Process (horizontal) organization

Work is organized around a few end-to-end processes, each with an owner, rather than around functions.

What it is

A process organization groups people around a few end-to-end processes, not specialties. Each process has an owner who answers for it from the customer's request to the delivered result, and teams along it do the work (Ostroff 1999, a practitioner book).

The form's grouping is contested on the dimensions: product or purpose, each process delivering an output to a customer (our judgment), or two bases at once, people still reporting to unit heads (Hammer and Stanton 1999). Its specialization spans low to medium (Hammer and Champy 1993); coordination spans mutual adjustment in teams and standardized outputs through owners and measures; and the lateral mechanism is the integrating role, which the owner fills (Ostroff 1999; Galbraith 1994). Those three levels are theory, resting mainly on practitioner argument. The rest is our judgment: formalization spans medium to high, since documenting processes is part of the form; centralization mixed; layers flat to moderate; decision rights span Mintzberg's (1980) Types C and D, owners holding delegated power over processes and teams deciding much of their work; moderate differentiation; exchange by bureaucracy; and a selective boundary, opened along each process.

Where it came from

Management writers and one scholar named it in 1990s books. Michael Hammer and James Champy's Reengineering the Corporation (1993), a practitioner manifesto, called for radically redesigning a company's processes, since work need no longer follow Adam Smith's division of labor. Jay Galbraith's Competing with Flexible Lateral Organizations (1994) cites earlier writing on organizing around core processes, so the idea predates these books. Frank Ostroff's The Horizontal Organization (1999) states the principles: organize around cross-functional core processes, install process owners, and make teams, not individuals, the cornerstone of design.

It was meant to stop the handoffs between functions from destroying speed and quality.

On the information processing school's ladder of lateral relations, from direct contact to the matrix (Galbraith 1973, 1974), the owner sits at the integrating role. The socio-technical systems school's claim, that groups owning a whole task and controlling its variances perform better, bears on the teams along each process. Stewart (2006), a meta-analysis of 93 studies, supports it: autonomy and intrateam coordination went with higher team performance, though the effect varied with task type. Two studies qualify it: Héthy (1986), a comparative review of official reports and published surveys from several countries, found autonomy far smaller than the regulations allowed, and in Fuhrich (2019), one case study, groups given control rationalized against themselves under cost pressure. Kelly (1978), a critical reanalysis of several published case studies, from the labor process school, reads what such redesign achieved as intensified labor. Adler and Cole (1993), an article by two management scholars, for the bureaucracy school, hold NUMMI's standardized work the better design for organizational learning than Uddevalla's autonomous groups; Berggren (1992), six case studies in the Swedish auto industry by one scholar, from the Scandinavian school, had argued for the Swedish long-cycle groups on productivity and quality of work.

Where it fits

Of the cells, eleven are our judgment on the premises named, and one is theory; no study found tests this form against any factor.

