CHAPTER VI

E-BUSINESS ORGANIZATION

Learning Objectives:
At the end of this chapter, the students should be able to:
1. Understand the organization design for e-business.
2. Identify the factors in selecting an organizational model.
3. Differentiate traditional organization from e-business organization.
4. Describe the dimensions of e-organizations.

The internet offers alluring opportunities for top and bottom line
growth, yet the promise has been difficult to realize. Indeed, many companies
have struggled to invest in the internet’s advantages quickly and align their
operations and business models around e-commerce. Few have succeeded in
becoming e-businesses - dynamic, adaptive, around-the-clock operations
that can act faster and in more flexible ways. E-business is big, complex, fast
and always evolving, and this is not going to change any time soon.
Organizing the company to be able to best meet these challenges will be
critical for success. There is no “one size fits all” approach but there are
common factors to ensure the company is set up to win.

Organization Design
There are 3 main design choices companies consider when selecting an
organization structure:

 Reporting Lines - this pertains to which level within the hierarchy the E-
business organization shoud sit - in other words, who should the E-
business Head report to.
 Dedicated Functions - the extent to which there are dedicated
supporting functions for E-business, such as Supply Chain, Digital
Marketing etc., and the degree to which these functions sit within a
separate E-business team. Associated with this is the question whether
to install a “Chief Digital Officer” (CDO) or equivalent, and to what extent
their role should include E-business.
 Outsourcing - the extent to which particular functions, such as online
store operations, are outsourced to a third party/trusted partner (“TP”).

Factors to Consider in Selecting an Organizational Model

There are 4 broader factors a company should consider when selecting an
organizational model - ultimately it comes down to a number of trade-offs for
your specific organization:

 Complexity of Business - the number of categories a consumer goods

company plays in, and extent to which it operates across the same
consumer segments will significantly influence the choice of
organizational model. For instance, a cross-business unit E-business
structure on the one hand may providee more negotiation power with e-
tailers, but on the hand requires deep understanding of potentially very
different consumer segments.
 Maturity of E-Commerce Business - how mature a company is in E-
business will affect its model. Those consumer goods companies that
“grew up” in the digital age will tend to have flatter oragnization
structures with all operations in-house since they have built those
capabilities from the start. Whilst those who embraces E-commerce later,
are more likely to still rely on outsourcing and will position E-commerce
roles at a higher level in order to attract more senior talent to kick-start
the E-business.
 Size and Ambition for E-Commerce Business - consumer goods
companies where E-commerce makes up a significant portion of total
sales, and/or have strong ambition to grow E-commerce, may be more
likely to move more towards an integrated organization model rather than
separating E-commerce into its own dedicated business function. As E-
commerce becomes a significantly more important part of the business,
the whole company will need to become more “digitally” minded and
cannot afford to isolate its digital talent. Just as key customers such as
Alibaba and JD.com become more omni-channel focused, so too
consumer goods companies will need to think in the same way.
 Company Culture - companies that promote a more collaborative culture
and transversal ways of working will naturally come together and take a
 more multi-functional approach to the major E-platforms, without
necessarily needing to be organized in this way and hence may prefer to
retain the more “traditional” model.

Dimentions of E-Business Organization

Just as the value chain has been disintermediated, so too has the
traditional organization. The Digital Age organization is no longer a single
corporate entity, but rather an extended network consisting of a streamlined
global core, market-focused business units and shared support services. The
transformation to what we call an “e.org” is taking place along seven key
dimensions:

 Organization Structure
 Leadership
 People & Culture
 Coherence
 Knowledge
 Alliances
 Governance

The fact that there are seven organizational dimensions retires one of
the most visible relics of the command-and-control, hierarchical organization
model - the org chart. A collection of boxes and reporting lines on a two-
dimensional slip of paper no longer accurately captures the operating
dynamics of today's extended - or "e-stended" - enterprise. It's time to label
"lines and boxes" as archeological artifacts.

As companies strive to become more agile and customer-

focused,organizations are shifting their structures from traditional,
functional models towardinterconnected, flexible team. A new organizational
model is on the rise: a "network of teams" in which companies build and
empower teams to work on specific business projects and challenges. These
networks are aligned and coordinated with operations and information
centers.
 Change is the new "normal". Digital organizations must be nimble,
hyper- responsive to market and able to change track, reallocate resources,
implement process and continuously renew their digital culture. Embedding
change capabilities in the business is one of the key success factors for
digital implementation.

1990’s E.org
Organization  Hierarchical  Centerless,
Structure  Command-and- networked
control  Flexible structure
that is easily
modified
Leadership  Selected "stars" step  Everyone is a leader
above  Leaders create
 Leaders set the environment for
agenda success
 Leaders force  Leaders create
change capacity for change
People & Culture  Long-term rewards  "Own your own
 Vertical decision- career" mentality
making Delegated authority
 Individuals and  Collaboration
small teams are expected and
rewarded rewarded
Coherence  Hard-wired into  Embedded vision in
processes individuals
 Internal relevance  Impact projected
externally
Knowledge  Focused on internal  Focused on
processes customers
Individualistic  Institutional
Alliances  Complement current  Create new value and
gaps outsource
 Ally with distant uncompetitive
 partners services
 Ally with competitors,
customers and
suppliers
Governance  Internally focused  Internal and external
 Top-down focus
 Distributed

Organization Structure
In place of bureaucratic, hierarchical structures, companies should
form more flexible, decentralized, team- and alliance-based organizations
that enable employees to respond immediately to opportunities and
competitive advantages around the globe. This new e-stended enterprise
model is built around a strategic Global Core, shared-services business
units, and market-facing business units.

