei r supervisors ' approva l fo r an y training progra m the y wan t t o take . "T o m y knowledge, " say s Psaila , "there ar e no refusals." Some companies devote a great deal of attention to one-on-one coaching techniques or apprenticeships. Other s are relying more and more on computer-based, interactiv e trainin g throug h a n intrane t system . At Xerox, for instance , th e Fiel d Information Researc h Systems Team (FIRST)

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shares its expertise an d technica l note s abou t product s wit h fiel d repre sentatives equippe d wit h lapto p computers . Installe d i n October , 1995, the intrane t sit e register s a s man y as 70,00 0 hit s a mont h fro m Xero x salespeople an d customer s seekin g solutions to documen t reproductio n problems. The principle tha t people shoul d be trained in multiple competencies is integral t o th e succes s of the horizonta l organizatio n in thre e primary ways: First, it ensures that th e compan y is able t o keep its core processes functioning smoothl y and efficientl y eve n in emergencies or i n instances when essentia l employee s are awa y from thei r jobs. Second , it promote s the ide a o f right-skilling, the nee d t o fin d peopl e wit h highl y develope d skills t o perfor m th e task s at hand, thu s optimally matching the expert s with ne w positions or job description s a s they arise. Third, th e principl e underscores th e importance o f giving people a deeper sens e of their contributions to th e cor e proces s in which they are working, as well as their significance t o the organizatio n itself . In short , a sense of self worth adds dollars t o a company's coffers . We ad d ne w technica l talen t t o ou r manageria l rank s b y finding someon e i n our engineering department or one of the functional area s who already has the expertise and the discipline. W e usuall y d o not hire our managers directly from among those newly recruited from colleges an d universities . Kris Krishnaswamy, engineering and quality manager for operation s and supply chain management a t Motorola SSTG

Promote Multiskilling Once change manager s have begun th e makeover to a horizontal design, they realiz e tha t th e flo w o f activitie s necessary for deliverin g the valu e proposition require s variou s combination s o f multidisciplinar y skills . These ar e muc h differen t fro m thos e dictate d b y normal functiona l ar rangements, where a n employe e skille d in financial planning o r huma n resources, fo r instance , typicall y does no t sho w deep concer n fo r inte grating th e wor k of a cor e process . Pu t on e o f these peopl e o n a team committed t o integratin g th e wor k of th e cor e proces s group , an d th e

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range o f activitie s tha t th e employe e mus t maste r grow s b y quantu m leaps. Readiness to find and assig n the righ t peopl e for eac h job arise s naturally out of continually training peopl e to learn new approaches t o work, accept mor e responsibilities , an d manag e themselve s i n th e deliver y of the value proposition. Thi s means thinking creatively to find new ways to do thing s sinc e th e job i s to delive r th e valu e propositio n rathe r tha n fulfill a predetermine d jo b description . Som e organization s carr y thi s principle on e ste p further t o emphasize employees ' developin g multipl e skills to complet e tasks , particularly on a just-in-time (JIT ) basis in orde r to mee t performanc e challenges . I n th e horizonta l organization , unlik e the vertical , multipl e competencie s shoul d be the rule , not the excep tion.6 There i s the obviou s analogy to JIT inventor y control, whereby a company contracts with suppliers t o have parts delivered precisel y where and when the y ar e needed , fo r instance , i n th e manufacturin g o f a n auto mobile or the buildin g of a condominium. Th e goa l o f JIT skill s training is t o generat e measurabl e improvement s an d performanc e i n a shor t time, perhap s a fe w weeks. Manager s begi n b y identifyin g th e perfor mance goals they need to reach. Eithe r they or the process owners discuss the target s with tea m members , refinin g the goal s as necessary and persuading employee s tha t onl y a tea m effor t ca n achiev e s o high a mark . Next, managers introduc e training , i n th e for m either o f specialists who work wit h th e team s t o hel p the m develo p ne w skill s o r o f technolog y that ca n hel p worker s mee t th e goals . Just a s informatio n technolog y helps bot h supplie r an d custome r keep tab s on th e availabilit y and ship ment o f part s neede d i n a JIT manufacturin g process , s o i t ca n hel p promote th e acquisitio n o f needed skill s when th e tea m require s them . Challenged t o meet performance standards, tea m members find JIT training a n importan t asse t i n thei r work . Although no t al l skills, competen cies, an d understandin g ca n b e develope d i n a just-in-time manner — indeed, som e task s require a dee p knowledg e o f products an d custom ers—the competencie s t o perfor m thes e task s may best b e improve d by classroom training , onlin e training , o r on-the-jo b coaching. All horizonta l organizations , a s wel l a s mos t vertica l companies , se t performance objective s and goal s t o hel p driv e thei r improvemen t an d present challenge s t o all employees. The differenc e betwee n the two types

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of organizations, however, lies in the intentio n behin d establishin g thos e goals: Whereas vertically structured companie s ten d t o focus on tas k specialization i n th e servic e o f "functiona l excellence, " horizonta l organi zations emphasize th e deliver y of products an d service s with added value in orde r t o wi n customers. I n th e horizontal organization , informatio n technology bot h direct s th e desig n o f cor e processe s b y systematically capturing an d analyzin g customer data, and support s th e use of that dat a in monitorin g custome r valu e an d meetin g performanc e objectives . As important a s i t is , however , informatio n technolog y b y itself ca n neve r take th e plac e o f employees committe d t o cooperatin g wit h each othe r across functional boundaries i n order t o deliver the best products t o solve any problems thei r customer s have. At GE Salisbury, for instance, the emphasis falls not o n the productio n of a fixed number o f lighting panel boards , bu t o n th e timel y delivery of the board s constructe d precisel y t o th e customer' s specifications . As a direct resul t o f revampin g it s build-to-orde r process , G E Salisbur y ha s realized numerous savings , including a sixfold improvemen t i n inventory turns and a 50 percent saving s in variable costs. Equally impressive is the plant's output , whic h ha s double d sinc e th e initia l transformatio n tha t began i n th e mi d 1980s . It i s essential , therefore , t o le t valu e fo r customer s driv e behavior , performance, an d desig n in the horizonta l organization . An d in order t o achieve tha t performance , yo u mus t integrat e custome r valu e int o th e daily activities and behavio r o f employees at al l levels. Xerox, for example, has instituted a sophisticated 360 ° review process for al l managers, by which one receive s evaluation dat a fro m peers , subordinates, an d supervisors . Th e compan y focuses on eigh t "cultura l di mensions," includin g one's proclivit y to work with teams, an orientatio n toward decisiv e action, positiv e attitude s abou t empowerin g people , an d the abilit y to engage i n open an d hones t communications . Th e premis e underlying this evaluation is that employees create the cultural values that affect th e workin g environment , th e commo n goo d o f tea m members , and th e "Xero x way" of working—all of which eventually determines th e value that customers experience i n the products an d services they receive. While pride i n th e tea m effor t ca n hel p carry many projects t o completion an d increas e valu e fo r customers , tha t b y itself is usually insuffi cient to maintain th e leve l of performance a company needs. Rewarding

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individual skills, or th e acquisitio n of those skills , as well as contributions to a team effort , wil l require tha t managers recognize the direc t relation ship betwee n performanc e an d rewar d systems . At the Genera l Electri c plant in Bayamon, Puerto Rico , for example, employees are rewarded for the numbe r o f different jobs the y master, th e communicatio n skill s an d business understandin g the y develop , an d th e contribution s the y make to the tea m effort. 7 I n a truly horizontal organization, where teams reach across functiona l boundarie s rathe r tha n merel y within a stovepip e de partment, recognitio n fo r multipl e competencie s an d contribution s t o the tea m i s a majo r facto r in institutionalizing the change s that th e hor izontal organization brings. The difficul t par t is ensuring that rewards are fairly distributed , tha t th e revie w process i s open , an d tha t employee s learn fro m i t rather tha n vie w it as a burden .

Partners in Process Performance Anyone who has worked in a traditional hierarchica l system (that is, just about al l of us) know s what happens t o information when it moves up o r down th e ladder . A s Tom Stewar t observes, because hierarchica l systems need t o kee p themselve s orderly an d functional , managers a t an y level can put thei r specia l spins on any piece o f data that moves. "Informatio n is edited, delayed , politicized, and sometime s destroyed."8 Logi c suggests that suc h attitude s toward th e sharin g o f information render a n organi zation disorderly and dysfunctional rathe r than the othe r way around. In th e horizonta l organization , such attitude s about sharin g information ar e anathema . Consider , fo r example , th e cas e o f Ford's Custome r Service Division (FCSD). In its FCS2000 initiative, nearly 12,000 employees worldwide combine force s t o serve over 15,000 Ford dealer s o n five continents. As we have seen i n chapte r 2 , the ne w FCSD comprises four main core proces s groups , which interact o n a global scal e to provid e best-inclass customer service . The ne w FCSD, depicted i n Fig . 2.1 , actually is a "hybrid" business unit within the For d organization , and , a s such, combines elements from both the horizontal and the vertical organizations. Unlike their counterpart s in a strictly vertical organization, the vertical areas unde r Ro n Goldsberr y work hand i n han d wit h th e cor e proces s groups t o delive r best-in-clas s service. A customer servic e representativ e analyzes a For d dealer' s servic e program i n on e Europea n city , fo r ex -

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ample, the n goe s online t o study a similar dealership, say , in Sa o Paulo, Brazil, which has experienced an d solve d a similar problem. Rather tha n attempting t o reinven t th e wheel , th e representativ e use s th e Brazilia n dealer's solutio n to hel p craf t a business plan for the Europea n dealer . Many peopl e suppor t tha t effort : th e huma n resourc e personne l wh o have hired, trained , an d directe d th e European representative ; the information technolog y system s personnel wh o hav e installed th e I T system that enables th e custome r service representative t o discover that th e Sao Paulo deale r ha s ha d a proble m simila r t o th e Europea n dealer's ; an d the financia l planner s wh o hav e evaluate d th e resource s necessar y fo r building suc h a system in th e first place. Salvador Psaila provides a more complex exampl e i n the nee d t o provide dealer s wit h technica l assistanc e wheneve r the y cal l i n fo r it . Pas t experience wit h such calls has suggested perhaps seve n or eight measures to addres s jus t abou t an y technica l assistanc e proble m tha t arises . Equipped with an actio n plan fo r each measure , FCS D operators see k to identify th e dealer's problem—for example, insufficient trainin g to install a ne w type of brake system—an d to provid e a solutio n tha t wil l work in the interim . Each month, th e dat a is collected an d tabulated , analyzed as to roo t causes , an d sen t t o strategists , designers , an d th e lik e wh o fin d some innovatio n tha t solve s the genera l problem . "Peopl e spen d mor e of thei r time, " say s Psaila, "workin g o n a solution tha n o n pointin g fin gers at those who may have caused th e problem. "

Measure for "End-of-Process" Performance Objectives With only a handful of exceptions in the first 25-odd years of its existence (that is, 1970-1994), OSHA never developed a practice of using empirical data t o defin e health an d safet y problem s an d t o formulate intervention strategies t o comba t them . Unti l Dea r an d hi s associate s bega n a thor ough redesign o f the organization, OSH A never set clear, results-oriente d performance targets—fo r instance, to reduce th e numbe r o f fatal fall s i n the constructio n industr y by a given percentage . A s the redesig n bega n taking shape i n 1994 , Dear accurately predicted tha t ther e would have to be a "complete chang e in th e mindse t of OSHA officials a s they conduct their day-to-da y operation s an d th e mean s b y whic h the y measure success."

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Similar change s hav e take n plac e a t Motorol a SSTG . Accordin g t o Sandra Hopkins , th e organizatio n ha s certainl y driven dow n cost s that , prior t o its horizontal redesign , i t had t o add t o the pric e i t charged fo r its products. Th e overhea d rat e Motorol a SST G charges customer s now stands a t an all-time low. Moreover , it has consolidated th e work of some 16 departments o r vertical functions int o it s cross-functional supply management teams , thereby reducing th e administrativ e costs of supply management b y over 60 percent . Quality, according t o Larry Burleson, has also improved dramatically : In 1989 , the rejectio n rat e fo r suppliers ' product s hovere d betwee n 15 and 2 0 percent; today , it i s less tha n 1 percent. Motorola' s productio n varies between 5.8 and 6 sigma per mont h i n terms of defective parts, u p from 4 sigma just a few years ago. And it s on-time deliver y rate ha s improved fro m a s low as 60 percent i n 198 9 to nearl y 92 percent today . As Burleson see s it , thi s improvemen t i s directl y attributabl e t o Motorol a SSTG's implementation o f a horizontal supply management organization. While suc h tangibl e result s mak e managers , customers , an d share holders happy, it is important that employees also take heart in them an d experience a commensurate rise in the satisfaction they derive from thei r work. Thi s i s where th e horizonta l approac h offer s a marke d advantag e over it s vertical counterpart. FCS D employe e satisfaction rose by 20 percent in th e first year after th e horizonta l restructuring took place. Othe r studies hav e show n simila r result s t o corroborat e th e conclusio n tha t when employees have a direct and tangibl e influence on th e products o r services they produce, the y demonstrate greater commitment to and car e for th e wor k they do an d th e customer s they serve. As a group , th e managers o f Motorola's suppl y management organi zation team s repor t tha t th e horizonta l organizatio n ha s encourage d them t o gro w i n personal an d professiona l ways : The y hav e enhance d their managerial skills , increase d thei r abilit y to solve problems, an d taken mor e interes t i n facilitating the wor k people do . Motorola's suppl y management organizatio n use s both quarterl y an d yearly measure s t o provid e it s manager s an d tea m member s feedbac k about their performance. Peer evaluations as well as reports from process owners o r managers figur e prominentl y i n measurin g ho w successfull y employees are engage d i n th e wor k of their teams . Self-monitoring provides another valuabl e source of information about employees' response s

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to th e tea m approach . Bu t Burleson identifie s an importan t are a o f improvement whe n h e point s t o th e declin e i n th e numbe r an d kind s of questions h e receive s from employees . When team s ar e formed , peopl e initially feel som e insecurity with their newfoun d responsibilities; accord ingly, the y ask the manage r o r tea m leade r t o giv e them th e answer s to their question s an d fin d solution s t o problems , rathe r tha n workin g through thes e solution s themselves . A s the y develo p thei r confidence , their tendenc y to see k immediate gratificatio n from authorit y figures diminishes. Instead , the y searc h thei r ow n experienc e an d expertis e fo r solutions t o problems th e tea m encounters .

