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Amidst all the interest around re-engineering, much attention is being focused on organizational structure. Companies once arranged as hierarchial pyramids are told they need to be "turned on their sides." The latest trend is the "horizontal organization" and the promise is reduced cycle times, lower costs and higher quality. However, along side the expressions of support, there are warning signals that "horizontal" may not be the panacea some organizations anticipate.
At its most basic level, the trend to the horizontal organization encompasses the movement from the functional or vertical organization to an organization that is aligned along core processes that meet the needs of customers. The exact processes vary but include order generation, fulfilment, integrated logistics, commercialization of technology and new product realization.
There are many examples of companies that have achieved dramatic performance improvements by moving toward a more horizontal structure, from GE Appliances, which reduced inventory by $200 million, to Hallmark Cards, where product development times were halved.
But there are also failures.
For example, in the mid-1980s a large heavy equipment manufacturer responded to a Japanese threat to its business by quickly restructuring from a functional to a more horizontal organization to meet the needs of individual product lines. The payback was immediate--faster and higher quality product development, increased productivity throughout the organization, and more satisfied customers. But the price to pay was high. As the company's best engineers focused on incremental product improvement, they failed to recognize an important technology transition--from mechanical/hydraulic controls to electric/hydraulic controls. When the engineers finally became aware of the shift in technology, it was too late. They were unable to assemble a critical mass of technologists with the required expertise. Significant market position was lost because the previous functional research was not in place.
A year ago, The Boston Consulting Group commissioned an internal research project to determine what people have actually accomplished with the horizontal organization. Our findings, based on a survey of over 70 companies, convince us that the rush to the horizontal organization has been hasty and ill-considered. Companies need to be very careful before they decide to jump on the bandwagon.
Our research yields four key findings:
* Much of what people call the "Horizontal Organization" or "Organizing Around Processes" isn't....