There have been several posts on this issue in The Lean Edge:

• Toyota’s Functional Organization. Art Smalley explains how, contrary to widespread beliefs, Toyota is organized in functional silos.
• Don’t reorganize! Learn to pull instead. Michael Ballé wants to recall what he wrote 20 years ago about re-engineering organizations.

My own answer to the same question is as follows:

The first question to ask is the extent to which converting silos to process organizations should be done, and whether pursuing it at a given moment is opportune.

It is easy to overestimate the importance of organization structure. In discussions of these issues, American managers often use the following quote: “We trained hard, but it seemed that every time we were beginning to form up into teams we would be reorganized. Presumably the plans for our employment were being changed. I was to learn later in life that, perhaps because we are so good at organizing, we tend as a nation to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralization” (C. Ogburn, Merrill’s Marauders, Harper’s Magazine, 1957). To emphasize how long this has been going on, many even falsely attribute this quote to Satyricon author Petronius, or even Cato the Elder.

It doesn’t mean, however, that organization structure is unimportant, only that changing it is not the right first step to solve a problem or implement change. What actually works is to start by changing the work that is being done, and then adjusting the organization to remove the friction caused by the changes. For example, in a machining job-shop, you would first implement some cells — moving the equipment and redesigning operator jobs — and then you would worry about changing the job categories in Human Resource policies to reflect how the work of cell operators differs from that of specialized mill or lathe operators.

The relative merits of functional versus process organizations have been widely discussed in both American and Japanese business literature, with various solutions proposed. In “Another Look at How Toyota Integrates Product Development,” (Harvard Business Review, July, 1998) Durward Sobek and Jeffrey Liker describe a functional organization with several twists added to ensure information flow between silos. One car company that did use an integrated team to develop a car is Ford, for the 1996 Taurus. All the product planning and engineering resources, including some representatives from Manufacturing, were collocated at one facility in Michigan. The approach did reduce the product development time but the resulting product, while great as a work of art and engineering, was not the market success that its designers had hoped, and the previous versions had been. For details, see Mary Walton’s Car.

In Electronics, a common approach has been to use “matrix organizations,” in which professionals report to both a process manager, for the work they do, and a functional manager for training, skills maintenance, and career planning.

When organizing around a process, we should always remember that Lean is about making it easiest to do what we do the most often. Putting together baskets of products around feature or process similarity is just classical group technology.The Lean approach starts with a Runner/Repeater/Stranger analysis to determine what it is we do often and what not. Without this analysis, we commingle in the same lines products made every day with other products made sporadically. In Japan, this is called P-Q, or Product-Quantity analysis, with the categories called A, B and C. The more vivid Runner/Repeater/Stranger terminology comes from Lucas Industries in the UK. You then use dedicated, integrated production lines for Runners, flexible lines for Repeaters, but a job-shop with functional groupings of equipment for Strangers.