ORGANIZATIONAL STRUCTURE (BUSINESS

MODEL)

CHAPTER 5
LEARNING OBJECTIVES:

• Discuss business organization principles

• Describe different types of business organizational
structures
• Show advantages and disadvantages of organizational
structures
• Understand and explain business model
• Discover business model and business model innovation.
 “Designing good business
models is an ‘art’... the
chances are greater if
entrepreneurs and managers
have a deep understanding
of user needs and are good
listeners and fast learners”.
David J. Teece
INTRODUCTION
Organizational structures and business
models together with the right culture form a
space where innovations can grow and be
fertilized. Organizational structures are
presentations and descriptions of how roles,
responsibilities, power, communication
systems and other elements are organized
and distributed in a company
INTRODUCTION
Meanwhile, a business model describes
how a company creates value and makes
profit, and which methods and means it
uses to achieve them. Your business model
is the story of how your business creates,
delivers, and captures value
TYPES OF BUSINESS ORGANIZATIONS
1. SOLE PROPRIETORSHIP- individual
owner, complete managerial control
2. PARTNERSHIP- two or more owners
share profit/loss
3. CORPORATION- legal entity created
to conduct business
ORGANIZATIONAL STRUCTURE
• A hierarchical outline of a company’s
roles, teams, and employees.
• Describes what employees do, whom
they report to, and how decisions are
made across business.
• At a minimum, an organizational
structure should include employee’s
titles and basic hierarchies.
KEYS TO ORGANIZATION
• Clear line of authority and responsibility
• Responsibility coupled with authority
• Report to one supervisor
• Accountability moves upward
• Delegate authority to the lowest practical level
• Line personnel separated from staff personnel
• Simple yet flexible structure
TYPES OF ORGANIZATIONAL STRUCTURE &
HOW IT AFFECTS INNOVATION IN BUSINESS
HIERARCHICAL ORGANIZATION
 A hierarchical structure is an organization structure that follows a
chain-of-command from the top executives to regular employees.

 It resembles a pyramid, and the individual with the most authority

occupies a sole senior-most position above the pyramid, while the
junior-most workers occupy the positions at the bottom.

 Its vertical chain of command has distinct reporting structures, and

everyone in the company knows their place.

 Hierarchical structures often work well in large cooperations and

organizations with many departments to perform different duties.
 FLATTER ORGANIZATION
A “flatter” structure seeks to open up the lines of
communication and collaboration while removing
layers within the organization. This is the model
that most large (and many mid-size) organizations
around the world are moving towards.

All employees are on a level playing field with

shared authority and decision-making powers.
These are also referred to as "self-managed"
teams, as employees decide what they work on
and when.
FLAT ORGANIZATIONS
Flat companies are exactly that…flat. Meaning there
are usually no job titles, seniority, managers, or
executives. Everyone is seen as equal. Flat
organizations are also oftentimes called or referred
to as self-managed organizations. The lack of
structure can also make accountability and
reliability a bit of an issue. Also, the company tends
to develop cliques where groups of people tend to
support and work with each other but oftentimes
prefer to stay to themselves, which can cause
challenges for communication and collaboration.
 FLATARCHY
Flatarchies lie somewhere in between
hierarchies and flat organizations. It is a flat
way of arranging a company, with few or no
levels between employees. For example,
there may be a CEO with employees working
directly beneath him/her, or there may be
just a team, with no hierarchy at all.
Organizations with this type of structure are
very dynamic in nature and can be thought of
a bit more like an amoeba without a constant
structure.
FLATARCHY

The main benefit of this

structure is the focus on
innovation. This structure is ideal
fit for companies wishing to
maintain a traditional structure
whilst driving innovation could
encourage ‘flat’ spinoff teams to
work on specific projects.
HOLARCHY ORGANIZATION

• Holarchy maintains hierarchies

but shifts power from
individuals in the pyramid to
circles (or departments). There
is still some form of structure
and hierarchy, but it’s not
based on people as much as it
based on circles.
 HOLARCHY ORGANIZATION
• The basic goal with this structure is to allow for
distributed decision making while giving everyone
the opportunity to work on what they do best.

