The process-based organizational structure centers on organizing a company’s divisions or units around key business processes or functions. These processes represent the core activities that drive the organization’s value delivery and operational efficiency. Each process becomes a distinct entity within the organization, often with its own dedicated team, resources, and decision-making authority. This structure enables companies to align their operations with their primary functions and improve overall efficiency.
Key characteristics of the process-based organizational structure include:
Core Business Processes: The organization is divided into divisions or units, each responsible for a specific core business process, such as marketing, sales, production, or customer support.
Process Ownership: Each process typically has its own process owner or manager responsible for its performance, improvement, and alignment with organizational goals.
Resource Allocation: Resources, including budgets, personnel, and assets, are allocated to process divisions based on their strategic importance and contribution to the organization’s success.
Cross-Functional Teams: Teams within each process division may consist of professionals from various functions, all dedicated to optimizing and delivering value through that process.
Efficiency and Quality: The structure promotes efficiency and quality by focusing on optimizing key processes, reducing redundancies, and enhancing workflows.
Continuous Improvement: Organizations following this structure often emphasize continuous improvement methodologies, such as Six Sigma or Lean, to enhance processes continually.
Customer Value: The ultimate goal is to deliver maximum value to customers through well-defined and efficient processes.
Advantages of a Process-Based Organizational Structure
Process Identification: Identify the core business processes that are fundamental to delivering value to customers and achieving organizational objectives.
Process Division Creation: Create separate divisions or units for each core process, each with its own process owner or manager.
Resource Allocation: Allocate resources, including budgets, personnel, and technology, to each process division based on its strategic importance and contribution to the organization.
Cross-Functional Teams: Assemble cross-functional teams within each process division to ensure they have the expertise and skills needed to optimize that process.
Leadership Roles: Appoint process owners or managers responsible for overseeing the performance, improvement, and alignment of their respective processes with corporate objectives.
Communication Channels: Establish clear communication channels between process divisions and central management to ensure alignment with corporate goals.
Performance Metrics: Define key performance indicators (KPIs) that measure the success of each core process. Regularly assess and adjust processes based on these metrics.
Real-World Examples of Process-Based Organizational Structures
Several well-known companies have successfully adopted process-based organizational structures:
McDonald’s: The fast-food giant organizes its operations around core processes like food preparation, order fulfillment, and customer service. This structure enables McDonald’s to deliver consistent quality and efficiency across its global chain of restaurants.
Toyota: Toyota, a leading automotive manufacturer, is renowned for its focus on process optimization. The company’s production system, known as the Toyota Production System (TPS), is built on the principles of efficiency, quality, and continuous improvement.
IBM: IBM, a technology and consulting company, follows a process-based structure that aligns with its service offerings. This structure helps IBM deliver customized solutions to clients by optimizing its various business processes.
Amazon Web Services (AWS): AWS, Amazon’s cloud computing division, organizes its operations around core cloud service offerings. This structure allows AWS to provide scalable and reliable cloud solutions to businesses and developers.
Procter & Gamble (P&G): P&G, a consumer goods company, emphasizes core processes like product development, supply chain management, and brandmarketing. This structure helps P&G efficiently bring new products to market and meet consumer demands.
Challenges and Considerations
While the process-based organizational structure offers numerous benefits, it also presents challenges and considerations:
Process Complexity: Managing numerous core processes can become complex, requiring effective coordination and oversight.
Resistance to Change: Employees may resist changes associated with restructuring, requiring change management strategies.
Balancing Act: Balancing the needs of individual processes with the overarching goals of the organization can be challenging.
Technology Integration: Implementing the right technology and systems to support process optimization is crucial.
Continuous Improvement: Maintaining a culture of continuous improvement is essential to reap the full benefits of this structure.
Conclusion
The process-based organizational structure is a valuable approach for organizations seeking to enhance efficiency, quality, and customer-centricity. By aligning divisions around core processes and functions, companies can streamline operations, deliver greater value to customers, and remain competitive in dynamic markets. While challenges exist, the benefits of this structure make it a compelling choice for many businesses looking to optimize their operations and achieve sustainable growth.
Key Highlights
Introduction:
The process-based organizational structure focuses on aligning operations with core business processes to improve efficiency.
Key Characteristics:
Core business processes, process ownership, resource allocation, cross-functional teams, efficiency, quality, continuous improvement, and customer value are central to this structure.
