E-Commerce and Organization Design

We received an inquiry this morning from a graduate Economics student in Italy. In researching his thesis on production management, he wanted to know:

  1. What structure(s) will pure E-Commerce enterprises adopt?
  2. How should learning organizations manage their employees?
  3. What atmosphere can be expected in E-Commerce companies?

We thought we'd share our answers with those of you who may have been wondering about the same question:

  1. E-commerce is in its infancy.

    While a few, like Amazon, are big in revenues compared to most Old Economy companies, they were born yesterday.

    The challenge of finding structures for pure E-commerce enterprises is daunting. These firms pioneer new frontiers and reinvent themselves continually.

    We have not yet conducted a formal study, but through informal explorations we have tentatively concluded that the design of E-Commerce (and similar high-tech, fast-paced, fiercely-competitive companies) will remain highly organic. Appropriate to their business model, they will shape and reshape themselves in response to emergent strategic planning. (FYI, many such companies shun the term "strategic planning" in the belief that it suggests Old Economy thinking and culture.)

    While you inquired about *pure* E-Commerce businesses, it is not always easy to draw the line. As you undoubtedly know, there are multiple variations on the E-Commerce theme. For example:

    Some companies deliver their entire product in cyberspace (eBooks, software, consulting services, music), while others take orders for products that must be physically delivered (clothing, garden supplies, household items).

    Some companies are exclusively in the E-commerce business (Amazon.com); others are traditional brick and mortar organizations with an E-Commerce presence (Barnes and Noble) that may be incorporated into the corporate structure and practices, or separated and allowed to design itself as a greenfield site.

    Some companies are one-person operations with a shoestring budget that is wholly funded by the owner; others are major corporations with impressively large assets and numbers of employees.

    In organization design, form must fit function. As business models vary, so will their organization designs. Each organization must find its own route to the permeable (or no) boundaries, teamwork, flexibility, agility, speed, knowledge, and open communication that all Knowledge Age companies must have to succeed.

  2. Managing people is another story.

    E-commerce firms tend to be led by young, technologically-oriented people with little or no management experience. While work structure and processes must change to accommodate new environmental transformations (including technology), approaches to motivating people remain much the same.

    Don't expect to find best practices for management in E-commerce companies until they've had a chance to mature a bit. Look, instead, to such companies as Motorola, Saturn, Ben and Jerry's, and others on Fortune magazines list of the100 best companies to work for. They are all "learning organizations," a concept pioneered by many firms. Any organization can be a learning organization. E-commerce enterprises don't have a monopoly on this concept.

  3. In keeping with its environment, the atmospheres in an E-Commerce company can be expected to be one of purposeful chaos.

For more information, check out:


  • Clicks and Mortar," by David S. Pottruck and Terry Pearce
  • The Origins and Evolution of New Business," by Amar V. Bhide
  • Learning in Action," by David A. Gavin


  • Fast Company
  • Red Herring
  • eCompany
  • Knowledge Management


No sooner did we send our last Biz Factoid into cyberspace, than we received a news release from Watson Wyatt that complements our message that smart organizations do what they must to hold onto hard-won talent. This is especially critical for Internet and e commerce companies.

Watson-Wyatt concludes, in their study, "Raising the Bar: Internet and e-Commerce Compensation Practices" (based on a survey of 107 e-commerce companies- organizations involved with direct distribution, sale or exchange of business through the Internet--and supplemented by proxy statements of more than 100 organizations):

"The explosion, and recent implosion, of e-commerce has accelerated the transformation to more strategic compensation approaches... Our 2000/2001 'Survey of Internet and e-Commerce Compensation Practices' examines how companies that are leading the technological revolution are designing and implementing pay practices to attract and retain key talent."

We note that Watson-Wyatt's study was conducted during the summer and fall of 2000, many, many pink slips ago -- with more yet to come.

Among its findings, Watson-Wyatt reports that Internet and e-commerce companies:

  • offer average salary increases between 7.7% and 9.7% -- in comparison to general industry's average salary increases of 4.4% to 5.7% (projected for 2001).
  • are more responsive to market demands through aggressive use of stock-based compensation, traditional forms of cash compensation and non-monetary rewards.
  • overwhelmingly (84%) use stock as a form of compensation (92% in Western states; 74% in Central states).
  • offer stock options (94%), offer employee stock purchase plans (33%), and offer 401(k) or other savings plans with company stock (22%).
  • provide new hire (signing) bonuses at all levels of their organizations, with bonuses more prevalent at higher job levels. Most pay new hire bonuses in cash; 40% pay them in stock.
  • have increased their use of traditional forms of compensation, while maintaining their equity emphasis, with cash compensation levels fully competitive with traditional employers for most positions.

It will be interesting to look back on these six bullet points midyear 2001 to see how strategic compensation approaches in this sector have fared.

  • 17% to 35% of Internet and e-commerce companies conduct salary reviews more than once a year (varying by job level)
  • 85% provide annual bonuses; 16% offer spot awards; 16% pay key contributor awards, and 13% have cash profit sharing programs.
  • The average CEO base salary is $223,000 and VPs of HR are paid $150,000 on average.