Business

Process-based organizations:
Structure and integration

Hammer and Champy (1993) define a business process as "a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer".

In every organization, the processes are at the very heart because they are the means through which companies create value for their customers. Major processes such as sales, logistics and manufacturing almost always draw on multiple functional skills and cross the external boundaries of the company.

These processes are value-adding processes because they directly create value for "external" customers. There are also enabling processes, whose customers are within the internal organization such as the process of developing and deploying information technology or personnel recruitment and development. They do not create value for external customers, but the value-adding processes can achieve a competitive advantage only if they are supported by agile enabling processes.

In most companies, no one is in charge of the processes because the organization is divided into functions. The work is not organized around processes but tasks. On the other hand, a process perspective is customer oriented and implies a horizontal view of the business that cuts across the organizational departments. The process owners have the responsibility to be effective and efficient when running internal business processes. He or she guides the process team that can operate largely on its own, so the management roles have to change drastically from budget planning and control to guidance and support for operational units. One of the major factors inhibiting these changes that needs re-engineering is the existing organizational structure.

Nowadays, re-designing an organization from a function-based to a process-based structure does not mean that one can eliminate the existing organizational structure completely. Being organized along the processes does not imply that organizations can be designed upon organizational processes only. It is hard to imagine how real business units can be defined as a network of processes, which are unified through the mere fact that they share common objectives. In reality, creating a process-based organization does not mean the organizational structure has to be abandoned.

Process-based organizations actually are a powerful compromise in order to maintain a functional organizational structure. Functional oriented skills remain very important in a process-based organization and so the desire to adopt a flexible approach to the way work is done. As a result, processes cannot become the only basis since most companies will have to adopt a matrix organizational structure in which process responsibility is a key element. Furthermore, activities can fall between the cracks of processes in the same way as they do between functions in a function-based organization. As a consequence, a fully process-based organization will have to pay attention to possibly establishing a division for cross-process integration.

The example in figure 1 illustrates how important it is to have a clear-cut interface between function and integration. However, problems remain even when the interface is carefully designed.

Take for example functional activities that are responsible for operational matter and after reorganization, these activities play the same roles but require careful management and integration with other process units.

What are the consequences of implementing process-based organizational structures? In reality, harmonizing the role and output of different types of processes is clarified. On the other hand, management should be focused on how the processes can be translated into the design of organizational strategy.

Business processes are central to the function of an organization. They have been long neglected in managerial studies mainly due to the fact that departments in companies are structured in a functional or divisional oriented way. Several companies are now breaking away from this type of organization with the intention of establishing process-based organizations in order to deal with the increasing complexity and dynamics of the external environment. This shift has clear implications for the organizational structure. Surprisingly, there have been few comments in Business Process Reengineering and Change Management literature about the interaction between these efforts in order to realign a company along processes and their impacts on the organizational structure.

Process-based organizations have a completely different organizational structure to function-based ones. However, the processes cannot become the only basis for organizational structure, and functional skills as well as product management remain important to process orientation.

As mentioned, a purely process-based organization gets into problems when activities cross different processes, and as such it may be necessary to establish a division of process integrators.

Therefore, to customize the development of the appropriate structure in a company, a matrix organizational structure with process owners as the key element seems to be more interesting than a purely process-based organization.

Furthermore, business processes also have to be defined in a company in a specific way to make them truly operational. Another issue to be dealt with is the question of how process-based business units fit together to create value for the process-based corporation. Even though process-based companies have become fashionable in recent years, this question is not fully addressed in Change Management literature or textbooks.

These would be powerful answers to the problems function- and product-oriented structured firms face. Despite its success, literature on process-based companies has blind spots when it comes to setting up a process-based business unit or organization starting from the process teams. One of the relevant issues that deserves much more attention is the way process-based organizations are structured. Therefore, a matrix organizational structure with process owners as the main element is a viable solution for many companies.

The writer is a lecturer at Pelita Harapan University.

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