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The Functional Organizational Structure 3

simply, people in the different functional areas came to perform their steps
in the process in isolation, without fully understanding which steps happen
before and which steps happen next. They essentially complete their part of
the process, hand it off to the next person, and then proceed to the next task.
By focusing so narrowly on their specifi c tasks, they lose sight of the “big pic-
ture” of the larger process, be it procurement, fulfi llment, or any number of
other common business processes. This tendency is commonly referred to as
the silo effect because workers complete their tasks in their functional “silos”
without regard to the consequences for the other components in the process.
A key point here is that the silo nature of the functional organizational
structure and the cross-functional nature of processes are at odds with each
other. That is, while workers focus on their specifi c function, each business
process involves workers located in multiple functional areas. A major chal-
lenge facing organizations, then, is to coordinate activities among the differ-
ent functional areas. Viewing a company from a process perspective requires
employees to “think sideways”—in other words, to view the business across
functional boundaries and focus on the end-to-end nature of the process and
its intended outcomes. Learning to view a process from end to end is essential
to understanding how enterprise systems help businesses manage their pro-
cesses effi ciently. Not surprisingly, then, this understanding has become a criti-
cal skill that companies have come to demand from their employees.

ENTERPRISE SYSTEMS
As you can see from the previous section, business processes span different
parts of an organization. In fact, in today’s global economy, the various process
steps are increasingly executed by people in multiple locations throughout the
world. That is, a company will manufacture its products in different countries,
acquire the materials to make these products from different locations, sell the
products in many countries, and so on. For example, a bicycle manufacturer
may purchase components from Italy, produce bicycles in Germany, and sell
those bicycles in the United States. Because the steps in business processes are
performed in locations that are geographically dispersed, it is impossible to
manage such processes effectively without the use of modern information sys-
tems. Systems that support end-to-end processes are called enterprise sys-
tems (ES), and they are essential to the effi cient and effective execution and
management of business process.
Given the signifi cant impact that enterprise systems have on operational
effi ciency (and, ultimately, profi tability), companies have invested enormous
sums of capital and effort to plan, implement, and continuously improve enter-
prise systems over the past 40-plus years. A great deal of research has con-
fi rmed that investments in information technology (IT), particularly enterprise
systems, have signifi cantly increased the profi tability, productivity, and com-
petitiveness of corporations by removing the barriers to sharing information
1, 2
between functional areas and managing processes holistically. The key driver
for this productivity and effi ciency is the ability of modern enterprise systems

1 A. McAfee and E. Brynjolfsson, “Investing in the IT That Makes a Competitive Difference,”
Harvard Business Review, 86, No. 7/8 (2008): 98–107.
2 E. Brynjolfsson and L. Hitt, “Paradox Lost? Firm-level Evidence on the Returns to Information
Systems Spending,” Management Science, 42, No. 4 (1996): 541–558.

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