Building Blocks of Organization - Contribution determines ranking and placement.

"What activities belong together and what activities belong apart?" A searching analysis is needed that groups of activities by the kind of contribution they make. There are four major groups of activities, if distinguished by their contribution. First, result-producing activities - that is, activities that produce measurable results that can be related, directly or indirectly, to the results and performance of the entire enterprise. Second, support activities that, while needed and even essential, do not by them-selves produce results but have results only thorough the use made of their "output" by other components within the business. Third, activities those have no direct or indirect relationship to the results of the business, activities that are truly ancillary. They are hygiene and housekeeping activities. Finally, is the top-management activity. Among the result-producing activities, there are some that directly bring in revenues (or in service institutions, directly produce "patient care" or "learning"). Here belong innovating activities, selling and all the work needed to do a systematic and organized selling job. Here also belongs the treasury function, that is, the supply and management of money in the business.

Key activities should never be subordinated to nonkey activities. Revenue-producing activities should never be subordinated to nonrevenue-producing activities. And support activities should never be mixed with revenue-producing and result-contributory activities.

Federal Decentralization: Requirements

As a minimum the unit must contribute a profit to the company rather than merely contribute to the profit of the company.

Federal decentralization has stringent requirements. Federal decentralization is applicable only where a company can truly be organized into a number of genuine "businesses." This is its basic limitation. As a minimum the unit must contribute a profit to the company. And it must be a genuine profit determined by the objective judgment of the marketplace.

Federal decentralization will work only if the top-management job is clearly defined and thought through. Federalization, if properly applied, makes top management capable of doing its own job precisely because it does not have to worry about operations, but can concentrate on direction, strategy, objectives, and key decisions for the future. The federal principle demands great responsibility from the operating...