• Each employee has a role instead of a job title,

and within the circle these roles are regularly
reviewed and transferred.

• Information is openly accessible and issues are

processed within the organization during special
and ongoing meetings.
BUSINESS MODELS
BUSINESS MODEL
BUSINESS MODELS AND BUSINESS MODEL
INNOVATION

A business model consists of two

essential elements—the value
proposition and the operating model
— each of which has three sub-
elements.
. BUSINESS MODEL
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VALUE PROPOSITION
answers the question, What are we offering to whom? It reflects
explicit choices along the following three dimensions:

 TARGET SEGMENT(S): Which customers do we choose to serve?

Which of their needs do we seek to address?

• PRODUCT OR SERVICE OFFERING: What are we offering the

customers to satisfy their needs?

• REVENUE MODEL: How are we be compensated for our offering?

VALUE PROPOSITION
OPERATING MODEL
answers the question, How do we profitably deliver the offering? It captures
the business’s choices in the following three critical areas:

 VALUE CHAIN: How are we organized to deliver on customer demand?

What do we do in-house? What do we outsource?

 COST MODEL: How do we arrange our assets and costs to deliver on our
value proposition profitably?

 ORGANIZATION: How do we deploy and develop our people to sustain and

enhance our competitive advantage?
 VALUE CHAIN
• A value chain is a series of consecutive
steps that go into the creation of a finished
product, from its initial design to its arrival
at a customer's door. The chain identifies
each step in the process at which value is
added, including its production's sourcing,
manufacturing, and marketing stages.

• A company conducts a value-chain analysis

by evaluating the detailed procedures
involved in each step of its business. A
value-chain analysis aims to increase
production efficiency so that a company
can deliver maximum value for the least
possible cost.
COST STRUCTURE IN THE BUSINESS MODEL CANVAS

• Businesses spend resources

to create value. Thus, the
cost structure details how a
company spends these
resources in all components
of its business model.

• Typically, they can be

variable or fixed costs.
COST STRUCTURE ATTRIBUTES
• Fixed costs: They are costs that a company has to pay each month that do not change based on the
goods and services produced or sales of goods. These costs are indirect and, in a way, unavoidable.
Some typical fixed costs are rent and salaries.

• Variable costs: On the other hand, variable costs are business expenses that vary depending on the
intensity of business operations. For example, during high production and increased sales, the
variable costs increase as there is a higher need for raw materials.

• Economies of scale: As companies grow, they may have additional cost benefits. For instance, large
businesses can achieve better prices when buying in bulk compared to smaller ones. As outputs
increase, the average cost per unit drops.

• Economies of scope: With a greater scope of activities, costs may reduce further. In particular, larger
organizations can simultaneously support several goods and services with the same marketing or
distribution channels.
BUSINESS MODEL INNOVATION
• Innovation becomes business model innovation when two or more elements of
a business model are reinvented to deliver value in a new way.

• Business model innovation (BMI) is about fundamentally rethinking your

business around a clear—though not always obvious—customer need, then
realigning your resources, processes and profit formula with this new value
proposition.

• BMI is especially valuable in times of instability as it can provide companies a

way to break out of intense competition, under which product or process
innovations are easily imitated, competitors’ strategies have come together,
and sustained advantage is vague.
BUSINESS MODEL INNOVATION

A good business model

creates value for both the • Determine benefit to the customer from
company and the
customers. According to consuming/using the product/service
Teece , business model • Identify market segments to be targeted
design comprises the • Confirm availability
following elements when • Design mechanisms to capture value
creating value for
customers, enticing • Select technologies and features to be
payments and converting embedded
payments to profits. The
elements create a circle:
Thank you!