Cross-Functional Teams

The most simple definition of cross-functional teams (or CFTs) is groups that are made up of people from different functional areas within a company—marketing, engineering, sales, and human resources, for example. These teams take many forms, but they are most often set up as working groups that are designed to make decisions at a lower level than is customary in a given company. They can be either a company's primary form of organizational structure, or they can exist in addition to the company's main hierarchical structure.

Cross-functional teams have become more popular in recent years for three primary reasons: they improve coordination and integration, span organizational boundaries, and reduce the production cycle time in new product development. Bringing people together from different disciplines can improve problem solving and lead to more thorough decision making. The teams foster a spirit of cooperation that can make it easier to achieve customer satisfaction and corporate goals at the same time.

Cross-functional teams are not new. Northwestern Mutual Life insurance company pioneered their use in the 1950s when the CEO of the company brought together people from the financial, investment, actuarial, and other departments to study the impact that computers would have on the business world. As a result of that first CFT, Northwestern was among the first companies in the country to create an information systems department that gave the company a large competitive advantage as computers gained in popularity. The company now relies on cross-functional teams in almost every facet of its organization. Based on success stories like this one, CFTs slowly grew in popularity throughout the 1960s and 1970s before exploding in popularity in the 1980s when faster production time and increased organizational performance became critical in almost every industry.

Cross-functional teams are similar to conventional work teams, but they differ in several important ways. First, they are usually composed of members who have competing loyalties and obligations to their primary subunit within the company (for example, a marketing person serving on a cross-functional team has strong ties to his or her home department that may conflict with the role he or she is being asked to play on the CFT). Second, in companies where CFTs are being used on a part-time basis as opposed to a permanent organizational structure, they are often temporary groups organized for one important purpose, which means group members are often under considerable pressure. On these temporary teams, the early development of stable and effective group interaction is imperative. Finally, CFTs are often held to higher performance standards than conventional teams. Not only are they expected to perform a task or produce a product, they are also expected to reduce cycle time, create knowledge about the CFT process, and disseminate that knowledge throughout the organization.

For cross-functional teams to succeed, several factors have been identified that are imperative:

• Team members must be open-minded and highly motivated.
• Team members must come from the correct functional areas.
• A strong team leader with excellent communication skills and a position of authority is needed.
• The team must have both the authority and the accountability to accomplish the mission it has been given.
• Management must provide adequate resources and support for the team, both moral and financial.
• Adequate communications must exist.

Without any one of these elements, any cross-functional team will be fighting an uphill battle to succeed.

CROSS-FUNCTIONAL TEAMS AND NEW PRODUCT DEVELOPMENT

Many businesses have been able to use cross-functional teams to reduce the cycle time in new product development. As a result, CFTs have become a common tool in new product development at many companies, especially those in industries in which rapid change and innovation is the norm. CFTs have shown the flexibility to adapt to changing market needs and the ability to more quickly develop innovative products.

In the past, new product development invariably meant gathering data sequentially from a number of departments before a new product was given the green light. First, the idea would be conceptualized. Then, it would be handed off to the marketing department, which would conduct market research to see if the product was viable. The product might then be passed on to the sales department, which would be asked to create a sales estimate. From there, the idea would move on to engineering or manufacturing, which would determine the costs to produce the product. Finally, with all those numbers gathered over the course of months, or even years, the product would move to an executive committee which would either approve or kill the project. By that time, market conditions sometimes had shifted sufficiently to render the product obsolete.

Cross-functional teams eliminate the "throw it over the wall" mentality that passes a product off from department to department. Instead, a member of each of the above functional areas would have a representative on the new product team. Team members would learn of the new product at the same time and would begin working on estimates together. If part of the product simply could not be manufactured cheaply enough, the team member from that area could immediately sit down with the engineering rep and come up with a new production method. The two of them could then meet with the marketing and sales team members and discuss new ways to position the product on the market. The result, say proponents, is a vastly improved product that is manufactured and released to the market in far less time than was achieved using traditional methods.

ESTABLISHING A CROSS-FUNCTIONAL TEAM

Set Goals

When CFTs are first convened, conflict may be the result. There is a good chance that some of the members of the new team have bumped heads in the past when their functional areas clashed over a project. Additionally, some CFT members may think that their area of specialty is the most important on the team and thus assume an inflated sense of value to the team. Finally, since CFTs often bring together people who have vastly different ranks in the organizational hierarchy, there can be power plays by members who are high-ranking employees off the team but are actually less important stakeholders on the team. Those high-ranking team members may try to assert authority over the team in a situation when they should be deferring to lower-ranking team members.

