Organizational Fragmentation

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The key for maintaining a company's competitive position is its overall performance in meeting customers' needs and maintaining or increasing its market share (Fig. 6.7). Organizations are usually designed to optimize each functional area, (Fig. 6.7a) with little reward for cross functional collaboration. In a typical organization, business units act independently of each other and make decisions based on the information that is relevant to them.

For instance, a procurement department may procure a fuel or a material that meets functional requirements and is cheaper at the moment, but the use of which will result in environmental impacts that would be more expensive to deal with in the future. Or, a sales department accepts small orders with differing product specifications that require the frequent stopping of production and retooling of machines, thus increasing energy consumption and the specific costs of production, consequently reducing or even diminishing the profits from such orders. Or, a production department prepares a production schedule that has unnecessarily high peaks in steam demand and as a result the utility department ends up with an oversized and expensive steam generation and distribution system.

Although a company may have a clear strategy related to its energy and environmental performance and overall profitability goals, all too often different functional areas rarely cooperate closely in meeting these strategic objectives. Besides the barriers between functional areas, there is often a divisive relationship between levels in the organizational hierarchy (Fig. 6.7b).

Customer Satisfaction and Market Share Customer Satisfaction and Market Share a. Organization's Functional Areas b. Organizational Hierarchy

Customer Satisfaction and Market Share Customer Satisfaction and Market Share a. Organization's Functional Areas b. Organizational Hierarchy

Figure 6.7 Functional areas, organizational hierarchy and organizational fragmentation

Figure 6.7 Functional areas, organizational hierarchy and organizational fragmentation

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Customer Satisfaction and Market Share c. Organizational Fragmentation

Figure 6.7 (Continued)

All of this can lead to organizational fragmentation (Fig. 6.7c) which creates a very difficult background for implementing any performance management system. If there is little or no encouragement for managers to make decisions that would benefit the organization as a whole and no sense of what is needed for mutual prosperity between employees it is hard to introduce a cross functional performance improvement program such as energy efficiency and environmental improvement or integrated performance management.

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