Organizational Design and Innovation in Small Business Startups

Introduction

New venture creation in emerging economies is being driven by product, process, and paradigm forms of innovation at a macro level (Bessant & Tidd, 2007) and by the ability to quickly and economically translate knowledge into value at the micro level (Eshun Jr., 2009). The organizational structures created as a result of new venture creation vary depending on how the initial business model is formed, the value chain of the industry in which the start-up competes, and the relative velocity of innovation necessary to grow the start-up to the point of establishing a stable customer base. The intent of this paper is to analyze the factors that define a new venture's organizational structure, including an assessment of the conditions that lead to the greatest long-term viability of the company.

Business Model Disruption and Virtual Team Structures

The catalyst for how one start-up will choose to define its organizational structure relative to another is most often based on its source of differentiation, and more fundamentally, its source of innovation. Start-ups that seek to completely redefine the business models of entire industries illustrate this point clearly — Google has done so with online advertising, and Facebook has done so by capitalizing on the intersection of personal relationships and online buying. Their counterparts across China, India, Brazil, and Russia (the BRIC nations) are similarly concentrating on how to change the business model of online advertising, and in so doing, completely disrupt the buying process in both Business-to-Consumer (B2C) and Business-to-Business (B2B) markets.

This disruption of business models forces these start-ups — the most successful of which include Google and Facebook — to adopt an organizational structure that allows for rapid expansion based on the availability of networking-based knowledge, combined with the ability to pervasively extend their business model to millions of customers globally. The organizational structure of firms that choose to innovate and creatively disrupt business models centers first on virtual teams of experts with deep expertise in each area of the business model (Manolova, Manev, & Gyoshev, 2010). As knowledge capture and its translation into a business model advantage increases as a business matures and the new venture attracts competitors, the speed of internal communication also becomes critical. The most successful start-ups in disrupting business models have the ability to take internal lessons learned and rapidly propagate them across their entire organization (Lin, Peng, & Kao, 2008). Because the majority of start-ups that concentrate on business model disruption employ a virtual workforce as part of their research and development or engineering teams, the accuracy and speed of internal knowledge capture and transfer is a critical success factor in their growth (Eshun Jr., 2009).

Process-Centric Innovation in Emerging Economies

For start-ups in the emerging economies of the BRIC nations, the orientation in many successful cases is on translating knowledge into solutions through business process management (BPM) and specialization in complex, often costly processes for organizations worldwide. Examples include the hundreds of process outsourcing companies throughout the BRIC nations that have specialized in Sarbanes-Oxley (SOX) compliance initiatives. These start-ups take a decidedly process-centric view of innovation. Their ability to tailor financial systems so that companies achieve compliance with government requirements is their greatest strength. The resources necessary to accomplish this require a centralized workforce of well-educated solution architects and process improvement specialists, most often with Six Sigma quality management experience. This skill set is prevalent in the manufacturing-centric regions of China and India, though it commands premium compensation relative to typical wage levels in those nations.

Because of the value of process-centric knowledge, start-ups that concentrate on process-centric innovation often build practices or teams of deep subject-matter experts and frequently create career paths for junior associates that place them on-site at client locations. A clear example of this model is the growth of Indian business process outsourcers such as Infosys and HCL, both of which maintain their Sarbanes-Oxley practices in India while deploying analysts to the United States, Europe, or Asia for weeks or months at a time to complete process re-engineering work. This is a resource-based strategy for creating a practice-based organization capable of delivering immediate value at the customer site (Morris, Kuratko, Allen, Ireland, & Schindehutte, 2010).