Advantages:
Efficiency, quality, customer-centricity, resource optimization, innovation, and scalability are key benefits of implementing a process-based structure.
Implementing Steps:
Process identification, process division creation, resource allocation, cross-functional teams formation, leadership roles appointment, communication channels establishment, and performance metrics definition are essential implementation steps.
Real-World Examples:
McDonald’s, Toyota, IBM, Amazon Web Services (AWS), and Procter & Gamble (P&G) demonstrate successful implementations of process-based structures.
Challenges and Considerations:
Process complexity, resistance to change, balancing individual process needs with organizational goals, technology integration, and maintaining a culture of continuous improvement are significant challenges.
Conclusion:
The process-based organizational structure enhances efficiency, quality, and customer-centricity by aligning operations with core processes. Despite challenges, its benefits make it a compelling choice for organizations seeking sustainable growth.
Case Study
Strategy
Outcome
Toyota
Process-Based Organization: Implemented the Toyota Production System (TPS) focusing on lean manufacturing and continuous improvement (Kaizen).
Increased efficiency, reduced waste, improved product quality, and enhanced customer satisfaction, driving global market leadership.
McDonald’s
Process-Based Organization: Standardized processes for food preparation, service, and operations to ensure consistency and quality.
Achieved operational efficiency, consistent customer experience, and rapid global expansion, maintaining market leadership.
Amazon
Process-Based Organization: Optimized logistics and supply chain processes using advanced algorithms and automation.
Enhanced delivery speed, inventory management, and customer satisfaction, driving market dominance and revenue growth.
General Electric (GE)
Process-Based Organization: Adopted Six Sigma methodology to improve processes and quality across diverse business units.
Increased efficiency, reduced defects, and improved product quality, driving operational excellence and competitiveness.
Intel
Process-Based Organization: Streamlined manufacturing processes to enhance efficiency and product innovation.
Improved production yields, reduced costs, and accelerated time-to-market for new products, driving market leadership in semiconductors.
UPS
Process-Based Organization: Optimized delivery and logistics processes using data analytics and technology.
Increased operational efficiency, reduced delivery times, and improved customer satisfaction, maintaining leadership in logistics.
Walmart
Process-Based Organization: Streamlined supply chain and inventory management processes using advanced technology.
Enhanced inventory turnover, reduced costs, and improved customer satisfaction, driving strong market presence and profitability.
Procter & Gamble
Process-Based Organization: Implemented standardized processes for product development, manufacturing, and marketing.
Improved product quality, reduced time-to-market, and increased operational efficiency, driving strong brand loyalty and market share growth.
Boeing
Process-Based Organization: Optimized manufacturing and assembly processes using lean principles and advanced technology.
Increased production efficiency, reduced costs, and improved product quality, driving competitiveness in aerospace manufacturing.
IBM
Process-Based Organization: Standardized processes for software development, service delivery, and customer support.
Enhanced service quality, operational efficiency, and customer satisfaction, driving growth and market leadership in technology services.
Coca-Cola
Process-Based Organization: Standardized bottling and distribution processes to ensure product consistency and quality.
Improved operational efficiency, reduced costs, and maintained strong brand loyalty, driving global market leadership.
Nestlé
Process-Based Organization: Standardized processes for product development, manufacturing, and quality control.
Enhanced product quality, operational efficiency, and customer satisfaction, driving strong market presence and profitability.
Siemens
Process-Based Organization: Implemented standardized processes for production, quality control, and project management.
Increased operational efficiency, product quality, and customer satisfaction, driving growth and competitiveness in industrial manufacturing.
PepsiCo
Process-Based Organization: Standardized manufacturing and distribution processes to ensure product consistency and quality.
Process-Based Organization: Streamlined production processes using lean manufacturing principles and automation.
Enhanced production efficiency, reduced costs, and improved product quality, driving market competitiveness and growth.
Microsoft
Process-Based Organization: Standardized software development and service delivery processes to ensure quality and efficiency.
Improved product quality, reduced time-to-market, and increased customer satisfaction, driving growth and market leadership.
Delta Airlines
Process-Based Organization: Optimized operational processes for flight operations, maintenance, and customer service.
Increased operational efficiency, reduced costs, and improved customer satisfaction, driving profitability and market leadership.
Nike
Process-Based Organization: Standardized processes for product design, manufacturing, and marketing.
