Procurement Transformation Blog

Procurement Transformation Blog

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Organization models & Procurement

Globalization over the last two decades has forced many organizations to design and redesign their operating models and organizational structures. The most common drivers that have led to this organizational change are:

  • Increased demand for operational effectiveness;
  • Push out of noncore activities and outsourcing;
  • Planned and unplanned mergers and acquisitions;
  • Business unit divestments due to economic shutdown and revival;
  • Business transformations initiatives;
  • Tremendous rise of Customer Relationship Management, and many others…

All these events have of course triggered an Organizational Design (OD) exercise. But what does this entail? OD can be defined as “the conscious design and development of a structure, processes, systems, governance and capabilities for an organization in order to enable it to achieve and sustain its strategy and vision”. In other words said OD is the arrangement of formal and informal structures, internal processes and systems, relationships between entities, people’s capabilities and the internal knowledge (R&D).

OD can manifest itself in a wide range of interventions which range from operational over tactical to strategic interventions across the organization.

Figure 1 below summarizes the OD intervention types per level:


As defined in the section above, an organization is a social system of rules whose members align their behavior with an underlying goal; the organization model that has been designed must provide support to achieve that goal. In our experience the choice of a specific model is dependent on the leadership style deployed within the organization and the changes in the eco-system in which the organization is operating.

Figure 2 provides an overview of organizational forms relative to their flexibility and the degree of agility regarding change:

If we look at the Procurement function in particular and it’s cross sectors, it could benefit from a Matrix organization or a Process Organization. In the following sections the nature, strengths and weaknesses of these kind of organization forms are provided:

  1. Matrix organizations are frequently observed to use a structure that supports the multi-dimensional concept:
    • A core company organized in a matrix structure primarily is characterized as follows:
      • A multidimensional structure or a combination of various structures
      • Serving differentiated products, markets and customers
      • This structure is more reasonable if pure divisional structure does not fit for purpose
      • Companies that focus heavily on innovation are a criterion of success
      • Agility: there is the ability to a rapidly reuse human resources for various projects, products, services, customers or markets

        Figure 3 shows the two-line principle of a matrix organization:

    • Strengths of this organization form are:
      • Constant team work is being institutionalized
      • Direct communication paths
      • Problem oriented thinking which avoids hierarchical thinking
      • Equal priority of the product / market dimensions
      • Better decision quality through avoidance of one-sidedness and consideration of complex interests
    • Weaknesses rather are:
      • Often unavoidable overlapping of authority between decision making units
      • Higher coordination expenses
      • Lack of clear rules of authority and understanding of roles necessary
      • Heavy demands placed on the competencies of employees
      • Subtle bureaucracy
         
  2. Process organizations on the other hand operate on an input-process-output way of working:
    • A core company organized as a process organization can be characterized as follows:
      • Principle of interface-free, customer-oriented all-around processing
      • Systematic process breakdown of all procedures except for the central departments
      • Integration of customers and suppliers into an organizational diagram
      • Elaborated information about processes
      • Process owners or teams required to handle the process tasks
      • Observance of project management rules in the working teams

        Figure 4 shows the company as a process organization

    • Strengths of this kind organization form are primarily:
      • Interface-free and thus a continuous flow of information
      • Rapid flow-through times
      • Uniform responsibility over the entire core processes
      • Completely integrated process, leading to greater customer satisfaction and customer orientation internally and externally
    • Weaknesses on the downside are:
      • Increased information processing
      • Disadvantages to group dynamics 
      • Process teams are difficult to set up
      • Often process managers lack qualifications
      • Possibility of overloading with complexity
      • Incomplete process organization in the form of insular solutions

Conclusion
 

Whatever OD structure used, bear in mind that it must support the business goals to date and be agile and flexible enough to withstand any change in the key objectives and goals of the core organization.

About the author

Filip Paenhuysen
Filip Paenhuysen
Filip works for the Corporate & Digital Operations unit (Operational Excellence) of Capgemini Consulting in Belgium. Acquired a solid Supply Chain experience of more than 20 years within international business environments. Has a broad experience in operations as well as in structural improvement projects.

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