How to Change Your Organization

  Michael Collins, President, MPC Consulting   This is the third part of a multi-part article. The first part is "Manufacturer's Biggest Challenge? More Revenue." The second is “Do You Have a Competitive Advantage?"  The fourth part is coming soon.

It’s lack of organization not motivation that is causing sales bottlenecks at manufacturing organizations.

Traditionally small-and-midsized companies use the model of a Defender Organization which operates well under stable market demand as there are few competitors and customers rely on loyal suppliers.

The model relies too much on one market or a few large customers. The organization makes money when its heavy investments in capital equipment and technologies are totally utilized. It has little or no defense for a stagnant or declining market (or the loss of a large customer) and does not have the people or systems to locate and exploit new markets.

The organization, by definition, is generally inflexible, slow to react, and requires a lot of overhead to operate. Unfortunately, in these types of organizations, the priority of important things to do always favors the internal, tangible, and process-based things; rather than the external, intangible, and customer-based things.

An example is a typical job shop that depends on known customers sending them requests for quotes. Sales is at best a part-time job and there is seldom a sales manager or organization who are out calling on customers, finding out what is going on in the market, or looking for new market opportunities.

Now it’s a different world: new competitors, changing markets, more demanding customers, and erratic margins. Manufacturers are going to have to adopt a program of diversification to survive. This requires a system to monitor customers, competitors and markets.

Another problem in the current organizational structure is its inability to provide faster decisions for customers. This is due to the fact that these organizations are often shaped like pyramids with the decision makers at the top and all of the workers at the wide part of the pyramid foundation. Decision-making is slow because decisions must travel up and down the hierarchy, and top managers are too far away to understand the real problems.

Defenders Organizations also tend to rely on functional organization structures, which have centralized departments such as purchasing, accounting, human resources to achieve economies of scale. Overhead departments are often physically separated from the sales and production departments, which can result in built-in obstacles and barriers to communication that slow order processing. Overhead departments often become little empires with agendas very different from the rest of the company and they function more like outside contractors then parts of the company

Customers are constantly demanding shorter lead times, and faster responses to phone calls, quotations, service requests, parts sales, and every communication that has to do with products and services. Shorter lead times are difficult to achieve in the traditional functional manufacturing organization because the very structure of the Defender Organization slows down the production process.

If growth in sales and diversification is the new mission of the manufacturing company American manufacturers need to adopt a new type of organization — the Prospector Organization — to be able to grow in the future.

The Prospector Model

Changing from a Defender to a Prospector organization is a serious challenge because it means moving from an operations-oriented company to a market oriented organization that can find new customers and markets.

Succeeding in the new global economy will require an organization that is some variation of what professors Miles and Snow call a Prospector Organization. Prospectors, according to Miles and Snow, are very different than Defenders, and are described as follows:

  • Market driven. They allow new customers and opportunities to drive their companies because of their ability to do external surveillance.
  • Multiple markets. “Unlike the Defender, whose success comes primarily from efficiently servicing a stable, primary market, the Prospector’s prime capability is that of finding and exploiting multiple market opportunities.”
  • Marketing and Selling. “Prospectors maintain the capacity to monitor a wide range of customers, market conditions, trends and events. The Prospector, therefore, invests heavily in individuals and groups who can scan the environment for potential opportunities. At a minimum this will mean having a full-time person calling on customers face-to-face if the same person is expected to also monitor customers and do market surveillance.
  • Formalization and administration.“Prospectors develop only a low degree of structural organization, since it would not be economically feasible to codify job descriptions and operating procedures in an organization whose tasks change frequently.”
  • Product organization. “The logical extension of the Prospector approach is the product organization in which all resources needed to research, develop, produce and market related groups of products are placed in single self-contained organizational subunits. The company is decentralized into many divisions and subunits.”This decentralized organizational structure is a flat organization with many units, cells and teams.
  • Decentralized command and control. “Control is decentralized because the information needed to assess current performance and to take the appropriate corrective action is located in the operating units themselves, not in the upper echelons of management.” Where possible overhead departments like purchasing and accounting are incorporated into the division.
  • Decentralized decision-making and communication. “Prospectors prefer short, horizontal feedback loops. Therefore, when a deviation in unit performance is detected, this information is not channeled to higher management for action, rather it’s fed directly back to the unit for immediate corrections.” This is truly an example of pushing responsibility and authority down to the people who do the work. This type of organization gives them the ability to quickly respond to customer demands.
  • Quick-response manufacturing (QRM).Customers continue to demand short lead times, particularly when the company is after new customers. The best way to shorten lead times is to change from a functional organization to a product-based organization, and to adopt QRM (Quick Response Manufacturing) methods. QRM methodology fits the Prospector model very well, because it is an enterprise-wide strategy that goes beyond the shop floor. QRM also provides executives with a strategic view of time (the power of time) and helps them rethink decisions on capacity (system dynamics).

