Organisational Form, Digital Technologies & Their Affect.

New Organisational Forms:

Digital Technologies are changing the structure of many industries and the organisations operating within them. Identify and debate the opportunities and challenges for managers and employees operating within these new forms of organisations.

By: Mark Regan

Table of Contents

New Organisational Forms ........................................................................................2 1. Introduction .............................................................................................................................2 2. Transparency & The Empowered Customer ......................................................................2 3. Rapid Product Development ................................................................................................3 4. New Organisational Form .....................................................................................................3 5. Threat of Disruption ...............................................................................................................4 6. Conclusion ...............................................................................................................................5

Bibliography ................................................................................................................6 1. Reports .....................................................................................................................................6 2. Webpages .................................................................................................................................6

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New Organisational Forms 1. Introduction Technology is not only changing the structure of industries and organisations, it is changing almost every aspect of how consumers live their lives. The environment in which businesses operate is changing rapidly. The ability for companies to embrace technology and use it to create sustained competitive advantage is more important now than ever before. This report will look at some of the changes that have been cause by digital technology, and identify the challenges and opportunities that employees and managers are likely to face. 2. Transparency & The Empowered Customer The advent of the internet and mobile technology has shifted the power from the seller to the buyer. Never before have consumers been so empowered when making purchasing decisions. Price comparison sites like GoCompare.co.uk, MoneySuperMarket.com & kelkoo.co.uk have enabled customer to instantly compare prices of products and services across a wide range of industries. Creating this level of transparency has had a profound effect on many industries. In particular, the “middle men” have suffered the most. As consumers use the internet to find the best value deals, wholesalers, agents, brokers and retail stores have suffered. One of Tapscott’s twelve themes of the new economy is “Disintermediation”. Tapscott makes the valid point that middle men are “in the business of executing transactions, brokering, or boosting communications in a pre-digital economy”. As technology standards become more commonplace, the need for intermediaries will diminish. Both managers and employees need to be aware of this trend as it is likely to affect the future of the company in which they work. In particular, managers need to ensure that the company remains part of the value chain. If the purpose of the company can be easily replaced by digital technologies, then the company’s strategy need to be analysed. This level of transparency can also be seen when looking at product reviews. Prior to the internet, purchasing decisions were primarily based on information from store employees, traditional media & personal recommendations. Often the most trustworthy information you could receive was through personal contacts. The internet has enabled customers to share their opinions about products and services; resulting in an information rich product review system. Statistics show that 81% of online holiday shoppers read online customer reviews and 86% of consumers read online business reviews before making purchasing decisions; 90% of whom say they trust these reviews.1 No longer are companies able to hide behind the corporate facade of public relations. Customers now place more emphasis on user generated customer reviews than information from media reviews, mass marketing or in store sales teams2. Companies need to focus on the cost of negative publicity on the internet. Platforms such as Twitter and Facebook have enabled the viral spreading of consumer sentiment. Digital technology has caused a paradigm shift in the way in which consumers make purchasing decisions and voice their opinion. Managers need to both embrace and be

1

BazaarVoice.com 2009, “Industry Statistics”, 23 May 2009,

http://www.bazaarvoice.com/industryStats.html. 2

Social Media Marketing: The Right Strategy for Tough Economic Times" Awareness, 2008

