DESIGNING AN ENTREPRENEURIAL ORGANIZATION

1. 12 DESIGNING AN ENTREPRENEURIAL ORGANIZATION

2. Learning Objectives • Describe how businesses are organized. • Discuss the role of strategic alliances in a new organization. • Explain how to identify the appropriate business site. • Discuss the most critical issues related to organizing people.

3. Design: Understanding the Way the Business Works • Organizational structure • Finding the best fit, given the existing: • Contextual factors (environment, technology, market) • Design factors (strategy and models) • Structural factors (complexity, formalization)

4. Building Blocks of an Entrepreneurial Organization Figure 12.1

5. Design: Understanding the Way the Business Works (cont’d) • Distributed forms of organizations • Companies generally distributed on four levels: • Geographically (locally or across continents) • Organizationally by department or project group • Temporally by time zone • By stakeholder groups

6. Identifying Business Processes • Design the process map/flowchart that traces how information flows through the business. • Mapping leads to better decisions • Number of people to hire • Amount of equipment to purchase • Type of facility for working • Type of organizational structure to employ

7. The Virtual Enterprise • A virtual enterprise is a “business without walls.” • A temporary network of independent companies, suppliers, customers, even erstwhile rivals—linked by information technology to share skills, cost, and access to one another’s markets

8. The Virtual Enterprise (cont’d) • Its goal is to deliver highest-quality product at the lowest possible cost in a timely manner. • Outsources in a virtual world • Forms a network of strategic alliances • Keeps distributed employees and strategic partners linked

9. Location Strategy: Finding the Appropriate Business Site • Site decisions begin at macro level • Choosing the region, state, and community • Economic base • Financial incentives • Population demographics • www.geohive.com

10. Location Strategy: Finding the Appropriate Business Site (cont’d) • Choosing a retail site • The trade area • Competition and character • Accessibility • Choosing the service/wholesale site • Some of same considerations as retail site (accessibility, attractiveness, trade area of sufficient size, etc.) • No need for upscale version

11. Location Strategy: Finding the Appropriate Business Site (cont’d) • Choosing the manufacturing site • Access to suppliers • Cost of labor • Access to transportation • Cost of utilities • The Lease–Build–Buy decision • Ask the right questions at each stage • Startup • Rapid growth • Stable growth

12. Location Strategy: Finding the Appropriate Business Site (cont’d) • Alternatives to conventional facilities: • Incubators • Shared space • Mobile locations • Temporary tenant agreements

13. People Strategy: Organizing Startup Human Resources • Startup operations • Organization chart tends to be flat • Much work accomplished through informal organization or network of relationships • New ventures adopt team-based approach rather than formal “departments” • Often employ independent contractors

14. Simple Organizational Chart for a Growing Business Figure 12.3

15. People Strategy: Organizing Startup Human Resources (cont’d) • Common leadership traps: • Isolating themselves from the rest of the startup team • Always having the one “right” answer • Keeping people on board who are not up to the needs of the company • Taking on too much too soon • Setting unrealistic expectations • Not building support

16. Creating the Company Culture • The personality of the company, that intangible set of values that determines how and why the people in the organization respond to their business environment the way they do • Culture of startup derives from vision and values of founding team

17. Aligning Culture and Strategy Figure 12.4

18. Hiring the Right People • Important for an entrepreneur to understand how to hire • Functions to fill • The employee search • Interviews • Human resource leasing • Professional employer organization (PEO)

19. Managing Employee Risk • Risk management is a set of policies and their associated decision-making processes that reduce or eliminate risks associated with having employees. • Financial risks • Obey all rules and regulations

20. Planning for Ownership and Compensation • The major issues: • How much of the company to sell to potential stockholders? • How much to pay key managers? • Compensating with stock • An investor does not need to be an equal partner. • Hire talent rather than give away ownership. • Use cash for bonuses rather than stock.

21. Founder’s Stock • Known as “144 stock” • Payoff comes with liquidity event such as IPO or acquisition by another company • Stock is issued to the first shareholders of the corporation • Restricted by SEC rules

22. Alternatives to Equity Incentives • Deferred compensation plans • Bonus plans • Capital appreciation rights • Profit-sharing plans

23. New Venture Action Plan • Identify the processes and information flow in your business. • Identify ways to operate like a virtual enterprise or at least to outsource some aspects of the business. • Locate a site for the business. • Decide whether to lease, buy, or build a facility. • Determine the personnel required to run a business at startup or over the next three to five years. • Create job profiles for positions in the business. • Determine the ownership and compensation requirements of the business. Formulate a plan to find the best candidates for positions in the company.