Why a New Organizational Model is Needed.

Teams and teamwork are the mantras in American business today – and rightfully so. There has to be a better way to work than through the slow-moving, politically motivated departments within most of today’s corporations.

There are basically three ways to organize a service company:

  • Function-based departments
  • Matrixed departments (function-based departments whose members also
    report to customer-based teams)
  • Self-directed, customer-based teams

Before examining these three organizational models in more detail, let's look at how the leverage in the marketplace has shifted from the manufacturer, to distribution, to the consumer during the past century.

This will serve as a foundation for the argument that the type of organizational model that best serves today’s market is no longer the autocratic, top-down, pyramid model that most companies can’t seem to abandon.

Fact: Since the Industrial Revolution began, leverage has moved steadily from the manufacturer to the distribution channels to the customer.

To illustrate, consider Henry Ford's famous quote: "You can have any color Ford you want as long as it's black." The manufacturer was in control. The early 1900s were the days of, "If we make it you’ll buy it." The consumer didn’t have a lot of choice.

Contrast that with someone walking into a coffee shop today and asking for a medium-sized, half caf, ½ decaf with 1% milk!

In the first half of the century, leverage moved to the distribution channels – first to the railroads and then to the wholesalers and retailers. These middlemen would (and still do) tell the manufacturer what they will stock in inventory. The retailers represent the consumer to the manufacturer. But the manufacturer, in these instances, responds to channel demand, not direct consumer demand.

During the '50s and '60s, Sears built a huge customer base because it was able to control a great number of factories. To get an understanding of just how powerful retailer leverage can be today, talk to any manufacturer who supplies products to Wal-Mart. Wal-Mart dictates virtually everything right down to the manufacturer’s margins. The manufacturer does it according to Wal-Mart's specifications, or they lose the opportunity to distribute through America's most dominant retailer. They imply, "It’s Wal-Mart’s way—or the highway."

Over the past decade, the end-consumer has been given more choice of where (s)he can buy. In addition to retail outlets, catalog sales have flourished with the proliferation of in-bound telemarketing call centers, making it faster and easier for people to order from catalogs. And starting with the launch of the World Wide Web protocol in 1994, Internet e-commerce has grown dramatically, and most people agree that the more it grows, the more it will grow. Initially, manufacturers were reluctant to sell directly to the end user via the Internet. But those barriers are falling as manufacturers and their distributors learn to work together with this new medium.

It's obvious the Internet is just one more channel for the consumer. The more choice of distribution outlets a consumer has, the less leverage the retailer has, the less leverage the manufacturer has and the more things must be done the way the consumer wants them done.