Cooperation, Collaboration, and Continuous Improvement A story told earlie r bear s repeatin g here . Mik e Ockenden, managin g di rector o f Barclay s Ban k Hom e Financ e Division , tells ho w on e Frida y afternoon a t 3:30, the compute r syste m crashes. Customer s are waiting in line t o hea r th e fat e o f their mortgag e applications , i n hope s tha t the y can begin movin g into thei r ne w homes ove r th e weekend . Work in th e office screeche s t o a halt . Peopl e o n bot h side s o f the custome r servic e desk ente r crisi s mode. Under thes e circumstance s at your typica l vertical organization, func tional department s woul d clos e thei r books , sen d employee s hom e fo r the weekend , an d leav e customer s disappointe d an d frustrated . Mayb e those unlucky people would have their application s approve d on Monday (maybe not) , no matte r tha t mos t o f them no w will hav e to make othe r living arrangements fo r th e nex t 4 8 hours. No t s o at Barclays HFD, however. At this point i n th e story , the ton e shift s becaus e thi s crash o n thi s Friday afternoo n happen s a t Barclay s HFD, a horizonta l organization , where the corporat e cultur e i s collaborative, cooperative, an d focused on continuous performance improvement . Ockenden recount s tha t everybody in the offic e pull s together t o find a solution t o this problem withi n minutes of its occurrence. Th e cal l goes out, "Thi s i s how we're goin g t o fi x th e proble m an d mak e sur e ou r customers al l mov e into thei r ne w homes thi s weekend," h e says . Ock enden himsel f walk s slowly an d deliberatel y t o th e I T office , confront s the perso n i n charg e o f th e networ k system, and says , "John , I want to

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thank yo u fo r pointin g ou t th e bigges t singl e weaknes s in ou r networ k systems, which can damage our relationship with our customers. Now that we know what it is, we can fix it s o it won't happen again. " The poin t o f hi s remark , Ockende n says , i s that a t Barclay s HF D a mistake is not necessaril y a bad thing . It i s bad onl y if it is not acte d o n as an opportunity for learning an d improving , an invitation to fix a problem an d kee p i t from happenin g again . Althoug h implicit , the cultura l values are clea r i n Ockenden' s word s and actions : Lear n fro m mistakes ; fix a problem once , bu t d o no t fix the blame ; an d tr y not t o disappoin t customers whose expectations yo u hav e raised. Suc h experience s ar e al ways opportunities fo r learnin g an d improving . In th e organizationa l char t fo r th e typica l vertical company, a line of authority connect s eac h sil o t o a highe r authority , bu t rarel y t o eac h other. Insid e on e o f thos e silo s th e onl y lin e o f sigh t i s u p o r down . Because suc h models o f organizational lif e d o affec t th e wa y we work, it is not surprisin g tha t th e traditiona l corporat e culture s have emphasized the values of proprietary information and restricte d access to technology, as well as an increase d narrownes s of orientation. Fro m protectin g one' s turf to hoarding informatio n essential to smooth operations, i t is a matter of control . Furthe r circumscribin g peopl e an d thei r work , eac h depart ment establishe s it s own internal objective s or quotas , ofte n withou t regard for what other divisions ar e doing. In such organizations , openness and cooperatio n ar e scarc e commodities. The alternativ e proposed by a horizontal organization such as Barclays HFD i s a collaborativ e cultur e promotin g continuou s improvemen t i n delivery of the value proposition . Bot h within and betwee n cor e proces s groups, th e goa l is to allow information t o pass unimpeded s o that tea m members stay attuned t o the needs of the proces s itself as well as to those of suppliers and customers . Instead o f rendering information stati c an d proprietary, th e horizonta l organizatio n propose s tha t informatio n b e "actionable"; that is , employees throughout th e organizatio n ca n access it and ac t upon i t at a moment's notice. Th e organizationa l desig n itsel f becomes actionabl e a s well in tha t i t direct s th e wor k that people d o i n their busines s unit, cor e process , operatin g unit , o r thei r entir e organi zation. One o f the bes t examples of this open, cooperative cultur e occur s a t the G E Salisbury plant in North Carolina. Team members in the build-to-

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order proces s share information about the progress of their work at their daily 7:00 A.M. meeting, where they plan fo r that day's production an d tr y to anticipate upcoming supply problems. The member s of Team 4, it will be recalled, serve as problem-solvers—bringing in other employees, for example, t o work on a production tea m when emergencies arise, choosing another supplie r i f parts are unavailable, collaborating wit h customers to find solutions to a production proble m whenever it occurs. Equipped with the righ t informatio n technology , a customer ca n sen d specifi c require ments for lighting pane l board s directl y to the G E Salisbury team, which can process the order, build and ship the product, and bill the customer in one smooth operation . This efficienc y woul d b e impossible , wer e i t no t fo r th e cooperativ e atmosphere tha t exists at GE Salisbury. As Ryerson noted, "Ou r production team s hav e forma l communicatio n ever y eigh t hour s t o integrat e their work schedules and kee p production o n track. " How d o yo u incorporat e suc h opennes s an d cooperatio n int o you r organization's culture ? Th e creatio n o f cultura l value s is a n extremel y slow process, ofte n takin g years, but it s pace o f acceptanc e ca n b e hastened whe n to p leader s adop t th e value s in tangible , persona l way s an d show b y thei r action s tha t the y hav e don e so . Ro n Goldsberry , FCS D general manager , sum s i t up thi s way: "You have to b e a teacher . Fro m a cultural standpoint, all this horizontal organizatio n aroun d processe s is new t o most people. I have to mak e certain tha t we do no t los e sigh t of our priorities , particularly ou r focu s o n custome r service . I try to teac h people a new point o f view, a new focus on processes and share d respon sibilities. ' Tha t is no eas y task, given that FCSD today is a global business unit withi n a larg e organization , wit h operation s i n variou s countries , each o f which has a set of cultural values unlike an y found elsewhere. You can als o hasten th e adoptio n o f values relevant to th e horizonta l organization b y removing resistance, eithe r b y persuasion o r throug h di rectly tryin g to remed y some o f the "skill " o r "will " gap s tha t ma y underlie resistanc e t o th e ne w values , or , i f necessar y an d onl y a s a las t resort, throug h dismissal . Th e messag e ha s t o g o ou t tha t th e trai n i s departing th e statio n an d al l riders hav e t o b e o n board . Ever y organi zation has its resistors, people wh o oppose an y change and even sabotage the effor t t o mak e improvements. Th e les s vehement ca n be persuade d by incentives to change th e way they do their jobs, but the most strenuous

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and persisten t objector s will have to be replace d o r give n the chanc e t o leave on thei r ow n accord. Whe n mos t organization s begin th e transformation process to a horizontal approach, employee s are given the optio n of adaptin g t o th e ne w core processe s an d acceptin g increase d respon sibilities o r eithe r findin g anothe r positio n withi n th e organizatio n o r leaving it altogether . The ke y point t o remember i n building a n ope n an d responsiv e culture i s that succes s depends o n integratin g al l the desig n principle s simultaneously rather tha n piecemeal . I t make s no sens e t o as k frontline people t o take on extra responsibilities if the company does not or cannot provide th e adequat e technology , resources, an d incentive s t o facilitate and rewar d their work. The open , collaborativ e corporat e cultur e require d fo r a successfu l horizontal makeove r an d continuou s performanc e improvemen t i s geared t o help people attai n thei r highes t potentia l a s creative and productive employee s focuse d o n deliverin g th e valu e proposition . I t i s a culture conduciv e t o promotin g a greater sens e o f satisfactio n with th e work they do to bring tha t proposition t o fullness an d t o make sure tha t customers ar e delighte d wit h it . A s Jim Lesko , presiden t o f th e Xero x Supplies Group, puts it, "Ever y year we measure employee satisfaction by asking peopl e ho w they rate themselve s as members o f th e entir e orga nization, a s members o f a group o r team , an d a s individuals. Employee satisfaction i s not just a surve y we take, however; it i s part o f our bonu s scheme and par t of our cor e objective. " Continuous performanc e improvemen t i s an additiona l featur e tha t distinguishes th e horizonta l organizatio n fro m man y versions o f reen gineering whic h limi t themselve s t o a "one-shot " change , a quic k fix. Too man y o f thes e effort s leav e organization s gaspin g fo r breat h an d employees strugglin g t o explai n th e violen t turn s i n thei r livelihoods . Unlike reengineering , a transformatio n t o th e horizonta l organizatio n is intende d t o giv e worker s autonomy , tas k significance , identity, an d skill improvement , al l o f which contribute t o thei r sens e o f well bein g and job satisfaction . Accordingly, they pledge a highe r degre e o f commitment t o thei r work . And when tha t happens , job performanc e rise s dramatically. Th e benefits , therefore , ar e sprea d amon g thre e recipi ents: The worker s themselves who report the y are happie r i n their jobs ; the customer s wh o repor t the y ar e mor e satisfie d wit h th e organiza -

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tion's product s an d services ; an d th e compan y itself , whic h see s it s revenues an d reputatio n improve . Phase II I o f buildin g you r ow n horizontal organization , i n sum , focuses on the implementation o f those principles that help institutionalize the skill s and behavior s required fo r a horizontal organizatio n t o be successful. Th e chang e managemen t tea m ha s t o mak e it clea r to al l stakeholders tha t thei r involvemen t and participatio n ar e essential t o success. In addition , th e tea m need s t o engag e peopl e activel y in th e chang e effort. Tea m member s may secure representatio n on the steerin g committee, design , chang e management , o r roll-ou t teams , o r leverag e thei r participation i n performance-base d problem-solvin g effort s tha t hel p institutionalize th e ne w skills of the organizatio n a s well as improve performance. Their involvemen t in th e actua l effor t improve s performance, a s illustrated by the OSH A example. The succes s of the venture depends o n maintaining o r increasin g performanc e levels , cooperating an d collabo rating with others, an d ensurin g employees' sens e of satisfaction with th e work the y do . Yo u can purchas e th e bes t I T syste m i n th e world , talk endlessly abou t strateg y an d vision , an d redesig n th e structur e o f th e organization, bu t i f you do not develo p the skill s and behaviors , th e corporate cultur e tha t values openness an d collaboration , you r chances for success will be greatl y diminished. As outlined i n this and th e preceding chapters , th e 1 2 principles must be applie d in a n integrated fashio n in th e chang e managemen t process. They canno t b e implemente d i n isolation , i n hope s tha t a littl e effor t expended her e o r ther e wil l someho w magically reform the entir e orga nization. Bot h to p executive s and proces s owners , a s well as team members throughout th e organization, hav e to keep their sights on improving performance, no t bein g satisfie d wit h some one-sho t salv o that sputter s off int o a change o f little import . Above all, change manager s must have the confidenc e to allow others to tak e charge , shar e authorit y an d responsibility , and i n fac t tak e re sponsibility t o mak e sur e th e other s ar e full y supporte d an d enable d t o deliver the valu e proposition. Grea t leadership i s often mos t clearly seen in th e willingnes s and th e follow-throug h t o pla n thoughtfull y and de velop the capabilit y in others t o be empowered and held accountable for meeting performanc e goals . "Willingness" i s a first step, but no t enoug h by itself: The follow-throug h is critical.

228 HO

W T O BUIL D A

HORIZONTA L ORGANIZATIO N

EPILOGUE

THE ROAD AHEAD ANTICIPATING AND AVOIDING PROBLEMS AND SEIZIN G OPPORTUNITIES

To reiterat e a n earlier theme , thi s book offer s n o silve r bullet, no magic potion, no quick-fix, no crepe-lined bandwago n to jump on as the parad e passes by. The hard truth i s that business solutions to organizational problems—how t o achiev e maximu m performanc e an d mak e continua l im provements in th e valu e proposition, whil e empowering workers and in creasing thei r sens e o f accomplishmen t an d satisfaction—requir e time , effort, commitment , an d inspire d leadership . I n th e rus h t o fin d th e quick fix, managers ofte n allo w their expectation s o r thei r sens e o f what is required t o become unrealistic . Commo n sens e ofte n get s lost. If thi s boo k coul d delive r onl y on e message , i t woul d b e this : Any transformation o f th e ol d vertica l hierarch y ha s t o b e undertake n wit h serious intent, ful l bu t realisti c expectations, a n eagle-eye d focus o n con tinuous performanc e improvements , a dee p concer n fo r th e well-bein g of employees , and a willingness to involv e all stakeholders fro m th e be ginning b y sharin g wit h the m th e vision , th e responsibilities , an d th e rewards o f th e horizontall y structure d organization . Simpl y redesignin g

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core processes , i n hope s tha t th e res t o f th e organizatio n wil l someho w take car e o f itself , make s about a s much sens e a s pouring hal f th e con crete foundatio n fo r a new skyscraper and the n tryin g to erect th e floo r supports an d joists. There is no bullet , silve r o r otherwise, in the horizonta l organization . I a m convinced, however , that th e principle s o f the horizonta l organiza tion establis h a firm ground upo n whic h to build your new organization, whether publi c o r private , o r transfor m th e on e yo u now manage. Th e principles o f the horizontal organizatio n ca n b e applie d equall y well t o the mos t bureaucratic o f government agencie s a s they can t o th e mos t entrenched department s o f a private enterprise . The experience s o f thos e involve d i n horizonta l makeover s sho w us that chang e leader s requir e months , if not years , to do th e groundwork , prepare th e foundation , an d the n finis h puttin g th e ne w structure an d supports i n place . I f Rome was not buil t i n a day, why should w e expect anything less for som e o f th e majo r institution s o f modern society ? Thorough plannin g an d thoughtfulness , however , shoul d neve r b e confused wit h lethargy . Overly cautious change leader s wh o act with th e speed o f a glacier run a great ris k of communicating indecisivenes s and lack o f discipline, th e ver y messages tha t wil l derai l a transformatio n of such importance . T o succeed , leader s hav e t o conve y that sens e o f ur gency, without which employees and othe r stakeholders ar e likel y to view the makeove r with increasing skepticis m or remain utterl y confused an d bewildered. I f don e right , th e transformatio n t o th e horizonta l organi zation proceed s wit h deliberate speed , consideration , an d discipline . Let u s hav e n o illusion s abou t suc h a change : I t i s analogous t o a journey i n which the destinatio n keep s moving . Although th e trave l will become steadie r th e longe r an d farthe r you go, the roa d i s sure t o have its rough places and smooth . With th e certai n occurrenc e o f more com petitors, unpredictabl e marke t conditions , ne w regulations, an d innova tions in the way business is conducted, you must be always on th e lookou t for change s that will require you to adjust, refine, an d improv e your company's strategy, core processes , an d al l the othe r organizationa l enabler s of performance. Above all, you must be vigilant fo r ways to enhance your organization's performance , both short-ter m an d long-term . The horizonta l organizatio n itsel f will no t solv e ever y business problem, o f course . I t i s no t propose d a s a panacea , no r shoul d a chang e

23O E P I L O G U E

management tea m trea t i t a s a temporar y solutio n t o long-rang e prob lems. A s illustrated b y the si x organizations discusse d i n thi s book , th e horizontal componen t o f any one busines s will display certain basi c similarities (e.g. , organized aroun d process) , while also exhibiting differenc es in specific application fro m tha t of its competitor or a similar company in anothe r industry . The design , in othe r words, has to be tailore d t o fit each organization , takin g int o accoun t it s value proposition , goals , an d the capabilitie s of its people. Unitin g all stakeholders unde r a singl e vision, integrating the m wit h the righ t system s and busines s enablers int o a new entity focused on continuou s performance improvement, will challenge eve n th e mos t intrepi d o f leaders . Bu t i n thei r promotio n o f innovative solutions, change manager s ca n sho w a deft han d a t motivating people bot h insid e an d outsid e th e organizatio n t o collaborate t o make the ne w organization a reality. Paul Allaire, CEO of Xerox, says there is an inevitable tension between the horizontal and the vertical aspects of a company and that people have to work at findin g th e righ t mi x for their organization. This tension ca n manifest itsel f i n an y number o f ways. Fo r example , performance objec tives may not dovetai l precisely at first. As functional departments, how ever, learn t o partner wit h proces s owners and cor e proces s groups , th e newly designe d horizonta l compan y will begi n t o se e positiv e result s i n performance. Recall that the Xerox Corporation bega n seein g impressive results of its horizontally organized busines s groups, includin g significan t growth in new markets, close to 170 new products launched between 1991 and 1996 , greater custome r satisfaction , and a three-fold increase in earnings pe r share . I n th e publi c sector , OSH A ha s recentl y enhance d it s image b y moving away from th e "number s game " tha t onl y emphasized enforcement an d t o a n approac h tha t stil l enforce s when necessar y but now places an increased emphasi s on proactively solving problems t o prevent injuries , illnesses , and deaths . Wher e possible , OSH A acts today as more o f a partner t o businesses in a concerted effor t t o improve working conditions an d sav e lives. Although thes e succes s stories are repeate d i n various industries, bot h in the public and in the private sectors, managers should b e awar e that such changes and result s have to be won with hard work and dedication . Moreover, in order t o ensure th e succes s of the change , management needs t o hav e i n plac e al l th e "majo r change " fundamental s fo r a

