Global 500 Must Restructure Now Or Miss Out On eBusiness, Warns Forrester
Today’s organizational models do not support the focus and speed that eBusiness demands, according to a new Report by Forrester Research B.V. (Nasdaq: FORR). To overcome this, Forrester advises that firms overhaul their existing corporate structure to support short business cycles. The result: companies will become a collection of autonomous business units, dedicated to different cycle lengths — connected via an internal collaboration network.
Organizing for eBusiness will be one of the issues under examination at Forrester’s eBusiness Forum Europe on February 26 – 28, at the Amsterdam RAI Conference Center. The Forum will feature Engelbert Suchla, managing director IT Planning and Control, BMW; Paul Timmer, head of eCommerce for the European Commission; Alex Gibbons, CTO, Transora; and Sally Davis, president, BT Ignite.
To understand how European firms cope with the organizational, process, and speed issues of eBusiness, Forrester conducted in-depth interviews with 20 board-level executives in Global 500 companies headquartered in Europe. These firms have an average revenue stream of
50 billion euros and compete on a global scale with multiple brands, both online and offline.
“If Global 500 firms only use the Net to get better control over their external business relationships but leave their internal structure untouched, the problems with speed and flexibility will get worse,” said senior Forrester analyst Jaap Favier. “Because when Global 500 firms buy and sell up to 30% via eMarketplaces by 2004, the current model of a single eCommerce group will crumble under the pressure to support inter-enterprise technology and processes.
“As the pressure from external partners mounts, departments will demand real-time information in order to make instant decisions, and large firms today are not structured to provide this support: they lack focus on external markets, stagnate decision-making and fulfillment, and don’t share information. Instant response to client and supplier needs will require entire companies to restructure to the eBusiness network (eBN) organization model. The new structure will form around business processes with different cycle lengths, defined as: The time it takes a business process to alter its output completely.”
The explosive growth of eMarketplaces and the trend to outsource long-cycle activities like manufacturing, will force an internal shift to short cycles, shaping overall profitability, enhancing customer relationships and building corporate intelligence. Similar to investment banks and airlines, which have traded through electronic markets for decades, firms need to separate processes into business units with a particular eBN organization role and cycle length, enabling every manager to make decisions in the appropriate time frames. Every eBN unit will become more competitive in a specific market, select business partners on- and offline, contribute to the overall company bottom line, and develop its own unique information sources.
Due to the complexity of coping with reporting, staffing, accounting, and governance, firms need a stepped approach — starting with the outward-facing short cycles to close the imminent gaps in client and supplier responsiveness, and progress outside-in with the medium and long cycles.
“Firms must first isolate short-cycle units by listing each industry that it sells or buys in, and set up a dedicated unit that will focus on the particular dynamics of that vertical,” Favier added. “Companies must next dismantle medium and long cycles by appointing one medium-cycle unit unique to geographies. Finally, firms must implement new reporting structures by letting each eBN unit define its own board, with senior staff from inside the company and from the markets they serve. Once established, the units must negotiate and contract the exchange of products, services, and information between each other.
“The rate at which a company will complete these three steps depends on the demand posed by suppliers and clients for instant action and on internal inhibitors like staff resistance to change. For instance, a flat organization like Vivendi may complete the dismantling of processes in step one and two within a year. But Shell and E.ON, with complex matrix structures involving many verticals, must push themselves to finish in two years or become the dinosaur in their consolidating industries.”