Organization structures are changing. Repetitive manual processes have been automated, so organizations are increasingly dominated by knowledge workers who resolve exceptions, and create, maintain and adapt business operations. Global competition, increasingly rapid change, and pervasive computing and communications technology have made new ways of doing business a competitive necessity. In particular, a virtual enterprise—multiple companies contributing to an end product or service—can successfully compete against the traditional, large, integrated company through exploiting greater economies of scale.
The successful enterprise, whether integrated or virtual, must develop a multi-dimensional organization (MDO) structure. The conventional, two-dimensional, matrix organization divides the management of functional capabilities from the management of products or projects. The new MDO is much more than people having two bosses with different perspectives. An MDO has different groups of people dealing with different dimensions of the enterprise.
Two core concepts for organizing an MDO have been developed through work at the Object Management Group and are being incorporated in the VDML (Value Delivery Modeling Language) specification. We call these core concepts collaboration and capability.
A collaboration is a group of participants, including people, organizations or machines, that participate in roles that contribute to a shared objective. This core concept is the basis for modeling the structure of any organized human endeavor. The virtual enterprise, referenced above, is a collaboration among participating companies. A work group is a collaboration among people, a business process is a collaboration of participants in formally defined roles and relationships, and a management hierarchy is a recursive collaboration of people and organizations participating in their formal business roles. Furthermore, a role in one collaboration, for example, a department manager role may be specified as a participant in another collaboration, for example, a member of a quality improvement task force.
A collaboration may be identified as having a capability. A capability is the ability to perform a type of work by applying resources including, for example, people, materials, equipment, techniques and processes that work together to deliver the capability. An organization of any size may be described as providing a capability. A supplier may be viewed as having a capability to provide a particular type of component such as electric motors. A department may be defined as having a general capability such as product engineering or manufacturing. A work group that actually performs work may be defined as a capability unit having a specific capability such as damage assessment. A capability may be offered as a service, so the collaboration that offers that service will be described here as a shared capability service unit. See Value Chain Modeling, Part 1: Capability Analysis for more on capability services.
In this article, I will discuss the dimensions of an MDO. In Part 2, I will discuss how these dimensions complement the new fundamentals discussed in my July, 2011, blog, “Rethinking Business in a Changing.”
I define 5 primary dimensions of an MDO: (1) product capability services, (2) lines of business, (3) primary support services, (4) coalitions, and (5) enterprise leadership. These dimensions are not new, but their roles and relationships have not been formally distinguished, understood and managed appropriately. I will discuss each of these in the paragraphs that follow
Product Capability Services
Product capability services manage the capabilities that are needed to deliver the products or services of the enterprise. Traditionally, these capabilities were included within each line of business organization. In an MDO, product capability services will be managed separately from line of business organizations so that they can be shared by multiple lines of business. This is similar to the traditional matrix organization concept of separating management of a product or project from the management of teams used to do the work. In an MDO, capabilities are offered by capability service units as sharable services that can be used by multiple lines of business.
Product capability services have a management hierarchy that is responsible for the operations of the service units and management of the resources they use. The structure of the hierarchy may bring together capability service units that have similar skills, resources and methods to achieve economies of scale and consistency in management practices. Other factors such as geographic locations of operations may also be a factor. Product capabilities may include product development, as well as production operations, distribution and sales.
A product capability service unit contributes value directly to products or services. Examples of broad product capabilities include product development, manufacturing operations, claims processing, patient care, network operations and product distribution. These general capabilities are broken down to more specific capability service units with specific personnel, skills, tools and methods. A product capability service unit will be engaged by one or more lines of business to contribute to the delivery of the associated product or service. These capabilities will include core competencies and mission-critical operations.
The use of shared services achieves economies of scale in the sharing of methods and resources, and greater agility to adapt to changes of requirements, technology and workload. The same capabilities may be engaged to form new lines of business. A capability services organization also may form secondary support services to consolidate support for multiple capability service units. For example, a manufacturing capability organization may have support services for machine maintenance, materials handling and tool crib management. These capabilities are not directly involved in the delivery of the enterprise product or service.
