Exit Cross-functional: Enter Cross-industry

Organizational structure is both the boon and bane of corporate development. Without organizational structure, management would be chaotic and even impossible. With organization structure, management is constrained, and even thwarted by silos. Organization experts have tried to configure several models of organizational structure – functional, product, geographic, project, matrix, congruence, strategic business to name a few – to make organizational structures support efficient and effective realization of corporate goals. As companies diversify and globalize on multiple product-market dimensions, structural and process challenges of organization design become more intense.

Whatever be the nature of business and the type of the organization however, departmental configurations perpetuate themselves into structural silos. Functions, domains, businesses or any other part of value chain of any organization turn into structural silos. As leaders of functions, domains and businesses compete to grow in an organization, silos become even more obdurate and ossified. Organization experts have tried to configure solutions by advocating cross-functional management as a process approach to break silos. In today’s fast changing technology space and competitive world, however, it is no longer sufficient to have solutions that attempt to merely overcome self-inflicted organizational problems.

Limitations of intra-organization approach

Cross-functional approach within an organization is at best palliative and is neither curative nor preventive of typical organizational ills. It merely accepts the limitations of organizational structure and leadership styles at higher levels and seeks to discover solutions by encouraging middle and lower levels to work together cutting across functions and enhance organizational delivery. Very often, these cross-functional solutions are presented to, and are discussed and finalized by cross-functional groups of leaders. The entire process merely restores value chain management within a business which is fragmented by the type of organization structure adopted.

Cross-functional groups themselves may not function to the best of the abilities of individual members as often ‘give and take’ of positions is involved in team dynamics. Very often different line functions (such as manufacturing, materials, engineering, research and marketing) and staff functions (such as finance, human resources, corporate planning and information technology) tend to have differentially respected positions in an organization. Cross-functional processes fail to remove such intrinsic legacy positions. In addition, members are often faced with conflicts of time management related to their internal functions and external functions. They are also occasionally faced with the challenges of coping with leadership conflicts. More importantly, cross-functional groups are introverted into organizational vortices rather than extroverted to discover what lies outside the organizations.

Limitations of intra-industry approach

Many times managers and leaders attempt to enhance functional and cross-functional effectiveness by focusing their own attention and the attention of team members on the more effective competitors. Benchmarking of structure, processes, talent and results against those of competitors in an industry is utilized to focus attention on potential improvements. Most such studies are done based on public domain information or syndicated information. Neither approach provides information on the true status and fundamental sources of competitive advantage of a successful competitor in an authentic manner.

The intra-industry approach is also deficient as typically players in an industry replicate the strategies of other players to reach an equilibrium state. For example, a player who specializes in mass products would endeavor to establish a division for differentiated products. A niche player, on the other hand, would seek to enter the mass markets by acquiring capabilities for cost leadership. Eventually, players within an industry tend to have little that can learn from each other. The focus then turns to execution which would require increasingly higher efforts to derive rather unfortunately decreasing levels of additional benefits.

Opportunities of cross-industry approach

Notwithstanding the organizational limitations that could exist within players in an industry, exciting things are happening across industries. These fundamental changes occur mainly as a result of science and technology across industries on one hand, and growing consumerism and egalitarianism in the societies on the other. Some of the changes are truly mind-boggling and challenge what conventional organizations understood as the limits of creativity or performance. For example, automobile industry was the only leading protagonist of consumer choice with its concept of model year for the passenger cars. Upgrades of car designs each year and introduction of new series every four or five years was the ultimate epitome of customer orientation. However, today the electronics industry surprises us by having new models launched each month. Model month, rather than model year, is the new benchmark of competitive development.

The change is not reflected merely in the speed of new product development. The change is also reflected how conventional product features are replaced by new product functionalities. If personal computers rewrote the chapter of mainframe computers yesterday, tablets and cloud computing could consign the personal computers to history tomorrow. Each such new industry development, however, flourishes on certain embedded breakthrough processes of harnessing science, technology and management, which need to be observed and assimilated by other industries consistent with their own research, manufacturing and marketing characteristics. This would require leadership teams in industries discard their dogmas and rewrite the rules of business based on breakthrough concepts that occur in other industries.

Dogmas that need to be discarded

Conventional industrial and business development is severely limited by dogmas that have taken root in the in the theory and practice of management over the years. These dogmas provide stability to organizations and comfort to leaders and managers. When followed unquestioningly these dogmas perpetuate status quo in industries and render individual players uncompetitive and even obsolete. The first trickles of novel technology and new business processes are, however, enough to destabilize such firms. Innovators as well as established firms fall victims to such changes if they hold on to their dogmas. Palm is a classic example of an innovator which almost collapsed on the dogmatic plank of the invincibility of its original innovation. Microsoft, despite being an established colossus, has been wise to discard some of its dogmas and embrace newer trends to stay competitive.

The dogmas that are limiting the innovative capacity of firms are many. A few of these follow. The first is that the longer a product stays in the market the greater is the investment recovery. The second is that it is counter-productive to make one’s own product obsolete or cannibalize one’s own product. The third is that scale of each product is more important than the scale of the overall business. The fourth is that profitability is inversely proportional to product variety. The fifth is that market segmentation is quantitative and not qualitative. The sixth is that emerging markets are only production centers and not consumption markets. The seventh is that the costs of changing the customer mindset for new technologies are prohibitive. The eighth is that digital revolution is only for younger generation. The eighth is that certain technologies, for example touch technology and convergence, are limited only to consumer electronics. The ninth is that management is a superior enabler compared to science and technology. The tenth is that structures and processes shape and harness discordant mindsets. By discarding dogmas and stretching ingenuity to rewrite the traditional economic rules of management, leaders, managers and professionals can revitalize firms and industries.