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performance-based transformatio n to succeed. These include th e willingness t o commi t the energ y an d resource s tha t wil l provid e th e suppor t needed t o enabl e cor e proces s team s t o wor k collaboratively , an d th e discipline t o both perfor m analyse s systematically and follo w throug h t o execute an d "qualit y control " chang e initiatives . Moreover, the y nee d the courag e t o hol d themselve s accountable fo r th e result s o f thei r de cisions, just as empowered employees in the horizontal organization must be ultimately accountable fo r th e result s of their actions. The opportunitie s for a successful transformatio n ar e limited by shortsightedness, lack of commitment, unrealistic expectations, and the failure to follo w throug h systematicall y over th e lon g term . W e recall als o that, as Dichter , Gagnon , an d Alexande r poin t out , majo r chang e initiative s often fai l becaus e leaders too narrowl y focus th e chang e initiatives : They concentrate onl y on one o r two of three axes—top-down, bottom-up, an d across the organization—not on all three simultaneously. 1 For the change effort t o hav e maximum benefit, company leaders hav e to sho w both i n words an d action s that the y are full y committe d t o a n integrated chang e effort alon g al l three axes. In a n articl e for Harvard Business Review, John Kotter offers hi s analysis of eigh t error s tha t leader s typicall y make i n directin g majo r transfor mations. Managers , accordin g t o Kotter , frequentl y fai l t o establis h a sense of urgency, assemble a group powerful enough t o lead th e chang e effort, creat e an d communicat e a vision, empower other s t o act , recog nize an d rewar d short-ter m wins , reenergiz e th e chang e effor t periodi cally, and establis h clear connections between the behavio r and success. 2 None of these failures needs to occur, however, in an organization where managers hav e systematically completed th e "up-front " wor k t o prepare for th e change , create d a specific an d inspirin g strategy, and persuade d stakeholders t o lend thei r suppor t t o th e effort . I f those leader s remain disciplined an d systematicall y carry out th e initiatives , they can hel p en sure th e succes s of the chang e effort . Managers shoul d no t hesitat e t o experimen t wit h assignin g various people t o cor e proces s team s a s they look for tha t perfec t combination of talents and skill s that will enable them to deliver the value proposition. As Thomas Stewar t points ou t i n a recent book , expert s exis t her e an d there throughou t th e traditiona l vertica l hierarchy. The tric k is to brin g them togethe r i n creativ e ways, t o giv e them th e informatio n they need,

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and t o help the m communicat e wit h expert s i n othe r areas . And infor mation technolog y has an essential part to play in this transformation. As Stewart succinctl y argues, "th e network' s edge i s that i t ca n delive r in formation just i n time , not just in case." 3 The mos t important elemen t in a successful redesign , o f course, is the people i n you r organization . Yes , it i s difficul t t o chang e people' s atti tudes, pattern s o f behavior, ol d habits, an d mindsets ; but i t is not impossible. To accomplish tha t goal , managers nee d t o help employees understand wh y a chang e o f behavio r an d attitud e i s necessar y an d wha t rewards the y can reasonably expect fo r thei r wholehearte d participatio n and contribution s to the valu e proposition . Furthermore , managemen t can provid e high-qualit y suppor t t o hel p employee s develo p th e skill s required t o be successfu l i n th e ne w organization an d d o a superior jo b in deliverin g value to customers . As we have seen in the cas e of OSHA and othe r organizations , chang e always brings resistance. Bu t resistance is not alway s a bad thing , not i f it comes i n a n environmen t tha t ca n tolerat e differen t point s o f view an d new approaches t o solving old problems. Th e bes t managers—and this is particularly tru e fo r a chang e managemen t team—hav e to b e willing t o live with uncertainties, th e mos t significan t of which is that the y canno t anticipate al l the problems that the organization will encounter in its shift to th e horizontal . A delicat e balanc e i s needed here , fo r managemen t must deal effectivel y an d swiftl y with any resistance or problem tha t deeply threatens th e chang e effort . Althoug h the y do no t hav e all the answers "pre-programmed," chang e manager s stil l mus t work t o anticipat e an d solve problems i n such a way that thei r decisions are consisten t with an d support th e objective s of the horizonta l organization . Although a horizontal desig n i s not suite d fo r ever y company, if your organization experience s volatile markets, seeks to develop a distinguishing value proposition tha t depends o n meeting cross-functional challenges, needs t o offe r consumer s adde d valu e for thei r loyalty , an d want s t o provide employee s with ever-increasin g satisfactio n about th e wor k they do, the n th e horizonta l approac h ca n help you achieve these objectives. The innovativ e an d collaborativ e thinkin g tha t goe s int o planning , or ganizing, and directin g a chang e to the horizonta l offer s manager s and employees an opportunit y to creat e a vibrant, agile, and flexibl e organi zation fo r th e twenty-firs t century . Carefull y planne d an d orchestrated ,

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the new , mor e horizonta l approac h wil l fin d suppor t amon g al l stakeholders: Shareholder s wil l appreciat e th e bottom-lin e benefit s tha t come with competitiv e success ; employees will fin d a more meaningful , satisfy ing workplace; and th e company , along with its suppliers and customers , will experience the benefits of being able to continually improve its ability to ad d value and perform. The chang e canno t come by fiat. It canno t come only from to p management, any more tha n i t can arise only from th e botto m o f the vertical hierarchy. Bot h th e chang e effor t itsel f and th e ne w organization bor n from th e ol d mus t hav e ful l top-down , bottom-up, an d cross-functiona l commitment. If done right, the integration o f the fundamental principles of th e horizonta l organizatio n wil l inspir e th e peopl e i n you r organiza tion, supercharg e thei r performance , and creat e a winning value proposition tha t lift s you r organizatio n far abov e th e competition .

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NOTES

CHAPTER 1

1. Se e Fran k Ostrof f an d Dougla s Smith , "Th e Horizonta l Organization, " McKinsey Quarterly, no . 1 (1992) : 149 . 2. Stephe n Salsbury , Th e State, th e Investor, an d th e Railroad: Th e Boston & Albany, 18251867 (Cambridge: Harvar d Universit y Press, 1967) , 186-87 . See also Alfred D . Chandler, Jr. , The Visible Hand: Th e Managerial Revolution i n American Business (Cambridge : Harvar d Uni versity Press, 1977) , 96-97 . 3. Salsbury , Th e State, th e Investor, an d th e Railroad, 187 . 4. Chandler , Th e Visible Hand, 98 . 5. Cf . the Pennsylvani a Railroad, whic h develope d a n organizationa l structur e simila r to tha t o f th e Wester n Railroad . Tha t structur e wa s modified i n 1857 , a s specifie d i n a document entitle d "Organizatio n fo r Conducting th e Busines s of the Road" (Philadelphia : Crissy and Markley , 1858)'. 6. Frederic k Winslo w Taylor, Th e Principles o f Scientific Management (Ne w York: Harpe r and Brothers , 1911) , 34-35. 7. Taylor , Scientific Management, 70 . 8. See , for example , Paul R. Lawrence and Jay W. Lorsch, Organization and Environment: Managing Differentiation an d Integration (Boston : Harvard Busines s School Press, 1986) . Illustrating th e multiplicit y of approaches, Henr y Mintzberg identified almos t 20 years ago what he calls five basic structural configurations : "th e simpl e structure, th e machine bureaucracy , the professional bureaucracy , th e divisionalized form, and the adhocracy." See Henry Mintzberg, Th e Structuring o f Organizations: A Synthesis o f th e Research (Englewoo d Cliffs , N.J. : Prentice-Hall, 1979) , 301 . 9. Cf . Jim Rohwer , Asia Rising: Why America Witt Prosper as Asia's Economies Boom (New York: Simon and Schuster, 1995) , who notes that over half of Asian population aliv e today is under the age of 25, destined to be a formidable force in the workplace of the twenty-firs t century (42-43). Despite those increases, however, the number of qualified and skilled workers may well decline.

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10. See , fo r example , John A . Byrne , "Th e Horizonta l Corporation, " Business Week, December 20 , 1993 , 80-81 ; James Bria n Quinn , Intelligent Enterprise: A Knowledge an d Service Based Paradigm for Industry (Ne w York: Fre e Press , 1992) ; Peter F . Drucker, "Th e Comin g of th e Ne w Organization," Harvard Business Review 88.1 (January-Februar y 1988): 45-53 . 11. Th e concep t o f th e "valu e proposition, " discusse d mor e full y i n Chapte r 3 , ha s become a staple of business management. I n Th e Discipline o f Market Leaders (Reading , Mass.: Addison-Wesley, 1995 , xiv) , Michael Treacy an d Fre d Wiersem a defin e th e ter m a s "th e implicit promise a company makes to customer s t o delive r a particular combinatio n o f values—price, quality , performance, selection , convenience , an d s o on. " Se e also Franci s J. Gouillart an d Jame s N . Kelly , Transforming th e Organization (Ne w York: McGraw-Hill , 1995 , 174-76), who presen t thre e rule s for developin g a value proposition: (1 ) Selec t customer s as far down the value chain a s possible t o avoid being squeezed out by intermediate customers; (2 ) develo p a greate r sens e o f custome r intimacy ; and (3 ) liste n t o customers ' com plaints an d suggestions , bu t avoi d relinquishing th e decisio n abou t wha t will actuall y constitute th e adde d benefit s of the produc t o r servic e (174). 12. Cf . Michae l Hammer an d Jame s Champy , Reengineerin g th e Corporation: A Manifesto for Business Revolution (Ne w York: HarperBusiness, 1993) , 35-47 . 13. Gen e Hall , Jim Rosenthal , an d Judy Wade , "Ho w t o Mak e Reengineering Reall y Work," Harvard Business Review (November-Decembe r 1993) : 119-31 . 14. Fo r a discussion o f th e relationshi p betwee n structur e an d strategy , particularly in efforts t o downsize companies , see Michael D . Hitt, Barbara W . Keats, Herbert F. Harback , and Rober t D . Nixon , "Rightsizing : Buildin g an d Maintainin g Strategic Leadershi p an d Long-term Competitiveness," Organizational Dynamics, September 22 , 1994, 18-32 . In a study of 65 major U.S. companies, th e author s foun d that th e mos t successful effort s gre w out of executives' clea r visions and abilit y to articulat e and se t strategy. 15. Steve n F. Dichter, Chris Gagnon, and Asho k Alexander, "Memo t o a CEO: Leading Organizational Transformations, " McKinsey Quarterly, no . 1 (1993): 104. 16. Treac y and Wiersema , Market Leaders, 137 . 17. Although thi s is far fro m a n exhaustiv e list, among the mos t important sources ar e the following : R.E. Walton, "Fro m Contro l t o Commitmen t i n th e Workplace, " Harvard Business Review (March-April 1985); Peter Drucker, "The Comin g of the New Organization, " Harvard Business Review (January-February 1988); J. Richar d Hackman and Gre g R. Oldham, Work Redesign (Reading , Mass.: Addison-Wesley, 1980); Hammer an d Champy , Reengineering the Corporation; Robert Reich, Th e Next American Frontier (Ne w York: Times Books, 1983); an d Edward E . Lawler, III, Susa n Albers Mohrman, and Geral d E . Ledford, Jr., Employee Involvement an d Total Quality Management: Practices and Results in Fortune 1000 Companies (Sa n Francisco: Jossey-Bass, 1992) . 18. A s discussed throughou t th e book , function s an d cor e proces s groups ar e tw o distinct option s availabl e when makin g a choic e abou t ho w t o formall y assig n peopl e t o de partments. Thes e choice s and thei r benefits—e.g. , rol e clarity—mak e sense when work is of sufficient duratio n tha t i t i s feasible t o formall y defin e departments . However , there ar e situations where an organizatio n migh t wan t its people t o b e abl e t o reac h acros s depart ments o r eve n compan y boundarie s an d wor k collaboratively to solv e problems o n a n in stantaneous o r "real-time " basis . In thes e situations , work may be o f insufficient duratio n to mak e sens e t o formall y defin e departments . Thes e ar e situation s i n whic h network organizations or networ k approaches presen t themselve s as additional options . 19. Rober t S . Kaplan and Davi d P . Norton , "Th e Balance d Scorecard : Measure s That Drive Performance," Harvard Business Review (January-Februar y 1992): 71-79. See also Kaplan an d Norton' s Th e Balanced Scorecard: Translating Strategy into Action (Boston: Harvard Business School Press, 1996) , especiall y 24-40.

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CHAPTER 2

1. "Xero x 200 5 Transformation: Ou r Strategy , Our Organization , an d th e Wa y We Work," unpublishe d Xerox internal document , Ma y 1997, 5. 2. Henr y Mintzberg, Th e Structuring of Organizations: A Synthesis o f th e Research (Englewood Cliffs , N.J. : Prentice-Hall, 1979) , 69-70. 3. Ada m Smith, An Inquiry into the Nature an d Causes of the Wealth o f Nations, ed. Edwi n Cannan (Chicago : University of Chicago Press, 1976) , 8. 4. Henr i Fayol , Industrial an d General Administration, trans . J. A . Coubrough (Geneva: International Managemen t Institute, [1930]) , 19. 5. Ibid. , 19-20 . 6. Frederic k Winslow Taylor, Th e Principles o f Scientific Management (Ne w York: Harper and Brothers , 1911) . See , fo r example , Taylor' s comment s on "gan g workers," wh o un loaded or e fo r less than five cents a ton (73-77) . 7. Cf . Mintzberg , The Structuring of Organizations, 69-74. 8. For d Custome r Servic e Division, "FCS2000 Info Exchang e Globa l Bulletin," 8 . 9. Joseph S. Nye, Jr., report s that in 1964 , nearly three-quarters of the American public said tha t the y "truste d th e federa l governmen t to d o th e righ t thin g mos t of th e time. " During th e las t decade , les s tha n a fourt h o f th e publi c responde d wit h suc h a positive assessment o f th e government . Se e Wh y People Don't Trust Government, edited b y Joseph S . Nye, Jr., Phili p D. Zelikow, and Davi d C. King (Cambridge : Harvard University Press, 1997), 1, 80-81. 10. Phili p Dine , "Talent , Trumk a Battl e Ove r Safety, " St . Louis Post-Dispatch, Octobe r 31, 1997, p . 7C ; "Ergonomics Can Cu t Worke r Health Costs, " Toronto Star, September 22 , 1997, p. C3. 11. A l Gore, Gore Report o n Reinventing Government: Creating a Government That Works Better and Costs Less (Ne w York: Times Books, 1993) . 12. A s stated i n th e tex t OSH A recognized , o f course , th e essentia l impossibilit y of eliminating all preventable injuries, illnesses , and deaths . It was felt, however, that by setting the bar high that it would stretch the organization t o innovate and require the introduction of ne w approache s an d techniques . An d i t wa s viewed tha t thi s innovatio n wa s what was required fo r th e agenc y to significantl y improv e its capabilities and achiev e a dramatic reduction i n injuries, illnesses, and deaths . 13. Se e Mar k H. Moore , Creating Public Value: Strategic Management i n Government (Cambridge: Harvard University Press, 1995), 70-71. Moore rightly argues that public-sector managers, n o les s than thei r private-secto r counterparts , mus t develop a strateg y that i s "sub stantively valuabl e . . . legitimate an d politicall y sustainabl e .. . and operationall y an d administratively feasible" (71) . 14. A 199 3 surve y conducted b y Occupational Hazards determine d tha t respondent s by a three-to-on e margi n though t OSH A needed refor m (the y were less in agreemen t o n exactly what the reform should be). See Stephen G . Minter, "Voting fo r a Change at OSHA," Occupational Hazards 55. 9 (Septembe r 1993) : 93-95 . 15. Occupationa l Safet y an d Healt h Administratio n Act (Publi c Law 91-596, Section 1 [December 29 , 1970] , a s amende d b y Publi c La w 101-552 , Sectio n 310 1 [Novembe r 5, 1990]). 16. Vic e Presiden t Al Gore, Address at Harvard' s 343d Commencement , June 9 , 1994, reprinted a s "Th e Cynic s Ar e Wrong, " Harvard Magazine 96. 6 (July-Augus t 1994) : 28-32, especially 30.