Moving From Centralization

The one common thread of all manufacturing organizations is that they all have to move away from a centralized organization, flatten the pyramid, and hire people who can do the selling and marketing to find new customers and markets. Here are two examples:

Minster Machine

Minster Machine, headquartered in the Ohio, has used lean manufacturing techniques for quite a few years to reduce costs and waste village, but lean was not providing a practical way to shorten lead times for manufacturers of highly engineered and custom products. Joe Kumpf, vice president of the Midwest divisions decided to try some QRM methods, a process totally devoted to lead time reduction invented by Rajan Suri.

The company has decided a new type of organization was need to find new markets and develop new products. “We have eliminated the functional organization and created focused divisions that have clear commercial goals, understand their capabilities and become intimate with their customers,” Kumpf explained. Minster went from one large functional organization to seven different divisions with different, but coordinated missions.

Kumpf also says, “Changing from a functional organization, means keeping the divisions as flat as possible, to avoid building functional walls. It also means eliminating functional department management whenever possible. At Minster, people with various skills all report to a manager who has responsibility for serving the customer. The result is lots of interaction across disciplines (and work across disciplines, too).”

SEMCO Inc.

The second example is a product manufacturer called SEMCO. Their owner, Ricardo Semler, took many chances in developing a new type of organization that could respond better to both customer needs and employee needs. He experimented with what would be considered “radical organizational concepts” that were featured in his book “Maverick.” The new manufacturing organization he created pushes the very limits of organizational change.

Semler decided that it was going to be impossible to push authority down to the people who were doing the jobs as long as he had a Defender (functional) organization. So, he scrapped the pyramid and organized the company into smaller business units. He tried to make a flatter organization in which communication was easier between employees. “The only way to change is to make each business unit small enough so that people can understand what is going on and contribute accordingly.”

He continued, “I wanted our people to have more contact with one another. I wanted less clutter. I wanted fewer levels. I wanted more flexibility. I wanted a new shape for our organizations.”

So Semler scrapped the Pyramid organization and organized the company into three parts. As a matter of fact, they abandoned all organization charts. Ricardo said by breaking the company down into smaller units it made the employees “feel human again, feel involved, feel that they belong.”

In fact, SEMCO went ahead and began eliminating all types of structures, rules, and top down policies. He also determined that functional organizations, by their very design, create small “fiefdom departments” that tend to grow into self-serving entities playing by their own rules. In his war against functionalism, he closed down the entire Information Technology department, when he found out it had become a priesthood of people who made systems more complex, harder to use, and was very expensive to boot. The department couldn’t get all of the invoices out to the customers with all of its complex computer equipment.

Semler says “we no longer have all those programmers, or keypunch operators; we have dismantled our information systems department and thrown out the systems master plan.”

Well, did all of those radical organization changes really work? When Ricardo started the project to remake SEMCO into a new company, sales were down to $4 million per year, the company had a lot of debt, and productivity was terrible. With the implementation of Semler’s changes, SEMCO grew at a rate of 40-50% per year to $35 million in sales.

Both companies developed organization models for manufacturing companies that will survive and prosper in the new century.

Mike Collins is the author of "Saving American Manufacturing" and the Growth Planning Handbook. He is also the President of MPC Management.

TAGS: Supply Chain
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