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2 CHAPTER 1 Introduction to Business Processes

THE FUNCTIONAL ORGANIZATIONAL
STRUCTURE

To successfully master the concepts in this textbook, you must fi rst begin to
think holistically about the operations of a business. The most common orga-
nizational structure you are likely to encounter is the functional structure.
Organizations that utilize a functional structure are divided into functions, or
departments, each of which is responsible for a set of closely related activities.
For example, the accounting department sends and receives payments, and
the warehouse receives and ships materials. Typical functions or departments
found in a modern organization include purchasing, operations, warehouse,
sales and marketing, research and development, fi nance and accounting, human
resources, and information systems. The vertical columns in Figure 1-1 identify
the key functions in a typical company.

Figure 1-1: The functional structure

Although most companies maintain vertical (or functional) silos to
compartmentalize their operational units, the integrated business processes
that companies use to perform their work cut across these silos horizontally.
Business processes, such as the procurement and fulfi llment processes dis-
cussed later in the chapter, consist of activities that occur in different, seemingly
unrelated functions or departments. In other words, these processes are cross-
functional, meaning no single group or function is responsible for their execu-
tion. Rather, it is a shared responsibility among many functional areas. The
cross-functional nature of business processes is also illustrated in Figure 1-1.
For a process to be successfully completed, then, the company must rely on
each functional group to execute its individual steps in the process in a coor-
dinated way, which, as we shall see, may not be an easy thing to accomplish.

THE SILO EFFECT
The functional structure served organizations well for a number of years
because it enabled them to cope with the challenges generated by their rapid
growth. Over time, however, this system developed a serious drawback. Put

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