Achieving Optimization: Organization Charts – “Disconnects” and Losses

SOURCE: Kay Sever | May 26, 2021

Last month we talked about the physical links between equipment in the production value stream. As long as productive units are “connected” to each other, material is “processed or passed” through the value stream as planned. If a productive unit breaks down, it becomes “disconnected” from the rest of the production system. It is easy for us to see this disconnect! Management teams are highly aware that financial losses are attached to these breakdowns (i.e., “disconnects”). Fixing the problem “reconnects” the equipment to the value stream, stops the losses, and stabilizes planned production levels and costs. You can watch as equipment restarts and can measure the result.

What about “disconnects” within the company that are unseen… disconnects that cause losses that are never measured… disconnects involving people instead of physical equipment?

Unraveling the Mystery about Organizational Disconnects…

Workflows “connect” departments in an organization just like work-in-process flows connect productive units in a value stream. Departments are groups of employees that perform specific functions within workflows. If the connecting points between departments are weak or non-existent, invisible “organizational disconnects” will cause losses and negatively impact the way your people work together. Some disconnects are linked to management policies and procedures. Some cause production delays or cost overruns in the production value stream. Some are unintentionally budgeted for, so their associated losses are harder to detect.

Dollars linked to “organizational disconnects” are seldom quantified because the financial system was not designed for that purpose. Sometimes these disconnects cost as much as equipment breakdowns, but without numbers that quantify these dollars, it is difficult for management to take action to prioritize and fix these disconnects or prevent them from happening in the future.

Let’s dig deeper into organizational disconnects and why they exist. One management tool, the organization chart, is a major contributing factor to this problem. Organization charts are used to define “boundaries” for departments and link work groups to people with management authority over spending, hiring, goals and strategies to accomplish those goals. Organization charts create a foundation for corporate structure and traditional “vertical” management and reporting. Many work activities are organized and sequenced using the organization chart. The annual budgeting exercise follows the organization chart structure. Management teams operate daily using the organization chart structure, which makes it harder for them to step outside of traditional paradigms and gain a broader perspective about 1) the power an organization chart exerts over company activities and 2) the unintended consequences of its applications. Here are two new perspectives about organization charts to consider:

1) The organization chart is a management tool that defines the power for decision-making within the management team and connects the management team to the rest of the company. Because power and authority naturally flows down in vertical channels from the top of the chart, the chart 1) restricts “big picture” thinking (across the company) and 2) creates organizational barriers that make it harder, not easier, to maximize profit and bring people together to work in the most effective way. If management teams are not aware of these pitfalls, they cannot take action to overcome them. As a result, organizational “disconnects” can easily form that are never fixed, causing losses that are never measured.   

2) The boundaries defined by organization charts can limit communications by creating a mindset within the management team and employees that prohibits questions about workflows or problems that involve multiple departments. Vertical management/reporting policies force communications into “up and down” channels, which discourage or prohibit communications “across” the organization chart. As a result, communication barriers form between departments that share a horizontal workflow. When this happens, people are not free to speak about problems or opportunities that involve interdepartmental relationships. This limit on communication is responsible for billions of dollars in losses as problems go unsolved and opportunities are missed year after year.      

Which brings us to optimization…

If leadership teams are not aware of their organizational disconnects, how they happen, or the value that these disconnects steal from the bottom line, they do not see why optimization should be expanded to include equipment and the organization. If the organization is not part of the scope for optimization, achieving optimization or “best possible” performance will remain out of reach because gains from new equipment and systems will be partially offset by invisible losses caused by organizational weaknesses that often can be fixed for free.

Thought for the month: Leadership teams are already empowered to fix organizational disconnects and would do so if they knew that these disconnects can cost as much as disconnects of equipment from the production value stream.

______________________________________________

Kay Sever is an Expert on Achieving “Best Possible” Results. Kay helps executive and management teams tap their hidden profit potential and reach their optimization goals. Kay has developed a LIVESTREAM management training system for Optimization Management called MiningOpportunity – NO TRAVEL REQUIRED. See MiningOpportunity.com for her contact information and several training options for your team.

To comment on this story or for additional details click on related button above.

 

Kay Sever Author
P.O. Box 337 Gilbert, AZ USA 85299-0337

Kay has worked side by side with corporate and production sites in a management/leadership/consulting role for 35+ years. She helps management teams improve performance, profit, culture and change, but does it in a way that connects people and the corporate culture to their hidden potential. Kay helps companies move “beyond improvement” to a state of “sustained optimization”. With her guidance and the MiningOpportunity system, management teams can measure the losses caused by weaknesses in their current culture, shift to a Loss Reduction Culture to reduce the losses, and “manage” the gains from the new culture as a second income stream.