International Journal of Production Research
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rP Fo 18th ICPR submission - A conceptual framework for enterprise management
Manuscript ID:
Complete List of Authors:
TPRS-2005-IJPR-0472.R1 Original Manuscript 25-Apr-2006
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Date Submitted by the Author:
International Journal of Production Research
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Manuscript Type:
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Journal:
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Binder, Mario; Aston Business School, Operations & Information Management Group Clegg, Ben; Aston Business School, Operations & Information Management Group
Keywords (user):
ENTERPRISE INTEGRATION, STRATEGY, SUPPLY CHAIN MANAGEMENT, ENTERPRISE ARCHITECTURES, OPERATIONS MANAGEMENT
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Keywords:
contingency planning, core competencies
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A CONCEPTUAL FRAMEWORK FOR ENTERPRISE MANAGEMENT
Mario Binder (corresponding author) Operations & Information Management Group, Aston Business School, Aston University, B4-7ET, Birmingham, West Midlands, United Kingdom, Tel.: +44 121 204 3186, email:
[email protected]
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Ben Clegg Operations & Information Management Group, Aston Business School, Aston University, B4-7ET, Birmingham, West Midlands, United Kingdom, Tel.: +44 121 204 3063, email:
[email protected]
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International Journal of Production Research
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A CONCEPTUAL FRAMEWORK FOR ENTERPRISE MANAGEMENT
ABSTRACT
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This paper reports on the theoretical foundations and the practical reasons for the increasing popularity of the enterprise management perspective. Theoretical foundations are given that
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discuss vertically integrated, virtual and extended enterprises in terms of endogenous and exogenous factors and the tensions that this creates. An exploratory study in the German
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automotive industry using inductive grounded theory was conducted involving data collection via 28 semi-structured interviews with 16 companies and data validation via a questionnaire
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survey receiving 110 responses from 52 companies. The research delivers a conceptual framework to show how enterprise structures emerge depending on the prevailing type of
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core competencies that they use. Furthermore it proposes contingency planning
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recommendations to facilitate managing the change from one structure to another as the demands placed upon the enterprise change.
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KEYWORDS:
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Enterprise Management, Core Competencies, Contingency Planning, Organisational Design, Collaboration, Automotive Industry
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1. Introduction Due to environmental changes such as globalisation, outsourcing and virtualisation more and more companies get involved in activities that are outside the boundaries of the traditional company (a single autonomous legal entity). This is typically achieved by entering into collaborative relationships or joint ventures. Such collaborative relationships and joint
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ventures are referred to in this paper as enterprises and the management of them known as enterprise management. The European Commission (2003) defines an enterprise as “… an
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entity, regardless of its legal form … including partnerships or associations regularly engaged in economic activities”. Therefore in its most simple form an enterprise could be a single
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integrated company. However, this research shows that enterprises can also be made up of parts of different companies and the structure of the enterprise is contingent upon a variety of
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different factors. The success of the enterprise as a collaborative venture depends on the
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ability of companies to intermediate their internal core competencies into other participating companies’ value streams and simultaneously outsource their own peripheral activities to
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companies that can perform them quicker, cheaper, and more effectively (Lal et al. 1995). In other words, the peripheral activities of one member-company should be a core competence of another member-company within an overall enterprise.
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This paper gives an overview of a research project that aims to develop a conceptual
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contingency framework to guide enterprise managers to make better strategic decisions for the whole enterprise; it specifically aims to investigate suitable enterprise structures for different collaborative settings based on the causality between the prevailing type of core competence and the emergent enterprise structure. An enterprise management perspective has been taken in order to elucidate current developments in operations and supply change management from a relatively new and novel point of view. It uses novel analytical units (the 2
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enterprise and its sub-units known as enterprise modules) to give a fresh perspective to emerging issues and provide practical guidance for industrialists who must build and manage enterprises. Using inductive grounded reasoning, a set of tentative propositions has been developed and validated that reveal some critical factors affecting enterprise management. They have been consolidated into a single framework building on empirical evidence from the German automotive industry and existing theory.