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cautious of this new movement. As Nicholas Carr suggests, the Internet may not necessarily be a blessing. 3. Rapid Product Development Reflecting Moore’s Law, technological innovation has accelerated year on year. As products have become increasingly complex, the ability for any one company to create all aspects of a product have diminished. In Dan Tapscott’s paper “Rethinking in a Networked World”, he acknowledges that many blue chip companies are no longer manufactures, they are systems integrators. The process of manufacturing has almost become commoditized. Companies like Mercedes-Benz and IBM no longer manufacture their own products; but rather they find expert contractors to manufacture their products on their behalf. The process of outsourcing is a classic double edged sword. On one hand, the company is benefiting form the contractors expertise in manufacturing, ability to scale & their supply chain. Additionally, the contractee can distance themselves from the contentious area of “sweatshop” labour in the middle east. However, the company is sacrificing a traditional source of competitive advantage; manufacturing. In doing so, they are adopting a new network orientated strategy. Companies like Dell realise that there is no competitive advantage to be gained by manufacturing their own products. Establishing “B-Webs across industries, in which each business focuses on it’s core competence, are proving to be more supple, innovative, costefficient and profitable than their vertically integrated competitors” (Don Tapscott, Rethinking in a Networked World). It is this very thinking that has changed the way in which products are designed, manufactured, distributed, marketed & sold. Employees operating within these business functions must be aware of this changing trend. One of the most noticeable changes in product development is the speed at which new products are released. Apple notes in it’s annual report 2008 that “because the personal computer, consumer electronics, and mobile computing industries are characterised by rapid technological advances, the company’s ability to compete successfully is heavily dependent upon it’s ability to ensure a continual and timely flow of competitive products, services and technologies to the marketplace.” This trend can be seen across the board and is in a large part due to advancements in technology. 4. New Organisational Form The competitive nature of today’s marketplace requires a different type of organisation. Companies need to be agile and responsive in order to create innovative products on a regular basis. Companies that have a hierarchal structure are not well positioned to meet these needs. One of the problem associated with hierarchal structures are middle management. In order for a company to be agile, decisions need to be made as fast as possible. The existence of middle management creates a buffer layer between decision and action. Google is a company that operates in a rapidly changing marketplace, and much of it’s future success depends on it’s ability to sustain innovation and update existing products on a regular basis. In fact, Google has adopted a strategy known as perpetual beta; updating a product so often that is remains in a constant state of flux. Competing in such an environment requires a radical change in organisational structure. Google is a good example of a flat organisation. It’s engineers and designers are arranged into pods of about 3-6 people whereby one member is appointed project manager. The group is self directed and has the flexibility to change direction at any stage without the approval of senior management. Additionally, if a Google employee has an innovative idea, he is only required M A R K R E G A N

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to convince a certain number of his colleagues to join his pod. When the threshold of engineers is reached the project is automatically approved. This results in a highly dynamic organisation which is self propagating. Google has taken advantage of it’s main asset human capital - and empowered them to innovate new products and services at a rapid pace. However, there are aspects of Google that have retained the traditional hierarchal structure in lieu of the former. Their Legal, HR, Investment, Financial, Sales and M&A departments have a traditional hierarchal structure. Eric Schmidt acknowledges that certain business functions are suited to nodal structures and some business functions are suited to traditional hierarchal structures. Managers in this “New Economy” need to create an organisation that acts organically. Traditionally, rigid structures have been placed on organisations; often stifling their dynamism. Flat or nodal based organisation are often associated with innovative, fast paced environments. As a manager, it is essential to reduce friction within an organisation as much as possible; allowing your human capital to innovate and contribute to strategic direction. Employees that plan on working in highly innovative areas, should try and hone their project management skills whilst developing a keen appreciation for business. Candidates that can bridge the gap between executive and innovator will excel quickly through the ranks. 5. Threat of Disruption Never before has the threat of disruption been so great. Technology is essentially disruptive; it aims to replace existing processes with more efficient and cost effective solutions. Managers must be aware of their companies vulnerabilities and ensure that they take advantage of emerging technology. According to Fred Wilson of Union Square Ventures, companies that are end to end digital are most susceptible to disruptive technologies. This is a logical statement, but it provides managers with a basic rule of thumb for assessing their companies digital vulnerabilities. The internet has made it easier for individuals to setup companies with little or no capital investment. The cost of software development is reducing every year, and with it the threat of new entrants to the market increases. Services such as Google AdSense have enabled businesses with limited advertising budgets to effectively target a specific market segment. Ultimately, these low barriers to entry enable ordinary people to easily setup up a new business. Additionally, the “Net Generation” - as coined by Don Tapscott - present companies with even more challenges. The N-Gen are by products of technology; they have grown up during a period of technological revolution. Because of their experiences and contact with technology, their brains have developed in a different manner to their parents. An N-Gen individual looks at a computer in the same way their parent might look at a calculator. It is simply a tool for achieving an end goal. However, the N-Gen individual has an appreciation for technology that goes beyond function and towards adaptation. N-Gen individuals have the innate ability to solve technological problems by adapting the system they are using. This modular approach to problem solving is why the N-Gen will be one on the most disruptive by products of technology in the next decade. Managers must be aware of this fundamental change in human resource management. The expectations of the N-Gen are fundamentally different to that of an older demographic. The N-Gen are eager to collaborate, share information and change the status quo. They are both individualistic and collectivist whilst showing lower power difference characteristics than older generations. This is understandable, as the N-Gen grew up during a period where M A R K R E G A N

