Hobart’s Blog – Restructuring is Insane! by Marc Townsend #5

Topic: Dual Reporting

Marc: Last time we spoke, we were going to talk about a variation of the vertical game called dual reporting.

Hobart: As you wish.

Marc: So, what is dual reporting?

Hobart: The basic idea of dual reporting is to have a team member report to two bosses. Let’s say you’re a plant engineer. You report to a manager in Central Engineering but the Plant Manager wants control over you as well, and so you are given a second boss, the Plant Manager, who is your internal customer. If you look at the org chart, you have two solid lines – one to the Central Engineering Manager and one to the Plant Manager.

Marc: Is this a new idea?

Hobart: (Hobart laughs to himself.) Hardly. It was invented 30 or so years ago as a way to deal with a problem at the time: how to give authority to both a functional leader and an internal customer. So, the simple solution was to draw two lines. It was a really bad idea at the time and failed miserably, but people have short memories, so it has been resurrected.

Marc: Why is it a bad idea?

Hobart: Why do you think?

Marc: Well it seems problematic to me to have two bosses. Who do they listen to? What if the two bosses are in conflict? How do they resolve that?

Hobart: That’s right, and you came to that conclusion quite easily, so you wonder why organizations are reinstating this matrix approach which was discredited 25 years ago.

Marc: And why is that?

Hobart: Why are they resurrecting it? Because the issue of needing to satisfy internal customers while still having a vertical boss hasn’t gone away. The problem is that leaders are trying to solve the problem using a variation of the old rules – the vertical management rules. The only way to solve the problem is by playing a new game, with new rules, ones that are based on a horizontal model of the organization. Leaders are desperate to solve their organizational challenges but they are looking for solutions in the wrong place.

Marc: And where is that exactly?

Hobart: In the vertical dimension. In the land of authority and bosses and subordinates. In the hierarchy. We have to leave that land behind.

Marc: So, you have to get rid of the vertical dimension?

Hobart: No, it still exists, but its role is different. The vertical dimension exists to support the horizontal dimension – which is where the business actually should be run.

Marc: Okay, can you explain what you mean by the horizontal? I think I’m a little lost.

Hobart: You remember all those elements you identified a couple of sessions ago that were missing on the org chart?

Marc: Yes – customers, products, services, business processes, etc.

Hobart: Right. Those are all components of the horizontal dimension. Instead of thinking of an organization as a bunch of vertical silos, you have to begin thinking of it as a series of cross-functional processes, as streams that turn inputs into outputs that are delivered to customers.

Marc: But don’t the functions perform those processes?

Hobart: Good question. The people working in the functions perform a subset of a cross-functional business process. But when you manage a cross-functional process within a number of separate functions, you create disconnects between the functions. Each function is doing its own thing and that doesn’t contribute to an optimized cross-functional process. If you want to optimize your business, you need optimized processes that cross the entire business. We have learned this lesson in the manufacturing area, which is why organizations switched to supply chain management. But we haven’t applied those lessons to the rest of the organization, which in fact “manufactures” stuff too. It’s just not the stuff that we deliver to the customer.

Marc: Who is it delivered to then?

Hobart: To other outside stakeholders, like regulators, or more commonly to inside stakeholders who are internal customers. Every process produces outputs and most processes are either cross-functional or have stakeholders who sit in other functions. Dividing these processes into functions and then optimizing the function always suboptimizes the business.

Marc: Now let me try and make sense of what you’re saying. If business processes are managed within a function, then the larger process, which is cross-functional, is suboptimized.

Hobart: Yes.

Marc: But why?

Hobart: I’m happy to expound at length on the theory of the whole thing, but I don’t think you want me to do that unless you want your readers to go to sleep. But let me put it this way. In a function, you are focused on what goes on within that the part of the process that’s in your function. But optimization of the whole process is primarily a result of what happens at the nodes or interfaces between parts of a process – between the functions, between an internal customer and a supplier. To optimize a process, it must be integrated across all the functions and that doesn’t happen with the current Vertical Management operating system. The rules of the game ignore the nodes and focus on the activities that happen within a vertical function.

Marc: Oh, so is that one of the reasons why leaders are trying to restructure – to somehow reconnect those parts of a process so it can be optimized?

Hobart: (Hobart smiled. A rather rare occurrence.) You’re smarter than you look. Yes, that’s one of the main reasons. They know that groups need to work together and yet they aren’t cooperating, so they restructure and put them in the same group. That’s called centralization. That only creates discontinuity in other parts of the process. The problem isn’t the vertical structure, per se. The problem is first, that there is no horizontal structure and second, that the rules used to play the game are only focused on the vertical dimension. We aren’t playing a horizontal game and we need to do that.

Marc: Can you give me an example of a horizontal vs a vertical rule?

Hobart: Take the rule about how to decompose the strategic plan. The current rule, the vertically oriented one, says to break the strategic plan down into functional goals and assign accountability for the functional goal to the functional leader.

Marc: But that’s how everyone does it.

Hobart: I know that!

Marc: Can you elaborate?

Hobart: Next time. I’ve got work to do.