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CHAPTER 3 1. I n contras t t o th e fragmente d wor k o f th e vertica l hierarchy , on e o f th e primar y characteristics of the horizonta l organization is maximizing the integration o f work. In some situations, throug h redesignin g work processes an d informatio n systems , individual employees acting as "case managers" ca n carry out th e complet e wor k of a core process. Successfu l examples ca n b e found , fo r instance , i n custome r servic e operation s i n som e insuranc e companies an d banks . Se e Thomas H . Davenpor t an d Niti n Nohria , "Cas e Managemen t and th e Integratio n o f Labor," Sloan Management Review 35.2 (Januar y 1994): 11-23 . More typically, however, carrying out the work of a core process entails more activities and require s a greater rang e o f skills than on e perso n ca n supply . 2. Henr y Mintzberg , Th e Structuring o f Organizations (Englewoo d Cliffs , N.J. : PrenticeHall, 1979) , 106 . 3. Groupin g ma y also tak e plac e b y product, service , customer, geographi c location , or work shift. However , subgrouping withi n these group s ha s traditionally been b y function or functiona l specialty. 4. Irvin g DeToro an d Thomas McCabe , "How to Stay Flexible and Elude Fads," Quality Progress 30. 3 (Marc h 1997) : 55-60 . Fo r a mor e detaile d discussio n o f cor e processes , se e Robert B . Kaplan an d Laur a Murdock , "Core Process Redesign," McKinsey Quarterly, no . 2 (1991): 27-43. 5. Fo r a further discussio n of teams, see Jon R . Katzenbach an d Dougla s K. Smith, The Wisdom o f Teams: Creating the High-Perfarmance Organization (Boston : Harvard Business School Press, 1993) . I n addition , thi s definition of "team" seems to square with Michael Schrage's idea o f "creative collaboration, " a term h e prefer s to what he see s as the overl y politicized and nearl y meaningles s notio n o f team. Se e hi s N o More Teams! Mastering th e Dynamics o f Creative Collaboration (New York: Doubleday, 1989; rev. ed. 1995) , xi-xv. While one ma y agree that th e ter m i s frequently misuse d today, that i s not a compellin g argument for avoiding it altogether . 6. Ro n Ashkenas, Dave Ulrich, Todd Jick, and Stev e Kerr, The Boundaryless Organization: Breaking the Chains o f Organizational Structure (San Francisco: Jossey-Bass, 1995), 33 . 7. Executive s and manager s will still perform many of the sam e roles the y always have. In hi s classic work on management , Henr y Mintzberg described 1 0 such roles: figurehead , leader, liaison , monitor , disseminator , spokesperson , entrepreneur , disturbanc e handler , resource allocator , and negotiator . See hi s Th e Nature o f Managerial Work (Ne w York: Harper & Row, 1973), 59 . 8. Se e Fran k Ostrof f an d Dougla s Smith , "Th e Horizonta l Organization, " McKinsey Quarterly, no . 1 (1992) : 151-52 . 9. J . R . Hackman an d G . R. Oldham, Work Redesign (Reading , Mass. : Addison-Wesley, 1980), 166 . 10. Jerald Greenber g an d Rober t A. Baron, Behavior in Organizations: Understanding and Managing th e Human Side o f Work (Uppe r Saddl e River , N.J.: Prentice Hall , 1997) , 166 . 11. Ibid. , 16 8 12. Michae l Hammer an d Steve n A. Stanton , Th e Reengineering Revolution: A Handbook (New York: HarperBusiness, 1995) , 3 . 13. Thoma s J. Peter s an d Rober t H . Waterman , Jr., I n Search o f Excellence: Lessons from America's Best-Run Companies (Ne w York: Warner Books , 1982), 9-11. 14. Th e mor e thoughtfu l observer s and theorist s o n reengineerin g hav e called for th e need t o g o beyon d merel y redesigning processe s i f th e reengineerin g effor t i s to b e suc cessful. Se e James Champy , Reengineering Management: Th e Mandate for Ne w Leadership (New York: HarperBusiness , 1995) ; Gen e Hall , Jim Rosenthal , an d Judy Wade , "Ho w t o Make Reengineering Reall y Work," Harvard Business Review (November-Decembe r 1993): 119 .

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15. Se e Guillermo G . Marmol an d R . Michael Murray, Jr., "Leadin g from th e Front, " McKinsey Quarterly, no. 3 (1995): 18-31. The authors argue tha t high-performance companie s must be drive n by leaders wh o have a superior understandin g o f the busines s environmen t and ca n wed strategy to a simple structur e based o n cor e processes. I n addition, suc h companies mus t exhibit world-class skills and hav e well-developed "people systems" with stron g support an d "benc h strength " (28) . 16. Jeffre y Pfeffer , Th e Human Equation—Building Profits b y Putting People First (Boston : Harvard Busines s School Press , 1998), 165 . 17. Ibid. , 11 ; James A. F. Stoner, R . Edward Freeman, an d Danie l R . Gilbert, Jr. Management, 6th ed . (Englewoo d Cliffs , N.J. : Prentice Hall , 1995) , 328 . 18. Fo r thought s about alternative s to downsizing, see Pfeffer, Th e Human Equation, 18294; Ala n Downs , Corporate Executions: Th e Ugly Truth about Layoffs —How Corporate Greed I s Shattering Lives, Companies, an d Communities (Ne w York: AMACOM, 1995) , especially 162-65. 19. O n linkin g best practices, knowledge, and skill s across the organization , see Sumantra Ghosha l an d Christophe r A . Bartlett, Th e Individualized Corporation: A Fundamentally New Approach t o Management (Ne w York: HarperBusiness, 1997) , 214-15 . 20. Michae l Hammer, Beyond Reengineering : How th e Process-Centered Organization Is Changing Ou r Work an d Ou r Lives (Ne w York: HarperBusiness, 1996) , 130 . 21. Pfeffer , Th e Human Equation, 165 .

CHAPTER 4 1. Ma x Weber , Th e Theory o f Social an d Economic Organization, trans . A . M . Henderso n and Talcot t Parson s (Ne w York: Oxfor d Universit y Press, 1947), 337 . 2. Henr y A. Mintzberg, The Structuring of Organizations (Englewood Cliffs, N.J.: Prentice Hall, 1979), 301. See also David A. Nadler and Michae l L. Tushman, with Mark B. Nadler, Competing by Design: The Power of Organizational Architecture (New York: Oxford University Press, 1997), 143. 3. Se e Nadle r an d Tushman , Competing b y Design, 143-44 .

CHAPTER 5 1. Th e ter m Si x Sigma refers to the us e of standard deviation, usually represented b y the Greek letter (sigma ) to measure the spread o f variability of items from the mean in a typical bell curve. Used as a measure of risk, one standard deviatio n in normal distributions includes approximately 68 percent o f the outcomes. If two sigmas or standard deviations are taken, the measure jumps to almost 95 percent of outcomes. Motorola's famed Six Sigma standard aims to achieve near 10 0 percent perfection, with only 3.4 defects per one million parts produced . 2. Motorol a press release, Ma y 5, 1997 . Se e Motorola website: www.motorola.com.

CHAPTER 8 1. "Xero x 200 5 Transformation : Ou r Strategy , Ou r Organization , an d th e Wa y We Work," Stamford , Connecticut: Xero x Corporation , May , 1997. 2. See , fo r example , Michae l E . Porter , Competitive Advantage (Ne w York: Fre e Press , 1985); Robert B . Kaplan and Laur a Murdock, "Core Process Redesign," McKinsey Quarterly, no. 2 (1991) : 28-29. 3. Mar y J. Cronin , "Knowin g How Employees Use the Intrane t I s Good Business, " Fortune, July 21 , 1997 , 103 . Se e als o Kate Maddox, "Th e Wor k Connection," Information Week,

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September 16 , 1996, 98ff. , an d Bet h Schultz, "Documenting th e Xerox-Wid e Web," Intranet Magazine, July 1996 , 35-38 .

CHAPTER 9 1. See , fo r example , John P . Kotter , "Leadin g Change : Wh y Transformation Effort s Fail," Harvar d Business Review (March-April , 1995): 59-60 . Kotte r say s tha t i n hi s stud y of over 10 0 companie s tha t undertoo k majo r transformations , al l in a n effor t t o cop e with uncertain markets , he witnessed a few successes, a number o f failures, and a lot "in between, with a distinct til t toward th e lowe r end o f the scale " (59) . 2. Cf . Guillerm o G . Marmo l an d R . Michae l Murray , Jr., "Leadin g fro m th e Front, " McKinsey Quarterly, no . 3 (1995) : 18-31 . 3. Michae l E. Porter, Competitive Strategy: Techniques for Analyzing Industries an d Competitors (New York: Free Press , 1980), 3-33 . 4. Steve n F . Dichter, Chri s Gagnon , an d Asho k Alexander, "Mem o t o a CEO: Leading Organizational Transformations, " McKinsey Quarterly, no . 1 (1993): 101 . 5. John Kotter , Leading Change (Boston: Harvard Busines s School Press , 1996) , 26 . 6. Marmo l and Murray , "Leading from th e Front, " 19. 7. Dichter , Gagnon , an d Alexander, "Mem o t o a CEO," 90-100 . 8. Ibid. , 91 . 9. Ibid. , 97-100.

CHAPTER 1 0 1. Mar k H. Moore , Creating Public Value: Strategic Management i n Government (Cambridge, Mass.: Harvard Universit y Press, 1995) , p . 65. 2. Ibid. , 66 . 3. Marcu s Aurelius, Meditations 4.36, trans. WhitneyJ. Oates (New York: Modern Library, 1940), 513 . 4. Franci s J. Gouillar t an d Jame s N . Kelly , Transforming th e Organization (Ne w York: McGraw-Hill, 1995), 45. 5. Ibid. , 49 . 6. James C . Collin s an d Jerr y I . Porras , "Buildin g You r Company' s Vision, " Harvard Business Review 74.5 (September-Octobe r 1996) : 65-77, especially 66. 7. Moore , Creating Public Value, 71. Moore points to two other tests as well: The strategy must be "legitimate and politically sustainable." Tha t is, the enterprise mus t be able continually to attract both authority and mone y from th e politica l authorizing environment t o which it is ultimately accountable. And "it mus t be operationally and administratively feasible in that the authorized, valuable activities can actually be accomplished by the existing organization with help from others who can be induced t o contribute t o the organization's goal" (71). 8. U.S . Department o f Labor, New s Release USDL : 97-457, December 17 , 1997.

CHAPTER 1 1 1. Se e Fran k Ostrof f an d Dougla s Smith , "Th e Horizonta l Organization, " McKinsey Quarterly, no . 1 (1992): 148-68, especiall y 152-66, for th e origina l se t of ten principles . 2. Se e Robert B. Kaplan and Laur a Murdock, "Core Process Redesign," McKinsey Quarterly, no . 2 (1991) : 28-29.

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3. Se e Thomas Davenpor t an d Niti n Nohria , "Cas e Managemen t and th e Integratio n of Labor," Sloan Management Review 35.2 (Januar y 1994): 11-23. I n smal l organizations, and occasionally in large one s a s well, there are certai n situation s in which there ma y be a core process tha t on e individua l handle s i n it s entirety . Mor e often , however , th e amoun t o f activities and skill s required to carry out the work of core processes requires multifunctional teams—each preferably no mor e tha n 2 0 or 2 5 people—who share performance objectives, possess complementar y skills , agre e o n a n approac h t o th e work , and suppor t eac h othe r in a positive environment or culture. Se e also Jon R . Katzenbach and Dougla s K. Smith, The Wisdom o f Teams: Creating the High Performance Organization (Boston : Harvard Business School Press, 1993) , 54. 4. Cor e proces s groups , a s discussed elsewhere , ar e formall y structure d aroun d cor e processes. Team s within the cor e proces s grou p ma y be focuse d o n carryin g out th e wor k of a cor e proces s alon g differen t dimensions , includin g product , geographi c region , o r customer segment . Fo r example , a t Motorola , th e individua l commodit y teams eac h carry out th e complet e wor k of the supply-managemen t process for a particular commodity . The response team s a t OSH A carry ou t th e wor k o f th e respons e proces s withi n a particula r geographic region . 5. Henr y Mintzberg, The Nature o f Managerial Work (Englewoo d Cliffs, N.J.: Prentice-Hall, 1979), 69-70. CHAPTER 1 2

1. Kar l Marx, Selected Writings, ed. Lawrence H. Simon (Indianapolis : Hackett Publishing Company, 1994) , 58-68 . 2. Certainl y just in time training is not th e bes t choice for developing ever y type of skil l or competency . Fo r example , classroo m trainin g ma y be th e bes t choic e fo r developin g detailed custome r o r industr y knowledge. I n addition , pleas e se e 215-1 8 o f thi s tex t fo r approaches helpfu l for buildin g cross-functiona l competencies importan t i n horizontal or ganizations. 3. Se e also Rahul Jacob, "Th e Struggl e to Create an Organization for the 21st Century," Fortune, April 3, 1995 . 4. Michae l Schrage, N o More Teams (Ne w York: Currenc y Doubleday, 1989), 98. 5. Gen e Hall , Jim Rosenthal , an d Jud y Wade , "Ho w t o Mak e Reengineerin g Reall y Work," Harvard Business Review (November-Decembe r 1993): 119-31 . 6. Fran k Ostroff an d Dougla s Smith, "Th e Horizonta l Organization, " McKinsey Quarterly, no . 1 (1992) : 162-63. 7. Ibid. , 166 . 8. Thoma s A. Stewart, Intellectual Capital (Ne w York: Currency Doubleday, 1997), 185 . EPILOGUE

1. Steve n F. Dichter, Chris Gagnon, an d Asho k Alexander, "Mem o t o a CEO: Leading Organizational Transformations, " McKinsey Quarterly, no. 1 (1993): 91. 2. John Kotter , "Leading Change : Wh y Transformation Effort s Fail, " Harvard Business Review (March-Apri l 1995): 59-67 . On th e nee d fo r creatin g a vision for th e company , see James C . Collins an d Jerry I . Porras , "Buildin g You r Company' s Vision," Harvard Business Review (September-Octobe r 1996) : 65-77. 3. Thoma s A . Stewart , Intellectual Capital: Th e Ne w Wealth o f Organizations (Ne w York: Doubleday, 1997) , 185 .