• Size. Partial small, fits medium and large: handoffs multiply with size, and a small firm has few functions to cross (premises Hammer and Champy 1993; Ostroff 1999).
• Age. Partial young, fits established, partial old: the form usually redesigns an established functional firm, and in old ones change tends to settle on top of the old structure (premises McNulty and Ferlie 2004, one case study; Hannan and Freeman 1984 on inertia).
• Environmental uncertainty. Fits stable and shifting, partial unpredictable: standardized processes give speed and quality where work can be specified ahead, while a changing environment forces continual redesign (premises Galbraith 1994; Burton and Obel 2004, whose model, the most developed scholarly fit model, pairs turbulence with a flexible structure).
• Environmental complexity. Partial simple and moderate, fits complex. Nearest premise: Malnight (2001), a longitudinal comparison of two multinationals whose structures differed by process under complex competition, not process ownership. Pennings (1975), a quantitative field test of the structural-contingency model, limits the uncertainty and complexity cells: environment and structure fit did not explain effectiveness.
• Munificence and hostility. Partial throughout: owners can speed a response, but redesign is costly when resources are short. Burton and Obel's rules address only hostility, keeping formalization low, and Hall, Rosenthal, and Wade's (1993) consultants' report is not tied to the environment; neither premise settles it.
• Diversity. Fits single business, partial related, strain unrelated: unrelated businesses run different processes, so one design cannot span them (premise Ostroff 1999).
• Strategy. Fits defender, partial analyzer and prospector: owned processes raise efficiency where steps are known, and a prospector's new domains have no settled process (premises Hammer and Champy 1993; Ostroff 1999). The third premise cuts against it: Burton and Obel (2004) prescribe for a defender high formalization and centralization and a functional configuration.
• Technology. Fits routine and mixed, partial nonroutine: a process can have an owner only if its steps can be mapped (premise Van de Ven, Ganco, and Hinings 2013 on systematized and developmental programs). Hickson, Pugh, and Pheysey (1969), a multi-organization comparative survey, and Mohr (1971), a quantitative field study of technology and structure, limit this cell; Donaldson (2001) lays Mohr's null, and Pennings's, to method.
• Interdependence. Partial pooled, fits sequential, partial reciprocal, as theory (conceptual): a process unit groups sequential work, which Thompson (1967) ranks second after reciprocal work; reading the owner as that grouping is our judgment, and reciprocal work between processes still needs lateral links.
• Knowledge intensity. Partial throughout: in hospitals, where core work is professional, Vera and Kuntz (2007), a survey of one German state's hospitals, and Kuntz and Vera (2007), a quantitative study of hospitals, found efficiency gains, while McNulty and Ferlie (2004) and Buchanan (1997), one case study each, found limits; none varies knowledge intensity.
• Global integration. Partial low and moderate, fits high (premise Malnight 2001).
• Local responsiveness. Partial throughout: processes can be standardized across countries or differentiated by them (premise Malnight 2001).

What it does well

It gives the whole an owner: a process owner answers for what the customer receives, and teams along the process settle handoffs themselves (Ostroff 1999; Hammer and Stanton 1999, both practitioner sources), though two surveys qualify the owner's part. Kohlbacher and Gruenwald (2011b), a survey of manufacturing firms in one country, found the owner role alone, or process measurement alone, not enough for high firm performance; firms needed both. Hernaus and colleagues (2016), a survey of many organizations in two countries, public and private, found formal process roles and specialized units drove the success of process management initiatives, which did best where a strategic approach came with a central responsibility and decentralized process owners; the outcomes were the initiatives', not the firm's.

Kohlbacher (2010), a review of 26 published reports, mostly cases and claims, found positive effects predominant, most often on speed, customer satisfaction, quality, and cost. He notes a possible bias toward good news and few quantitative studies; it is not a meta-analysis.

For five complaints, the symptom view offers it: on contested theory, work stalling at handoffs (after Lawrence and Lorsch 1967, a multi-firm comparative field study, and Hammer and Champy 1993) and no one owning the customer's experience end to end (for both, a second view drops it, on Byrne and colleagues' 2004 survey of medical centers); on our judgment, turf wars, meeting overload, and units hitting their own numbers while the whole slips.

What it costs

It costs a second structure. The specialties still need a home, so unit heads keep the people and develop them, while owners hold the design, the measures, and training in the process (Hammer and Stanton 1999). The owner's job is permanent, since process designs must evolve as conditions change.

It also costs upkeep, on our reading: process orientation, as Kohlbacher and Gruenwald (2011a), a survey of 152 manufacturers, measured it, includes documentation, measurement, improvement methods, and a matching culture, which the study does not cost.

Its usual change program is faulted on people: Willmott (1994), a critical review, found reengineering's vision cursory on the human side, a critique of the prescriptions, not a measured cost.

How it fails

Process gains that never reach the whole. Hall, Rosenthal, and Wade (1993), a consultants' report: in all too many companies, reengineering improved individual processes dramatically while overall results declined. Local optimization, on our reading.

Process owners and unit heads both claim the work. Hammer and Stanton (1999), a practitioner article, report that at Duke Power process owners and regional vice presidents at first acted more as rivals than partners, until the managers wrote a decision rights matrix. Undrawn, that line leaves decisions owned twice or not at all, on our reading (jurisdictional gap or overlap).

