Redefining an organization's boundaries.

The next step in designing more effective organizations is for functional or business unit managers to get with their teams and decide where to set external and internal boundaries around their departments. The guidelines to follow in this exercise are:

- The organization should consist of self-contained work units that are responsible for discrete product processing segments that have clearly defined inputs and outputs.
Boundaries should minimize the transfer of variation from one work unit to another, and shouldn't separate people who need to work together and learn from each other.

In traditional firms, work sometimes gets transferred from one unit to another because of tradition or history. In an insurance company, for example, I found that claims were partially processed on floor A, then transferred to floor B for further processing, and finally returned to the initial area A for completion. Upon investigation, I found that a long time ago, an employee was transferred from department A to department B and at the time, she was the only one who knew how to do her particular task. So, the work followed her when she moved. Even though she had been retired for many years, the claims continued to follow that route and no one had ever asked why before. Rearranging the flow so the claims processing was all done in department A removed two queuing steps which greatly speeded up the processing time.

The dilemma of separate ownership of processing stages is that no one understands the whole process anymore. So, errors in the early stages go unrecognized until they re-appear as problems later in the process. Sometimes, these problems can't be fixed at that stage and the product has to be thrown away. This is true in service settings as well where once a customer has been badly treated, it's seldom possible to undo the damage caused.

I'll give more examples tomorrow illustrating non-traditional boundary choices and the reasoning behind them.