Part III: Finding a Home for eBusiness

In Part I and II we discussed the issues with eBusiness Organization design. This week, we will discuss organization design factors that apply to eBusiness but are universal in their applicability. Then we are ready to discuss eBusiness Organization design options!

We are almost ready to discuss eBusiness organization design but not quite. Let us take a look at some of the underlying factors that are true for eBusiness but are applicable for organizational design universally. Once we understand these, the task – and the underlying logic – of the proper alignment for eBusiness will become easier to grasp.

A company’s business model drives its organization design

Organizations exist to enable processes. However, the exact manner i.e. the “which,” “when” and “how” of organization design is driven by its essence or DNA i.e. its business model.

 

A company’s business model is the formula for an organization’s success. Everything it does must conform to this formula. Consequently, the organizational design for eBusiness, like everything else it does, is driven by it’s business model.

This focus on the business model can not only identify the correct organizational design but also prevent a common mistake – designing your eBusiness organization on industry “best practices.”

Companies often make the mistake of mimicking their’s competitors. If a competitor is doing “something”, and they are successful then it follows that one must do that same “thing” in order to be successful. Often, this reasoning leads companies to follow cross-industry “best practices.” A lot of energy is expended understanding what other “successful” companies are doing and then emulate these “best practices” in the desire to recreate that “success.”

In business, the connection between action and results goes through business model i.e. the same action with a different business model could produce diametrically opposite results. Following a competitive move or an industry “best practice” without taking into consideration your own business model is the worst mistake a business can make.

This mistake is more pronounced when businesses are faced with a fundamental paradigm shift such as the one introduced by the internet. In the early 90s, there was a mad scramble to do something in the space. Initially, most businesses were compelled to put up websites. Now, they are compelled to spend millions copying features and functions that other websites, especially their competitors’, have.

As we discussed in a related article, a business model derives its strength from differentiated value and a mechanism for its exchange. Differentiated value is derived from market opportunity, core competencies, and relationships. Consequently, it is these three that drive organizational design:

  1. Focus on the customer – understanding customer demographics and psychographics leads to market opportunities
  2. Focus on the products and services – customer needs and wants are satisfied with products/services that the company can manufacture and deliver profitably

An organization’s business model drives its strategy and processes, which in turn are enabled by its technology and organization. Therefore, we must include processes as an additional driver of organizational design.

  1. Focus on processes – processes provide the most effective and efficient means of creating, delivering and servicing products for customers

In other words, organizational design for eBusiness must factor in customers/segments, products/services and organizational processes.

Customer centric organization design

An organization exists because of their customers. Therefore, every organization is well advised to focus on their customer’s needs and wants and to satisfy them with innovative products and services.

Often, companies do intend to focus on their customers but they do not take the time to understand them. Instead, they assume what the customer needs and wants, then, go about creating products and services based on those assumptions.

Companies have also grasped the concept of segmentation, however, mistakenly, created segments that do not provide a consistent or coherent basis for business decisions. Take for example, the online versus offline customer segmentation.

It is not a matter of debate that online customer demographics and psychographics are different than on-ground or offline customers’. However, is your company providing different products and/or services to these two? Or is it providing the same product or service for a different price?

In other words, for segmentation to be meaningful, the organization must make specific decisions about transactions or interactions within that segment.

A company, no matter how complex, must present a single face to the customer. This is good for branding and customer satisfaction – both drive shareholder value. How can a company present a single face to the customer?

  • Single promise – the offering in terms of description, product bundle, pricing, promotion etc. should be consistent across channels. Please note that I am not recommending the “same” but “consistent.” This allows for offering differentiation across channels but the message is consistent across them.
  • Same delivery – at any customer touch point, whether it is a sales person, contact center or website, the interaction should be consistent and coordinated
  • Single bill – no matter how many products or from which division they were bought

These are just a few things the company can do to present a single face to the customer.

Organizational design is driven by both customer segmentation and single face to the customer.

For example, if your company provides different products to online versus offline customers, you are better suited having a dedicated eBusiness organization. This organization could operate as a separate business unit with all key processes – sales, manufacturing, operations etc. – within it. This ensures that customer requirements are understood and serviced appropriately.

On the other extreme, if your company provides the same products and services to both online and offline customers, then it is better suited to have eBusiness functions buried in the existing organization structure – online marketing with marketing, online IT with IT, online operations with operations, online customer service with customer service etc.

In between these two extremes lie a variety of configurations. Some companies provide the same product but offer online service at a discount. Some others provide different products and different tiers of service. The exact organizational configuration should be based on the specific customer service considerations.

Process versus functional design

Traditional organization design is based on functions. The departments in a company are “functions” dedicated to a specific set of related skills. The departments are further broken down into sections or units also based on functions.

Functional design provides very good economies of scale but at the expense of coordination and integration.

The management – hiring, development, training, promotion etc. – of a related set of skill sets is “natural”, easier and cost effective. Functional organizations scale quickly and economically.

However, cross function integration is cumbersome and ineffective. Roles, responsibilities and chain of command make it very difficult to set a single agenda with a common set of objectives. In the absence of which, the organization does not act as one team pursuing a common goal but multiple teams often working at cross purposes.

Functional design is not only contrary to the natural flow of an organization, but also the single biggest impediment to organizational effectiveness and efficiency. An organization creates its products and services through processes. Along the way, functions pitch in to provide a specific skill but close coordination and integration of these functions is critical to overall process effectiveness and efficiency. As discussed above, functional design prevents this coordination and leads to ineffective organizations.

eBusiness has exposed this weakness more than anything before it. eBusiness requires all processes to create and deliver products and services to a marketplace. These processes are intertwined with existing processes whether they are extracted from or superimposed on them. One might have these processes enabled by an existing organization or by a virtual organization extracted from or superimposed on an existing organization. But the fact remains that integration and coordination are critical to the success of an organization pursuing eBusiness.

Functional design just does not do the job for an eBusiness enabled organization.

Next week, we will discuss the options available for eBusiness organization design and, based on the discussion so far, provide pros and cons to each.

Sourabh Hajela is a management consultant and trainer with over 20 years of experience creating shareholder value for his Fortune 50 clients. His consulting practice is focused on IT strategy, alignment and ROI. For more information, please visit www.StartSmartS.com. Or feel free to contact Sourabh at Sourabh.Hajela@StartSmartS.com.


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Posted on 06/04/2009 by


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