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2. Literature review
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A growing body of knowledge in the literature focuses on enterprises rather than on the
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traditional operation and its supply chain. For instance, Hamel and Prahalad (1994) acknowledged that “many industries move away from vertical integration towards virtual
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integration” (p. 210). As a result, inter-organisational structures such as enterprises are becoming more significant (Fine, 1998; Ketchen and Giunipero 2004). Some recent works discussing enterprises include:
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Bremer et al., (2001), Browne and Zhang (1999) on virtual enterprises
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Boardman and Clegg (2001), Browne and Zhang (1999), and Meixell and Wu (2005)
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on extended enterprises
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Other scholars discuss the strategically influential members within these structures, such as the:
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Hub firm (e.g. Seuring 2003, Dyer and Hatch 2004)
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Systems integrator (e.g. Boardman and Clegg 2001, Mills et al. 2003)
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Orchestrator (e.g. Brown et al. 2002)
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Navigator (Karlsson 2003).
This emerging work recognises enterprises to be new inter-organisational types that combine traditional operations and their supply chains. They result from alliances, partnerships and
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joint ventures. It also recognises that these collaborative ventures can be between either whole or partial companies, and often have a strategically dominant member.
Strategists need to understand the significance of these new developments to be able to construct an appropriate enterprise structure that contains the most useful parts of the most suitable companies. Traditional supply chain management literature has been criticised for
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lack of guidance concerning this issue (Ketchen and Giunipero 2004). In response, De Toni and Tonchia (2003) stress the need to integrate the traditional outside-in view of a firm with
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its inside-out view. To address this crucial issue the enterprise management perspective deliberately builds upon both exogenous and endogenous theories. Exogenous theories
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include competitive rivalry (Porter, 1980) and Transaction Cost Economics (TCE) (Coase
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1937; Williamson 1975 and 1990). Endogenous theories include competence theory (CT), which encompasses the resource based view (RBV) (Penrose 1959, Wernerfelt 1984), the
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dynamic capabilities view (DCV) (Eisenhardt and Martin 2000, Teece et al. 1997) and the competence based competition (CBC) view of the firm (Hamel and Prahalad 1994, Prahalad
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and Hamel 1990). Endogenous based approaches should be used to complement and balance exogenous factors (Chandler 1962, Child 1972). However, excessive focus on either approach
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is wrong and a simple conceptual framework combining them is currently absent from the literature (Fynes et al. 2005). To address this deficiency, and provide new insight, one is proposed by this from the enterprise management perspective.
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2.1 An exogenous approach - Transaction Cost Economics
The conceptual framework given by Coase’s (1937) and Williamson’s (1975) seminal work on transaction cost economics (TCE) argues that firms are best seen as a nexus of contracts which must, ‘…align transactions (which have different attributes) with governance structures
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(which have different competencies)’ (Williamson 1990; p. 13). This addresses the fact that firms constantly need to change their structures based upon market competition, but fails to consider situations when suppliers are seen as partners in a joint strategic relationship. Cousins and Crone (2003) address this weakness of TCE by suggesting that firms must not only consider their competitive contractual situation (e.g. make-versus-buy decisions based on transaction costs) but must also consider other strategic business issues such as developing
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their competence and resource base. Despite this, a connection with the enterprise management literature has still not been made.
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2.2 An endogenous approach - Competence Theory
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The competence base of a firm focuses on the internal resources of an organisation as defined
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by the resource based view (RBV). It provides “understanding for how competitive advantage within firms is achieved and how advantage might be sustained over time” (Eisenhardt and
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Martin 2000, p. 1105). Generally RBV scholars assume that each traditional firm or company
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(i.e. a single autonomous legal entity) can be conceptualised as a bundle of resources (Wernerfelt 1984). Recently, the traditional RBV has been extended to include a dynamic dimension (Teece et al. 1997, Eisenhardt and Martin 2000) and recognises that the pattern of
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the resource base varies over time. This has created the dynamic capabilities view of the firm (DCV). This recognition, married with the idea that a firm’s competitiveness derives from the
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ability to build and maintain competencies at lower costs more quickly than competitors (Prahalad and Hamel 1990) provides the main principles of competence theory (CT). Despite this, a connection with the enterprise management literature has still not been made.
2.3 Balancing exogenous and endogenous approaches – Contingency Theory
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Core competencies (an endogenous resources) are difficult to transfer because of high transaction costs, dependence on tacit knowledge and high asset specificity (i.e. exogenous barriers). Because of these factors core competencies can usually only be deployed effectively internally (Klein et al. 1978). However, firms may place competence issues in front of organisational economics when deciding to engage in collaborative ventures (Combs and Ketchen 1999) because decision makers seek the most appropriate organisational strategy
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given prevailing situational contingencies (Watson 2003). This challenges the notion of ‘competitive advantage’ and suggests that ‘co-operative advantage’ (Ketelhohn 1993) or
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‘collaborative advantage’ (Dyer 2000) can sometimes be more suitable. This occurs when the minimisation of operational transaction costs has become a less significant factor than the
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gaining of new external core competencies via the formation of new collaborative
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organisational structures in an enterprise. In other words, to remain competitive, new metacore competencies need to be built alongside existing traditionally valued ones to help re-
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configure operational competencies and organisational structures on an increasingly rapid basis (Mills et al. 2003). This role is assumed by the most significantly influential member of
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the enterprise.
