Understanding Organizations

Most of us work in organizations that are vertically and horizontally differentiated.

Horizontal Differentiation: Functions (areas of specialization), such as:

  • Accounting and finance
  • Sales and marketing
  • Manufacturing

Within each differentiation (function) lies further differentiation, called: High Horizontal Differentiation

  • Sub specializations (compensation and benefits)
  • Sub sub specializations (cash compensation)
  • Sub sub sub specializations (executive compensation)

Vertical Differentiation: Layers of authority (power pyramid), such as:

  • CEO
  • Senior VP
  • VP
  • General Manager

Within both horizontal and vertical differentiation is Integration, consisting of cross-functional:

  • Collaboration
  • Coordination
  • Control

To achieve integration, organizations need Integrators, defined by:

  • Position (CEO, General Manager, Brand/Product Manager, Project Coordinator)
  • Unit (strategic business unit, semi-autonomous unit, cross-functional team)
  • Communication/coordination processes (e-mail, intranet, newsletter, memo)

Differentiation, both horizontal and vertical, creates barriers/boundaries (silo organizations). Such organizational structures can (without effective integrators) perpetuate mechanistic, bureaucratic thinking and behavior that prevents process- and team-orientation, innovation and agility.

When analyzing an organization, it is important to identify the extent to which the organization's vertical and horizontal differentiation is blocking its business success.