From diseconomies to economies

Dogmas survive on the basis that any opposing practice leads to diseconomies. Newer pragmatic practices, however, generate their own economies, overturning dogmas. The cellular phone industry, for example, leads all industries in product innovation and launches. Even as one product is launched the next product launch is announced by firms in this industry. The diseconomies of the startling reduction in product life cycle are countered by the economies of saturation launch sale and multiple saturation launches. The consumer electronics industry thrives by making its products obsolete and even cannibalizing its own products. The lessons are that it is profitable to pull out all stops to research and innovation. The consumer goods industry proves that multiple products (SKUs) expand the market and eventually make sub-scale products viable. Skills in retooling, outsourcing and supply chain management can help firms manage the challenges of commercialization of multiple products in quick succession and make profitability directly proportional to product variety.

Market segmentation is the only productive way to serve customers more intensely with the right products, and in the process help firms grow profitably. Market segmentation is as much cardinal as it is ordinal. Products can be designed to fulfill customer needs in terms of application granulation as much as being positioned in terms of user image. Over the last few years, even emerging markets failed to recognize their own potential. Firms which focused on a judicious mix of developed and emerging markets have become more valuable companies than those companies which focused only on any one set of markets. Today’s consumer is information-savvy. The customer is willing to discover new product features on his or her own, providing a great support to product proliferation, with all the benefits underlined above. Boxing (packaging) of each product with appropriate product usage aids is an important contributor to the process of smooth product discovery by the customers.

A digital bridge is developing at breakneck speed extending the present into a wildly different future. The digital bridge is visible to some and invisible to several others. Is the forthcoming ‘slate’ revolution only for the book readers or youngsters? Is the touch technology limited only to cellular phones? Are the robots that talk and walk robots just entertainers or real humanoids? These developments are, in fact, the start of a new wave of human engineering whereby technology would make products and people discover each other’s senses and sensitivities. Science and technology are original and dedicated to making life more productive and helpful; so much so, even human life could soon be synthetically cloned. In contrast, management has done so little in originality and creativity that it would appear counterproductive for science and technology to play second fiddle to management. Science and technology have discovered fundamental laws of life through physics, chemistry, mathematics and biology. Management needs to similarly integrate the social sciences such as economics, psychology, sociology and stochastic sciences to redefine itself.

Benefits of cross-industry assimilation

There are many lessons that can be learnt by firms through an open and structured process of cross-industry observation.

Cellular phone industry teaches one the paradigm of extremely fast-track product development. The industry believes in research as a continuous process rather than a batch process. R&D is organized as a factory operation virtually. The industry sees obsolescence as an opportunity and seeks to create as many opportunities as possible by making as many of its current products obsolete as possible. The industry also demonstrates how multiple functionalities can be optimized under a convergence model. Market segmentation in its ordinal and cardinal senses can be well-understood from the dynamics of cellular phone industry.

Automobile industry teaches one how product performance can be perked up by integrating electronics into design and manufacture. It also demonstrates how an essentially resource guzzling industry (oil reserves and road space) copes with environmental compulsions by enhancing fuel economy, using alternative fuels, and rediscovering compactness. Automobile industry also develops management as an optimal interface of man and machine where synchronization, whether on shop floor or in supply chain, holds the key.

Retail industry teaches one how a certain, fixed-cycle production system can be coordinated with an uncertain, variable-cycle market system. Firms which market non-consumer products can upgrade supply chain practices by observing how retail needs are met by the consumer goods and retail industries in tandem. Requirements of freshness and shelf-life require special capabilities in cold chain and distribution management. The industry also teaches how customer contact and communication intensity can lead to enhanced footfalls.

Infrastructure industry teaches one the challenges of dreaming big, executing under hazardous circumstances, living under regulatory uncertainty, raising massive finances and remaining motivated despite extended viability. Project management in the typically multi-dimensional infrastructure ventures demonstrates how facile should it be to project-manage normal research and manufacturing projects. Financial institutions and investors who see patience as a virtue in the long gestation infrastructure projects would help out other long-gestation industries such as pharmaceuticals and research in general.

Pharmaceutical industry demonstrates how product safety and efficacy as well as manufacturing quality and regulatory compliance determine the level of competitive advantage of a firm. The industry provides a template by which people are rigorously trained for institutionalization of quality and compliance. The industry demonstrates how multiple disciplines of science and technology to make life better for human beings, whereby an unknown molecular entity can be made to cure or prevent disease through innovation and rigor.

Fast moving consumer goods (FMCG) industry teaches how by taking care of day to day needs of individuals and families businesses can be created and grown. The industry teaches how mega businesses can be built on mini technologies. It also reflects on how perceptions and realities can be merged and de-merged to support business development. It brings forth the importance of packaging as a key differentiator. It also demonstrates the power of observation of consumer behavior as a trigger for strategy development. It is a perfect industrial crucible for merger of tradition with globalization and nativity with modernity.

The list could go on; the sooner firms realize that greater competitiveness could emerge from assimilation of best cross-industry practices the greater would be the benefits to economic, industrial and social development.

Posted by Dr CB Rao on June 6, 2010