Recommendation For A Functional Organization Struture

Orgchart1Corporate organizations should be structured to allow the company to execute its strategy effectively and thus achieve its goals. Volumes have been written on organizational structure and the best use of which type of structure in various business scenarios. This post considers a method for organizational structure for the functionally organized company.

Definition of Functional Organization

A functional organization comes about as companies grow and evolve. The CEO hires more C-level executives to whom he or she delegates operational authority. These C-level functions can include CFO, CTO, CIO, COO, CSO, CMO[1], etc.

As companies grow further, some companies will create a more comprehensive/over-arching COO[2] position to whom many of these other CxO positions report so the CEO can function as Mr./Ms. “Outside” and the COO can function as Mr./Ms. “Inside.”

Evolution of the Functional Organization

While this may be a fine way to organize, we suggest that perhaps there is a better alternative. A key consideration in determining how best to organize, and which “C” level functions are appropriate, is to recognize that in strategic execution the company needs to manage people, process, and technology.

If we view the company as a set of business processes operated by people using facilitating technology, it may be that a corporate structure that is process focused can be defined that is most appropriate.

A company has three basic processes:

  1. Demand chain
  2. Supply chain
  3. Financial

Therefore, an organization structure that focuses on those three processes, plus the facilitating technology and people should be an ideal organizational structure.

In this structure the CEO would have five functional reports. A COO (to manage the supply side processes, which include development, production, service delivery, etc.); the CRO[3] (to manage the demand-side processes of marketing, sales, and customer service); the CFO to manage finance, the CIO to manage information systems, and the CPO[4] to manage the people resources.

The later three processes (finance, information and human resources) are equally important to both the demand side as well as the supply side of the business and should be equal with the demand side and supply side process managers.

Isn’t the CRO just a VP of Marketing/Sales? Could be, but that isn’t the idea. In too many companies that combine sales and marketing under a single Vice President, Marketing and Sales (or Sales and Marketing), the person tasked with that job is really responsible for SALES, and Marketing’s role in supporting Sales.

In this “new” view of corporate structure the CRO is responsible for all the demand side of the business processes including new product/service/market considerations, future direction and alignment of capabilities issues as well as near term revenue. Thus the CRO would be responsible for all process that support the top-line of the business.

He/She would be measured by top-line success and the processes designed to support that top line including customer retention, new customer acquisition, share of customer, new product success, etc.

As envisioned, the CRO would have people reporting to him/her that would be responsible for sub-functions within the demand chain. The number of management levels and titles would depend on need, size, organizational maturity, etc.

This is similar to the role of the COO on the supply side who is responsible for both long-term issues such as R&D direction and near term manufacturing issues. The COO thus has a VP/Director/Manager of Engineering and VP/Director/Manager of Manufacturing (or VP/Director/Manager of Service Delivery in the case of a service company). Again, depending on need, size, organizational maturity, etc. there may also be VPs/Directors/Managers of Research, Field Services, etc.

The interlink between demand side and supply side is in the area of new product/service development. As we have discussed in a white paper, “Integrating Marketing With New Product/Service Development,” there is an important linkage between Marketing and Product development, which is too often dysfunctional due to Marketing’s inability or Engineering’s unwillingness to understand that this partnership is critical to creating successful new products and services. That delusion needs to be corrected.

As noted in the beginning of this post, there are countless organizational structures one can apply, and many courses at the undergrad and graduate level are taught about proper organizational structure. Our belief is, for a functional organization structure, organizing around process, people, and technology gives the best approach to assuring strategic execution.

Mitch

[1] Chief Financial Officer, Chief Technical Officer, Chief Information Officer, Chief Operations Officer, Chief Sales Officer, Chief Marketing Officer

[2] Chief Operating Officer

[3] Chief Revenue Officer

[4] Chief People Officer

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