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INDEX

A Accountability: and anticipatin g an d avoiding problems , 232 ; and change s i n workplace, 7 ; and corporat e culture, 228; and design formulation , 194, 198, 199; diffu sion of , 7; and empowerment , 208 ; and features o f horizontal organizations , 62, 63; and guideline s for change , 159 , 163, 165; an d hierarchy , 63, 199; and horizontal organization s a s actionable al ternatives, 84 ; and institutionalizatio n of change, 159 , 208, 228; and proces s owners, 194 ; and settin g directions, 184 ; and structure, 14 ; of teams , 14 , 62, 198 . See also specific organization Adjunct teams , 19 2 Administration: Fayol's principles of , 28-29 Alexander, Ashok, 15 , 158, 232 Alienation, 64, 208, 209 Allaire, Paul, 19, 20, 71, 130-31, 132-33 , 135, 137 , 141, 142, 146, 170-71, 179-80 , 231

Analysis: and anticipatin g and avoidin g problems, 232 ; and desig n formulation , 156; o f environment, 168-74 , 180 ; and failures o f reengineering, 214 ; and guidelines fo r change , 153-56 , 159-60 ; and settin g directions, 153-56 , 168-74 , 176, 18 0 Argonaut Insurance Company , 53-54 Aspirational goals: and anticipatin g an d avoiding problems, 232 ; and benefit s of horizontal organizations , 22 ; and chart ing horizonta l organizations , 15 ; and corporate culture, 175 ; and desig n formulation, 156-57 , 189 ; and empower ment, 209; and guideline s for change , 155-57; an d institutionalizatio n of change, 209; and settin g directions, 155 56, 168 , 174-76, 183; and strategy , 15; and structure , 15 . Se e also specific organization Authority: and basi c principle s o f horizon tal organizations , 190; and commonali -

243

Authority (continued) 157 ; team s at , 118 , 119-20 , 121-24 , 125 , ties among horizontal organizations , 186 ; 127 ; training at , 122-24 ; value of core proces s groups , 188 ; an d corpo - propositio n of , 116-19, 121 , 128 , 157 ; rate culture, 225 , 228; and desig n formu - vertica l organization at , 115-16, 119 , lation, 186, 188 , 190 , 195 , 199 ; an d 120 , 12 1 empowerment, 211 ; and hierarchy , 199 ; Best-practic e databases, 20 , 71 and institutionalizatio n of change, 206 , Bethlehe m Stee l Company , 5- 6 225, 228 ; and proces s owners , 19 5 Bottom-u p change, 160-64 , 232, 234 Bureaucracy, 67-68, 73-74, 84, 113-14, B 199 . Se e also specific organization "Balanced scorecard " for performanc e Burleson , Larry , 91, 93, 94, 98, 99, 100 , evaluation, 21-22 201 , 204, 210, 223-24 Balancing change, 159-6 5 Baldrige awards , 13 2 C Barclays Bank: accountability at, 119 , 125 , Capita l structure management , 6 7 126; aspirationa l goal s at, 116 , 157 , 175 - Carey , Leo, 46 , 47, 198 76; authority at, 121 , 126 , 200 ; "Being Chandler , Alfred , 5 the Best " initiativ e at, 116 ; commitmen t Change : balancin g of , 159-65; bottom-up , to chang e at , 116 , 147 , 176 ; competitio n 160-64 , 232, 234; and characteristic s of at, 123 ; continuous improvemen t at , 124 , twenty-first-centur y organizations , 20-21; 127-28; core processes at, 119 , 157 , 192 - commitmen t to , 147-48 , 153, 157 , 159 , 93; corporate cultur e at , 121 , 126 , 127 , 180 , 181 ; a s constant, 183 ; i n cor e 175, 224-25 ; customer s of , 116 , 118 , 126 , proces s groups , 84-85 ; cross-functional, 128, 175 ; decision makin g at, 122 , 124 , 160-65 , 232, 234; and error s o f leaders , 200; democratizatio n at , 121 , 175 ; desig n 232 ; as failure, 22 , 151-52 , 164 , 232 ; formulation at , 157 , 192-93 , 200; guideline s fo r increasin g success in, 152 efficiency at , 116 , 120 ; empowerment at , 66 ; importance of , 230—34 ; an d 119, 123-24 , 127 , 175-76 ; feedback at, integratio n o f basic principles, 234 ; 124; an d guideline s fo r change , 156 , 157 ; involvemen t of people in , 151-52 , 207, hierarchy at, 116 , 121 , 122-25 , 200; as 229 ; "language" of, 9, 161 ; layin g horizontal organization, 114 ; Huma n groundwor k for , 178-83, 230 ; leadershi p Resources at , 122-23 , 125-28 ; as hybrid for , 151-65 ; main objectiv e of , 179 , 183 ; organization, 20 , 120, 121 ; phase s in, 151-66 ; questions to as k when institutionalization o f change at , 224-25 ; considering , 153-55 ; resistance to, 152 , job satisfactio n at, 123 , 127 ; leadership 159 , 196 , 201 , 203-4, 207 , 226-27, 233 ; at, 121-22 , 123 , 126-27 ; loyalty at, 118 ; roa d ma p for, 165-66 ; and settin g managers at , 121 , 122 , 123, 124 , 126 , 175 ; directions , 170 , 171 , 178-83 , 184 ; an d multiskilling at, 118 , 123-24 , 125 ; strategy , 171 ; top-down , 160-64 , 232, 234; networks at, 122 ; organization char t for , an d transformatio n triangle, 160-64 ; an d 119, 120 ; performance evaluation s at, vertica l organizations, 170 ; in workplace, 126, 175 ; performanc e measure s at , 120 , 7—9 . See also Design formulation; 126-27; performance objective s at, 119 , Institutionalizatio n of change; Settin g 120, 121 , 126 , 157 ; personal directions ; specific organization development syste m at , 126 ; problems at, Chang e teams . Se e Steering committee s 116; proces s owner s at, 121 , 122 ; Chapman , Karen , 100 , 201- 2 responsibility at, 120 , 121 , 122 , 123-24, Collins , James C. , 175 125, 176 ; results of horizontal Commitment : and anticipatin g and organization at , 119-22 ; rewards at, 126 ; avoidin g problems, 232 ; and chang e in setting direction s at , 175-76 ; skills/ organizations , 147-48 ; and corporat e expertise at , 119 , 122-24 ; strateg y at, culture , 227 ; and desig n formulation , 117, 121 , 125 , 126 , 157 ; structur e at , 117 , 157 , 190 ; an d guideline s for change ,

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153, 157 , 159 ; an d institutionalizatio n o f 199 , 200 , 201; and empowerment , 73-85; change, 159 , 205 , 215, 220 , 223, 227; of exampl e of , 76 ; functions of , 7 , 76 ; an d leadership, 22-23 , 181 , 190 , 232; and generi c picture o f horizontal multiskilling, 215, 220 ; and performanc e organizations , 77-82 ; and guideline s for measures, 223 ; and performanc e change , 157 , 160-65 ; and hierarchy , 199 , objectives, 223 ; and settin g directions , 200 ; and horizonta l organization s as 153, 181 . Se e also specific organization actionabl e alternatives , 82-85; an d Communication, 15 , 165, 175 , 179-81 , 182 , hybri d organizations , 192-93 ; 183, 230 , 232, 233 identificatio n of, 77 ; an d Compensation, 64 . Se e also Rewards; specific institutionalizatio n o f change , 207, 218, organization 220 , 226, 227; and multiskilling , 218, 220; Competition, 170 , 176-78 , 183 , 23 4 an d organizatio n charts , 74-77 ; "Complete solutions," 1 8 organizin g around, 89-101; and Continuous improvement , 66-67 , 189 , 196 , performanc e objectives , 192; an d 199, 208 , 224-28, 229 , 231 responsibility , 192 ; and selectio n of Control, 85 , 186, 19 4 horizontal organizations , 18-19 ; and Core process group s (CPG) : and settin g directions , 168 , 177 , 179, 183 ; anticipating an d avoidin g problems, 232 ; simpl e process distinguishe d from , 7 ; authority of, 188 ; benefit s of, 82-83; as an d skills , 191-92; and strategy , 13-14, characteristic of horizontal organizations, 16 , 17—18 ; an d structure , 16 , 17-18; an d 59-62, 66; and commonalitie s among suppliers , 201; and teams , 62, 191-92, horizontal organizations , 188—89 ; and 197 ; tes t for, 191 ; i n twenty-first-centur y corporate culture , 225 ; and decisio n organizations , 13-14; uniqueness of , 56, making, 188; definition of, 62; and desig n 76 , 77, 185 , 191 ; an d valu e propositions , formulation, 185-86, 188-89, 192, 194, 76 , 192 . Se e also Core proces s groups ; 196, 200; and empowerment , 210; Proces s owners; specific organization example of, 78; and functional areas, 26- Corporat e culture , 11 , 24, 168 , 175 , 206, 27, 77-78; functions of, 76; and generi c 208 , 224-28. Se e also specific organization picture of horizontal organizations, 79 , Creativity , 6, 10 , 24, 206, 219, 227 80, 81, 82; and hierarchy , 188, 200; in Cross-functiona l change, 160-65 , 232, 234 hybrid organizations, 26-27; and Customers : and anticipatin g and avoiding institutionalization o f change, 206, 210, problems , 234 ; and basi c principle s of 218-19, 225; members of, 78, 84-85, 232; horizonta l organizations, 10 , 11, 24, 190 ; and organization charts , 76; and an d basi c requirements fo r high performance objectives , 188; and process achievin g companies, 67 ; and benefit s of owners, 188; and reengineering, 66 ; horizonta l organizations , 21, 23, 234; responsibility in, 194 ; rotation of an d change s i n workplace, 7, 8; an d members in, 84—85; and skills/expertise , characteristic s of horizonta l 71, 188, 192 , 218-19; teams comprising, organizations , 59 , 60-62, 64, 70, 71, 82; 81; uniqueness of individual, 185-86; and an d cor e processes , 201 ; and corporat e value propositions, 188 . Se e also specific culture , 225 , 227-28; an d desig n organization formulation , 190 , 201—4 ; as focus o f Core processes : an d anticipatin g and horizonta l organizations , 18-20 , 74; and avoiding problems , 229-30 ; and basi c guideline s fo r change , 165 ; an d principles o f horizontal organizations , horizonta l organization s as actionable 23, 189 ; an d benefit s o f horizontal alternatives , 83 ; and horizonta l organizations, 6-7 , 10 , 11-12, 15 ; and organization s as balanced organizations , characteristics of horizontal 21-22 ; and institutionalizatio n of change, organizations, 59-62; and corporat e 206 , 215, 217 , 220, 223, 225, 227-28 ; culture, 226, 227; and desig n interna l an d external , 61-62 , 71 ; loyalty formulation, 157 , 185 , 189 , 190-93 , 197 , of , 39-40; and multiskilling/expertise ,

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Customers (continued) change , 196 , 201 , 203-4; and resourc e 70, 71 , 215, 217 , 220 ; and performanc e allocation , 199 ; an d responsibility , 186 , evaluations, 223 ; and performanc e 189 , 192 , 194 , 199 ; an d rewards , 196 ; objectives, 223 ; and selectio n o f an d settin g directions , 168 , 177 , 178-83 ; horizontal organizations , 18-19 ; and an d skills/expertise , 185-86 , 189 , 191— setting directions , 169-70 , 176 , 177 ; an d 92 , 196 , 197 , 198 , 199 , 220 ; and steerin g strategy, 16 ; and structure , 16 ; and committee , 201 , 204 ; and strategy , 156 value propositions, 176 , 201 ; and 57 , 168 , 189 , 199 , 201 ; and structure , weaknesses of vertical organizations, 6 . 186 ; and suppliers , 190 , 201-4 ; an d See also specific organization teams , 185-86, 188 , 190 , 191-92 , 194-95 , 197-99, 200 , 201; terminolog y for, 9; an d D training , 199 ; an d valu e propositions , Deal, Tim, 11 0 156-57 , 185 , 188 , 189 , 190 , 192 , 195-96, Dear, Joe, 46 , 47, 48, 49, 50, 54, 55, 178 , 199 , 200 , 201; and vertica l organizations, 180-81, 197-98 , 199 , 204 , 207, 222 188-89 , 192 , 194 , 197 , 200 Decision making , 10 , 24, 63 , 84, 188 , 190 , Desig n team . Se e Steering committe e 199, 206 , 208. Se e also specific organization Dichter , Steve n F. , 15 , 158 , 23 2 Design formulation : and accountability , "Diffusio n teams, " 70 194, 198 , 199 ; and analysis , 156; an d Discipline , 79, 194 anticipating an d avoidin g problems, 232; Divisions : horizontal organizatio n of , 115— and aspirationa l goals, 156-57, 189 ; an d 2 9 authority, 195 , 199 ; and bureaucracy , Downsizing , 67-70, 199 199; an d commitment , 190 ; Driver , Harold, 104 , 112 , 217 "contingency approach " to , 6 ; as continum, 26 ; and continuou s E improvement, 189 , 196 , 199 ; and E-mail , 211-13, 214 control, 194 ; an d cor e process groups , Efficiency , 5-6 , 8 , 9, 73, 74, 85. Se e also 185-86, 188-89 , 192 , 194 , 196 , 200 ; and specific organization core processes, 157 , 185 , 189 , 190-93 , Employees : altering psychologica l state of , 197, 199 , 200, 201; and corporat e 64—65 ; and anticipatin g an d avoidin g culture, 225 ; and customers , 201-4 ; and problems , 233 , 234 ; and aspirationa l decision making , 199 ; an d goals , 156 ; an d basi c principle s of empowerment, 199 , 204 ; an d guideline s horizonta l organizations , 10 , 11; and for change , 151-53 , 155 , 156-57 , 165-66 ; benefit s of horizontal organizations , 15, and hierarchy , 199-201 ; and hybri d 21 , 22, 23, 234; and change s i n organizations, 192-93 ; and workplace , 7-8; an d characteristic s of institutionalization o f change, 190 , 220 , horizontal organizations , 61-62 , 63-65, 225; an d integratio n o f basic principles 66 ; commitment of , 22 , 215, 220, 223, of horizontal organizations , 227 ; and 227 ; and guideline s for change , 151-52 , leadership, 156-57 , 190 , 194 , 195 , 199 , 156 ; an d hierarchy , 63-65; an d 200; an d managers , 194 , 199—200 , 204; horizonta l organizations a s balance d and organizatio n charts , 189 , 199 ; an d organizations , 22 ; quality of life for , 66 ; partners i n process , 200 , 204; and an d reengineering , 67 ; and performance evaluations , 196 ; an d specialization , 29; in vertical performance measures , 157 ; an d organizations , 4 , 6 , 29. Se e also performance objectives , 156-57, 188 , Downsizing ; Empowerment; Teams ; 192, 196 , 198 ; a s phase i n change , 147 , specific organization 151-53, 155 , 156-5 7 165-66 ; and Empowerment : and accountability , 208; problem solving , 194, 199 ; an d proces s advantage s of , 12 ; and anticipatin g an d owners, 188 , 189 , 194-97 , 200; and avoidin g problems , 232 ; and aspirationa l productivity, 189; an d resistanc e t o goals , 209 ; and authority , 211 ; an d basi c

