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40 Chapter 2 • Systems Integration

Strategic
Management

Tactical Management

Functional Operations

FIGURE 2-2 Hierarchical Model of Organization
productivity and efficiency. Work groups or teams with formal leadership or supervisors are part
of this organizational structure as well. The quality of the products and services goes up, but the
organization is divided into compartmentalized units that know very little of each other. Sharing
of information occurs only at higher levels of management.
Despite attempts to break them, functional silos are alive and doing well. According to a
7
survey by Purchasing magazine, 96 percent of the respondents said their organization still
maintains a functional structure but 86 percent also said they agree with their firm’s decision to
promote teamwork and integration of the functional areas in their organization. One reason for
this is that information sharing and communications problems get worse as an organization
spreads geographically and gets more virtual. The original purpose of functional division
(i.e., efficiency and effectiveness) is defeated. The lack of information sharing at all levels of an
organization often leads to problems with inventory management, such as overproduction of
goods, when the sales department is not sharing current data on projected sales with the produc-
tion department, or poor customer service, when a customer service representative does not
know the status of shipped goods. The inefficiencies can creep from operations control all the
way to the strategic planning level of the organization. With global competition and virtual
organizations, the traditional functional organizational structure must change to process-oriented
structure to allow easy integration of information and more flexibility for an organization to
realign with its environment. In order to compete in a globalized economy, companies must take
a business process view and utilize IT to integrate that business process.

BUSINESS PROCESS AND SILOS
The functional silo problem was felt by many organizations in the late 1980s and early 1990s,
which gave birth to business process reengineering (BPR). The functional grouping often leads

7 Purchasing. (November 4, 1999), 24.