The Extended Enterprise: Eliminating the Barriers

By Jan Duffy

and Mary Tod

In a funny way the “new economy” has crystallized thinking about the extended enterprise. The whirl of excitement, with high-tech companies rapidly evolving and “old economy” enterprises embracing new ideas, brought tangible reality and urgency to new organizational forms. Almost every organization, in both the private and public sectors, began to imagine new ways of delivering value to customers, new approaches to collaborating with suppliers along with critical thinking about organizational structure and purpose.

Thinking about the extended enterprise involves thinking about organizations themselves, questioning the norms and traditions of organization design. In “Unbundling the Corporation” (Harvard Business Review, March-April 1999) John Hagel and Marc Singer suggest that “when you look beneath the surface of most companies, you find three kinds of businesses – a customer relationship business, a product innovation business, and an infrastructure business”. Hagel and Singer go on to explore each of these different types of businesses and state that “although organizationally intertwined, these businesses are actually very different” and that enterprises should determine in which business they want to compete and unbundle accordingly. Such thinking leads logically to considering the range of extended enterprise options as a solution. For example, an organization that sees their fundamental purpose and strategic advantage as a customer relationship business will want to consider extended enterprise options such as outsourcing various infrastructure tasks or partnering for product innovation.

Previously organizations have been thought of as linear entities, each with a value chain that consisted of all the activities required to design, market, sell, produce, deliver and support products and services. Indeed the metaphor of a chain implies that an organization’s activities are tightly bound together to produce value for a customer or client. Suppliers and customers were thought to be “outside” the organization’s domain. And the organization was depicted as a hierarchy of reporting relationships, primarily functionally aligned. Such depiction implied a command and control approach to actions, decision-making and information.

We are all aware that this thinking is out-dated. In their book, Smart Alliances, John Harbison and Peter Pekar quote Jack Welch, CEO of GE, “if you think you can go it alone in today’s global economy, you are highly mistaken”. New organizational relationships and structures have emerged in all sectors of the economy. IDC includes many different arrangements in the notion of extended enterprise such as outsourcing, distribution agreements, collaborative marketing, R&D program partnerships, alliances, joint ventures, and preferred suppliers. Previously, organizations have been thought of as linear entities, each with a value chain that consisted of all the activities required to design, market, sell, produce, deliver and support products and services.

With globalization of markets, productivity pressures, scarce resources and capabilities, intensifying competition, blurred industry boundaries and incredible technology change, new relationships and structures have emerged in all sectors of the economy. These extended enterprise arrangements include outsourcing, distribution agreements, collaborative marketing, R&D program partnerships, alliances, joint ventures, and preferred suppliers. And extended enterprise arrangements are applicable to all parts of an organization whether public or private sector.

Technology plays a strategic role in the extended enterprise – in some cases driving the opportunity for change and in others facilitating collaborative relationships and inter-organizational operation. IT enables the openness, immediacy, information sharing, flexibility and adaptability that the extended enterprise demands.

Information technology also enables customer responsiveness, speedy decision making, superb inventory control and greater visibility across the extended organization for demand planning. The IT vendor community is ideally positioned to assist with technology strategy and deployment for the extended enterprise.

IDC believes that the following principles offer guidance for organizations seeking to effectively deploy IT for the extended enterprise and for vendors offering extended enterprise solutions.

• Information can’t flow effectively through narrow openings. In an extended enterprise environment, build the infrastructures that will enable widespread, relatively unrestricted lateral and vertical information flows.
• Design and build for inter-organization operation. Seek the points of interaction and then find ways to minimize interaction costs.
• Customers are customers of the extended enterprise. Information to serve customers effectively must be accessible to all participants in the value chain.
• Structure and architect for rapid development and deployment of technologies and applications. Speed is essential to competitive advantage.
• Architect for an extended enterprise that is dynamic rather than static. Extended enterprises shape and reshape over time as the market needs predict.
• Establish goals and rewards that work across the extended enterprise ensuring common commitment and motivation.
• Create harmonious working relationships between IT and the business. In an extended enterprise this will involve multiple IT organizations just as it involves multiple business operations.
• Different parts of the extended enterprise provide different value. Don’t act as if they are all equal.
• Design for trust. Trust is the basis of agility and flexibility, fast decision making and ultimately innovation.
• Be highly selective about technology choices. Then complement this with excellent implementation skills and capabilities.
• Build an IT infrastructure to support collaboration and cooperation. All stakeholders must work together to enable the extended enterprise to provide superb value and service to customers.

Decisions on the exact nature, form and focus of an organization’s extended enterprise is in the realm of strategy setting. IDC’s guidance centers on these principles in recommending that you:

• Carefully consider these principles and augment as necessary with organization unique requirements
• Review current extended enterprise operation against these principles, identifying gaps or conflicts
• Involve other parties in the extended enterprise during these discussions and considerations
• Consult widely with IT vendors, systems integrators and preferred consulting firms when establishing extended enterprise strategies and implementation approaches
• Develop plans along with partner organizations to resolve gaps and conflicts
• Ensure that the principles become part of the ongoing management and strategic planning processes

And, last but not least, whether IT buyer or seller, going it alone is no longer an option in today’s complex, resource constrained, global economy. In the world of extended enterprises, selecting the best strategy is challenging, selecting the right technology path is both challenging and essential for success.

For information contact: Jan Duffy, Group Vice President Solutions Research jduffy@idc.com or call 416-673-2208