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
Hierarchical
Slow to respond, rule-bound ?
Entrepreneurial
Proactive, unpredictable
Simple Org’nal Design Complex Local Global
Stable Environment Dynamic Certain Uncertain
MIS 524, Chapter 3

4. The Big-Small Solution
Hierarchical
Networked
Simple Org’nal Design Complex Local Global
Entrepreneurial
Stable Environment Dynamic Certain Uncertain
MIS 524, Chapter 3

5. The “Situation” The Environment US
When the environment is fast, unpredictable and strong, we must continually innovate and take risks and act holographically
The Environment US
When the environment is slow, predictable, and relatively weak, we have the time to develop and use rules that have established local validity
MIS 524, Chapter 3

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
The Environment US
MIS 524, Chapter 3

7. Cybernetics Revisited
Each level of control adds a level of complexity, costs money, takes time, and is potentially fraught with errors.
Higher Levels of Management of The Business
Leading and Engaging
When it works, the result is a fully functioning bureaucracy complete with iron-cast rules, but a fully beaten-into-submission environment
1st Levels of Management of The Business
Managing and Learning
Environment
The Business
Operating and Innovating
MIS 524, Chapter 3

8. Operating and Innovating
Precision Execution Speed, Safety Goal-setting, “Immensity”
Information Channels, Change Orientation, Freedom within Coordination, Flexibility, Innovation
Close Communication, Nimbleness Quick Response, “Smallness”
MIS 524, Chapter 3

9. Managing and Learning
Planning, Prediction, Budgeting, Allocation, Control, Policies, Responsibility, Authority, Efficiency
Integration, Learning- by-doing, Rapid Analysis and Response, Interaction and Collaboration
Learning from customers, Risk-taking, ad-hockery, Real-time sharing, Effectiveness
MIS 524, Chapter 3

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
MIS 524, Chapter 3

11. How They Cope Control Integration Communication
“I’ll keep track of what I’m doing and what the environment is doing, too”
Control
Integration
“I hope the environment remains pacified!”
Communication
“If I keep moving fast enough, it won’t catch me!”
MIS 524, Chapter 3

12. WOW Communication is a means to get information, a proxy for trust
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”
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
Database and META Database allow instant access to information from and ABOUT firm to all (authorized) participants, as they need it.
Communication system allows continuous indirect contact
Direct or implicit communication is limited by work design or pressure
MIS 524, Chapter 3

17. changes in response to env’tl forces
Shifting the Focus
Environmental Forces
Environmental Forces
Internal Structure
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
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
The Future ????????????????
Vertical Selective Virtual Integration Sourcing Integration
 s-2000s 
1950s-1960s
--1970s-1980s--
Transactions Contracts Partnerships
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
MIS 524, Chapter 3