246 I N D E X

principles of horizontal organizations , cor e processe s at, 31 , 32-39, 42, 163 , 10, 11, 24; and benefit s of horizontal 191 , 192 , 193 ; customer s of , 30-43, 169 , organizations, 148 ; an d characteristic s o f 180 , 203 , 212, 213; decisio n makin g at, horizontal organizations , 64 , 65; and 39 , 42; design formulatio n at, 186 , 187 , continuous improvement , 208 ; and cor e 188 , 191 , 192 , 193 , 194-95 , 203; process groups, 210 ; and cor e processes, efficienc y at , 31, 39, 188; empowermen t 73-85; and corporat e culture, 11 , 208, at , 39 , 210; "Ford 2000 " initiativ e at, 30 228; an d desig n formulation , 199 , 204 ; 31 ; and guideline s for change , 156 , 163 ; and generi c picture of horizontal huma n resources at, 41-44, 222; as organizations, 77-82; and guideline s fo r hybri d organization, 40-41, 42, 186, 193 , change, 157 , 159 , 165 ; an d hierarchy , 64; 221-22 ; informatio n technolog y at , 212 and horizonta l organization s a s 14 , 222; institutionalization o f change at , actionable alternatives , 82-85; and 212-13 , 217 , 221-22; job satisfactio n at, information technology , 209 , 211; an d 39 , 40-41, 223 ; key processes at, 32-39; institutionalization of change, 157 , 159 , manager s at , 43 , 212; organization char t 206, 208-11 , 228; and motivation , 211; of , 187 ; partner s i n proces s at, 186 , 221 and organizatio n charts , 74—77 ; and 22 ; parts supply and logistic s at, 32, 36 performance measures , 208; and 37 , 39, 192; performance evaluations at, problem solving , 211; an d proces s 35-36 , 39-44; performance measure s at, owners, 209; and productivity , 208; and 39-41 , 223; performance objective s at, 30rewards, 211; an d selectio n o f horizontal 43 , 163 , 186 , 188 , 223 ; problem solving organizations, 19 ; and skills/expertise , at , 192 , 213-14, 222; problems an d 208, 210 ; and strategy , 16; and structure , weaknesse s at, 29-31, 180 ; proces s 16; and teams , 199 , 210 ; and training , owner s at, 186 , 191 , 194-95 ; "pulse" 208, 209 , 210; and valu e propositions, survey s at, 40-41; and resourc e 208; i n vertical organizations, 208, 209. allocation , 31; responsibility at, 32 , 35 See also specific organization 36 , 186 ; settin g directions at , 169 , 180 ; Environment, 168-74 , 176 , 180 , 18 3 skills/expertis e at , 32 , 41-44, 192 , 217; European natura l resource s company : as strateg y at, 17-18 , 31 , 32-29; structur e change failure , 151-52 , 16 4 of , 17-18; suppliers for, 32, 203; teams Evaluation. Se e Performance evaluations; at , 32 , 36-37, 41, 42, 186 , 191 , 192 ; specific organization technica l suppor t at , 32 , 38-39, 192 ; Expertise, 26 , 60, 70-72, 192 , 197 , 210 . Se e trainin g at , 38-39 , 217; transitio n tea m also Multiskilling; Skills; Specialization at , 31 , 32, 36; value proposition at, 17 -

18, 31, 32, 33, 34, 37, 39, 188, 192, 212-

F 13 ; vehicle service and program s at , 32, "Faith capital," 2 2 37-38 , 192 ; and vertica l organizations, Fayol, Henri, 28-2 9 19 3 Feedback, 64 , 65 , 16 5 For d Moto r Company, 208. See also Ford Financial contributions, 11 , 24, 67, 234 Custome r Servic e Division (FCSD) Flanagan, Pat , 12 2 Fragmentation , 83 , 90, 102 Flexibility, 10 , 21, 56-57, 70, 171, 206 , 233- Functiona l areas , 11 , 26-27, 59-60, 77-78. 34. Se e also specific organization Se e also Hybrid organizations ; Vertical Ford Custome r Servic e Divisio n (FCSD) : organizatio n accountability at, 35-36, 43 ; aspirational Functiona l goals , 6 goals of, 31 , 156 ; authorit y at, 186 ; business development at , 32 , 33, 35-36, G 192; commitmen t to chang e at , 180 ; an d Gagnon , Chris , 15 , 158, 232 commonalities among horizonta l Gasaway , Roger, 103 organizations, 186 ; communicatio n at , Genera l Electric : as hybrid organization , 180; core proces s group s at, 186 , 188 ; 2 0

I N D E X 24 7

General Electric (Bayamon, Puerto Rico), 221 Motorol a Space an d System s Technology General Electri c (For t Edwards, New York), Grou p (SSTG ) 84 Government . Se e OSHA; Public secto r General Electri c (Salisbury , North Groupings , 59 , 78 . Se e also Core proces s Carolina): accountability at, 105 ; groups ; Team s authority at, 106 , 110 , 111 , 113 ; Growth , 39, 69-70 commitment t o chang e at , 109 , 112 , 114 , 147; continuous improvemen t at , 103 ; H core processes at, 192 ; corporate culture Hackman , J. R. , 64 at, 104 , 113 , 226 ; cost reduction at , 104 , Hall , Gene , 12 , 214 220; customer s of , 103-4 , 105 , 111 , 112 , Hammer , Michael , 66, 68 113, 114 , 169 , 202 , 216, 226 ; decision Hierarchy : and accountability , 63, 199; and making at, 110 , 113 , 211 ; desig n authority , 199; and basi c principles of formulation at , 192 , 202; discipline at, horizonta l organizations, 10, 23-24, 190; 110, 111 ; efficienc y at , 105 , 226 ; an d characteristic s of horizontal empowerment at, 103 , 105, 110 , 111 , 211 ; organizations , 62-65; and core process and guideline s for change , 157 ; groups , 188 , 200; and core processes, 199 , hierarchy at , 108 , 110 ; information 200 ; and decisio n making, 63, 199; an d technology (IT ) at, 112 , 213, 226 ; desig n formulation, 188, 190 , 199-201; institutionalization o f change at , 211 , an d empowerment , 64; functions of, 63; 213, 215 , 216-17, 220 , 226; job an d horizontal organizations as actionable satisfaction at , 104 , 109 ; leadership at , alternatives , 85; and institutionalization of 103, 111 ; manager s at, 106 , 110 , 111-12 , change , 221; and job satisfaction , 64-65; 216; "9 0 b y 90" rul e at , 216 ; an d leadership, 199 , 200, 201; and organization char t of , 105 , 106 , 107 ; managers , 63-64,199-200; and partner s performance evaluation s at, 113 ; i n process, 200; and problem solving , 63, performance measure s at, 157 , 181 ; 199 ; and process owners, 62-63, 194, 200; performance objective s at, 104 , 108 , 110 , an d resistance to change, 201; and 112-13; problem solvin g at, 105 , 108 , resourc e allocation, 199 ; and 226; proces s ownershi p at , 104 , 108 , 112 ; specialization , 29; and steerin g productivity at, 103 ; resistanc e t o chang e committee , 201; and strategy , 63, 199, 201; at, 113 ; responsibilit y at, 103 , 104 , 106 , an d teams , 62, 200, 201; and value 108, 110 , 111-12 , 113, 216 ; setting propositions , 63, 199, 200, 201; in vertical directions at , 169 , 181 ; Si x Sigma at, 104 , organizations , 114, 194, 200. See also 109, 217 ; skills/expertise at , 103 , 105 , Bureaucrac y 109, 113 , 215 , 216-17, 220; strategy at, High-performanc e companies , 67 , 155-56, 108; supplier s of , 111 , 113 , 202 , 211, 216 ; 15 9 teams at, 103 , 104, 105 , 106 , 108-10, 112- Hom e Financ e Divisio n (Barclay s Bank). 13, 114 , 192 , 213, 216, 217, 226; training Se e Barclays Bank at, 105 , 108-9 , 110 , 111 , 112 , 216 , 217 ; Hopkins , Sandra, 99, 100 , 215-16, 22 3 value propositio n of , 102 , 105-6, 108 , Horizo n Steel , 53-5 4 192; vertica l organization at , 10 2 Horizonta l organizations : a s actionabl e Goals. Se e Aspirational goals; Functional alternatives , 82-85; and anticipatin g an d goals; Long-term goals ; Performance avoidin g problems, 229-34 ; appropriate objectives; Value propositions selectio n of , 18-20, 75-76, 114 , 147 , 153 Goldsberry, Ron , 31, 32, 34, 36, 39, 43, 56 , 233; as balanced organization , 21-22 ; 180, 186 , 187 , 199 , 203 , 221 , 226 basi c principles of , 10-11 , 13 , 22, 23-24, Gore, Al , 47, 54 , 56 42 , 75 , 100 , 114 , 143 , 154 , 159 , 164 , 189 Gouillart, Francis J., 17 5 90 , 206-7, 228 , 230, 231, 234; benefits Government Electronics Group (GEG) . See of , 18-20 , 21-23, 82-85, 148 , 179 , 180 ,

248 I N D E X

192, 233-34; and change , 21 , 147-48, Institutionalizatio n o f change: an d 153; characteristic s of , 6-7, 11-13 , 15 , accountability , 208, 228 ; and anticipatin g 16, 17 , 18, 58-72, 74 , 82; charting a, 15 - an d avoidin g problems, 233 ; an d 18; commonalities among , 186 , 188—89 ; aspirationa l goals , 209 ; and authority , and desig n formulation , 185-204 ; 206 , 225 , 228; and basi c principles of divisions organized as , 115-29; entire horizonta l organizations , 206-7; and company organized as , 130-48; external commitment , 205, 215 , 220 , 223, 227; versus internal focu s in , 59; as flatter not an d continuou s improvement , 208 , 224 flat, 63 ; flexibility of, 21, 56-57, 70; 28 ; and cor e proces s groups , 206 , 218 generic picture of , 77-82; humane 19 , 225; and cor e processes, 207 , 218, nature of, 69; measures of success in, 11 ; 220 , 226, 227; and corporat e culture , and operatin g units , 102-14 ; and 206 , 208, 224-28; an d creativity , 219, 227; organizing aroun d cor e process , 89-101 ; an d customers , 206 , 215 , 217 , 220, 223, permutations of , 192-93; "pure," 25-26; 225 , 227-28; an d decisio n making , 206, purpose of , 66 , 199 , 201 ; as successful, 208 ; and desig n formulation , 190 , 220, 166; theor y of, 21-23; and uniquenes s o f 225 ; and empowerment , 206 , 208-11, organizations, 25 , 56, 58, 185-86, 231; 228 ; and guideline s fo r change , 151-53 , vertical organizations compared with , 155 , 157—59 ; an d hierarchy , 221 ; in high 16-17, 111 , 188-89 , 192 ; weaknesses of, performanc e companies , 159 ; an d 197. Se e also Design formulation; informatio n technolog y (IT) , 206, 209, Hybrid organizations; Institutionalization 211-14 , 220 ; and integratio n of basic of change; Settin g directions ; specific principle s o f horizontal organizations, topic 227 , 228; and job satisfaction , 206, 218 , Hoyler, Horst, 33 , 34, 35, 187 223 , 227; and leadership , 151-53 , 155 , Hybrid organizations , 19-20 , 21, 25-27, 78- 157-59 , 228 ; and managers , 213 , 219, 79, 82 , 153 , 192-93 . Se e also specific 221 , 223, 228; and motivation , 211; an d organization nee d fo r follow-through , 228; an d paralleling o f old an d ne w organization , I 158 ; an d partner s in process , 206, 221 Incremental thinking , 15 5 22 ; and performance , 220-21 ; an d Information, 6 , 209, 211 , 213 , 221 . Se e also performanc e evaluations , 221, 222-24; information technolog y (IT ) an d performanc e measures, 206 , 208, Information technolog y (IT) : and 222-24 ; an d performanc e objectives , 159 , anticipating an d avoidin g problems, 233 ; 206 , 219-20, 222-24, 228 ; as phase in and basi c principles o f horizontal change , 147 , 151-53, 155 , 157-59 , 205 organizations, 10 , 24; and characteristic s 28;an d problemsolving, 211, 213-14,222, of horizonta l organizations, 65-66 ; and 224,228;andprocessowners,209,219,228 ; empowerment, 211 ; importanc e of , 213- an d productivity, 208; and reengineering, 14; and institutionalizatio n o f change, 227 ; and resistanc e t o change , 159 , 207, 206, 211-14 , 220; and managers , 213 ; 226-27 ; and responsibility , 206, 213, 215 , and organizatio n charts , 75 ; and 219 , 224 , 226, 227, 228; and rewards , performance objectives , 10, 24; and 220-21 , 227; and sens e o f urgency, 207; problem solving , 213-14; and an d skills/expertise , 206 , 207, 208, 210, reengineering, 65-66 ; and responsibility , 213,214-21 , 228; and steering committee, 213; an d selectio n o f horizontal 208 , 213 , 228; and suppliers , 215, 217; organizations, 18 ; and skills , 213, 220 ; an d teams , 210, 215, 224, 228; an d and steerin g committee , 213 ; and training , 206 , 208, 209-11, 213, 215-16 , structure, 17-18 ; and training , 213 ; an d 217 , 219 ; and value propositions, 206, value propositions, 212-13 . Se e also 207 , 208, 212-13, 218, 219 , 225, 227, 228 specific organization Iridiu m Projec t (Motorola) , 98-99

