Building the Networked Business “Our dream and our plan well over a decade ago was simple. We set out to shape a global enterprise that preserve the classic big company advantages while eliminating the big company drawbacks. What we wanted to build was a hybrid enterprise with the … body of a big company and … the soul of a small company” Jack Welch Former GE CEO

Building the Networked Business “ABB is an organization with three internal contradictions. We want to be global and local, big and small, radically decentralized with centralized reporting and control. If we resolve those contradictions, we create real competitive advantage” Percy Barnevik, CEO Asea Brown Boveri (ABB)

Building the Networked Business “We saw two challenges ahead of us, one external and one internal… Externally, we faced a world economy that would be characterized by slower growth, with stronger global competitors going after a small piece of the pie. Internally, our challenge was even bigger. We had to find a way to combine the power, resources, and reach of a large company with the hunger, agility, spirit, and fire of a small one.” Jack Welch Former CEO of GE.

Information, Organizations, Processes and Control Hierarchical organizations of past years Today Process-oriented, Learning, Team-based, and Fast-cycle organizational models Flat, flexible, focused on core competence Inside, empowered, interfunctional teams of knowledge workers are reengineering and continually improving core business processes. Think globally and act locally

Information, Organizations, Processes and Control Strategic alliance and partnership that will enable them to focus on core competence while expanding capabilities, scale and scope. Creation of virtual organizations Challenge: How do we meet these challenges? How can organization be both global and local, big and small, and radically decentralized with centralized reporting and control?

Flattening the Organizational Structure

Matrix Organizational Structure But, hybrid designs bred conflict, confusion, information overload, and costly duplication of resources

Virtual Organizational Structure

Information, Organizations, Processes and Control Question: Can firms take the advantage of the information management communication tools this revolution provides to create an “information age organization” that simultaneously manages speed and complexity?

Information, Organizations, Processes and Control Notes: Although the networked IT infrastructure can provide important tools, it can not define neither the information that needs to be in the systems nor the meaning of the information and how to use it to coordinate and manage the business. Nor can the networked IT infrastructure define the organizational structures, processes, and culture required to enable people to use the information to make decisions and take actions. These tools cannot provide incentives that would motivate people to use the information to meet both organizational and personal objectives. What should firms do?

Information, Organizations, Processes and Control To accomplish the organizations of the year 2000 and beyond firms must change the way they are organized, and employees at all levels must become information literate - not just computer literate.

Information, Organizations, Processes and Control Notes: Implementing networked information and communication system in a traditional, hierarchically structured organization will not work. A much more comprehensive approach to organizational change is required. In general implementing the technology is the least complicated part; redesigning the organization and defining the information to manage it constitute major constraints on organizations’ attempts to meet the challenges of the the year 2000s

Creating the Information Age Organization Speed Counts, but not at the Expense of Control New products must be introduced quicker, order processing cycle must be cut dramatically, etc. The faster the pace, the greater the need to monitor business operations and clearly define and enforce rules. Empowerment is not Anarchy In an empowered organization, senior managers are more involved, not less; and organizational boundaries and value systems must be more clearly communicated, closely monitored, and more consistently enforced.

Creating the Information Age Organization Transforming an Organization Requires more than just Changing the Structure. True change occurs deep within the organization as individuals and work teams redefine the way they work and the values that guide decision making and action. Managers need to rethink the nature of control and authority Smashing together the features of the hierarchy with features of an entrepreneurial firm will not work. Work must change and people must change New knowledge and skills are needed

Creating the Information Age Organization Transforming an Organization Requires more than just Changing the Structure. The personal values and frameworks that people people use to make decisions and take actions must be realigned with new organizational priorities and goals. The ability to transform the firms information infrastructure is a critical component that both supports and enables the organizational transformation Change must not stop at the doors of the corporate headquarters but must be infused throughout every part of the organization Laying collaborative structures (e.g. team-based units and incentives) over a traditionally structured organization will not work neither.

Streamlining the Business Cycle Operating Cycle The activities through which an organization designs, produces, markets, delivers, and supports its product and services Management Cycle The activities through which an organization manages the design, produces, markets, delivers, and supports its product and services Operational Process Management Process

Strategic Alignment Basic questions confronting managers What are the implication of IT in my business operations? Today and in the future? What are the alternative perspectives for leveraging IT capabilities for business operations? Is the locus of IT component “inside” or “outside” the operation? What is the executive role of senior management for leveraging IT capabilities? How should the IT function be organized, and what is the role of IT outsourcing What are the appropriate criteria for assessing IT based benefits

Building the Networked Business

Building the Networked Business Note Although the networked IT infrastructure can provide important tools, it cannot define the information that needs to be in the system. In addition, while the networked infrastructure can enable new organization structures and systems, it cannot motivate people to use the information to make decisions and take actions on behalf of the organization. New organization capabilities are required to execute the sophisticated network strategies and business models

Blueprint for the Networked Organization Challenge Designing, implementing, and constantly evolving the structure and systems that enable an organization to executes its strategies and accomplish its goals is one of the most formidable tasks facing 21st century executives Continuous change is one of the most challenging issues facing the 21st century executives Operating and Innovating Managing and Learning Leading and Engaging

Blueprint for a Networked Organization Operating and Innovating The operating processes of a firm include all the activities a firm and its suppliers and partners undertake to design, build, market, sell, and deliver products and services for customers, suppliers, and business partners. Ability to flexibly adapt to constantly changing business environment is the key to success.

