How to Govern the Ever-Extending Enterprise, Part II

How to Govern the Ever-Extending Enterprise, Part II Technology is breaking down traditional management practices and paving the way towards the horizontal enterprise, writes CIOUpdate columnist Faisal Hoque of BTM Corp. Here’s how to cope. In Part I of this two-part series I talked about the concept of the “extended enterprise” being nothing new but how today’s version has evolved into something heretofore unimaginable. What distinguishes the extended enterprise now is knowledge: Knowledge of the customer, the supplier and new business ideas — in the minds of anyone, anywhere.

The challenge for leaders is governing this new-fangled thing that breaks most of the management rules we grew up with.

In order to do this, the organizational structure must be adapted to nourish true coordination within and without. It must enable the firm to exploit technology-enabled opportunities such as virtual integration, direct access to customers, and cross-divisional or business-unit integration. For example, at Cisco, the executive management team considered customer advocacy and relationships to be the strategic drivers of its business model. Cisco’s management focused on the coordination of business technology and customer-centric capabilities by having the CIO report to the senior executive responsible for customer advocacy, and by linking business and technology executives’ compensation to customer-centric innovation using business technology.

Networked governance model

An extended enterprise needs a networked governance model. This model emphasizes that four categories of stakeholders are important: the board and the top management team; business management; technology management; and external vendors and partners. Among these stakeholders, three kinds of relationship networks are important: visioning, innovation and sourcing.

Visioning networks involve senior business and technology executives and the board. They foster collaboration for creating and articulating a strategic vision about the role and value of business technology. Visioning networks help top management teams describe their perspectives on the role of business technology, their strategic priorities for its use, and the links they see between it and drivers of the business strategy.

One of the mechanisms for establishing a visioning network is to have the CIO as a formal member of the top management team. Other mechanisms include the establishment of a business technology management council and a business technology investment board.

Innovation networks involve business and technology executives. They foster collaboration for conceptualizing and implementing business technology applications. These applications are often aimed at enhancing the firm’s agility and innovation in customer relationships, manufacturing, product development, supply chain management, or enterprise control and governance systems. An example of organizational mechanisms that promote innovation networks is a corporate and divisional project approval committee. Whereas visioning networks engage the board and the top management to shape overall enterprise perspectives about the strategic role and value of business technology, innovation networks focus on specific innovations and strategic applications.

Sourcing networks are relationship networks between business technology executives and external partners. Their purpose is to foster collaboration between these internal and external parties when they are negotiating and managing multi-sourcing arrangements, joint ventures or strategic alliances. Sourcing networks can help companies not only lower their costs but also augment their capabilities and business thinking about innovative uses of business technology. Attention to sourcing networks must be emphasized in key organizational units that deal with the technical architecture and infrastructure (e.g., Office of Architecture and Standards), and the management of technology investments (Enterprise Program Management Office (EPMO))

Governing an extended, ever-evolving, knowledge-based enterprise will occur in four dimensions:

Process – Is someone responsible for each process from beginning to end as it crosses divisions and bridges to outside entities? Where are the strengths and weaknesses in the process? How does it mesh with others? How many bridges are there to the outside? Are they coordinated? Are these processes and bridges maximized for the benefit of the customer, or for internal benefit? By what metrics do you know?

Organization – Which people or groups make which decisions? Do they have enterprise-wide information if they need it? Do they have an enterprise-wide perspective? Are incentives in place to encourage this? Do they have proper authority? Who is empowered to step outside of traditional roles and boundaries to make a stand for the customer? To make a stand for the supplier?

Information – What information do the various players need to perform the preceding actions? What should you know about suppliers and customers, and how can you get this information? At what level should it be collected? When collected, how is it processed? Does it go to people who can make decisions to change how the organization operates? What incentives discourage the “not invented here” syndrome?

The really critical information will appear on the outer periphery of the extended enterprise: with your customers’ customers; their markets and new technologies they may be considering. It will appear in the commodities markets and technological innovations that fuel your suppliers. It may appear in think tanks or universities or in someone’s garage. Is your radar picking up these signals?

Technology – Not only must the technology be managed as one with the business internally, it must be planned for, purchased and managed with the outside world in mind, as well. Look to standards, to Web-based applications, to open architectures and to the new social networking technologies for the appropriate tools. Closed, proprietary technologies do not fit an organization seeking to be part of a larger community. Look also to component-based architectures and computing clouds for the agility needed to sense and respond. All is in flux today; you can’t be tied down.

Two principles should guide a governing strategy:

Everyone is invited to the party: This is an enterprise-wide endeavor, a rethinking and recreation of the organization as a whole. It is not a project for customer service, or procurement or the technology department. As my co-authors and I stressed in Winning The 3-Legged Race, not only must the C-suite be engaged, but boards of directors must be engaged in technology beyond the CIO’s annual PowerPoint show. The board must relate its knowledge of the wider world with the internal doings of the organization. A seemingly random event somewhere in the world may in fact be the next big thing or the next big threat.

This is not your father’s outsourcing: This is not about transactions. It is about relationships. Nailing those SLAs is not the answer. The strategic plans of your suppliers and the aspirations of your customers are the new playing field. Your communications, decision-making processes and technology must tie in. Your people will need new skills, marching orders and incentives to make it work.

Transformation, personal relationships, common vision, collaboration, trust — radical ideas indeed, but this is what comprises the face of governance in the new age of the extended enterprise.

Faisal Hoque is an internationally known entrepreneur and author, and the founder and CEO of BTM Corp. His previous books include Sustained Innovation and Winning The 3-Legged Race. BTM innovates business models and enhances financial performance by converging business and technology with its products and intellectual property.