The old functions shape the redesign and outlast it. Buchanan (1997), one case study, found reengineering's imprecision let political actors shape its terms; McNulty and Ferlie (2004), one case study, found change sedimented. Hammer and Stanton warn that without strong process owners the old structures soon reassert themselves. Subsystem self-perpetuation, on our reading.

Each process becomes a new silo. Without links between processes (the interdependence cell; Galbraith 1994), what one process learns stays there (siloed knowledge); our reading.

The mapped process falls behind the work. Buchanan found the complexity and indeterminacy of the patient trail diluted the redesign. Where steps cannot be specified ahead, the map stops matching the work (model and world divergence); our reading.

At the top of the form's formalization band, five misfit rules fire, all contested, so they flag the row and sink nothing. In four, Burton and Obel (2004), in propositions not tested one by one, call heavy rules a misfit for a small organization, a prospector, an unpredictable environment, and nonroutine work. Against the first three, formalized founding teams outperformed in Sine, Mitsuhashi, and Kirsch (2006), a quantitative study of new ventures in one sector; against the third, a bureaucratic incident command system proved flexible in Bigley and Roberts (2001), one inductive case study. Against the last, a bureaucratic plant handled nonroutine work in Adler, Goldoftas, and Levine (1999), one case study, and Child and Mansfield (1972), a multi-firm comparative study, found size bore on structure far more than technology. Adler and Borys (1996), a conceptual argument, separate enabling from coercive formalization. The fifth, a defender's rule-bound structure in an unpredictable environment (after Miles and Snow's 1978 reactor), is our judgment, and the counter-views to the third dispute its rule-bound half.

What the research found

Most of the research surveys process orientation, and its results disagree. Kohlbacher and Reijers (2013), a survey of Austrian manufacturers, found process measurement, structure, improvement methods, and above all culture positively associated with performance. Škrinjar and colleagues (2008), a survey of companies in one transition economy, found process orientation led to better non-financial and, through it, financial performance. Leyer and colleagues (2017), a survey of 1,069 employees in one industry, found structure and process improvement encouraged operational performance and innovation. Against them, Santos and colleagues (2014), a survey of 368 companies, found culture and human resource management associated with performance but no significant direct link for the structure items (process managers on the chart, cross-process teams), which the authors suggest may moderate, not cause. All measure orientation, of which structure is one part; none compares forms. Grint (1994), a critical essay with no new data, disputes some of reengineering's claims to novelty and internal coherence.

Zhang, Bhuiyan, and Kong (2018), a formal model compared with industry data, is the most recent study filed under this form and the record's one item from eight main journals since 2010; it models structure under process change, not this form, of which a search of those journals found no study. Škrinjar and colleagues' replication found a stronger link than the original, but for orientation as a whole, not structure.

Vera and Kuntz (2007), a survey of the hospitals of one German state, found a high degree of process-based organization had a moderate but significant positive effect on efficiency, depending on physicians' participation and an adequate culture; Kuntz and Vera (2007), a quantitative study of hospitals, probably not independent of the first, found process orientation raised efficiency though modularization as a whole did not. Against them stand the two hospital case studies in How it fails and Byrne and colleagues (2004), a survey of every medical center in one national health system: clinical service lines had no favorable and several unfavorable effects on the utilization measures. Treating them as the nearest tested case is our reading. Ocasio's (1997) attention-based view, from the Carnegie behavioral school, dissents from the information processing account: structure governs where attention goes.

The evidence ledger holds 16 studies filed under this form.

In practice: one published case

This is one case study, from McNulty and Ferlie (2004), an article in Organization Studies. The article calls the site a UK National Health Service hospital; the authors' companion book names it the Leicester Royal Infirmary, a large NHS teaching hospital.

The hospital implemented business process reengineering in an attempt to effect a transformatory shift to a new form of process organization, in a large and complex public service organization.

