Cross-Functional Management

Cross-functional management (CFM) manages business processes across the traditional boundaries of the functional areas minimizing suboptimization. Suboptimization is when what looks like a benefit for a particular area in the company actually hurts the company as a whole. An example would be optimizing one operation's cost by changing raw material supplier. But the new raw material actually causes quality problems in some downstream operation, thus costing the company more money than it saved by switching vendors. Cross-functional management consists of area managers working together to make sure they support the activities and interests of the company.

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Cross-functional management consists of three components: appropriate management performance metrics, periodic CFM meetings, and inter-department communication channels.

Management Performance Metrics

Be careful what you wish for, you might get it. (Anonymous)

Metrics drive behavior. Bad or incomplete metrics drive bad behavior, so it is extremely important to identify the correct measures. A critical prerequisite of good CFM is that the managers have appropriate metrics to track their performance. These metrics are the financial and non-financial measures of success. It is crucial that these measures be horizontally and not vertically integrated, that they be linked with the company's mission, vision, and value proposition, and that they be actionable and within that manager's span of control.

Vertical integration of metrics is when all the measures of success for a department are aligned along traditional functional lines. For example, a machine maintenance department might be measuring such things as cost of spare parts in inventory, cost of overtime, labor costs, and administrative costs. To save the company money, the maintenance manager might look for ways of decreasing these costs, perhaps by reducing the amount of parts in stock or reducing overtime by spreading out preventive maintenance activities. Since the metrics are vertically integrated, this looks like a good thing - if every department lowers their cost, the company is better off, right? Of course, the problem is that how effective departments are in performing their function is dependent on other departments. By saving costs in maintenance, the manager has caused the unplanned downtime for the machines they maintain to go up, as well as the mean time to repair. These costs are much higher than that saved within the department, but since the metrics are vertically integrated, the manager has no way of knowing that. This is how vertical integration of metrics leads to suboptimization. A good rule of thumb is that if all the departments in a company are optimized using vertically integrated metrics, the company as a whole is suboptimized.

To prevent this, metrics need to be horizontally integrated. Horizontal integration of metrics is when the measures of success for an area look across departmental boundaries to search for the effect on the company as a whole. In our example above, the maintenance manager might be looking at metrics on mean time to repair, mean time between failures, failure rate growth analysis, Total Asset Utilization, and others. Using horizontally integrated metrics prevents suboptimization by seeking to measure the success of a function by its impact on the company as a whole.

But this raises the question of what to measure. How do departments know what their contribution is to accomplishing the objectives of an organization? At ROI, we help the highest level of management identify what the measures of success are for the company in the Strategic Planning and Policy Deployment step, and by using a technique called a "KPI Cascade" we aid managers in translating these measures down to each level of the organization. This insures that measures needed to accomplish the mission, vision, and value proposition of the organization are in place at all levels, and allows a company to eliminate metrics that no longer have value.

However, in the absence of metrics that are actionable and within the span of control of the manager, nothing but frustration and eventually disgust with the system results. Metrics that are actionable are those that someone can react to to affect a change. If a manager's metric is not actionable, they will be rewarded and punished for random variation outside their control. Metrics that are within their span of control are those that are actionable and that the manager has the authority to do something about.

Thus, the benefits of selecting good management performance metrics are:

• Avoidance of suboptimization
• Alignment within and between functional areas
• Understanding of what is and is not important to achieve the company objectives
• A "holographic" set of measures describing the health of the process
• Measures that are actionable and assigned at the appropriate level

Periodic CFM Meetings

Meetings are held on an ongoing basis (bi-weekly works well for many companies) between area managers at the same functional level. This meeting has a set agenda during which managers from each area present their area's Key Performance Indicators (KPIs) and Non-Financial Indicators (NFIs), with special emphasis on those indicators that are either behaving atypically or are not capable of the area requirements. The manager updates the current activities to resolve these situations, and importantly, each manager has the opportunity to request resources from other areas in resolving issues that either cross the boundary of the area or exceed the skills and training of the personnel in that area. Issues are prioritized and resources are then deployed against the issues.

For example, Bob, the manager of Department 10, presents his area's KPIs and NFIs, and notes that safety is atypically favorable for the season, and that productivity is stable, but lower on average than required by the Business Plan. He notes that his department's standing safety committee is working to understand why safety is so much better than expected, so that hopefully the lower level can be made permanent. On the productivity item, he notes that Department 10's Process Management Team (PMT) has identified some potential countermeasures to the low productivity, but does not have the expertise to design an experiment. He asks if a statistical resource can be identified to serve as an internal consultant to the PMT to help them design and analyze an experiment. The request is noted and prioritized against the other commitments and resource constraints. A statistical expert is identified, and some of her time is devoted to that project. Mary, manager of Procurement, mentions that they are investigating changing vendors for a raw material in an effort to reduce costs. Fred, manager of Department 14, mentions that he would like to have one of his process experts talk to the group working on that, as changes in the raw material may affect the yield of his process.

From this example, you can see a number of benefits of CFM:

• Managers are kept up to date on the critical process outputs of other processes
• Managers are informed of what activities are ongoing to solve issues in other areas
• Managers have the opportunity to apply what other areas have learned in their own areas
• Managers can avoid suboptimization by being informed of process changes that might affect their area
• Managers can logically balance resources within their span of control to maximize the benefits to the company as a whole

Inter-Department Communication Channels

In addition to the scheduled high level CFM meeting, companies need to provide a vehicle for communication between departments that allows area process owners to communicate their needs directly with those responsible for providing them.

For example, Department 14 receives the output from Department 13 as a raw material for their operation. Department 13 stacks these raw materials on a pallet and delivers it to Department 14. The workers in Department 14 note that recently the stacking order has changed, and they need to spend time unstacking the pallet to get the materials in the right order. A communication system exists where the workers or manager of Department 14 can call Department 13 to notify them of the impact the change has had on them. It may be that the stacking order makes no difference to Department 13, or it may be that Department 13 made the change for a very good reason. In the latter case, a cross-functional team from both departments could decide which way saved the company the most money.

Another example might be a sales rep taking input directly from the customer and having a system to communicate what they are hearing with others across the organization.

The benefits of inter-department communication are:

• A system that allows optimization at the operating level between departments
• Internal customers and providers have an ability to communicate needs
• Faster reaction to local cross-department issues