The horizontal organization

An ever more demanding competitive environment requires ever higher levels of corporate performance. The trouble is that needed performance improvements often remain stubbornly out of reach for companies organized in the traditional "vertical" fashion: hierarchically-structured, functionally-oriented. By contrast, there is real performance leverage in moving toward a flatter, more horizontal mode of organization, in which cross-functional, end-to-end work flows link internal processes with the needs and capabilities of both suppliers and customers. The practical question, of course, is how to build such organizations. From the experience of many of the pioneering companies that have, at least in part, gone horizontal, this article distills the key design principles on which this alternative mode of organization depends. THE SENIOR MANAGERS at Technocom knew their organization no longer made any sense. Post-Cold War military spending was dropping fast, and the government was scrutinizing product and service quality more closely than ever before. Moreover, the company's commercial customers were reeling from intense competition and a poor economic climate. The problems ran so deep, in fact, that the top group agreed to discuss them only among themselves in a series of sessions devoted to redesigning the company. Many months into this top-secret effort, however, after endless debates over whether to centralize or decentralize and whether to organize SBUs around products or markets, they'd gotten nowhere. Everyone agreed how the new company had to act -- customer-driven, total quality-focused, empowered workforce, continuous improvement. But no one could generate a credible picture of what Technocom's version of such a company would look like or of how it would work in detail. Many top managers share the anxieties -- and the frustrations -- of these executives. Asking traditional organization questions does not produce convincing answers to their most pressing performance challenge: how to build customer-driven companies that continuously improve and innovate. But neither does looking for practical guidance from the many "organization of the future" design approaches that urge today's companies to become "networked," "clustered," "self-directed," "orchestra-like," and "flat and flexible. " The terms may be suggestive, but no one really knows as yet how to translate such aspirations into actionable designs. Indeed, practitioners who have tried know that these approaches raise many more questions than they answer. Who goes where in these organizations? What do they do? After delayering, what's left? What's the role of hierarchy? At the level of the individual work unit, some pieces of the puzzle are clear. Self-managing teams, for example, do make a lot of sense. What's missing, however, is a comprehensive understanding of what the whole company will look like when it's over -- and of the design principles on which such a picture must necessarily be based. From the vertical. With traditional vertical organizations, the picture is already in focus. They divide work into functions, then departments, then tasks. The primary building block of performance is the individual and his or her job; the chain of command goes up the functional ladder; and the manager's job is to match the right individuals with the right tasks and then to measure, evaluate, control, and reward their performance. When things go awry, managers can turn to a familiar repertoire of design-related considerations: * Whether to organize by product, customer, or geography. * Which functional resources to centralize or decentralize. * Which committees and/or forums to use to integrate across functions or units. * How to optimize the roles of line versus staff. * How many levels and what spans of control to use to coordinate tasks and departments. * How to align individual roles, responsibilities, and accountabilities with functional and/or organization-wide performance objectives. …