The reengineering fell short of its intent. The authors' data revealed important limits to the intended transformation: change was sedimented rather than transformational. The setting bears on it: a large, complex, professionalized public service organization, and a radical strategy driven from the top.

The authors concluded that radical top-down change strategies are limited in large, complex, professionalized public service organizations, and that intended moves to post-new-public-management forms may remain contained in scope.

Three cautions apply: it is one hospital, so it shows what can happen, not how often; the case record rests on the article's abstract, which reports no figures on cost, waiting times, or clinical results, so this page reports none; and the abstract does not say how the hospital regrouped its work, so this page does not say either.

Source: McNulty and Ferlie 2004a. Process transformation: limitations to radical organizational change within public service organizations, Organization Studies 25(8), 1389 to 1412; one case study.

Variants and near relatives

Process enterprise with process owners. Hammer and Stanton's (1999) design, a practitioner article: owners design and measure each process end to end, while the people report to unit heads.

Lean value-stream organization. A practitioner design (Womack and Jones 1996) that organizes people around the value stream in place of departments. The flow of work belongs to Workflow Topologies, and shop-floor authority to the J-form's Toyota production system. Skinner's (1974) plant within a plant, under Multidivisional, gives each unit in one site its own functions for one manufacturing task.

The Functional structure, the nearest neighbor, makes the specialty the unit, so a process crosses departments that each own one step; this form makes the end-to-end process the unit and names one owner for it.

Clinical service lines, under the professional bureaucracy, regroup a hospital's work by patient group across departments, closer to the customer division than to one owned process. The Team-based organization designs the whole organization as a system of teams; this form staffs processes with teams but makes the process and its owner the unit. Socio-technical autonomous work groups fit each group to a segment of a production system, not to a process running to the customer. The Matrix organization gives people two bosses; here each keeps one line to a unit head.

Moving into or out of it

Most firms come from a functional structure (the age cell, our judgment). Hammer and Stanton (1999), a practitioner article, advise pruning other change programs, naming respected executives as owners at once, measuring by process from the outset, and seeking early gains. They warn of years of effort and resistance mostly from senior executives, and find it not uncommon for a quarter to a half of the senior team to leave.

Buchanan (1997), one case study, found rapid, blank-sheet change impractical. No study here measures the cost of moving into this form. On our reading of clinical service lines as the nearest case, Byrne and colleagues (2004), a survey of every medical center in one national health system, found new lines improved significantly less over time than facilities with none, which the authors read as a possible initial period of disruption; facilities chose whether to adopt, and the measures were utilization. Change & Transformation covers running a reorganization.

The thinking behind it

Michael Hammer and James Champy, Reengineering the Corporation (1993), a practitioner manifesto: radical process redesign, the form's case against narrow jobs.

Frank Ostroff, The Horizontal Organization (1999), a practitioner book: organize around a few core processes with owners and teams.

Jay Galbraith, "Organization design: an information processing view" (1974): task uncertainty drives the information load, and lateral relations raise capacity to carry it; the owner is the integrating role.

James Thompson, Organizations in Action (1967): pooled, sequential, and reciprocal interdependence; propositions later tested by others. It explains why a process unit groups sequential work.

Terry McNulty and Ewan Ferlie (2004), one case: an attempted shift to process organization in a professionalized public hospital produced sedimented change. David Buchanan (1997), one case: reengineering's imprecision lets political actors shape it, and processes' indeterminacy dilutes redesign.

Michael Hannan and John Freeman (1984): selection favors structures with high inertia, inertia rises with age, and attempts at reorganization raise death rates, the premise for old organizations. Tests show the effects vary by type of change, and Donaldson (1995) argues, in a disputed critique, that ecology understates managers' capacity to adapt.

Also called

Horizontal organization (Ostroff 1999), process-centered organization, and process enterprise (Hammer and Stanton 1999). The surveys say process orientation (Kohlbacher and Gruenwald 2011a); Malnight (2001) writes of process-based structures.

Process here means an end-to-end flow of work ending at a customer, not Gulick's (1937) grouping by major process, which groups by specialty.

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