MIS 524, Chapter 3 1

Chapter 3

Building Networked Businesses: How Shall We Structure

Ourselves Internally and in Relation to Others?

MIS 524, Chapter 3 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

MIS 524, Chapter 3 3

The Organizational Design Challenge

Sim

ple

Org

’nal

Des

ign

Com

plex

Loca

l

G

loba

l

Hierarchical

Slow to respond, rule-

bound

Stable Environment DynamicCertain Uncertain

Entrepreneurial

Proactive, unpredictable

?

?

MIS 524, Chapter 3 4

The Big-Small SolutionS

impl

e

O

rg’n

al D

esig

n

C

ompl

exLo

cal

Glo

bal

Stable Environment DynamicCertain Uncertain

Hierarchical

Entrepreneurial

Networked

MIS 524, Chapter 3 5

The “Situation”

TheEnvironment

US

When the environment is slow, predictable, and relatively weak, we have the time to develop and use rules that have established local

validity

TheEnvironment

US

When the environment is fast, unpredictable and strong, we must continually innovate and take risks

and act holographically

MIS 524, Chapter 3 6

The Devil Is in the Details

TheEnvironment

US

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

MIS 524, Chapter 3 7

Cybernetics Revisited

EnvironmentThe Business Operating and Innovating

1st Levels ofManagement

ofThe Business

Managing and Learning

Higher Levels of

Managementof

The Business

Leading and Engaging

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

MIS 524, Chapter 3 8

Operating and Innovating

Precision ExecutionSpeed, SafetyGoal-setting,“Immensity”

Close Communication,Nimbleness

Quick Response,“Smallness”

Information Channels,Change Orientation,

Freedom within Coordination,

Flexibility, Innovation

MIS 524, Chapter 3 9

Managing and Learning

Planning, Prediction,Budgeting, Allocation,

Control, Policies,Responsibility,

Authority, Efficiency

Learning from customers,Risk-taking, ad-hockery,

Real-time sharing,Effectiveness

Integration, Learning-by-doing, Rapid

Analysis and Response,Interaction andCollaboration

MIS 524, Chapter 3 10

Leading and Engaging

Complexity Reduction,Employee self-interest,

Rule-directed Leadership

Risk-taking, Engaging,Charisma, Culture,

Value-promulgation,Belief-orientation

Mediated contact,Simulated shared values,

Empowered teams

MIS 524, Chapter 3 11

Control Integration

Communication

How They Cope

“I hope the environment

remains pacified!”

“If I keep moving fast enough, it

won’t catch me!”

“I’ll keep track of what I’m doing and what the

environment is doing, too”

MIS 524, Chapter 3 12

WOW

• 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”

Words of wisdom

MIS 524, Chapter 3 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.

MIS 524, Chapter 3 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

MIS 524, Chapter 3 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 org’l buy-in. Charismatic leadership helps but is not necessary. Everyone knows pretty much everything

MIS 524, Chapter 3 16

Networked Organization

Direct or implicit communication is limited by work design or pressure

Communication system allows continuous indirect contact

Database and META Database allow instant access to information from and ABOUT firm to all (authorized) participants, as they need it.

MIS 524, Chapter 3 17

Shifting the Focus

Internal Structure

Environmental Forces

changes in response to env’tl forces

The organization also structures its value network in response to its environment…

…and maintains the value network through a variety of relationships

Environmental Forces

MIS 524, Chapter 3 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)

MIS 524, Chapter 3 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.

MIS 524, Chapter 3 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

MIS 524, Chapter 3 21

Impact of IT on Market Evolution

Transactions Contracts Partnerships

Ver

tica

l

S

elec

tive

V

irtu

alIn

teg

rati

on

S

ou

rcin

g

In

teg

rati

on

1950s-1960s

--1970s-1980s--

----------1990s-2000s--------

The Future ????????????????

MIS 524, Chapter 3 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