16 February 2014

Revisiting Business Function and Organisational Structure

It is common as BPM practitioner to come across the many terms used in other disciplines such as enterprise architecture and business architecture, that are overlapping with terminologies in BPM practice. At times there are same 'words' that may be representing different aspects of the same elements. This article revisits the fundamental component of an organisation - Business Function. And also using business function to peek into organisational structure - a critical part of organisational transformation.

Business Function from Management Discipline View

What is Business Function?

A business function is the most basic organisational component which is made up of managers and team members who specialize in specific work activities . As a work unit, commonly known as division or business unit, business function utilizes the organisation’s resources and most importantly is accountable for outputs and performance standards.
Note: In management discipline, a business function is a work unit, i.e. a group of workers having the specialized skills. In the view of information technology and enterprise architecture, the term ‘business function’ is not inclusive with its workers but only the specialization.

Why having Business Functions?

Work units are structured according to functional areas for several reasons:
  • Specialization achieved by grouping of activities matching to the skills of workers;
  • Reduced diffusion of workers’ attention caused from switching between diversified activities performed by workers;
  • Economies of scale and scope such as shared corporate services – efficiency through standardization;
  • Segregation of duties as required for internal control and/or meeting regulatory compliance.

Implication on Information Systems / Business Applications

With the main focus on functional specialization to achieve economies of scale and scope in the industries for the past many decades, it is no surprising that the business information systems (BIS) have been built and evolved to support the various specialized business functions. These specialized business applications which are independent to each other have reinforced further demarcation between the business functions and widen the gaps between business functions.
Note: With advancement in information technology, much has been attempted to close the white spaces between business applications with integrations at the technology level such as enterprise applications integration (EAI) and service oriented architecture (SOA).

Organisational Structure

Purposes of Organisational Structure

An organisational structure serves two key purposes - (i) enabling managers to facilitate work flows, i.e. the flow of materials and information between workers, (ii) enabling workers to focus attention, i.e. where workers focus their time and energy. The simplest form of enabling work flows can be seen in a production line in manufacturing. In service industry, it is mostly the flows of information or documents from one worker to another. In short it is the structuring of activities. The second purpose is less known in BPM practice as it is not so much on the engineering side of activities but on the human behavioral. Focus of attention leverages on design of work units, span of control and span of accountability.

Keeping the purpose of organisational structure to management in mind, let look at the two basic types of organisational structure:
  • Organisational structure based on business function
  • Organisational structure based on market focus

Organisational Structure based on Business Functions

This is the simplest form of organisational structure where work units (workers and resources) are grouped in collections of similar work activities. The work unit is commonly referred t as business function or just function. As mentioned earlier, the main focus of this is achieving efficiency by specialization of work units. From the focus attention perspective, it reduces the diffusion of attention.


Figure 1: Example of Functions based Organisational Structure

Organisational Structure based on Market Focus

On the other hand, a market focus structure is where work units (workers and resources) are grouped according to specific markets or market segments. The market focus may be by product, by customer or by geography. This type of work unit is commonly known as division. A n organisation with multiple product lines often has work units dedicated to each of its product line. Hence the name product division. The second form of market focus structure is by having work units dedicated to customer groups or categories. It can be based on the size or types or industries. For example many consulting firms have divisions for the respective industries. The divisions may be only within the customer facing functions such as sales or throughout the entire organisation. Either way in most cases this evolves into a form of matrix structure. The third form of market focus is where work units are organised by geographic territories or regions. A market focus based structure is supposedly bringing the benefits of a high responsiveness to the market, its customers and competitors. A side point here, having an organisational structure which is market centric is not that new.

Business Functions versus Market Focus

As organisation strives to achieve efficiency and responsiveness at the operation productivity frontier, Many large organisations grow into a hybrid structure. Some having function structure over a market focus structure. Others having a market focus structure over a function structure. A hybrid structure is not necessary a matrix structure as its span of control and span of accountability may not be well designed. In most cases the missing part is the end-to-end business processes or enterprise business processes across the functions and divisions. Hence moving to a process centric organizational structure is not starting from scratch but an extension from this hybrid structure.

Conclusion

Whatever an organization structure is, at its lowest operational level, activities are always grouped by functional specialization. At the same time, a business at its highest level when viewed as a whole is always a market focus organization. The challenge is then sitting somewhere in the middle management whether to achieve efficiency by specialization or high market responsiveness - a balance at the efficiency frontier. On the other hand, having a business process centric structure and focusing on the management of the end-to-end business processes (adopting BPM) could be the key to achieving both efficiency by specialization and high market responsiveness.

At the same time, from the BPM practice perspective, the challenge is when adopting BPM as the operational strategy for an organisation, transforming of the organisational structure to a process centric or matrix structure is inevitable.



In the next article, I will discuss the implication of business function and silo focus in business process improvement and BPM projects and its consequence to business operation.


References

  • Harmon, P. (2007). Business Process Change: A Guide for Business Managers and BPM and Six Sigma Professionals, 2nd Edn. USA: Morgan Kaufmann
  • Simons, R. (2000). Performance Measurement & Control Systems for Implementing Strategy. USA: Prentice Hall