The three components of the developing organization structure need to

move nimbly. The Global Core must accommodate a more complex extended
enterprise and manage value from growing partnerships and alliances.
Shared services need to leverage the Internet to provide a greater variety of
services at substantially lower cost and with higher levels of service,
sometimes by outsourcing work that cannot be provided competitively in-
house. Business units must hone their unique value propositions in the
rapidly evolving electronic marketplace. And the entire organization must
reorient its focus to deliver speed, global reach and superior service.

Leadership
In the e.org, everyone is a leader, charged with creating an
environment for collective gain and success. And the mark of a leader will be
to create other leaders within the organization - disciples, of a sort, who are
empowered to act. These disciples, in turn, manifest their own leadership
skills by translating this vision into a mandate for continued renewal. They
create an environment and build management bench strength to achieve
change and cascade leadership throughout the organization.
 This model of cascading leadership is not a luxury, it is an imperative
in a world where organizations no longer have the time for day-to-day
decisions to go up and down a hierarchy, and where knowledge throughout
the organization must be leveraged and shared. It's not easy. Market forces
continue to rage as company's wrestle with the organizational barriers to
institutionalizing this type of entrepreneurial leadership model.

People and Culture

The rapid pace and nearly infinite opportunity of e-business will test
the limits of companies' people strategies and corporate culture. As digital
technologies take over the more routine, administrative duties performed by
employees, they will amplify the need for skilled knowledge workers in every
functional group and at all levels. Unfortunately, the very same factors that
accelerate demand for exceptional, versatile and motivated talent will tend to
diminish a company's ability to attract and hold on to such talent. As the
dot-coms hand out stock options and entrepreneurial opportunity to C.E.O.'s
and secretaries alike, more established companies are struggling to match
these packages. Companies of all types are being held hostage by their
employees.

To recruit and retain these individuals, the e.org needs to overhaul its
approach to human-resources management. It needs to recognize that the
basic tenets of the employment contract are no longer valid. Companies no
longer offer job security, and employees no longer offer undivided
commitment and loyalty. They "own their own employability," as Andrew S.
Grove, chairman of the Intel Corporation, has put it.

They need to develop a culture that supports the new way of doing
business - one that focuses on innovation, change management and
leadership through a shared mission. Companies need to encourage
intelligent risk- taking throughout the business, at all levels. In short, they
need to inject starched shirts with a little entrepreneurial medicine. As Ann
M. Livermore, president and C.E.O. of the Hewlett-Packard Company's
Enterprise Computing Solutions, puts it. "Try bringing the free thinkers - the
rebels, the crazies - into the group so you get more diversity of thinking. And
don't require them to follow procedures."

Organizations looking to respond to these shifting priorities will need

to invest in people. They will need to establish a clear link between their
people strategy and their corporate vision and develop a culture predicated
on a people partnership. Moreover, they need to identify high performers
critical to organizational success and focus on their needs that combination
of job design, career development opportunities, rewards and lifestyle that
enables companies to attract and retain talent.

Coherence
Coherence, is a shared sense of direction that allows a corporation to
be greater than the sum of its parts. In aligned organizations, objectives are
clear; roles and responsibilities are well defined and delegated, and the right
things are accurately measured and rewarded. The coherent corporation can
de-emphasize a rigid organizational structure, and build more flexible
configurations of people, processes and systems, because the goals and
objectives of the corporation are well understood. Decision-making can be
accelerated and information shared. Coherence encourages every individual
to drive purposefully toward a clearly communicated common goal.

This characteristic is often present in new companies, such as small

Internet startups. These firms are created with a specific sense of purpose,
with all employees working for a common goal and with an incentive system
directly tied to the success of the enterprise. Coherence in larger companies
is harder to achieve. Multiple levels and conflicting agendas can have people
working at cross- purposes. Companies such as Southwest Airlines, Enron
and G.E. have created highly coherent model's due to the efforts of their
C.E.O.'s to ensure that the kinds of people they hire, those employees'
understanding of where the company wants to go, and the means by which
their contributions are rewarded, all fit into a unique system.

Knowledge
 Knowledge is the set of understandings used by people to make
decisions or take actions that are important to the company. Part of the
knowledge structure is, of course, information, a component that digital
technologies have largely commoditized. But there is more to knowledge than
sheer data. It is what you do with the information, how you stitch it together
in unique ways with know-how, processes and market perceptions, that
constitutes knowledge. And knowledge is an increasingly valuable and
differentiating asset, one that will, in due time, be recorded on companies'
balance sheets. More and more, companies are being seen not as a collection
of businesses, but as a collection of capabilities based on highly precise
knowledge.

