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Chapter 2
Eventually, the management of large companies decided they could no longer afford
the type of inefficiencies illustrated by the Mountaineering example—inefficiencies caused
24 by the functional model of business organization. This model had deep roots in U.S.
business, starting with the General Motors organizational model developed by Alfred P.
Sloan in the 1930s. The functional business model shown in Figure 2-2 illustrates the
concept of silos of information, which limit the exchange of information between the lower
operating levels. Instead, the exchange of information between operating groups is handled
by top management, which might not be knowledgeable about an individual functional
area.

Top management

Information flow Marketing Information flow Sales Information flow Manufacturing Information flow Logistics Information flow Finance and Accounting

Material and product flow

Source Line: Course Technology/Cengage Learning.

FIGURE 2-2 Information and material flows in a functional business model

The functional model was very useful for decades, and it was successful in the
United States where there was limited competition and where flexibility and rapid
decision making were not requirements for success. In the quickly changing markets
of the 1990s, however, the functional model led to top-heavy and overstaffed
organizations incapable of reacting quickly to change. The time was right to view a
business as a set of cross-functional processes, as illustrated in Figure 2-3. In this
organizational model, the functional business model, with its separate silos of
information, is gone. Now information flows between the operating groups without top
management’s involvement.
In a process-oriented company, the flow of information and management activity is
“horizontal” across functions, in line with the flow of materials and products. This

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