I N D E X 24 9

J Long-ter m goals , 15 . See also Aspirational Japan 50/50 (Xerox) , 140 goals ; Value propositions Jarrosiak, Phil , 103 , 110 Loyalty , 39-40, 69, 233 Jeffress, Charles , 5 5 Job definitions , 15 M Job descriptions , 1 5 McDonald , Jim, 34, 38, 187 Job satisfaction : and anticipatin g and MacDonnell , Dan, 11 1 avoiding problems, 233 ; and appropriat e "Machin e bureaucracy, " 74 , 84, 113-14 use of horizontal organizations, 233; and Maglicic , Kenneth, 198 basic principles of horizontal Managers : and anticipatin g and avoidin g organizations, 24; and characteristic s o f problems , 231-32 , 233; and aspirationa l horizontal organizations , 64-65; and goals , 174; and basi c principles of hierarchy, 64—65 ; and horizontal horizontal organizations , 10 , 23, 190; organizations a s actionable alternatives , an d characteristic s of horizontal 84; and institutionalizatio n o f change, organizations , 59, 63—64 , 68; an d 206, 218 , 223, 227; an d multiskilling , 218; commonalitie s among horizonta l and performanc e evaluations , 223. See organizations , 186 ; conflict among , 161; also specific organization an d corporat e culture , 228 ; an d desig n Johnson, Martin, 12 7 formulation , 186 , 190, 194, 199-200, 204; Just-in-time approach , 65 , 66, 209, 219, 233 an d downsizing , 68; functions of , 4, 5-6, 63-64, 79 , 83; general, 79 ; and generi c K pictur e o f horizontal organizations , 79, Kaduk, Tony, 34 , 37, 180, 187 81 ; and guideline s fo r change , 157-58 , Katzenbach, Jon R. , 191, 198 161 ; and hierarchy , 63-64; and Kelly, James N., 17 5 horizonta l organizations as actionable Kotter, John, 158 , 232 alternatives , 83, 84-85; and horizontal Krishnaswamy, Kris, 100 , 218 organization s a s balanced organizations , Kulick, Bob, 54-55 21-22 ; and informatio n technology, 213; and institutionalizatio n of change , 157— L 58 , 213, 214-15, 219, 221, 223 , 228; and "Language" of change, 9 , 161 leadership , 158 ; and multiskilling , 214Leadership: an d anticipatin g an d avoidin g 15 , 219, 221; need fo r chang e in , 161; problems, 230, 231, 232; and basi c performanc e evaluation s of, 138-39; and requirements fo r high-achievin g performanc e measures , 223; and companies, 67 ; commitment of, 181 , 190, performanc e objectives , 84-85, 223; and 232; an d corporat e culture , 228 ; and resistanc e t o change, 233; responsibilit y design formulation , 156-57, 190, 194, of , 111-12, 186 , 194; and settin g 195, 199 , 200, 201; and downsizing , 69; directions , 171 , 174, 182, 184; training and error s of leaders, 232 ; and failur e to of , 112, 123; in vertical organizations, 4, change, 151-52 ; and guideline s for 5-6 . Se e also Hierarchy; Leadership ; change, 151-65 ; an d hierarchy , 199, 200, specific organization 201; an d institutionalizatio n of change, Marmol , Guillermo G., 158-59 151-53, 155 , 157-59, 228; an d Marx , Karl , 208 management, 158 ; and proces s owners , Milbrandt , Dennis, 111, 112, 113 194, 195 ; responsibilities of, 179 ; role i n Mintzberg , Henry, 28, 59, 74 , 199 change of , 151—52 ; and settin g Missions . Se e Aspirational goals; Value directions, 151-56 , 165 , 174-75, 179, 181; propositions ; specific organization and structure , 14 . Se e also Style Moody , Sarah, 12 6 Lesko, James, 137 , 141, 143, 144, 145, 146- Moore , Mark H., 169 , 170, 177 47, 170 , 179-80, 210, 227 Morale , 64. Se e also job satisfaction; Linked teams , 19 2 Motivation ; specific organization

25O I N D E X

Morris, Steve, 12 3 organizations , 59, 60, 61-62, 64, 82; and Motivation, 65, 155 , 159 , 211 , 23 1 commitment , 215, 220; and core process Motorola Space an d System s Technology groups , 85, 218-19; and core processes , Group (SSTG) : accountability at, 94-95; 192 , 218, 220; and creativity, 219; and aspirational goal s of, 90, 156; authorit y customers , 215, 217, 220; and desig n at, 94-95; bureaucracy at , 90, 95; formulation , 192, 196, 199 , 220; and commitment to change at , 147 ; core downsizing , 70; and empowerment, 208; process groups at , 97, 188-89, 202; core an d hierarchy, 64; and horizonta l processes at, 91—92 , 93-96, 192—93 ; organization s as actionable alternatives , corporate culture at , 98; cost reduction 85 ; and information technology, 220; and at, 100 , 223; customers of , 90, 93, 96, institutionalizatio n o f change, 206, 208, 181, 195 , 201-3 , 216 ; decision makin g at, 214-21 ; and job satisfaction , 218; just-in92, 93-94, 99; design formulatio n at, time , 219; and managers, 214-15, 219, 186, 188-89 , 192-93 , 195 , 200-203 , 204; 221 ; and performance, 219-21; and empowerment at, 92, 93-95, 100 , 101 , proble m solving , 12; and process owners, 210-11; feedback at , 223 ; functions of, 196 , 219; and responsibility, 215, 219; and 89; and guideline s fo r change , 156 ; rewards , 220—21; and selectio n of hierarchy at, 91, 94, 200-201; hiring at , horizonta l organizations, 19; and 211; as hybrid organization , 20, 99; suppliers , 215, 217; and training, 215, 217, information technolog y (IT ) at , 96-97, 219 ; and value propositions, 218 , 219; in 99, 211-12, 213, 215 ; institutionalizatio n vertica l organizations, 220. See also Skills; of change at , 210-12 , 213, 217, 218, 223- specific organization 24; Iridium Projec t of, 98-99; job Murray , R. Michael, Jr., 158-5 9 satisfaction at , 95 , 100 ; managers at , 93, 95, 96, 218, 223 ; motivation at, 94-95; N performance evaluation s at, 95, 97, 223- Networking , 71, 233 24; performance measures at, 95, 223-24; Non-value-adde d work , 23, 67-68, 122 , 190 , performance objective s at, 95, 99, 223-24; 19 9 problem solvin g at, 91 , 92-94, 99, 100, 101, 223 , 224'oblems at, 89; process O owners at, 91 , 92, 93, 95, 195 , 223 ; Ockenden , Michael , 115 , 116 , 117 , 121 , productivity at, 181 ; qualit y control at , 123 , 124 , 125-28, 175 , 200 , 224-25 97, 181 , 195 , 202-3, 223; resources at, 96; Oldham , G . R., 64 responsibility at, 90, 91-92, 94-95, 192 , O'Mahony , Gregory, 117 224; reward s at, 95; and settin g Operatin g units: as horizontal directions, 181 ; Si x Sigma at, 97 , 181 , organizations , 102—1 4 203; skills/expertis e at , 92, 93, 98-99, Organizatio n charts : an d adaptatio n o f 186, 215-16 , 217 , 218; strateg y at, 93, 95, horizonta l organizations, 74; and cor e 96; suppliers of, 90, 91, 92-93, 96-98, processes , 74-77 ; and desig n 100, 188-89 , 193 , 201-3, 216 , 223 ; teams formulation , 185 , 189 , 199 ; an d at, 70 , 91, 92-95, 96, 97-98, 99, 100 , 186 , empowerment , 74-77 ; functions of, 3-4 , 188-89, 192 , 215-16, 223, 224; training 14-15 , 74-77; for horizonta l at, 92, 94-95, 99, 215-16, 217 ; value organizations , 15-18, 74-77; and proposition of , 90, 91-93, 95, 100-101, informatio n technology , 75; and 181, 186 , 195 ; as vertical organization, 89 — performanc e objectives , 75; an d 91, 99 uniquenes s o f organizations, 56 , 185 ; Motroni, Hector J., 132 , 14 1 an d valu e propositions, 76 ; for vertical Multi-competencies. See Multiskilling organizations , 1 , 82, 225 . Se e also specific Multiskilling: and basi c principles of organization horizontal organizations, 10, 24; benefits OSH A (U.S . Department o f Labo r of, 217-18; as characteristic of horizontal Occupationa l Safet y an d Healt h

I N D E X 25 1

OSHA (continued) Performance : and basi c requirements for Administration): and anticipatin g an d high-achievin g companies, 67; importance avoiding problems , 231 , 233 ; aspirational o f focus on, 72; and institutionalization of goals of, 47, 48, 155 , 178 , 209 ; Atlanta change , 220-21; as main objective of office of , 53-54, 178 ; authorit y at, 198 ; change , 183 ; and multiskilling , 220-21. See bureaucracy at, 45-46 , 47, 56, 197 ; also Performance enablers; Performance commitment to change at , 147 ; evaluations ; Performance measures; communication at , 180—81 ; cor e Performanc e objectives processes at , 48 ; culture of, 228 ; decision Performanc e enablers , 21 , 165-66, 179 , making at, 54 ; design formulatio n at , 231 , 232 . See also specific enabler 197-99, 204; employees at , 48-49, 50, 52- Performanc e evaluations : and "balance d 53, 54-55, 197-98 ; empowerment at, 50 , scorecard, " 21—22 ; and basi c principle s 52, 55, 209-10; funding for, 45, 47; and o f horizontal organizations , 24 ; and guidelines for change , 155 ; a s hybrid characteristic s o f horizonta l organization, 20 ; impetus for chang e at , organizations , 65 ; and desig n 47-49, 197 ; institutionalization o f change formulation , 196 ; and institutionalizatio n at, 209-10 , 215, 222 , 228; job satisfactio n o f change, 221 , 222-24; o f managers , at, 54-55 , 65, 228; managers at, 52-53, 138-39 ; peer, 113 , 126 ; and proces s 180-81; "number s game " at , 45, 231; owners , 196; and settin g directions , 184 ; organization char t for, 51 , 52; overview an d technica l expertise, 71 . See also of, 44-47; performance evaluations at, 65; Performanc e measures ; Performanc e performance measure s for, 45, 222 ; objectives ; specific organization performance objective s at , 209—10 , 222; Performanc e measures : benefit s o f having, and politics , 48; poultry partnership 157 ; an d characteristic s of horizontal with, 178 ; proble m solvin g at, 48 , 52, organizations , 64 ; and charting , 15 ; and 209, 231 ; problem s at , 45 , 47; commitment , 223 ; and customers , 223; productivity of, 49; as public secto r an d desig n formulation , 157 ; an d model o f horizontal organizations, 43-44; empowerment , 208 ; and grouping , 59 ; redesign tea m at, 49 , 50-53, 54, 55, 181, an d guideline s fo r change , 157 ; an d 198; resistanc e to chang e at , 204 , 233; institutionalizatio n o f change, 206 , 208, setting directions for , 177-78, 180-81 ; 222-24 ; an d job satisfaction , 223; and skills/expertise at , 52 , 71 , 209-10, 215 ; managers , 223 ; performance objectives strategy of, 50, 52-53, 178 , 198 ; structur e as , 182-83; and problem solving, 224; and of, 44 ; teams at, 52-43, 52, 54, 65, 71, reengineering , 66; and responsibility, 224; 197-99, 209; training at , 209- an d setting directions, 177, 182-83;and 10; value proposition of , 44 , 46-47, 48 , 49 , teams , 224 . See also specific organization 177-78 Performanc e objectives: and basi c principles of horizontal organizations , P 10 , 11, 24, 159; an d change s in Parallel teams , 19 2 personnel , 84-85 ; and characteristic s of Parnell, Opal , 113 , 216-1 7 horizontal organizations , 59, 60, 62; and Partners i n process: as basic principle s of commitment , 223; and cor e proces s horizontal organizations , 24 ; and groups , 188 ; an d cor e processes , 192 ; characteristics of horizontal an d corporat e culture , 228; and organizations, 71 ; and desig n customers , 223 ; and desig n formulation , formulation, 186 , 200 , 204; and 156-57 , 188 , 192 , 196 , 198 ; an d empowerment, 78; and hierarchy , 200 ; distinction between core an d simpl e and institutionalizatio n o f change, 206 , processes , 7 ; and functiona l areas , 26 ; 221-22; an d skills/expertise , 71 ; and an d generi c pictur e of horizonta l uniqueness of organizations , 27 . Se e also organizations , 79 , 81; and guideline s fo r Hybrid organizations ; specific organization change , 156-57 , 159 ; an d hierarchy , 62;

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and horizonta l organization s as 188 , 189 , 194-97 , 200 ; and discipline , actionable alternatives , 84—85 ; and 194 ; and downsizing , 68; an d information technolog y (IT) , 10, 24; and empowerment , 209 ; functions of , 63-64; institutionalization o f change, 157 , 159 , an d generi c picture o f horizontal 206, 219-20, 222-24, 228; an d job organizations , 81; and hierarchy , 62-63, satisfaction, 223 ; and managers , 223 ; and 194 , 200 ; and horizonta l organization s as multiskilling, 219-20; and organizatio n actionabl e alternatives , 85; and charts, 75 ; and performanc e evaluations , institutionalizatio n of change, 209 , 219, 82; as performance measures , 182-83 ; 228 ; and leadership , 194 , 195 ; an d and proble m solving , 224; and proces s multiskilling , 196, 219 ; and performanc e owners, 196 ; and responsibility , 224; and evaluations , 196; an d proble m solving , setting directions, 171 , 182-83 ; and 194 ; and resistanc e t o change , 196 ; an d strategy, 14 , 17-18; and structure , 17-18 ; responsibility , 194, 196 ; and rewards , 196 ; and teams , 14 , 81, 198 , 224 ; and valu e tea m of , 81; and teams , 194-95 , 196 , 197 ; propositions, 11 , 24; in vertica l an d valu e propositions, 195—96 . See also organizations, 220 ; and weaknesse s of specific organization vertical organizations, 6 . Se e also specific Productivity , 5-6, 12 , 29, 59 , 72 , 159 , 189 , organization 20 8 Porras, Jerry I., 17 5 Psaila , Salvador , 213-14, 217, 222 Porter, Michael , 156 Publi c sector, 20 , 56, 177-78 . Se e also Problem solving: an d anticipatin g and OSH A avoiding problems, 233 ; an d characteristics of horizontal Q organizations, 62, 63 , 71; and corporat e Qualit y control, 179 , 181-82 , 232. See also culture, 228 ; and desig n formulation , specific organization 194, 199 ; and empowerment , 211 ; an d expertise, 71 ; and guideline s fo r change , R 165; an d hierarchy , 63, 199 ; and Reengineering , 11-12 , 65-67, 77 , 214, 227 horizontal organization s as actionable Reich , Robert , 47 , 197 alternatives, 85 ; and informatio n Researc h an d development , 67 , 77, 78 . See technology, 213-14; and also specific organization institutionalization o f change, 211 , 213- Resources , 59, 165 , 168 , 186 , 199 , 232 14, 222, 224, 228; and networks , 71; and Responsibility : and anticipatin g an d performance measures , 224 ; and avoidin g problems, 229 ; and basi c performance objectives , 224; and proces s principle s of horizontal organizations , owners, 194 ; an d resistanc e t o change , 24 , 189 ; an d benefit s of horizontal 233; and selectio n o f horizontal organizations , 148 ; an d characteristic s of organizations, 19 ; speed of , 18-19 ; and horizonta l organizations, 62 , 64, 69; and strengths o f horizontal organizations , 15 ; commonalitie s among horizonta l and structure , 14 ; teams as integral to , organizations , 186; i n cor e proces s 12, 62 . Se e also specific organization groups , 194 ; an d cor e processes , 192 ; Process owners : and accountability , 194 ; an d corporat e culture , 226 , 227, 228; and authority , 195 ; and basi c principles an d desig n formulation, 186 , 189 , 192 , of horizonta l organizations , 23, 189 ; an d 194 , 196 , 199 ; an d generi c pictur e of benefits o f horizontal organizations , 148; horizonta l organizations , 81; and and characteristic s o f horizontal guideline s for change , 163 , 165 ; an d organizations, 59, 62-64, 68 ; horizonta l organization s as actionable characteristics of , 195; an d continua l alternatives , 84, 85; and informatio n improvement, 196 ; and control , 194 ; an d technology , 213 ; and institutionalization core proces s groups, 188 ; an d corporat e o f change, 206 , 213, 215 , 219, 224 , 226, culture, 228 ; and desig n formulation , 227 , 228; of leadership, 179 ; of

