Cells, tribes, or chapters – the names differ but the idea is always the same: to give the structure of individual sub-units enough autonomy that, ideally, they are able to perform their tasks independently of the other units. Instead of time-consuming coordination with other sections, relevant decisions can be taken by the units themselves.
On this point, managers indulge in an old fantasy that finds its ultimate expression in the idea of the profit centre. The necessary authority for the provision of a certain service should not be divided between the various divisions responsible for research and development, acquisition, marketing, sales, or production, as this would permanently put them at loggerheads regarding authority, responsibility, and competency. The ‘bigger picture’ would thus get lost. Instead of dividing an enterprise into functional units, it should therefore be made up of largely autonomous units that are focused on their own rates of return. All important tasks are to be integrated into such units.
In this way, all the units of an enterprise can operate in a market-driven fashion – or, at least, this is the idea behind profit centres. If these units need to coordinate their activities among themselves, this should take place through market-like relations. All hopes are pinned on the invisible hand of the market, which is supposed to steer coordination between the units of the enterprise more effectively and efficiently than any iron-fisted senior manager ever could. In this vision, the unit-based organizational structure functions for the most part without friction or conflict. This managerial dream ultimately hopes for the abolition of management itself: the need for coordination will either no longer exist or be taken care of by market relations.
But a close look at the extreme form this idea can take, the profit centre, already reveals that modular organization is anything but a silver bullet. It is clear that segmentation into autonomous units may lead to a ‘balkanization of the organization’, with the autonomous units acting like little fiefdoms, battling against one another. Experience has shown that profit centres lead to customers having to deal with several units at the same time instead of having one contact in the firm. And often these independent units undermine one another as they seek, without a care in the world for the interests of the other units, to woo the head office into providing them with larger chunks of the limited resources. Meanwhile, senior managers are preoccupied with trying to keep these self-seeking divisions from drifting apart.
Ultimately, the introduction of autonomous units only effects a shift in the kinds of conflicts that occur: in an organization made up of functional divisions, the battle is over authority and competencies, whereas between independently acting domains the fight is for scarce resources such as customers, centrally distributed funds for research and development, or the attention of senior management.
Conclusion: the possibility of a frictionless and conflict-free organization in which all units work towards an overarching goal is a mirage. Whether management should adopt a segmented or a functional structure depends, in the end, on which kinds of conflicts and frictions it prefers to have.
