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Breaking up the department into small independent corporations!

A revolutionizing way of reengineering corporations by making departments into separate legal entities, for increased efficiency, better customer service and increased market share.

By Lars G. Harrison

Business process reengineering has swept the corporate world with companies seeking to eliminate inefficiencies and identify core competencies. Reengineering evaluates all processes, procedures, organizational structures, and the role of external and internal customers and other stakeholders to optimize all of them to achieve positive benefits for the entire organization. Many corporations have reinvented their finance, manufacturing, and other departments and other work and business processes in other areas. In order to further cut cost and streamline operations, corporations have begun to outsource workflow and entire processes normally performed by internal departments. In addition to outsourcing entire operations, many companies are now using contractors from employment agencies and contract houses for specific projects (short-term or long-term), instead of hiring to cut costs. This is a positive trend of reducing inefficiencies and self-inflated bureaucracies. But how far should a company go with reengineering their processes? Could the company completely break up the department and make it into legally independent and operating corporations, owned by the mother corporation, but servicing a segment of the former market and customer base or having as its primary client the mother corporation? And even take on more outside clients. Can this be a practical solution to the traditionally vertically integrated organization?

Group Network Corporation System

There is a tendency for large organizations to grow and reach its limitation when it gets too large because communication across functional units becomes impeded. Not only does this impede the free flow of communication, but bureaucracy sets in, which stalls any creative, innovative or entrepreneurial inputs. The corporation becomes this large behemoth, unable to quickly change to take advantage of opportunities. Most organizations are segmented into functional units, such as sales, production, finance or manufacturing. Breaking up the corporation into small, autonomous divisions, can be an excellent form of corporate restructuring and reengineering. These small groups, comprised of people in charge of various products and services, with each group being completely responsible for one niche of the market and marketing and serving customers with a specialty product or service. Each group would be comprised of 10-30 people. In these small corporations, everyone shares information and participates in the particular activity that the team work on at the specific time. There are no specific departments of design, production, manufacturing, quality and sales, because production teams are delegated total responsibility over an entire production process from the stage of idea conception (R&D), to production, onward to marketing and post-sale customer servicing. One group (one corporation) would be assigned to a specific market niche. If the markets or market complexities and mechanics change, or they need the assistance of the another group for a particular project alliance in developing a new or greater market, cooperation shall exist. Or a new group should be encouraged to form to cater to the newly defined and specialized product or service needs of the customers.

Sharing resources from the mother corporation

These groups or corporations could have the same board as the mother corporation, but of course, operate as a separate legal corporation. In practice, these small networked groups with its own legal presence could changed the complexity of most major corporations. It should be easier to manage and control smaller units then larger ones. These groups share staff and other resources from other groups, and may ask for financial support from the mother corporation. Smaller units with financial support tend to be more flexible and able to change direction according to market and technology trends, become more creative in offering solutions to customers, innovative and entrepreneurial to ensure that opportunities are realized and exploited.

Smaller groups can also improve workflow processes and empower employees.

Opportunities for cross-training and a chance to try out different types of assignments should exist for people early in their career, so that they can determine where they belong. I have seen examples of people being given a desk and information tools and then asked to contribute to the group. Although, trying at first, the workers find their calling and realize how they can contribute to the team and the corporation. This group participation foster a sense of importance and community, and this type of an environment enables them to achieve amazing things. Being part of something greater than yourself and being recognized for and understand the importance of ones contribution, empowers a desire to produce. Often human resources are underutilized because the worker are not a perfect fit for the job. It is important to find out what the worker wants to do with his/her life and what he/she can and wants to do for the corporation. This is truly what it means to empower a worker. Provide them with the tools, inspire them to contribute and encourage them toward personal growth.

Greater opportunity to instill character and leadership skills through smaller groups

Life is a continuous trek of learning. The opportunity for learning, experiencing and career growth for every one in the organization must be a first priority for every leader. Since knowledge can be obtained from the day the employee begins working, it is important that the groups begin to instill leadership and character in their members. Formal education does not provide this training. In addition to technical training, training courses in business ethics, how to serve the customer ("the customer is the boss" training) and character building training must be emphasized. I am convinced that when people live and work in closer proximity (such as the small group concept) character could be built, and group unity and connection to purposes higher than self can be achieved. It is through these small groups and interactions with others that not only leads to creativity, discoveries, and insights, but also to find meaning to life's purpose and this meaning to ones existence in life. Personal growth will be enhanced and through communicating with others, all group members can learn to work in concert. A person's individuality could be greatly increased through group participation, instead of emphasizing individualism. Because of the groups size, there is a greater chance that the members in the group will develop a closer relationship with their customers. To illustrate how this can be done, let's use the Human Resource department as a case study.

An example: Breaking up the Human Resources department

In the past corporations have outsourced some of the human resources responsibilities. Companies like Automated Data Processing (ADP) has been growing in the double-digits for years, handling the payroll for many small and large corporations. Most companies outsource these functions because they are not strategic to them. These processes and functions that the human resources fulfill are not cost-efficient and could be handled by a specialist in the field. Payroll administration is not the only one being outsourced. Outside vendors are being used to handle retirement, health, and other plans, such as; benefits design and administration; information systems record keeping; employee services such as: retirement counseling, training, outplacement, and relocation; health and safety (workers' compensation, wellness programs, drug testing, and OSHA compliance). In addition, recruiting and hiring could be outsourced. In my life, I have yet to get a job through the Human Resources department. Most managers try not to involve Human Resources in hiring decisions. Designing and running compensation and reward systems is a potential candidate for outsourcing. Could a training course on leadership development be effectively sponsored by the Human Resources department? So, training and corporate leadership development is yet another candidate.

Although, the functions of the Human Resources departments because of their nature are probably better off being outsourced, then breaking up the department into legal corporations. However, it serves as a good example to illustrate this concept. Other departments which are involved with an entire planning, researching, and developing, and finally marketing a product or service, are far better candidates for successful disintegration and making them part of a group network corporation system. But let's use the Human Resources department of *Nimble Corporation to illustrate how an organization can break up its Human Resources department into legal independent corporations to reduce inefficiencies.

After breaking up the Human Resources department into separate small legal corporations, staffed with entrepreneurial-oriented individuals, we could have the following picture:

The Human Resources department will remain managing some of the existing interfaces and workflow processes which are not outsourced and reengineered. This example offers a simplistic view of how certain processes can be streamlined and improved by breaking up departments into smaller, more functional and effective corporations which are then able to more effectively serve the needs of customers and other stakeholders. This model may prove to become a standard way to manage enterprises in the 21st century.

*Note: Nimble Corporation is a fictitious name and any resemblance to an actual corporation is purely coincidental.

Lars G. Harrison can be reached at lars_harrison@yahoo.com.  

Harrison on Leadership May 1996

Copyright © 1996 Harrison on Leadership. All Rights Reserved.