For example, The Boeing Company's Wing Responsibility Center is a

working group formed to build and maintain wings, tails and rudders for
commercial and military aircraft. With an intranet, the knowledge of a
worker specializing in wings for a Boeing 777 can be accessed immediately
by an engineer on another project at another location.

Alliances
All firms are now vulnerable to the threats posed by cooperative
strategies. Management must act faster and smarter with limited resources.
Successful companies need to build and deploy the critical capabilities that
will enable them to gain competitive advantage, enhance customer value and
drive their markets. Alliances are an excellent way to secure immediate
access to those differentiating capabilities. Partners can extend their global
reach, leverage their respective strengths, and bridge strategic gaps in their
own capabilities.

Strategic alliances are cooperative arrangements between two or more

companies where:
1. A common strategy is developed in unison and a win-win attitude is
adopted by all parties.
2. The relationship is reciprocal, with each partner prepared to share specific
strengths with the others, thus lending power to the enterprise.
3. A pooling of resources, investment and risks occurs for mutual (rather
than individual) gain.

In the new e-stended enterprise, companies will form alliances not only
to bridge capabilities and geographic gaps, but also to create new value and
outsource uncompetitive services. Alliances themselves will become more
open and adaptable as organizations form and disband agreements with
suppliers, customers, competitors, even regulators, to position themselves in
a changing market. These alliances will be run more autonomously with
dedicated resources and a fair degree of independent control.

Governance
The traditional top-down, internally focused governance structure of
the past is yielding to a more distributed model that incorporates both
internal and external scrutiny. The board of directors, while continuing its
fundamental duty to safeguard shareholders' interests, should become more
involved in matters of corporate governance now than it has in the past.
Instead of playing a passive guardianship role, it should become an active
supporter of the business.

Under this new model, the board performs an active advisory role, and
also acts as a control body. It brings insights on customers from a cross-
section of industries and services; it benchmarks inside knowledge with
outside intelligence: it challenges the effectiveness of the C.E.O.and top
management (the role of the Global Core), and it makes sure the company is
developing key business capabilities.

In terms of intracompany governance, the concept of shared services is

illustrative. Shared services such as human resources and information
technology run as autonomous business units in an internal marketplace
where they serve "customers" - other business units with the power and
autonomy to buy and shop elsewhere.

Finally, along with the increased use of alliances and their rapid
deployment comes an increased need for formal intercompany governance
processes. Newly emerged large networks of companies, such as the Star
Alliance of United Airlines, Lufthansa, Scandinavian Airlines, Thai Airways
International and other regional airlines, need to have their own
"organization" and governance system - potentially, a key differentiator
among alliances as they compete against each other for greater market
share.

Exercise No. 6
Test I. Write the correct answer in the space provided based on the
advantages of information technology in the hospitality industry.

1. Companies will form alliances not only to bridge capabilities and

geographic gaps, but also to create new value and outsource uncompetitive
services.

2. The extent to which particular functions, such as online store operations,

are outsourced to a third party/trusted partner("TP").

3. A common strategy is developed in unison and a win-win attitude is

adopted by all parties.

4. This refers to a shared sense of direction that allows a corporation to be

greater than the sum of its parts.

5. The set of understandings used by people to make decisions or take

actions that are important to the company.

6. Aknowledge structure component that digital technologies have largely

commoditized.

7. A pooling of resources, investment and risks occurs for mutual (rather

than individual) gain.

8. This refers to the number of categories a consumer goods company plays

in, and extent to which it operates across the same consumer segments.
9. Associated with this is the question of whether to install a "Chief Digital
Officer" (CDO) or equivalent, and to what extent their role should include E-
Commerce.
10. They perform an active advisory role and acts as a control body in
business.

Test II. TRUE OR FALSE. Write True if the statement is correct and False if
otherwise.

1. Coherence encourages every individual to drive purposefully toward a

clearly communicated common goal.

2. The extent to which particular functions, such as online store operations,

are outsourced to a third party/trusted partner (TP").

3. Organizations looking to respond to the shifting priorities of e-business

will need to invest in technology.

4. The board of directors in e-business should play a passive guardianship

role instead of becoming an active supporter of the business.

5. In the e.org, the business is no longer a single corporate entity, but rather
an extended network consisting of a streamlined global core, market-focused
business units and shared support services.

6. Companies should form a flexible, decentralized, team- and alliance-based

organizations in a traditional organization.

7. Alliances are an excellent way to secure immediate access to those

differentiating capabilities.

8. It is what you do with the information, how you stitch it together inunique
ways with know-how, processes and market perceptions, that constitutes
knowledge.

9. To recruit and retain employees, the e.org needs to recognizethat the basic
tenets of the employment contract are no longer valid.
10. Coherence in larger companies is harder to achieve.

Test II. Essay

1. Differentiate traditional organization from e. organization.

2. When it is necessary to adapt an e.org? What do you think are the

advantages and disadvantage of this kind of organization?

3. Discuss the factors to consider in deciding an organization model.