I N D E X 25 3

Responsibility (continued) Simpl e process , 7 managers, 111—12 , 186, 194 ; and "Singl e noble purpose," 22 multiskilling, 215, 219; an d performanc e Skills : and characteristic s of horizonta l measures, 224; and performanc e organizations , 66 , 67, 70; and cor e objectives, 224 ; and proces s owners , 194 , proces s groups, 188 ; an d cor e processes , 196; an d selectio n o f horizontal 191-92 ; and corporat e culture , 228 ; and organizations, 19 ; and settin g directions , desig n formulation , 185-86 , 189 , 191-92 , 179; an d socia l contract , 69 ; of teams, 197 , 198 ; an d downsizing , 70; an d 62, 81 ; in vertica l organizations, 192 . Se e guideline s fo r change , 159 ; an d also specific organization informatio n technology , 213 ; an d Rewards, 79, 83, 196 , 211 , 220-21 , 227 , institutionalizatio n o f change, 159 , 207, 232, 233 . Se e also specific organization 213 , 228 ; mismatching of, 70 ; an d Reyneri, Nelson, 65 reengineering , 66 , 67; right, 218 ; an d Rickard, Norman E. , Jr., 138 , 13 9 settin g directions, 179 ; and teams , 197 , Right-skilling, 218 198 . Se e also Expertise; Multiskilling Road map : drawing the, 165-6 6 Smith , Adam, 28 Rosenthal, Jim, 12 , 214 Smith , Dougla s K., 191, 19 8 Social contract , 69 S "Soldiering, "5 Sacks, Joel, 55, 178 , 18 1 Sparks , Richard, 211-12 Sales an d servic e deliver y process. See Specia l interests, 14 Barclays Bank Specialization , 28-29 , 215, 225 . See also Scientific management , 5-6 , 29 , 74, 84, 208 Expertis e Setting directions : an d accountability , 184 ; Speed , 18-1 9 and analysis , 168-74, 176 , 180 ; an d Stakin g a claim, 176-78 anticipating an d avoidin g problems, 232 ; Stanton , Steven , 66 and aspirationa l goals , 168 , 174-76 , 183 ; Steerin g committee : and anticipatin g and and change , 170 , 171 , 178-83 , 184 ; avoidin g problems, 232 , 233; an d checklist for , 183-84; and corporat e culture, 228 ; and desig n communication, 175 , 179-81 , 182 , 183 ; formulation , 201, 204; and and competition , 170 , 176-78 , 183 ; an d empowerment , 208 ; and hierarchy , 201; core processes , 168 , 177 , 179 , 183 ; an d an d informatio n technology , 213; an d corporate culture , 168 , 175 ; an d institutionalizatio n o f change, 158 , 208 , customers, 169-70 , 176 , 177 ; and desig n 213 , 228 ; and resistanc e t o change , 233 ; formulation, 168 , 177 , 178-83 ; and an d settin g directions , 18 4 environment, 168-74 , 176 , 180 , 183 ; an d Stewart , Thomas, 232-3 3 flexibility, 171 ; an d guideline s fo r Stewart , Tom, 22 1 change, 151—56 , 165; and layin g Strategy : and aspirationa l goals , 15 ; and groundwork fo r change , 178-83 ; and change , 171 ; an d characteristic s of leadership, 151-56 , 165 , 174-75 , 179 , horizonta l organizations , 63 , 66, 67; and 181; an d performanc e evaluations , 184 ; commonalitie s among horizonta l and performanc e measures , 177 , 182-83 ; organizations , 186 ; an d cor e processes , and performanc e objectives , 171, 182-83 ; 13-14 , 16 , 17-18; definition of, 177 ; an d as phase i n change , 147 , 151-56 , 165 , desig n formulation , 156-57, 168 , 186 , 167-84; and publi c sector , 177-78 ; and 189 , 199 , 201 ; and empowerment , 16; responsibility, an d function s o f general managers , 79; 179; an d stakin g a claim, 176-78 ; and an d generi c pictur e o f horizonta l strategy, 168 , 171 , 177 , 183 , 184 ; an d organizations , 79 ; and guideline s fo r value proposition, 168 , 176-77 , 183 . Se e change , 156-57 , 161 ; an d hierarchy , 63, also specific organization 199 , 201 ; importance of , 13-14 ; an d Shareholders, 21-22, 23 , 234 performanc e objectives , 14, 17-18; an d

254 I N D E X

reengineering, 67 ; and settin g directions, characteristic s of, 62; and cor e processes , 168, 171 , 177 , 183 , 184 ; and structure , 62 , 191-92, 197 ; and corporat e culture , 13-18, 66; in twenty-first-centui y 228 ; and desig n formulation , 185-86, organizations, 13-18 ; and valu e 188 , 190 , 191-92, 194-95 , 197-99 , 200, propositions, 13-14 , 16-18 . Se e also 201 ; "diffusion," 70 ; and empowerment , specific organization 199 , 210 ; and generi c pictur e o f Stretch goals . Se e Aspirational goals horizonta l organizations , 81 ; an d Structure: and accountability , 14; and guideline s for change , 159 ; an d aspirational goals, 15 ; and change s i n hierarchy , 62 , 200, 201; an d workplace, 9; and characteristic s of institutionalizatio n o f change, 159 , 210, horizontal organizations , 66 , 67; and 215 , 224, 228; linked, 192 ; mutual core processes, 16 , 17-18; and respec t in , 198 ; parallel, 192 ; as peers, customers, 16 ; and desig n formulation , 188 ; an d performanc e measures , 224; 186; an d empowerment , 16 ; and an d performanc e objectives, 14, 81, 198 , horizontal organization s as actionable 224 ; as problem solvers , 12, 62; of alternatives, 85; importance of , 9-10, 12 , proces s owners , 81; and proces s owners, 14; and informatio n technology , 17-18; 194-95 , 196 , 197 ; and reengineering , 66 ; and innovation , 14 ; as internal requirement s for high-performing , 198 ; environment, 168 ; an d leadership , 14 ; responsibilitie s of , 62, 81; rotation o f and performanc e objectives , 17-18; and member s in, 81 , 104 , 108 , 109 , 110 , 217 ; problem solving, 14 ; and reengineering , an d selectio n of horizontal 67; and roles , 14 ; seven S' s of , 12 ; and organizations , 18-19 ; selection of , 62, 66; strategy, 13—18 , 66; in twenty-first-centui y a s self-managing, 59, 62 ; size of , 62 ; an d organizations, 14—18 ; and uniquenes s o f skills/expertise , 70-71 , 197 , 198 , 199 , organizations, 25 , 186; an d valu e 210 , 215 ; an d training , 199 ; in twenty propositions, 16-18 . Se e also specific first-centur y entury organizations , 13 , 14 ; an d organization vertica l organizations, 197 . Se e also Core Style, 67 , 151—5 2 proces s groups ; Employees ; specific Suppliers: an d anticipatin g an d avoidin g organization problems, 234 ; and basi c principles of Thoman , Richard , 133 horizontal organizations , 10 , 24, 190 ; Top-dow n change , 160-64 , 232 , 234 and benefit s o f horizontal organizations , Torres , Chris , 39-40, 41 234; an d characteristic s o f horizontal Training : an d basi c principles of organizations, 61-62, 70 ; and cor e horizonta l organizations, 24 ; and processes, 201 ; an d desig n formulation , characteristic s of horizontal 190, 201-4; as external environment , 168 ; organizations , 65, 69; and desig n and institutionalizatio n of change, 215 , formulation , 199 ; an d downsizing , 69; 217; an d skills/expertise , 70 , 215, 217 ; an d empowerment , 208, 209, 210; and and valu e propositions, 201 . Se e also guideline s fo r change , 165 ; an d specific organization informatio n technology , 213; an d institutionalization of change, 206 , 208, T 209-11 , 213, 215-16, 217 , 219; just-inTaylor, Frederick Winslow , 5-6, 29 , 74, 84, time , 209; of managers, 112 ; an d 208 multiskilling , 215, 217 , 219; and teams , Teams: accountabilit y of, 14 , 62 , 198 ; 199 . Se e also specific organization adjunct, 192 ; advantages of, 12 ; and Transformatio n triangle, 160-6 4 basic principles of horizonta l Transition/chang e team. Se e specific organizations, 10 , 23, 24, 190 ; and organization; Steering committe e benefits o f horizontal organizations , 148 ; Traube , Brett , 95, 97 and characteristic s of horizontal Traver , Jeff, 16 9 organizations, 59 , 62, 65, 66, 70-71; Turecki , Ron, 34, 36, 187

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Twenty-first-century organizations : an d reengineering , 66 ; and settin g directions , anticipating and avoidin g problems, 233 - 168 , 176-77 , 183; and strategy , 13-14, 16 34; and appropriat e use of horizontal 18 ; and structure , 16-18 ; and suppliers , organizations, 233-34; basic questions 201 ; in twenty-first-centur y organizations, about, 9-10, 20 ; and chang e a s constant, 9 , 10, 13-14; and uniquenes s of 20-21; characteristic s of, 20 ; organizations , 56 , 185 , 231 ; in vertical conceptualization of , 9-13; strateg y in, organizations , 16 . See also specific 13-18; structure in , 14-18 ; teams in, 13 ; organization and virtuou s circle, 72 Vertica l organizations: alienation in , 64; appropriate conditions fo r choosing , 8 — U9 , 26; and chang e a s constant, 7-9, 170 ; Urgency, sense of , 179 , 183 , 204 , 207, 230, characteristic s of, 3 , 4 , 9, 12 , 72, 83, 194 , 232 225 ; corporate culture in , 224 , 225; and U.S. Departmen t o f Labor Occupationa l desig n formulation , 188-89, 192 , 194, Safety an d Healt h Administration. See 197 , 200 ; efficiency in , 73 ; employees' OSHA role s in, 29 ; empowerment in, 208 , 209; evolution of, 4-6; hierarch y in, 194 , 200; V horizonta l organizations compared with, Value propositions : analysis for, 153, 176 ; 16-17 , 111 , 188-89 , 192 ; limitations of, and anticipatin g and avoidin g problems, 14 ; organization chart s for, 1, 82, 225; 232, 233 , 234; and appropriat e use of performanc e objectives in, 220 ; in publi c horizontal organizations, 233; and basi c sector , 56; responsibility in, 192 ; skills in , principles of horizontal organizations, 220 ; special interest s in , 14 ; and 11, 24; and benefit s of horizontal specialization , 29; strengths an d organizations, 21 , 22 , 23, 234; and weaknesse s of, 4 , 6 , 7-8, 12 , 192; value characteristics of horizontal proposition s in , 16 . See also Hybrid organizations, 59, 60, 61-62, 63, 66, 67, organization s 68—69; an d chartin g horizontal Virtuou s circle, 72 organizations, 16 ; and cor e proces s groups, 188 ; an d cor e processes, 76 , 192; M l and corporat e culture , 225 , 227, 228; Wacker , Sally, 41, 42-43 and customers , 176 , 201 ; definition of, Wade , Judy, 12 , 214 16; and desig n formulation, 156-57, 185 , Ward , Sue, 127 188, 189 , 190 , 192 , 195-96, 199, 200, 201; Weber , Max, 73-74, 84, 85, 11 3 and distinction s between horizontal and Welch , Jack, 103 vertical organizations, 16-17; and Wester n Railroad , 4- 5 downsizing, 68-69; and empowerment , Wilson , Steve, 124 208; a s fundamental purpose o f Wong , Cindi, 92, 96 horizontal organizations , 201 ; and Workers . See Employees; Empowerment; guidelines for change , 153 , 156-57 , 163 ; Team s and hierarchy , 63, 199 , 200 , 201; and Workplace , 7-9, 65 . See also Environment horizontal organizations a s actionable alternatives, 83, 84; importance of , 13 , X 16-18, 176-77 ; and informatio n Xero x Corporation : accountabilit y at, 137 , technology, 212-13 ; and 145 ; analysis at, 179 ; anticipating an d institutionalization of change, 206 , 207, avoidin g problems at, 231 ; aspirational 208, 212-13 , 218 , 219 , 225, 227, 228; goal s of, 130-31 , 143 , 155 ; authorit y at, and multiskilling , 218, 219 ; and 135-36 , 145 ; Baldrige awards for, 132; organization charts , 76 ; and performanc e bureaucrac y of , 131 ; busines s objectives, 11 , 24; and proces s owners , developmen t grou p at , 182 , 231; 195-96; in publi c sector, 177-78 ; and commitmen t to chang e at , 147;

256

INDEX

communication at , 179-80 ; a s company- motivatio n at, 182 ; multiskilling at, 135, wide horizontal organization , 128-29 ; as 137 , 143, 215, 220; network s at, 140-41 , composite o f mini-businesses, 133-36, 143 ; organization char t of, 134; 170, 193 ; core proces s groups at , 193 ; partnership s at , 141—43 ; performanc e core processe s at, 192 , 193; corporate evaluation s at, 137 , 138-39, 145, 220 ; culture at , 137 , 139, 143, 220, 227; performanc e measure s at , 138 , 220 ; customers of , 132 , 133, 135, 136-37, 138 , performanc e objectives at, 26 , 135, 138, 141, 142 , 143-44, 145-46, 169-70 , 172 , 145 , 231; personal copie r succes s story 179, 182 , 214, 220; decisio n makin g at, at , 143-47 ; problem solvin g at, 132 , 143, 133, 137 , 141-42, 145; design 144 , 217-18; problems of , 130-31 , 179; formulation at , 192 , 193; empowerment proces s owners at, 135 , 210; productivity at, 133 , 135, 137, 139, 143, 145, 146, 210; at , 182 ; quality control at , 26 , 182; environment at , 220; expertis e at , 71, researc h an d developmen t at , 71 , 140136, 140 , 141, 217-18; FIRST at, 140-41 , 43 , 215; responsibility at, 131 , 135, 137, 214, 217-18; flexibilit y of , 136 , 143; and 139 , 143, 144-45, 192; results at, 142-43 , guidelines fo r change , 155 ; as horizontal 231 ; rewards/compensation at , 137-38 , organization, 131-39 , 142-47 , 170; 139 , 145; setting direction s at , 169-74 , human resource s at , 182 ; as hybrid 179-80 , 182 ; strategy at, 144 , 171-74; organization, 19-20 , 26, 129, 133, 136, structur e of , 131 , 133-36, 144 ; suppliers 139-42, 193 , 231; information of , 136, 144, 172; teams at, 133, 135, 136 technology at, 146 , 214, 217-18; 37 , 139-40, 143 , 144-45, 146, 192 ; institutionalization o f change at , 210, tension s at, 142 ; training at , 137 , 217-18; 214, 215 , 217-18, 220 , 227; Japan 50/50 valu e proposition of , 26, 132-33, 182 ; as at, 140 ; job satisfactio n at, 138-39 , 143 , vertica l organization, 130-31 , 139-42 ; 182; leadership at , 137 , 179-80, 182 ; Xero x 2000 initiative at, 171-74 ; Xero x loyalty at, 182 ; managers at, 135 , 136, 200 5 initiative at, 26 , 132-33, 135, 171 137, 138-39 , 143 , 144-45, 220; 74 , 182 , 193

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