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INTERFUNCTIONAL COORDINATION IS ESSENTIAL

Interfunctional coordination can be defined as the cooperation of the various internal business functions to achieve the overall goals of the firm and insure its responsiveness to environmental changes. To achieve an acceptable degree of interaction and collaboration among the specialized functions of the firm, Mintzberg proposed six basic coordinating functions:3

1. Mutual adjustment: the process of informal communication in which people interact with one another to coordinate.

2. Direct supervision: one person coordinates by giving orders to others.

3. Standardization of work processes: direct specification of the content of the work, and the procedures to be followed in order to tightly control different people.

4. Standardization of outputs: specification of what is to be done (i.e., the results of the coordination) so that interfaces between jobs are predetermined.

5. Standardization of skills: loose coordination of people through education on a common body of knowledge and a set of skills that are subsequently applied to work.

6. Standardization of norms: coordination of people through a common set of beliefs.

To these three different dimensions of coordination: (1) cooperative arrangements (mutual adjustment), (2) management controls (direct supervision), and (3) standardization (standardization of work processes, outputs, skills, and norms), other authors would add the additional dimensions of (4) functional expertise and (5) organizational structure.4

Interaction and collaboration positively influence a firm's performance as they establish cooperative arrangements and share resources across functions. Management controls can be best achieved when the integrating managers elicit, receive, and strongly consider cross-functional team members' inputs to the decision-making process, which they coordinate. Planning systems and performance control systems are used to standardize outputs, since they predetermine the intended outcomes. Training and education become significant activities in the standardization of skills. Standardization of norms relies on the marketing concept and an SCO, along with the existing culture of the organization. A unified policy, and an aligned recognition and reward system, governing the activities of supply chain participants, which instills a spirit or philosophy of collaboration in the culture becomes the most important factor for success of interfunctional coordination. Although cross-functional coordination is a must, the need for in-depth functional expertise should not be ignored. Decisions made solely in functional silo structures must be avoided. An ideal organizational structure for coordination within a firm must support an internally integrated process for the seamless flows of information, products, services, and finances. The firm's planning and decision making should be organized around key processes, such as planning, sourcing, production, and fulfillment.

INTERFIRM COLLABORATION ON NONCORE COMPETENCY FUNCTIONS (OUTSOURCING)

For every supply chain, there are basic functions that have to be done no matter which firm does them. These supply chain functions include: design, make, brand, price, promote, buy, sell, stock, display, deliver, finance, and manage risk and the relationship with the ultimate customer. Who should perform these functions in any particular supply chain? An important point is that no one company has to manage all these functions. In the early 1900s, Ford Motor Company attempted to perform all the supply chain functions for the purpose of keeping control of all operations. Ford owned the mines that produced the ore that moved on Ford Motor Company ships to Ford steel mills, where Ford steel was used to make Ford automobiles that were sold through Ford dealerships. The huge costs of capital for such vertical integration caused the company to rethink how to balance the need to control operations with the need to manage risk. Today, Ford prefers to integrate based on information sharing, not on asset ownership. Companies are constantly evaluating the questions, What should we do ourselves, and What should we allow someone else to do for us? If the company cannot do something cheaper than someone else, they must ask themselves if the function is a core competency. A core competency is something the firm does well that gives them a competitive advantage in the marketplace. Not everything done well, however, is a core competency. For example, being really good at running the company cafeteria does not give the firm a competitive advantage, and is, therefore, not a core competency. A core competency is something rare, valuable, hard to imitate, and not substitutable. Even though a function might be cheaper to outsource, if it is a core competency, it should not be outsourced.

What is core? This varies for each company in the supply chain. The point is that noncore functions can be shifted to other firms in the supply chain. SCM, then, becomes a great alternative to vertical integration. An example of a firm that recognized its core competency is an American company, who is the number two manufacturer in the world of a particular type of electronics product, yet doesn't make any products. Kodak realized its core competencies were in R&D, estimating demand, and managing the product life cycle of its products. Over a five-year period, it outsourced its production function to five manufacturing subcontractors, its delivery function to three global third-party logistics providers, and its financing function to an outside banking consortium. The results were a significant reduction in per-unit manufacturing costs, significant reduction in its logistics costs, and a substantial savings in financing inventories and operations.

Interfirm collaboration is based on several antecedents: cooperative norms, information sharing, trust, respect, mutuality, conflict-resolution mechanisms, reward sharing, and an interdependence that sustains and enhances the relationship. Consequences include risk reduction, benefits from shared managerial, physical, technological, and financial resources, and improved supply chain competitive advantage. Establishing and maintaining effective supply chain relationships can itself become a core competency. This will become apparent as more and more "virtual" organizations develop.

 
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