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2.4 Emergence of enterprise management
The above debate leads to an increasing emphasis on enterprises rather than on traditional
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companies and their supply chains (Cousins and Crone 2003, Surana et al. 2005). The authors of this paper argue that an enterprise engagement usually occurs partially at a modular level with many different companies simultaneously. To date, there has been little if no explicit identification of such partial multiple enterprise structures and their evolution. This paper reduces this deficiency by providing a conceptual contingency framework based on new
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empirical evidence . A unique mapping tool was derived from the above debate to scope this study. It is given in Figure 1.
Insert Figure 1 here Figure 1: The ‘Enterprise Matrix’: a tool for mapping enterprise structures
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Enterprise structures that can be explored using this matrix include the virtual enterprise and the extended enterprise. Davis and Spekman (2003, p.20-21) define the extended enterprise
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as, “the entire set of collaborating companies both upstream and downstream, from raw material to end-use consumption, that work together to bring value to the market place …
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.Members’ view that their destinies are interdependent. This serves to separate the extended
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enterprise from other loose confederations of buyers and suppliers”. Byrne and Brandt (1993) define a virtual enterprise as, “a temporary network of independent companies … linked by
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information to share skills, costs, and access to one another’s markets … they have an evolving corporate model that will be flexible enough to exploit a specific opportunity” (p.
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38). Browne and Zhang (1999) stress that extended enterprise and virtual enterprise structures are complementary; where the purpose of the relatively stable extended enterprise is to set up future speculative virtual enterprises. It is therefore critical that the structure of the
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enterprise is appropriate for the evolutionary stage of the enterprise.
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3. The research methodology
The contemporary nature of the subject meant that an exploratory and qualitative empirical approach was appropriate. This was based on inductive grounded theory (Glaser and Strauss, 1967; Strauss and Corbin, 1990). Three distinct empirical phases were employed: design, collection and analysis, and validation. 7
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3.1
Design phase
The objectives of the empirical investigation were derived from the above debate. Prime concerns identified are: • strategic relationship building between value members in the enterprise
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• development and deployment of core competencies within the enterprise • management of operational transactions between different parts (i.e. enterprise modules)
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of the enterprise.
3.2
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Data collection and analysis phase
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This methodology was deployed by conducting 28 semi-structured interviews with 31
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experienced managers in the German automotive industry covering 16 companies, (4 car manufacturers and 12 supplier firms) between Dec 2004 and March 2005. The research
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followed the recommendations of Pettigrew (1990) and Eisenhardt (1989) by choosing cases that would potentially reflect extreme situations to be observed. Interviews were therefore
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conducted in value members that reflected different roles in the enterprise (e.g. car manufacturers (OEMs), system suppliers, module suppliers, parts or components suppliers,
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and engineering service providers).
Topics explored in the interviews were derived from the literature debate and formed into a semi-structured interview guide that was used to structure the interviews and enhance comparability (Bryman 2001). Topics included exogenous aspects (such as the nature of the competitive environment), endogenous aspects (such as development and deployment of core
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competencies), and collaborative issues (such as strategic relationship building and the management of operational transactions). The interviews (each lasting 1– 2.5hrs) were conducted face-to-face, taped, transcribed and validated to ensure the data was reliable and traceable before proceeding with any interpretation (McCutcheon and Meredith 1993).
