The concept of the “extended enterprise” is hardly new. Even in the early years of the 20th Century when big corporations were gathering all the means of production under their corporate roofs to exercise control, the management theorists were advancing such ideas as the “organization as community” and the “environmental complex” as a management problem.
The notion of the extended enterprise picked up steam in the 1990s as global markets took on structure, and outsourcing and partnerships became an acceptable response. Today, however, the nature of “extended” has evolved into something heretofore unimaginable. What distinguishes the extended enterprise today, of course, is knowledge; of the customer, the supplier and new business ideas in the minds of anyone, anywhere.
And the challenge for leaders today is governing this new-fangled thing that breaks most of the management rules we grew up with. Even the term “governance” seems arcane; too harsh and prescriptive for a fluid and ever-evolving enterprise. Just look at the words we use for it: value web, network, and ecosystem.
I’ve observed this evolution first hand, starting in the early 1990s at GE, where we were creating new and exciting business models with technology (too new and too exciting, it turned out, for the customers we had in mind at the time). And then in my own company, where the focus is on innovative management applications, research, and best practices on which agile and adaptive organizations would run.
Technology, of course, makes the extended enterprise possible. And technology makes it necessary. The new markets, the globalization of business, the lower thresholds to entry for competitors, the speed of everything, the novelties in business models and products — all of these are the devilish work of technology.
A few general observations will move us toward a working governance plan.
Stop, look and listen – We cannot avert our eyes from the marketplace, both current and potential, nor from the details of our customers’ and their customers’ activities, or from our suppliers and their suppliers. Sticking with our current knitting may be comfortable, but it is also deadly. Assuming anything about our supplier or customers is highly risky. We must also cast a light into the far corners of our own organizations to learn whether every employee and every operation is looking outward according to plan or merely pondering their navel.
The hierarchy is dead – Get over it. When the CEO can email every employee and they can respond directly, we know the old order of managing is history. When partners outside the range of our command and control are critical to our success, we know that governance has undergone a seismic shift. When employees at the edges become our biggest asset and our biggest risk, we know that guidance has moved beyond dictatorial memos. And yet all our instincts push us to retreat to the corner office and communicate through our direct reports. Today, however, the organization that moves at the speed of a memo is already behind.
Technology isn’t an afterthought – It’s the centerpiece of most every new endeavor. From a new product launch to streamlining a process to connecting with partners, suppliers and customers, it is strategic. It is our eyes and ears on the marketplace, and it is the connective tissue with people and organizations outside our four walls that are critical to success. It must be managed in one mind with the business or at best it will cost us dearly and at worst it will fail us.
The chasm between business and technology is perhaps the most serious obstacle we must overcome in creating an extended enterprise.
Silos are for grain – They don’t work inside or outside the enterprise for storing information or creating value. Sure, we know this, but do our divisions still operate with an us-or-them mindset? Do we unconsciously treat our suppliers or customers as silos? Is the game to get as much out of them as we can? How hard is it for you to get in touch with a company, even one to which you are loyal? Why do companies hide from their customers?
New management capabilities
We must turn these broad observations into operational mandates for them to do us any good. A starting point is a framework, which sets forth the management capabilities necessary to converge the management of business and technology. Properly done, these capabilities can lead an enterprise to the governing procedures, organizational structures, enterprise architecture, and planning and investments that incorporate external partners as intrinsic parts of the whole.
As an example, one capability, strategic enterprise architecture (SEA), is the story of what the enterprise is trying to accomplish and a map of how it should be going about it. It is a broad picture, incorporating both business goals and the enabling technology, that extends outward to encompass suppliers, customers and partners.
Properly done, an SEA will show discreet business processes end to end, with external entities at each end. The connections with external entities will be laid bare; these will include not only technical connections but also contractual agreements and statements of joint purpose with execution details. An SEA for P&G, for example, will factor in the company’s practice of shifting of research scientists into roles that put them in communication with innovators on the outside.
The purpose of the SEA is to be a roadmap to what I call the Transformation Triangle: abandoning activities that are no longer useful, optimizing those that still are, and using the resulting savings to fund new activities. At the center of the triangle is the customer, toward which all of these activities should be directed. These three activities never stop, because the marketplace never stops changing.
This triangle of activities is the foundation of agility. It requires an enterprise-wide perspective and decision-making. And it requires factoring in external entities no less than any internal unit would be part of the whole. The only difference might be legal documents specifying ownership. Otherwise, the external entities are every bit as critical to creating value in the marketplace.
Faisal Hoque is an internationally known entrepreneur and author, and the founder and CEO of BTM Corporation. 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.