The workers in a capability service unit work for a capability manager; they do not work directly for the users of the capability. The manager of a capability is responsible to his or her manager for the efficient and effective operation of the capability and utilization of resources, and he or she is responsible to the users of the capability for the cost, quality and timeliness with which the capability is applied for each user.
Lines of Business
A line of business (LOB) organization has responsibility for defining and managing a segment of the business that delivers a set of products or services based on product type, market segment, or both. It is responsible for management of the products or services from concept through delivery. The LOB is concerned with market demand, product requirements, its position in the marketplace, its competitive advantages or disadvantages, and value delivery for its customer segment(s) as well as realization of value for the enterprise.
The LOB uses the services of product capability service units to perform the activities for development and production of its products or services. The flow of deliverables and contributions of value can be described as a value stream—a collaboration of capabilities. Interactions with the capability units are designed to minimize the coupling between each capability unit and the LOB so that each capability unit can be used by multiple LOBs. The LOB represents an internal customer of product capability services, and it is concerned with the performance of the services it uses as they impact its customer and enterprise values. A LOB may have a management hierarchy based on product or service groups for the product lifecycle.
Primary Support Services
Primary support services provide capabilities that, generally, are not specific to the particular business or industry, but instead support business activities throughout the enterprise. I distinguish these from the secondary support services (discussed earlier) that achieve economies of scale within broader capability organizations. The primary support services are (1) Finance and Accounting, (2) Procurement, (3) Human Resources, (4) Information Systems, and (5) Facilities Management. All support services serve internal customers. Primary support services may interact with enterprise activities at many different levels and in any branch of the organization.
As with a product capability service, a support service provides economies of scale, consistency and control for its aspect of the enterprise. For example, finance and accounting ensures consistent application of accounting practices and reporting, and it controls the collection and disbursement of funds. Information technology manages technical resources and ensures the integrity and security of information systems. A primary support service also provides separation of responsibility for its aspect of the enterprise.
The primary support service capabilities are not specific to the particular industry or enterprise but nevertheless serve the needs of the particular enterprise. So a chart of accounts may be enterprise-specific, purchasing agents may specialize in particular categories of vendor products and services, and information systems application developers will translate enterprise-specific application requirements to computer programs. However, because they represent generic capabilities, many primary support services can be considered for outsourcing.
As with product capability services, the primary support services are concerned with the value they deliver to their internal customers and enterprise stakeholders along with the efficiency of their operations. Their management hierarchy will typically correspond to a taxonomy of their capabilities.
As discussed earlier, any organization can be viewed as a collaboration to achieve some shared purpose. Product capabilities, lines of business and primary support services generally have persistent management structures along with direct and persistent control over their employees and associated resources. But operation of the business requires collaborations that cross organizational boundaries. I call these coalitions.
Coalitions bring together participants from different persistent organizations. Coalitions may be temporary or long-term, but they focus on particular issues that require development of consensus or interdisciplinary insights and influence. A participant in a coalition often represents the interests of their primary organization.
Coalitions include committees, task forces, project teams, transformation initiatives, informal problem-solving and information exchange activities, interactions with customers and business partners, and professional communities. As organizations have evolved and knowledge workers become an increasingly large segment of the work force, coalitions are consuming an increasingly significant portion of human resources.
Some coalitions already may be formally defined such as an executive committee or a project team, but many are formed informally based on business improvements, personal growth, sharing of expertise, ad hoc problem-solving or innovation. Generally, participation in a coalition is not considered the primary responsibility of a participant.
Many coalitions are viewed as exceptions to the normal operation of the business. People divert some of their time or effort to such activities, often without any accounting for the diversion of resources. Participation in some coalitions may be supported by participants’ managers because they recognize the importance of the initiative to their areas of responsibility. However, there can be many coalitions that are informal and collectively can divert considerable effort from the function of the primary organizations. This may cause some managers to discourage participation in coalitions as having a detrimental effect on the performance of their operations consequently resulting in sub-optimization.
