Video"A company in Dell's position wouldn't spin out E-business," he explains. "But a Compaq probably should. When a company needs to make a major change in operating procedures, then a heavyweight, cross-functional team or unit is needed. If E-business fits existing operating and order-fulfillment processes, then a lightweight team working within existing structures may be the right approach. When it is disruptive to a firm's business model, as it is to Compaq's, then setting up an autonomous organization is a must."
Compaq did, in fact, create a separate unit when it began selling PCs on the Web, but it has since merged that function back within the company. At the same time, it reorganized its IT department for an E-business world, creating a "vice president of E-business" position to whom managers focused on B2B, B2C, B2P (partners), and B2E (employees) report. The department is responsible for delivering Compaq's E-business strategy. Robert Napier, senior vice president of Compaq's global business solutions unit and its CIO, says the new approach was needed because "as soon as you start taking orders over the Web, you encounter a host of things that affect the bricks-and-mortar part of the company," from fulfillment to customer satisfaction to new product development. But he says that creating a separate unit did help Compaq gain traction in E-commerce. "Depending on your culture, insulating a small group from the corporate bureaucracy can help you get to market faster."
Some experts believe that many companies that have created separate E-business units or teams will soon fold them back into the organization. Tom Davenport, director of Andersen Consulting's Institute for Strategic Initiatives, in Cambridge, Massachusetts, argues that "in the short run, a change in organizational structure can help focus attention on the issue, and that's useful. But ultimately, the level of integration needed works against having a separate unit." Adds Chris Gardner, a partner who leads the IT Strategy Group at PricewaterhouseCoopers: "For companies that are used to a stable environment, dropping E-commerce into the middle of existing structures can be the kiss of death. But transplanting it later, when it's mature, may make sense."
A Hybrid Approach
Integration is very much on the mind of Bernard F. "Bud" Mathaisel, vice president and CIO at Milpitas, California-based Solectron Corp., a $14 billion electronics manufacturing services firm. As a provider of manufacturing and supply-chain services, Solectron exchanges enormous amounts of data with its customers and suppliers, everything from computer-aided design diagrams to order, status, and quality information. The electronics industry is brimming with Internet trading exchanges, and Solectron participates in most of them.
As a result, says Mathaisel, "an electronic backbone is essential, because if all these connections aren't integrated, we can't function." So he has taken a hybrid approach to organization: one of his four direct reports is responsible for investigating and supporting E-business from an IT perspective, but E-business opportunities may spring up in virtually any functional unit of the company.
"Because there are so many things going on in this area that have yet to reach maturity," says Mathaisel, "we felt that a separate E-business capability within IT made sense." But companywide, he says, E-business innovations and "incubators" can spring up anywhere. "We don't manage or control them all," he says, "but we make sure they're properly organized and synchronized with our architecture."
In a sense, Mathaisel says, this approach mirrors the Internet itself: many points of knowledge integrated in (one hopes) as efficient a manner as possible. "It's an organizational structure that works well," the CIO says, "because a more definitive master plan would not hold up given how quickly things change today." In fact, the impact of E-business is so profound that some people, such as Gartner Group Inc. executive fellow Bruce Rogow, claim the traditional divide between manufacturing and service firms no longer applies. Rogow says companies can be better classified as "techno-transaction," "techno-exchange," and "techno-service" firms, and often a combination of two or even all three. As technology continues to transform the way in which business is done, organizational structures will likely remain in flux. That may frustrate those who long for stability; those who insist on it may fare worse.
Scott Leibs is technology editor of CFO.
A Matter of Contigency
As IT departments, and organizations in general, recreate themselves for E-business, one trend that is certain to accelerate is a reliance on a contingent workforce. Whether hiring a Java whiz for a single project or outsourcing the entire IT function, companies will increasingly rely on outsiders for critical contributions. Therefore, says Dan Walsh, CEO of Wakefield, Massachusetts-based consulting and research firm Darwin Partners, a separate E-business team is far less important than what he dubs a "project management office."
In Walsh's view, the most profound organizational change affecting companies today is a move toward owning managerial talent and renting other forms of talent. By training staff members to provide project guidance, a company can rebalance its portfolio of human capital and ensure that in-house skills are aligned with its overall mission.
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