Blueprint for a Networked Organization Operation and Innovating Hierarchical Operations Define rigid procedures, top down Entrepreneurial Operation Company do not depend on well-defined polices and procedures or structured jobs. Networked Operations Big-small companies, Precision execution and fast-cycled innovation Operation is designed to fully exploit the power of both people and technology whether this assets are in your firm or in someone else’s. Technology can ensure precision and people can use the information in real-time to deal with unforeseen problems

Blueprint for a Networked Organization

Blueprint for a Networked Organization Managing and Learning The management processes and structures of a firm include all the activities that a firm and its business community undertake to: Plan strategy and how it will be executed Allocate resources Organize people into groups and coordinate work Monitor and measure performance Adjust strategies, plans, budgets, and organizations based on learning

Blueprint for a Networked Organization Traditional Management Process Driven from top down, incremental goals and allocation of resources to carry them out. Entrepreneurial Management Process Planning, decision making, action, and performance management are informal and ad hoc. Ability to respond quickly on the basis of what is being learned are fundamental to effective entrepreneurial management

Blueprint for a Networked Organization Network Management Process Big-Small most provide assess to a shared source of real-time information on market dynamics, operations, and performance that enables real-time planning and performance monitoring. Networked management Process Improved access to information enables employees, customers, and partners to invent new ways of working and to respond quickly.

Blueprint for a Networked Organization Leading and Engaging While management is all about coping with complexity, leadership is all about attracting and mobilizing the resources for change Leadership involves defining a clear, compelling vision and ensuring that is translated into a set of actionable strategies and initiatives. Attracting, motivating, energizing, and retaining top talent inside an organization and within partner, supplier, and customer networks Creates a culture and ensures that values, beliefs and behaviors are deeply ingrained and reflected in the decisions made and actions taken

Blueprint for a Networked Organization Hierarchal Leadership Emphasis managing complexity and minimizing it. Management process overshadowed leadership Risk were minimized by centralizing decision making, segregating activities and structuring work rigidly. Entrepreneurial Leadership “Create or seize an opportunity and pursue it regardless of the resources currently controlled” Attract, motivate and engage people, partners and investors in the task of working together to create a clear and compelling vision that excites and deeply engaged all involved.

Blueprint for a Networked Organization Networked Leadership In the Networked Economy, the free flow of information throughout the company enhances the ability of employees, customers, partners, and executives to share in defining both a clear and compelling vision for change and the necessary tactical initiatives required to achieve business goals When aligned with incentives and motivations that foster commitment rather than simply compliance. In complex global organizations senior executives cannot oversee every decision or action taken by empowered teams. So, it more important for them to identify key strategic risks – critical success factors – and ensure that they have effective control systems in place.

Networked Organizations (cont.)

Chapter 2: IT and Organization

Building Value Networks Building the value chain network Where Should Activities Be Performed? How Should We Relate to Market Participants?

Building Value Networks Building the value chain network Where Should Activities Be Performed

Building Value Networks Building the value chain network How Should We Relate to Market Participants?

Evolving Market Structures Proprietary Capabilities and Infrastructure Create Walls Inside an Organization and Among Members of a Value Chain Network

Questions that can help executives to evaluate organization capabilities What are your organization’s core capabilities, strengths and weaknesses What operating processes, policies, structures, and systems must be changed to enable you to operate efficiently What management system must be changed to enable you to ensure that the company is in control yet is able to “learn by doing” Is leadership stressed throughout the company. What organizational structures, incentives. And cultural changes need to be made to enable the company to act both big and small simultaneously. Within which market do you currently participate? How do the market participants relate. Given your current and future strategy, what is the stream that must be accomplished to develop products and services that create value for all stakeholders

Evolving Business Models The four approaches to evolving a business model serve as a road map for evolving networked businesses. Enhance Expand Extend Exit

Extend Enhance Exit Expand Enter into a new line of business and/or add new business model Enhance Add functionality or features to current product/services offering or improve performance of existing business Exit Exit a business or market or drop a product/service offering Expand Add new product/service offering or enter new geographic market

Evolving Amazon.com: Product/Service Enhancements

Evolving Amazon.com: Category and Geographic Expansion

Evolving Amazon.com: Business Model Extension

Evolving Amazon.com: An Integrated View

Evolving Network Economy Business Models It is just an incredible time to be in business and have the rules of business changing… For many years we operated under a pretty consistent set of rules. They evolved may be… but now they’re morphing and that presents a situation that challenges entrepreneurs to figure out: Are these rules real, or are they temporary? Should we respond to them? Do we create new rules? How do we run a company in a world like this when we have 13,000 employees trying to figure out where we are going and what we should do? David Pottruck, President and co-CEO of Charles Schwab 1999. We are searching for new business models that enables a company to achieve the efficiency, power, resources, and reach of being big and the speed, agility, and responsiveness that come from being small.

Evolving Network Economy Business Models The following questions can be used by executives to evaluate current and evolving business models What business model/models is your organization using today? Does your business infrastructure enable you to evolve your business model to increase revenue generated per customer and to respond quickly to opportunity and threats Do you have the capabilities and resources that you need today and in the future? How will you build capabilities and acquire resources to reduce gaps? Are you delivering benefits to all stakeholders? Can you demonstrate and communicate those benefits in ways that are objective and easy to evaluate and measure?

New Networked Economy Continuous business redesign Partnership Technology Strategy