Simulated Decentralization
The main rule is to look simulated decentralization as a last resort only.
Whenever a unit can be set up as a business, no design principle can match federal decentralization. We have learned, however, that a great many large companies cannot be divided into genuine businesses. Yet they have clearly outgrown the limits of size and complexity of the functional or of the team structure. These are the companies that are increasingly turning to “simulated decentralization” as the answer to their organization problem. Simulated decentralization forms structural units that are not businesses but which are still up as if they were businesses, with maximum possible autonomy, with their own management, and with at least a “simulation” of profit-and-loss responsibility. They buy from and sell to each other using “transfer prices” determined internally rather than by an outside market. Or their “profits” are arrived at by internal allocation of costs to which then, often, a “standard fee,” such as 20 percent of costs, is added.
Fundamental of Communications
To improve communications, work not on the utterer but recipient.
It is the recipient who communicates. Unless there is someone who hears, there is no communication. There is only noise. One can perceive only what one is capable of perceiving. One can communicate only in the recipients’ language or in their terms. And the terms have to be experience-based we perceive, as a rule, what we expect to perceive. We see largely what we expect to see, and we hear largely what we expect to hear largely what we expect to hear. The unexpected is usually not received at all. Communication always makes demands. It always demands that the recipient become somebody, do something, believe something. It always appeals to motivation. If it goes against her aspirations, her values, her motivations, it is likely not to be received at all or, at best, to be resisted.
Where communication is perception, information is logic. As such, information is purely formal and has no meaning. Information is always encoded. To be received, let alone to be used, the code must be known and understood by the recipient. This requires prior agreement, that is, some communicate.
Rules for Staff Work
Staff work is not done to advance knowledge; its only justification is the improvement of the performance of operating people and of the entire organization.
First, staff should concentrate on takes of major importance that will continue for many years. A task of major importance that will not last for-ever – for example, the reorganization of a company’s management – is better handled as a one-time assignment. Staff work should be limited to a few tasks of high priority. Proliferation of staff services deprives them of effectiveness. Worse, it destroys the effectiveness of the people who produce results, the operating people. Unless the number of staff tasks is closely controlled, staff will gobble up more and more of operating people’s scarcest resource: time.
Effectives staff work requires specific goals and objectives, clear targets, and deadlines. “We expect to cut absenteeism in half within three years” or “Two years from now we expect to understand the segmentation of our markets sufficiently to reduce the number of product lines by at least one third.” Objectives like these make for productive staff work. Vague goals such as “getting a handle on employee behavior” or “a study of customer motivation” do not. Every three years or so, it is important to sit down with every staff unit and ask, “What have you contributed these last three years that makes a real difference to this company?”
Building Blocks of Organization
Contribution determines ranking and placement.
“What activities belong together and what activities belong apart?” A searching analysis is needed that groups of activities by the kind of contribution they make. There are four major groups of activities, if distinguished by their contribution. First, result-producing activities – that is, activities that produce measurable results that can be related, directly or indirectly, to the results and performance of the entire enterprise. Second, support activities that, while needed and even essential, do not by them-selves produce results but have results only thorough the use made of their “output” by other components within the business. Third, activities those have no direct or indirect relationship to the results of the business, activities that are truly ancillary. They are hygiene and housekeeping activities. Finally, is the top-management activity. Among the result-producing activities, there are some that directly bring in revenues (or in service institutions, directly produce “patient care” or “learning”). Here belong innovating activities, selling and all the work needed to do a systematic and organized selling job. Here also belongs the treasury function, that is, the supply and management of money in the business.
Key activities should never be subordinated to nonkey activities. Revenue-producing activities should never be subordinated to nonrevenue-producing activities. And support activities should never be mixed with revenue-producing and result-contributory activities.