Accountancy and Management: Going flat out for the horizontal: Roger Trapp reports on the 10 key principles at the heart of a new form of company organisation

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The Independent Online
IT IS scant comfort for those miners whose livelihoods have been thrown into doubt, but one of the central tenets of modern management thinking - self-managed teams - is widely acknowledged to have been discovered down a Yorkshire coalmine nearly 50 years ago.

From the findings of a researcher of the Tavistock Institute of Human Relations has stemmed almost an industry in itself. Talk to almost any academic or consultant in the field, or any executive who has bought the spiel, and you will hear about the importance of teamwork, of empowerment and, above all, of flatter, leaner organisations.

More competitive times and demanding customers require a greater responsiveness than the traditional hierarchy can deliver. But how does the with-it, eager organisation get there? After all, total quality and management and other programmes designed to give Western companies an even chance against the Japanese have seen many failures along the way.

Frank Ostroff believes he and his colleagues at the mighty US-based consultancy McKinsey have found an answer. Speaking at the 12th annual conference of the Strategic Management Society in London last week, he said the 'horizontal organisation' was a very powerful concept on which to base company structures.

Mr Ostroff and Douglas Smith, the McKinsey colleague with whom he has co-authored a paper on the subject, start from the premise that everybody in business is agreed on the need for companies to be customer-driven with workforces that are empowered and focused on quality, and the need for continuous improvement. The problem is that there is little practical guidance on how to develop the 'networked', 'clustered', 'orchestra-like', 'flat and flexible' designs that theory dictated were needed to suit the new conditions.

Companies are reducing layers of management to become flatter and less pyramid-like in structure but are not necessarily obtaining the benefits they expected. This, Mr Ostroff and Mr Smith say, is because there is insufficient understanding of what the company should look like once restructuring is complete.

Moreover, even with fewer layers, the traditional concept of a company split into divisions reflecting its various activities and with each given a hierarchy does not work - because it looks upwards instead of outwards, there are fragmented performance objectives and high costs of co-ordination and creativity and initiative are stifled.

In the horizontally organised business, work is mainly structured around a few business processes, or work flows, that link the activities of the employees to the needs and capabilities of suppliers and customers in a way that improves the performance of all the groups. Work and its management are performed by teams more than individuals and the teams have real managerial responsibilities - flatter, but still hierarchical, arrangements replace the steeper, more vertical set-ups of traditional functional management.

At the same time, such facets of management as resource allocation and decision-making shift towards a focus on continuous performance improvement, with the result that training and information are provided just in time on a 'need-to-perform', rather than a 'need-to-know' basis. Careers follow work flows, with advancement dependent on mastering several jobs, team skills and the like, and pay recognises both individual skill development and team performance.

At the heart of such an organisation, Mr Ostroff and Mr Smith say, are 10 key principles. These are: organise work around processes rather than tasks or functions, meaning that certain key performance objectives should be selected; flatten hierarchy by minimising subdivision of work flows and non-value-added activities; assign ownership of, or responsibility for, processes and their performance; link performance objectives and evaluation to customer satisfaction; make teams and not individuals the principal building blocks of organisation performance and design; combine managerial and non-managerial activities as often as possible; treat multiple competencies as the rule, not the exception; inform and train people on a 'just-in-time to perform' basis, not a 'need-to-know' basis; maximise supplier and customer contact and reward individual skill development and team performance, not just individual performance.

In introducing the ideas to a European audience last week, Mr Ostroff stressed that he was not proposing that the vertically organised company will become extinct.

In fact, he predicted that about 10 per cent of companies would be truly horizontal, with the same proportion remaining vertical. The rest would be hybrids. 'The challenge is to get the right mix,' he said.

(Photograph omitted)

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