Functional or process oriented? Or is there a 3rd way?

Now, with the increased attention to BPM and processes, many companies are asking themselves: should we organize through function or process?
Some choose to stay in functional units, but increase the collaboration and create end-to-end governance and measurements (with often much politics).
Some turn the company sidewise, and create a more process driven organisation.

Of course, most of us understand the thoughts behind this.

Functional:
Pro's
- Focus on competency
- Easy to bind people - sharing the same work/chain unit
- Focus on scale efficiencies
- Relatively easy to measure
- Relatively easy to understand

Cons:
- Loose of focus on the complete chain
- Chance that units strive for suboptimal choices, that effect overall process effectivenes, efficiency and responsiveness (agility)
- Difficult to implement new or changed processes
- Pointing to each other when issues, no clear process coordinator

Process:

Pro's
- Focus on end-to-end responsibility
- Grows understanding of the full chain
- Outside in thinking , customer focus easier to keep
- Easier changes to processes
- Reduced or no interdepartmental hand-overs

Con's
- Chance of fragmented knowledge and skills
- Could become complex, depending on complexity
- Loss of checks and balances
- Simular functions are done in other proces organizations, leading to loss of benefits of scale

In my opinion, there is a third way, that combines best of both worlds.

Service Oriented - with process management.
STOP! If you now are thinking about webservices, ESB's, WDSL, BPEL and other stuff - reset please. I am talking about business services.
Think of SOA as another way of structuring. Instead of focus on FUNCTION (we do X), Process (we undertake X, then Y, ... then Z), think of a structure of loosely coupled units that provide a certain function, in the context of one or more processes.

Think business lego. Easy units that we can quickly reorganize into new value chains.

A critical succesfactor for this is the ability for each unit to partner. To quickly understand it's role in the whole, and adapt internally, if needed, to supply the correct service. Call it "Chain Service Intelligence". This is not a skill that is easy to develop! It should be deeply embedded in the people, the attitudes and culture of the organization.

Another succesfactor is the question: where do we put operational process management?
In a functional organization, this was always the issue: it was implicitely put in the functional units themselves (I am responsible for part Y in the chain....), but no-one felt responsible for the whole chain (Well, I handed over on time, so it's not my issues...).
So, how do we build and maintain chains of services?

I believe we can create flexible businesses with small "service units". But that we also need a central service, responsible for end-to-end processes. A unit, that has 2 responsibilities:
- Operational: managing/coordinating concrete execution of processes. E.g. a "case manager" that monitors the execution of proces XYZ for customer ABC. Customer focus and delivery focus.
- Tactical: staying focused on delivering process outcomes within set goals and boundaries, and where needed, improve processes (possible, supported by a Process Center of Excellence) - both from a internal stakeholder perspective (investors, employees) and customer (service, satisfaction). Basically, this department owns the "Change process" (which is a normal process, part of the process portfolio).