Building Networked Businesses: How Shall We Structure Ourselves Internally and in Relation to Others?

1
Chapter 3

• Building Networked Businesses How Shall We
  Structure Ourselves Internally and in Relation to
  Others?

2
Agenda

• The Problem of Organizational Design
• The Big-Small Solution
• Three Levels of Control (Cybernetics Revisited)
• Operating and Innovating
• Managing and Learning
• Leading and Engaging
• Building Value Networks

3
The Organizational Design Challenge
Simple Orgnal Design ComplexLocal
Global
Stable Environment DynamicCertain
Uncertain
4
The Big-Small Solution
Hierarchical
Networked
Simple Orgnal Design ComplexLocal
Global
Entrepreneurial
Stable Environment DynamicCertain
Uncertain
5
The Situation
6
The Devil Is in the Details
The problem is matching how we are tied to the
environment with our internal structure. If the
environment is unpredictable, we have to play,
take risks, probe to find out where our advantage
is. If the environment is tame we must not play
or take risks, compromising our advantages. Our
internal structure provides us with resources and
facilities to manage the interface. Multilevel
interfaces evolve into cybernetic structures of
control
TheEnvironment
US
7
Cybernetics Revisited
Each level of control adds a level of complexity,
costs money, takes time, and is potentially
fraught with errors.
When it works, the result is a fully functioning
bureaucracy complete with iron-cast rules, but a
fully beaten-into-submission environment
8
Operating and Innovating
Precision ExecutionSpeed, SafetyGoal-setting,I
mmensity
Information Channels,Change Orientation,Freedom
within Coordination, Flexibility, Innovation
Close Communication,NimblenessQuick
Response,Smallness
9
Managing and Learning
Planning, Prediction,Budgeting,
Allocation,Control, Policies,Responsibility,Aut
hority, Efficiency
Integration, Learning-by-doing, RapidAnalysis
and Response,Interaction andCollaboration
Learning from customers,Risk-taking,
ad-hockery,Real-time sharing,Effectiveness
10
Leading and Engaging
Complexity Reduction,Employee self-interest,
Rule-directed Leadership
Mediated contact,Simulated shared
values,Empowered teams
Risk-taking, Engaging,Charisma,
Culture,Value-promulgation,Belief-orientation
11
How They Cope
Ill keep track of what Im doing and what the
environment is doing, too
Control
Integration
I hope the environment remains pacified!
Communication
If I keep moving fast enough, it wont catch me!
12
WOW
Words of wisdom

• Communication is a means to get information, a
  proxy for trust
• Money is potential for satisfaction, a proxy for
  power money purchases control and
  predictability, lowering the need for trust
• Procedure is action to be energized in the
  service of control
• Information lowers risk (by increasing trust) and
  hence increases satisfaction and makes procedures
  less expensive
• IT provides information and procedure as well as
  remote control

13
Networked is a Simulation

• COMBINES features of bureaucracy and
  entrepreneurship
• Bureaucracy Goal is to contend with complexity
  by simplifying, proceduralizing, substituting
  data for trust to lower risk
• Entrepreneurship Goal is to take advantage of
  opportunities risk is taken for granted.

14
Bureaucracy/Hierarchy

• Since environment is weak and predictable,
  procedures can be developed for decision making.
  Local decision making is too expensive and risky
  to the whole.
• Since complexity is managed, org can grow to
  enormous size
• Individuals are hired for specific expertise or
  skills, not necessarily for common culture or
  organizational buy-in

15
Entrepreneurship

• Since environment is strong and unpredictable, no
  procedures can be developed for decision making.
  Local decision making is the only feasible way to
  make decisions.
• Everyone shares knowledge, culture, information,
  goals org can only grow so far, usually small
• Individuals are hired for specific expertise with
  communication skills and orgl buy-in.
  Charismatic leadership helps but is not
  necessary. Everyone knows pretty much everything

16
Networked Organization
Database and META Database allow instant access
to information from and ABOUT firm to all
(authorized) participants, as they need it.
17
Shifting the Focus
Environmental Forces
Environmental Forces
Internal Structure
changes in response to envtl forces
The organization also structures its value
network in response to its environment
and maintains the value network through a
variety of relationships
18
Building Value Networks

• Two basic questions
• Which activities should we perform ourselves and
  which should we source from the outside (the
  market structuring question)
• How should we relate to such outside parties,
  such as customers, suppliers, distributors,
  business partners, owners, and others (the market
  relationship question)

19
Structuring Market Activities

• Vertical Integration We do almost everything
  ourselves
• Selective Sourcing Outsourcing selected
  functions, usually short-term, contracted
• Virtual Integration Do almost nothing ourselves,
  instead rely on a network to coordinate across
  the value chain.

20
Relationships with Others

• Casual Transaction, exchange of goods and
  services based on supply and demand
• Formal Contract, prior agreement, well
  defined, highly information-sensitive
• Sacred Partnership, shared goals and
  processes, interorganizational, strong two-way
  flow of information

21
Impact of IT on Market Evolution
The Future ????????????????
Vertical Selective
VirtualIntegration Sourcing
Integration
?----------1990s-2000s--------?
?--1970s-1980s--?
Transactions Contracts Partnerships
22
Four Networked Market Models

• AOL Time Warner Virtually Integrated Networked
  Organization within Vertically Integrated Markets
• WalMart Selective Sourcing Networks
• Covisint Virtual Coalition Networks
• EBay Transaction-based Virtual Peer-to-Peer
  Networks