Functional vs. Value Stream organization

Functional vs. Value Stream organization

Functional vs. Value Stream organization

In our profession we always have to deal with organization structures and we are called to evaluate their effectiveness and efficiency.

Experience tells us that:

1. Most companies have a functional organizational structure

2. This kind of organization has a very serious problem: each function tries to meet its own objectives even when they are not in line with those of the company as a whole. As a consequence there might be interfunctional conflicts and decision making might sometimes not be fast or effective enough.

One of the first objectives we pursue in our projects is to identify how to organize the company by Value Streams. It is relatively easy to identify production value streams: normally they include machines, persons, equipment needed for the production of a specific product family. Sometimes we find value streams already clearly defined by the company, sometimes we can identify them after some work and some discussions.

It is definitely more difficult to reorganize by value streams those activities which support production: planning, purchasing, quality control, logistics, management accounting. Only if these support activities are organized by value stream, it is possible to achieve the best possible results in terms of speed, flexibility and productivity in a lean transformation process.

We are aware that this reorganization is by no means simple because it goes against a widespread mentality. One of the most common objections we have to face is that splitting support activities by value streams may cause a duplication of roles and a larger amount of people. Another objection, strictly connected, is that, eliminating specialized functions, the company may lose efficiency.

In our opinion all these objections miss the real point: what really changes in a lean environment is the very concept of specialization. Inside a value stream we do not have specialists in a single activity (for instance in purchasing or in planning); instead we have value stream specialists who can perform more activities inside the value stream and as such could take care of different functions like purchasing, planning, logistics etc.

A value stream organization creates a team of people working together in order to maximize the results of the value stream and not the results of a single function. Such an organization makes it possible a timely and complete performance control: if the performance of a value stream improve, necessarily the results of the company as a whole become better, which not necessarily happens when in a functional structure the performances of a single function improve.

We know a number of companies that having turned to a value stream organization have achieved remarkable benefits in terms of speed, flexibility, customer service and profitability.

Camar Sma by changing to a value stream organization has been able to overcome a very difficult moment of its life in 2008-2009.

Athena has achieved very good results in terms of value stream profitability.

Spanesi Spa reorganizing the company in three value streams has improved customer service and its information flow.

These are but a few examples of a new approach still ignored by most of our small and medium sized enterprises. They clearly show that it is useful and rewarding to change and adopt new innovative organizational models. For many companies this is not only an opportunity but a must if they want to remain competitive.