Enhanced product quality, operational efficiency, and customer satisfaction, driving strong brand loyalty and market share growth.
Starbucks
Process-Based Organization: Standardized processes for coffee preparation, service, and store operations.
Achieved operational efficiency, consistent customer experience, and rapid global expansion, maintaining market leadership.
3M
Process-Based Organization: Implemented standardized processes for R&D, manufacturing, and quality control.
Increased innovation, product quality, and operational efficiency, driving strong market presence and competitiveness.
Related Organizational Frameworks
Description
Implications
Process-Based Organizational Structure
A Process-Based Organizational Structure organizes the organization around key business processes, workflows, or value streams. In this structure, each process or value stream has its own dedicated team, resources, and decision-making authority, focused on optimizing efficiency, quality, and customer value delivery. Process-based structures enable organizations to streamline operations, reduce waste, and enhance agility, enabling them to respond quickly to changing market conditions and customer needs. Process-based structures foster accountability, ownership, and alignment within process teams, empowering them to optimize process performance and competitiveness.
Process-Based Organizational Structures offer several benefits, including process focus, efficiency, and agility. By organizing the organization around key business processes or value streams, process-based structures enable organizations to prioritize process optimization, efficiency, and customer value delivery effectively. Process-based structures foster accountability, ownership, and alignment within process teams, empowering them to optimize process performance and competitiveness. However, process-based structures may also pose challenges related to coordination, integration, and resource allocation. To maximize the benefits of process-based structures, organizations need to establish clear process strategies, communication channels, and cross-functional collaboration mechanisms, ensuring alignment and collaboration across different process teams and functions to deliver value to customers and stakeholders.
Lean Management Approach
A Lean Management Approach focuses on identifying and eliminating waste, inefficiencies, and bottlenecks in business processes to optimize efficiency, quality, and value delivery. Lean management principles, such as continuous improvement, waste reduction, and value stream mapping, enable organizations to streamline operations, improve productivity, and enhance customer satisfaction effectively. Lean management approaches prioritize customer value, employee engagement, and process optimization, fostering a culture of continuous improvement, innovation, and excellence.
Lean Management Approaches share similarities with Process-Based Structures in their focus on process optimization and efficiency. By identifying and eliminating waste, inefficiencies, and bottlenecks in business processes, lean management approaches enable organizations to prioritize process optimization, efficiency, and customer value delivery effectively. Both models foster accountability, ownership, and alignment within process teams, empowering them to optimize process performance and competitiveness. However, lean management approaches may also require effective problem-solving, collaboration, and leadership to ensure successful implementation and alignment with organizational goals. To maximize the benefits of lean management approaches, organizations need to establish clear improvement goals, communication channels, and cross-functional collaboration mechanisms, ensuring alignment and collaboration across different process teams and functions.
Business Process Reengineering
Business Process Reengineering (BPR) involves redesigning and reimagining key business processes to achieve dramatic improvements in efficiency, quality, and customer value delivery. BPR focuses on radical process redesign rather than incremental improvement, challenging existing assumptions, practices, and structures to drive breakthrough performance. BPR initiatives often involve cross-functional teams, stakeholder engagement, and technology adoption to enable fundamental changes in how work is done and value is created.
Business Process Reengineering shares similarities with Process-Based Structures in their focus on process optimization and transformation. By redesigning and reimagining key business processes, BPR initiatives enable organizations to achieve dramatic improvements in efficiency, quality, and customer value delivery effectively. Both models foster accountability, ownership, and alignment within process teams, empowering them to optimize process performance and competitiveness. However, BPR initiatives may also require significant organizational change, leadership support, and cultural transformation to ensure successful implementation and alignment with organizational goals. To maximize the benefits of BPR initiatives, organizations need to establish clear transformation goals, change management strategies, and stakeholder engagement mechanisms, ensuring alignment and collaboration across different process teams and functions.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019. The corporate structure is organized around two entities: OpenAI, Inc., which is a single-member Delaware LLC controlled by OpenAI non-profit, And OpenAI LP, which is a capped, for-profit organization. The OpenAI LP is governed by the board of OpenAI, Inc (the foundation), which acts as a General Partner. At the same time, Limited Partners comprise employees of the LP, some of the board members, and other investors like Reid Hoffman’s charitable foundation, Khosla Ventures, and Microsoft, the leading investor in the LP.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
