The guys at McKinsey can be some bright puppies... once they figure out they're a decade behind. First they tried to kill Lego, then they got religion and came out with a five-part series on lean. Now apparently the lightbulb came on again and they've figured out that traditional organization structures aren't optimal.
When large companies are organized in the traditional division structure, strategic decisions too often fall to managers under pressure to meet budgetary demands.
You don't say! Actually I wanted to write "no sh*t, Sherlock" but I'll keep this family-friendly.
One way to shake things up is to review the strategy and performance-management processes and to make decisions at the more granular level of value cells. Value cells are smaller units that represent the economics of the individual, simple businesses that any company is built of, such as customer segments, product groups, geographic markets, and new technologies.
Well when you're behind the curve, one way to try to mask that ignorance is by creating new terminology, and I guess "value cells" is their feeble attempt. But ok, I should be more supportive of the fact that they've come around at all, so let's dive into their latest-breaking twenty year-old wisdom.
Value cells are actually smaller business units, typically segments or geographical markets, along with their backbone functions, such as central production or operations. We think of them as “cells” because they stand apart from the traditional organizational-unit structure of most companies and often have surprisingly different economics.
Yes they do. Such as...
As a rule of thumb, value cells have standalone economics and must be relatively “homogenous” in regard to their target market, business model, and peers—that is, they must have one target segment, one country or region, or one group of products. The trick is to create financial analyses, such as P&L statements, as if a value cell were a stand-alone business. This is normally not done in a classic divisional structure, where each division’s financials are an amalgam of different products, markets, and costs relating to shared assets.
Wow! They're really onto something! Or maybe they took an evening to read any of the innumerable books on value stream management that have been published in the last decade or two.
Focusing more on single cells actually reduces complexity because managers find it much easier to identify and monitor the two or three operational metrics that truly drive performance, as well as to make decisions in a more straightforward way. In essence, the CEO can use value cells to take out a “disintermediation layer” between actual business decisions and the corporate planning process.
Ok, I'll give them credit for inventing "disintermediation layer." That's a new one for me. And hopefully I'll never use it again. I could give you more snippets from their latest new-found wisdom, but I won't bother. You already know it, and I'm betting many of you already have value stream organizations in place.
I'm looking forward to their latest revelation. Perhaps "work-in-process inventory offers an opportunity to reduce waste and free up cash." At their current pace they should stumble on that in another year or two.