The best way to solve these conflicts is to set clear goals for the team. It is important to start with a general goal, such as improving quality, but more specific goals should be set almost immediately to give the group a common bond and to ensure that everyone is working together towards the goal. Goals are easier to establish if research has been conducted by someone in the organization before the team is convened. This allows the team to jump right into goal-setting and problem-solving without getting bogged down in background research.

When setting goals, it is important to clearly define the problem that needs to be solved, not the solution that needs to be achieved. If the desired solution is held up at the outcome, then the group's focus becomes too narrow—the range of options is narrowed to fit that solution before the team even begins its work. Also, when setting goals, the team should determine if there are operating limits that it faces. For example, are there time or budget limitations that have to be considered? Are there some solutions that have been deemed undesirable by the company's officers? The team must recognize these limitations and work around them if it hopes to be successful in reaching its goal.

The final thing to do when goal-setting is to be sure to identify key interdependencies on the team—does one team member have to finish his or her part of the project before another team member can get started? It is essential to know these sequential steps before a team gets too deep into its project.

Work with Key Stakeholders

Stakeholders are those people who stand to benefit or lose from the work of the team. Every stakeholder should be represented on the team, and it is these stakeholders who can make or break the team. For example, if a key department head does not believe that the team is needed, he or she can withhold his or her best employees from participating on the team, thus depriving the team of resources. Or, that department head can choose to ignore the work of the team, conducting business as usual because the team threatens his or her traditional role in the company. It is up to the business ownership, management, and key CFT members to make all stakeholders understand the importance of the team and its purpose and priorities.

Customers, whether internal or external, are also stakeholders. Teams should spend the maximum allowable time interacting with customers to learn their needs and what outcomes they expect from the team. Some CFTs find it works best if one person is named to act as customer liaison because it makes it easier for customers to provide the team with feedback and it allows the team to have one person go through training in client management skills. Other businesses have had success in letting customers either join the team or attend team meetings as an observer.

When identifying all stakeholders, determine what level of representation each needs on the team. Some groups will need permanent members, others may only need to participate in certain areas of the project. Communicate with all stakeholders and anyone else in the company who is affected by the team's work. Do not spring surprises—this will make people resistant to the work that the team is trying to achieve. Communication steps should be decided upon up front and planned as carefully as any other part of the project.

Northwestern Mutual Life, one of the leaders in CFTs, has expanded the stakeholder idea. When it used to create a CFT, Northwestern followed the traditional model and appointed only those people whose roles were crucial to the process at hand. That is no longer the case. Now, Northwestern is experimenting with appointing one person to each CFT who is not a stakeholder at all. Colleen Stenholt, director of human resources at Northwestern, was quoted in Getting Results magazine as saying that "One of our goals is to break out of the box, and the stakeholders are the people who built the box." She went on to note that outsiders are desirable because they are not locked into an established way of thinking and are often thus able to bring a fresh perspective to a problem.

Deal with Team Conflict

CFTs often face regular conflict situations. This is especially true of cross-functional teams that are relatively new. Business owners and managers should be aware, however, that important steps can be taken to manage and reduce conflict, including:

• Provide all team members with conflict resolution training. Conflicts can have value if managed properly, so improving team members' listening and consensus building skills is necessary.
• Make sure that the company's human resources personnel are involved in the team-building process to help teach facilitation and group dynamics skills.
• Disregard the rank or perceived status of each group member and have standards in place that put value on what every team member brings to the CFT.

• Co-locate the team members. Putting team members together on an everyday basis strengthens communication and breaks down barriers.

CROSS-FUNCTIONAL TEAMS AND SMALL BUSINESS

Many people think that cross-functional teams are only successful in large companies. Conventional wisdom dictates that small companies are probably already operating cross-functionally out of necessity—i.e., the company is so small that people have to perform multiple tasks and work together with everyone else in the company. While that may be true in start-up operations, it is certainly not true of the majority of small businesses. Most small operations have to weigh the pros and cons just like their larger counterparts when deciding whether or not to use CFTs. Those that have chosen to adopt CFTs have been largely pleased with the results.

For example, Getting Results magazine documented the use of CFTs by Reprint Management Services of Lancaster, Pennsylvania, a small company with fewer than 30 employees. The owner of the business originally arranged his company into functional units, but found that he had an odd assortment of employees left over who did not fit into any of the existing teams. As a result, he created a permanent cross-functional team to handle special projects at the company. The results were immediate and impressive. He claimed that since adopting the cross-functional team concept:

• Employees in support roles are more concerned with profits and ways to increase sales. They now realize that the more the company succeeds, the more they benefit directly.
• People communicate more openly and are more helpful to each other. There is a far greater sense of teamwork instead of each person looking out for number one.
• Employees' problem-solving skills have improved dramatically, and it is easier to build consensus for a given solution.
• People are more likely to speak up and point out problems. Before the CFT, people were more likely to be passive and quiet, reasoning that the problem was not their responsibility.
• People recognize that there is strength in diversity—that not everyone has to agree on an issue. They know they are being understood, but that some people may still choose to disagree with them, and that such differences are acceptable.