The enterprise must recognize the importance of coalitions. In the past, organization structures were published when necessary to communicate changes to the persistent organizational roles and reporting relationships. Coalitions can come and go quickly, but such changes now can be recorded and communicated quickly with Internet and mobile technology, and these relationships have become increasingly important to recognize and understand. In addition, incentives along with tracking of funding and value contributions are required to align these efforts with enterprise objectives.
Participants in coalitions can bring together expertise and insights that are not otherwise available for management planning and decision-making. Coalitions must be recognized and managed as sources of important insights, solutions and innovations that must be escalated for appropriate attention by higher levels of management.
Corporate executives and their staffs have responsibility for the overall direction and operation of the enterprise. They have responsibility for governance, leadership, allocation of resources, and setting of policies and priorities from an overall enterprise perspective. Further, they are responsible for changes to the business including adaptation to market changes, technology advances and new product/line-of-business opportunities. They must maintain a business model that defines how the enterprise can be successful in bringing value to customers, suppliers and other stakeholders. See Value Chain Modeling, Part 3: Value Propositions for more about value delivery. They have a responsibility to ensure that the corporation is more than the sum of its parts through economies of scale, synergy between lines of business and corporate values and reputation.
Executives cannot do it all on their own, and they cannot simply track the financial numbers and delegate responsibility. Too much delegation yields sub-optimization. Much of the work of executives involves resolving competing interests of different parts of the organization. Corporate leaders must be supported by staff activities for such things as research and development, strategic planning, market analysis, legal counsel, analytics, performance optimization, business design, regulatory compliance, security, risk management, and standards. In addition, they must rely on participation of specialists from across the enterprise in coalitions with staff members for innovating, optimizing, problem-solving, governing and transforming the business.
The business strategy involves plans to influence or disrupt the market, and plans for changing the enterprise to gain market advantage and optimize enterprise value. Plans must balance risk, agility and efficiency, while ensuring the integrity, regulatory compliance and security of the business. Coalitions can provide the depth of knowledge of the business that is essential for timely and appropriate planning and decision-making by corporate leadership.
Executives must establish coalitions with other ecosystem participants to achieve mutual benefits. The ecosystem involves customers, suppliers, economic and social factors, governments, various forms of disruptive events, and market trends as well as competitors. See Value Chain Modeling, Part 4: Value Exchange for more about exchanges of value. Vendor coalitions are important for timely receipt of quality products or services. Government coalitions can improve the quality of regulations and the cost of compliance. Customer coalitions can provide guidance for improving customer value of products and services. Coalitions that include competitors can develop standards and best practices that improve market opportunities as well as business operations.
Modern technology enables an MDO by eliminating time and distance barriers to communication between people and organizations. The need to recognize multiple dimensions is heightened by the increased importance of knowledge workers in the optimal operation and continuous adaptation of the enterprise.
At the same time, the technology that has enabled MDO, also has enabled virtual enterprises. A virtual enterprise is a collaboration of multiple, independent but participating companies. Many of these companies operate as shared services to multiple enterprises. These shared services can achieve economies of scale not available from traditional, internal capabilities of large corporations. The services of these independent companies enable the rapid, low-risk, low-capitalization formation of a virtual enterprise thus eliminating barriers to entry into businesses otherwise dominated by large corporations. New virtual enterprises can enter new markets very quickly, be highly efficient and scale easily as the business grows or declines.
A formalized, MDO and visible organization structure is essential for effective enterprise management and competition in the rapidly changing, global and highly competitive business environment. The multiple dimensions clarify roles and responsibilities and legitimize coalitions to enable implementation of appropriate incentives and funding, and exploitation of employee talents and accomplishments. Modern technology supports continuous update of the organization model, including coalitions, and the ability for employees to access this model for an understanding of active efforts, their own roles and relationships and opportunities for collaboration.
The organization model of an enterprise should go beyond the immediate roles and relationships in order to provide a history of employee roles and relationships for accountability, recognition of achievements, and records of experience. These are important for consideration in forming coalitions as well as developing and retaining people.
Full implementation of an MDO requires new processes to set priorities, manage organizational change and investments, coordinate related activities, provide incentives and exploit accomplishments and human potential.