Managing Business Processes Business 503 Winter 2003 Professor Gregory Kunkel

Tonight’s Discussion Business Process Improvement— New Product Development Functional Organization Structure Business Unit Organization Structure ◦Cross Functional Team Structure-- Application to Product Development

Tonight’s Discussion Management Control Environment Revenue, Expense, Profit Centers, Investment Centers Introduction to Budgeting Performance Measurement

Functional Organization Structure

Functional Organization Advantages -Specialization; increased skill level -Scale economies; cost savings Disadvantages -Lack of communication (silos) -Inadequate support to divisions -Corporate bureaucracy

Business Unit Organization

Business Unit Organization Structure Advantages -Staff functions closer to market and customers -Better support of product lines -Training ground for general managers

Business Unit Organization Structure Disadvantages -Duplication of effort -Additional cost -Potential conflict between divisions -Potential conflict between division and corporate staff

Matrix Organization Structure

Advantages -May increase communicate/cooperation across staff functions and between line and staff Disadvantages -Blurred reporting relationships and authority; Bureaucracy

Organization Structure Product Development Traditional Approach -Engineering/Research Focus -“Local Optimization” vs. “Global Optimization”

Organization Structure Product Development  Blend of functional, divisional, matrix structures Basic research (the “R” in R&D)-- corporate function Product Development (the “D” in R&D)--division function Cross-functional product development teams

Organization Structure Product Development Up-front involvement of customers and suppliers

R&D Organization

Product Development Teams

Product Development “Principles of Success” Innovation must be part of Company culture and value system Product development must have top management support Product development efforts must be cross-functional and involve customers and suppliers Incentives should reward teams rather than individuals

Product Development “Principles of Success” Monetary rewards can be delivered through standard pay vehicles Given the importance of culture, non- monetary rewards also should be used An internal “point person” should champion product development efforts

Non-monetary Rewards

Organization Structure Impact of E-Commerce

Managing Business Processes Management Control Process Planning Budgeting (goal setting) Measurement Feedback Corrective action Reward

Managing Business Processes Responsibility Centers ◦Responsibility center—an organizational unit with one or more persons responsible for it’s performance ◦“Span” of responsibility centers must be properly defined ◦Responsibility center managers must have “goal congruence”

Managing Business Processes Responsibility Centers Responsibility center performance measures must be properly defined -Revenue centers -Cost (expense) centers -Profit centers -Investment centers

Managing Business Processes Investment Centers

Management Control Environment

Strategic Mission Budgeting Implications

Types of Budgets Operating budgets -Planned revenues, expenses, cash flows for the year Capital budget -Planned expenditures on plant, equipment and other major items

Purposes of the Budget Fine tune strategic plan Coordinate activities between divisions, departments Assign responsibilities to managers Authorize expenditures

Purposes of the Budget Inform managers of expected performance Obtain commitments for expected performance Evaluate performance

Operating Budget Items Revenues, unit sales, expected prices Production costs and costs of sales -Direct labor -Direct materials -Fixed and variable overhead

Operating Budget Items Marketing expenses Warehouse and transportation expenses R&D expenses General and administrative expenses Other?

Budget Preparation Process Budgeting department Budget committee Initial budget preparation -Top-down -Bottoms-up -Combination

Budget Preparation Process Revision and negotiation Contingency plans Presentation to Board of Directors, financial analysts