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authority was not respected; illegal downloading of music was becoming the norm and traditional authoritarian institutions were loosing power (Church, Schools, Police). 6. Conclusion Digital technology has not only affected the structure of industries and organisations; it has altered the fundamental environment in which they operate. The internet has empowered consumers to make informed purchasing decisions by increasing transparency and enabling the viral spreading of consumer sentiment. Contrary to N. Carr’s beliefs, this has added considerable value to the economy. It may be true that the internet has corroded profitability, but the very nature of “shrinking the market”3 is synonymous with increased efficiency. Managers & employees that find themselves in an intermediary position, need to reposition themselves or the company within the value chain. Technology has redefined what we understand product development to be. Technology has enabled engineers to design and deploy products of increasing complexity, in shorter periods of time. This has been achieved through a series of technological advancements and fundamental changes in organisational structure. For instance, Computer Aided Manufacturing (CAM) has enabled engineers to stress test the wing of an aeroplane before it is even built. Open standards such as XML have enabled machines from different vendors to communicate with one another. Product Life-cycle Management (PLM) software enables companies to manage the entire life cycle of a product; “from conception, through design and manufacture, to service and disposal.” 4 As organisations consist of multiple interconnected and interdependent nodes, managers must have a holistic appreciation of PLM and it’s relationship with other aspects of the business. By analysing Porter’s 5 forces framework, one can see that technology has resulted in a dramatically more competitive environment across many industries. Companies need to be innovative, agile, responsive and self propagating in order remain competitive. Innovative companies such as Google show that a modular, nodal or flat organisation is best suited to innovative environments. Innovative companies need to take full advantage of their human capital; enabling them to rapidly innovate and contribute to the companies strategic decisions. Both managers and employees must realise that “the person at the top can’t learn for the organisation anymore”. (Peter Senge, MIT Sloan School of Management) Organisations are not only being affected by technology directly - by products of technology are presenting many challenges too. The “Net Generation” are a by product of technology and will pose significant challenges to organisations over the next decade. The N-Gen have the ability to solve systemic problems by adapting technology in a modular format. Their eagerness to collaborate, ability to lead and refusal to accept the status quo, make the N-Gen both a challenge and an opportunity for future organisations and managers.

3

AtGoogleTalks,

http://www.youtube.com/watch?v=mAk1MX3ES_g&feature=channel_page, 23 May 2009. 4

Product Lifecycle Management,

http://en.wikipedia.org/wiki/Product_Lifecycle_Management, 23 May 2009. M A R K R E G A N

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Bibliography 1. Reports Nicholas G. Carr 2003, IT Doesn’t Matter, Harvard Business review. Don Tapscott 2001, Rethinking Strategy in a Networked World (or Why Michael Porter is Wrong about the Internet), Strategy+Business. Don Tapscott 1999, Minds over Matter, Business 2.0. Don Tapscott 2004, The Engine That Drives Success, CIO Magazine. Rodger Clarke 2004, The Path of Development of Strategic Information System Theory, Xamax Consultancy Pty Ltd. Don Tapscott, Alex Lowy, David Ticoll 2006, Blueprint to the Digital Economy. Hind Benbya, Bill McKelvey 2006, Towards a complexity theory of information systems development, UCLA Anderson School of Management. Joy McGovern 2001, Creating a Knowledge-Based Organisation, The Manchester Review. Don Tapscott 2004, The Engine That Drives Success, CIO Magazine. Apple Inc, 2008, Form 10-K, Apple Inc. 2. Webpages BazaarVoice.com 2009, Industry Statistics, 23 May 2009, http://www.bazaarvoice.com/industryStats.html. Wikipedia 2009, Product Lifecycle Management, http://en.wikipedia.org/wiki/Product_Lifecycle_Management, 23 May 2009. Google 2009, AtGoogleTalks, 22 May 2009, http://www.youtube.com/watch?v=mAk1MX3ES_g&feature=channel_page.

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