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The Primary Drivers Of Manufacturing Organizational Change

By Michael Collins, President, MPC ManagementThe traditional organizational structure has been used by most manufacturers since World War II. In its day, it was a very efficient way to set up centralized manufacturing systems and to control all elements of production. To cope with today’s realities however, that structure has to change.

What is driving organizational change in today’s manufacturing companies? The simple answer is customers are driving the changes. Customers can now work with suppliers anywhere in the world and they want quicker response, more flexibility, better communication, less bureaucracy, and customization. They also expect suppliers to know about their changing needs.
In their classic book, “Organizational Strategy, Structure, and Process” Professors Raymond E. Miles and Charles C. Snow created a designation for functional organization they called a “Defender Organization,” which describes most manufacturing companies very well. Defenders typically direct their products or services to a limited segment of the total potential market and have a tendency to ignore developments outside of their domain.
To manage a highly efficient process, Defenders develop a relatively high degree of formalization, and use centralized control, which normally restricts information flow. Directives and instructions flow down the hierarchy and progress reports and explanations flow up. The Defender’s fundamental emphasis is on efficiency (doing things right) rather than on effectiveness (doing the right things). The Defender organization by definition is generally inflexible, slow to react, and requires a lot of overhead to operate.
The Defender organization model is not working very well today – except where a manufacturer can still dominate a small market niche with little competition and stable or growing volume. Most Defender organizations are now faced with new competitors, changing markets, demanding customers, and erratic margins. They need a faster, more agile, and flexible organization. Here is why:
Monitoring customers
Is your company organized to monitor the external environment well enough to find new market and product opportunities? Monitoring customers and markets is now a matter of survival.
In fact, to survive in the new economy, manufacturers are going to have to change their organization so that there is continuous scanning of the market place. Progressive manufacturers have developed organizations that are designed to get input from customers at all levels. It is the only way that a manufacturer can change fast enough to retain good customers and find new market and product opportunities.
Response time
Does your organization respond quickly to customers? Customers are demanding fast response to phone calls, quotations, service requests, parts sales, and every communication that has to do with products and services. The very structure of the traditional Defender Organization inhibits response and voice mail is not an answer. It is not a matter of working perpetual overtime; it is a matter of changing the organizational structure to respond. If your company is forced to find new customers and markets, improving response time will be absolutely necessary to succeed.
Decision making
Is your company’s decision making controlled from the top or bottom of your organization? Having to ask the boss or get approval from the production committee on every decision doesn’t cut it anymore. Customers want faster decisions from whoever answers the phone.
Decision making in a hierarchical (Defender) organization is a real problem because it takes too long to make decisions. Decisions must travel up and down the hierarchy and top managers are too far away to understand the real problems.
Pushing decision making down to the level of the people who are doing the work is absolutely essential in improving response time. This is a difficult task for many owners of small manufacturing companies who built their companies by keeping their hands on all of the control levers. It takes courage — and self-confidence — to give real power to the employees and watch them make mistakes as they learn to accept their new responsibilities.
Does communication between departments need to be improved? Communicating with the customers was discussed above in terms of response time and decision making. But this won’t solve customer problems if the communication problems are not solved inside the organization between departments. Following the acceptable chain of command in a hierarchical structure is time consuming and there is usually not enough horizontal communication or feedback between work cells or business units to react quickly.
Does your organization have too much bureaucracy? Any manufacturing organization which is bureaucratic is not going to be flexible or agile enough to respond to the new market demands or find new customers and will eventually cost too much in overhead to maintain.
Reducing bureaucracy in the organization that does not bring value to the customer, or reduce the cost of systems, or improve the speed of systems should be a primary goal. Look at every indirect function and evaluate carefully if it is costing more than the benefit of using it. Stamp out bureaucracy everywhere you can.
Rules, Policies, and Handbooks
Are you spending too much money on administration of rules, policies, and handbooks? It has been popular for many years to codify job descriptions and operating procedures which specify appropriate behaviors for organization members.
In his book “Maverick: The Success Story Behind the World's Most Unusual Workplace,” Ricardo Semler decided that you could create either order or progress, but that they are contradictory terms. He notes, “Policy manuals are created with the idea that if a company puts everything in writing, management will be more rational and objective.” He finally came to the conclusion that too many rules, policies, and manuals were a contradiction of the type of company he was trying to build.
Semler noted the following, “with few exceptions rules and regulations only serve to:
1. Divert attention from the company’s objective.
2. Provide a false sense of security for the executives.
3. Create work for bean counters.
4. Teach men to stone dinosaurs and start fire with sticks.”
Some variation of these principals will be needed in the new manufacturing organization. The hard fact is that many small manufacturers are going to have to find ways to reduce administration to survive.
How does your organization stack up? Are you positioned to find new products and marketing opportunities? Maybe it’s time for a change in your organizational structure.
Michael P. Collins is president of MPC Management, a manufacturing consulting company, and the author of the book, “Saving American Manufacturing."