Staff members have also benefited from the CFT arrangement. Employees now understand the different processes that occur throughout the organization and understand the interrelationships between different functional areas. Instead of looking only at their one "silo" of operations, employees now see the big picture. Indeed, according to CFT supporters, participating employees often improve their interpersonal and problem-solving skills, which make them better employees and makes them more attractive in the job market should they choose to pursue other opportunities. Finally, proponents say that employees are less likely to become bored with their own job when they are given the opportunity to learn new skills on the CFT.

COMPENSATION AND CROSS-FUNCTIONAL TEAMS

The overall goal of cross-functional teams is increased organizational profits through teamwork. As a result, companies have had to develop new compensation systems to reward members of cross-functional teams. One example of this is team incentive pay. Instead of individual merit increases, team members instead earn rewards based on overall team performance. The incentive pool is funded by increased profits and new business that are created as a result of using teams. The amount of compensation that can be earned in the team incentive model is actually far greater than that which can be obtained in the standard individual merit pay system.

Another system that has proven popular in organizations that utilize CFTs is the system called Pay for Applied Services (PAS). Under this system, employees who learn and apply new skills have their base pay increased. In addition, performance bonuses are available if their teams and the company perform better than expected. PAS works this way: employees identify their "primary service," i.e., their basic job skill or title. This primary service determines the person's entry-level salary. A salary range is determined for all people who provide that primary service, ranging from entry-level to maximum based on experience and performance. Employees can increase their salary the traditional way, by gaining increases within their service range, or they can learn new services and qualify for bonuses or increases. In addition to individual increases, employees can earn team incentive bonuses that total up to 10 percent of base pay. Team incentives are paid out once per year.

DRAWBACKS TO CROSS-FUNCTIONAL TEAMS

Cross-functional teams have become an integral part of the business landscape in many industries in recent years. But observers point out that their use can have unintended drawbacks if companies are not watchful.

For example, analysts note that CFTs can actually limit the professional growth of team members because they have a narrow focus in one area. As a result, some companies have had success by shaking things up periodically. After two years of serving on the same team, team members may become bored and feel that they are learning only about the clients or the business categories handled by their team. The solution? Team members should be rotated onto other teams periodically. This can help to prevent a sense of stagnation and help to keep the innovative aspects of the cross-functional team alive with new members.

Some companies try to hand off projects to CFTs that are simply too large in scope and are essentially doomed to failure from the start. Such large projects lack the focus needed for CFT success, and trying to make such a project work in that environment can sour an entire organization on using CFTs for other projects. Another sure pitfall is to establish a CFT without imposing either project deadlines or interim reporting deadlines. Without a sense of urgency to complete a project, the project will almost certainly stall and fail.

Converting employees to a new compensation system when CFTs are implemented can be difficult as well. When team incentives replace individual merit increases, team members often complain, even though more money can be earned in the team-based system. Employees often feel that they have very little control over whether or not the company's profits actually increase, therefore they have no control over earning a raise. Additionally, many employees balk at giving up their own merit increase for the sake of the team. They may see the team plan as a way to demand more from teams than from individuals without giving anything back in return.

BIBLIOGRAPHY

Alexander, Jeffrey A., Richard Lichtenstein, Kimberly Jinnett, Rebecca Wells, James Zazzali, and Dawei Liu. "Cross-Functional Team Processes and Patient Functional Improvement." Health Services Research. October 2005.

Berns, Evan. "Cross-Functional Teams Spawn Excellence." Design News. 16 October 2000.

Lafasto, Frank M. J., and Carl E. Larson. When Teams Work Best. Sage Publications, Inc., August 2001.

Levi, Daniel. Group Dynamics for Teams. Sage Publications, Inc., 2001.

Maynard, Roberta. "A Client-Centered Firm's Lesson in Team Work." Nation's Business. March 1997.

"Recipe for Success: Cross-Functional Teams + Project Management Skills." Getting Results. October 1996.

Scholtes, Peter R., and Brian L. Joiner, Barbara J. Streibelmart, Karl L., and Carol Barnum. The Team Handbook. Oriel Incorporated, 2003.

Smart, Karl L., and Carol Barnum. "Communication in Cross-Functional Teams." Technical Communication. February 2000.

                                Hillstrom, Northern Lights

                                 updated by Magee, ECDI