Managing Horizontally as well as Vertically

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Silos are a symptom of a deeper problem in most organisations. Getting rid of them is not the answer. Traditional management systems organise expert knowledge into vertical functions and departments and use these to allocate resources across the organisation. So does Toyota.

However following Toyota’s example, lean organisations also manage the flows of the work (or value streams) that create the value customers are paying for. This is in fact the primary purpose of any organisation, and profits are the result of doing so efficiently and effectively. 

These value streams usually flow horizontally across many departments and even across several organisations. And they are supported by many other activities and support processes that enable this value creating work to flow. But all too often no one sees or is responsible for these end-to-end value streams and the metrics and systems are designed to optimise individual activities rather than the whole. In my view management needs to also learn to see the organisation as a collection of value streams and support processes – think of it as a fishbone diagram overlaid on the traditional organisation chart. The question is how to manage the vertical and the horizontal dimensions of an organisation at the same time. Matrix management is not the answer. 

Some organisations have turned their organisation sideways, aligned around their core projects or value streams. However you only have to observe what happens in most construction firms that have been organised this way for years. While their project management is strong their vertical functions are weak and every project starts from scratch with a new team and there is little reflection and learning from project to project. The only way this horizontal structure works is if each function head also leads one of the end-to-end projects, so they can hold each-other hostage to manage the tensions between their vertical authority and horizontal responsibilities.

Some lean thinkers say all you need to do is to teach everyone to pull and gradually the value stream will emerge and the work will begin to flow. This “build the knowledge from the bottom” approach rightly focuses on developing a lean thinking mind set across the organisation. What it misses is the focus on the business problems and performance gaps the organisation needs lean to help to solve. A good sensei is always conscious of the end-to-end context so they can direct improvement activities to the right place. In my experience a lot of well-intentioned effort and support can be wasted if improvement activities are not focused on solving the root causes of the broken processes behind the business problems facing an organisation. “Top down” needs to mirror “bottom up” and be linked “end-to-end”.

Because value stream thinking has been woven into the mind set at Toyota for many decades it is not so easy to see value stream management in action there. But observe how Toyota establishes a team to design a fundamentally new car such as the Lexus and the Prius, where they are designing a new product and a new production system to make several generations of that product over time. The Chief Engineer for such a project carries enormous responsibility for the success of the product that emerges and the resilience of the production system, but paradoxically they have only a hand-full of staff reporting directly to them. 

They have to manage by gaining agreement from function heads on the work that needs to be done and the resources function heads need to contribute to the project. They then have the responsibility for surfacing any conflicts between different metrics and targets and managing the execution of the project. So they have responsibility for the project while the function heads retain the authority over the resources to accomplish it. This is not an easy concept to grasp but becomes clearer when you begin to grapple with it. In fact together the Chief Engineers are effectively the “customers” for the resources from the functions.

Turning a set of separately managed activities into an integrated value stream is just such a project. In my experience value stream management is most effective when there is a win-win for all parties: –

  • When the purpose is clear and top management has walked the process end-to-end and understands how unblocking the flow is the most effective way to close critical performance gaps and improve customer service.
  • When value stream managers can support line managers in creating stability in their work and can direct improvement projects to unblock critical bottlenecks and address system level causes of instability that have big ripple effects on the rest of the system.
  • When activity at every point in the value stream is highly visual and the value stream team uses visual management to analyse, plan and frequently review their progress. The visual context is critical in driving collaborative behaviours.
  • When everyone in the value stream uses the same fact based, scientific method to understand the situation, diagnose root causes, plan and implement countermeasures and review and capture the learning. Value stream analysis is an ideal context for developing the A3 thinking of middle managers. 

Perhaps the most significant outcome of value stream management is that it reveals not only how to improve the current value stream but it also reveals the opportunities for designing very different value streams for the future, that are simpler, faster and more effective while using less capital and resources. The experience of leading a value stream makes them an ideal candidate to lead the project to design the value streams of the future.