The codification of the data (310 transcribed pages) was done using the QSR NVIVO 2.0TM
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software tool based on Strauss and Corbin’s (1990) theoretical coding paradigm involving open, axial and selective coding in order to reach the necessary conceptual density. It was
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applied at the intra and inter case level as suggested by Strauss (1987). This took place between April 2005 and November 2005. 237 initial codes for datum types emerged in an
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open coding approach. These were subsequently condensed, aggregated, and clustered into
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158 codes, 16 analytical categories and 19 sub-categories during axial coding leading to the formation of five core categories during further selective coding: (i)
Industrial impact
(ii)
Enterprise design
(iii)
Enterprise management
(iv)
Competence as main contingency factor
(v)
Enterprise competitiveness
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3.3
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Data validation phase
The findings were summarised by developing a set of 35 tentative propositions based on theoretical narratives that themselves are based upon the empirical codification. The tentative propositions were validated using a questionnaire survey. This strengthened the
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transferability, dependability and conformity of the data (Jick 1979). Each respondent was asked to assess the tentative propositions on a 5-point Likert scale to indicate their: •
agreement (A) - whether they agreed or disagreed with the proposition (strongly agree =2, agree =1, neutral = 0, disagree = -1, strongly disagree = -2)
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importance (I) - the importance of the proposition for daily business activities (very high = 5, high = 4, medium = 3, low = 2, very low = 1)
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Additionally, some demographic data was collected (working experience, company type,
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functional experience, responsibility level, etcetera) to establish credibility of the respondent and facilitate comparability of the data. Within 3 months 110 valid responses were received
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from 52 different companies with each respondent having an average of 11.27 years relevant
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working experience in the automotive industry. For descriptive analysis of the data, the central tendencies of responses for each tentative proposition were calculated based on the
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numerical codification of the scales as shown above (Blaikie 2003). A synopsis of the 20 highest rated propositions (as rated by the respondents) under each core category is given in
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Table 1.
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Table 1: Propositions and their validation
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Results in the context of enterprise management
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In general the respondents agreed with the majority of the propositions and considered them to be topical. This provides supporting evidence that the academic debate framed above has practical implications, and needs to give further insight to guide practitioners.
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A cluster analysis (Ketchen and Shook 1996) was performed based on the calculated means of the two measured dimensions Agreement (A) and Importance (I) leading to the identification of three basic clusters. Propositions in Cluster 1 showed a very positive Agreement (between 1 and 2, i.e. ‘agree’ and ‘strongly agree’) and a high to very high Importance (between 4 and 5). Propositions in Cluster 2 predominantly showed a positive Agreement (around 1) and a medium to high Importance (between 3 and 4). Propositions in Cluster 3 showed a neutral to
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positive Agreement (between 0 and 1) and a medium to high Importance (between 3 and 4).
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Analysis showed that enterprise management is generally regarded as effective instrument to
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maintain and achieve competitiveness for the whole enterprise (cf. proposition #20) that is affected by a variety of exogenous and endogenous forces (cf. propositions #1, #2, and #8).
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Managing core competencies is considered a principle factor for achieving this successfully as the competencies determine the role of the individual partners in the collaborative venture (cf.
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proposition #7) via the value they are creating for the enterprise (cf. proposition #16).
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Ratings for proposition #13 showed that in the early stages of collaboration within an enterprise, competence development rather than transactional cost optimisation should be the
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primary focus as competence exchange (technical and knowledge based) is a precursor to establishing effective operational transactions (cf. proposition #9). In the opinion of the
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interviewees, this is best achieved by taking a long term strategic perspective (cf. proposition #10) and an intense integration of partners at early stages of a project (cf. proposition #12).
Furthermore, the existence of a multiplicity of dynamic relationships within an enterprise (cf. propositions #4, #5 and #6) requires a leader or coordinator who has enough competencies to clearly define the boundaries and manage the interfaces between the partners but also allow
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for a certain degree of autonomy within the venture (cf. propositions #11, #14 and #15) to deploy competencies through effective collaboration (cf. proposition #17).
However, despite all good intentions, analysis also showed that current practice does not apply the necessary mechanisms for enterprise management to become a reality. This is probably due to an adversarial approach to sourcing that still prevails (cf. proposition #3).
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5. A proposed conceptual contingency framework
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In order to reduce this deficiency the authors propose a novel contingency framework and use
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the enterprise (emphasising joint collaborations) and its modular parts (allowing part-to-part
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relationships to be expressed) as units of analysis. This was to give an insightful perspective.
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The conceptual framework proposed assumes that each enterprise module is built upon a
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particular highly specific core competence that belongs to an individual company that gives part of that company a unique and valued proposition (e.g. an in-house design and engineering specialism). The core competence should be combined with other less specific
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resources (e.g. communication technology, co-operative contracts, and shared processes) that are shareable across the enterprise to form a structure with economically acceptable
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transaction costs. This requires industrialists to overcome traditionally thinking about internal sub-units being functions and departments and think radically differently in terms of enterprise structures and enterprise modules (its sub units). This means connecting enterprise modules (parts of a company) with enterprise modules owned by other companies (parts of other companies). This is in order to create an enterprise structure that can meet the demands
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of a rapidly changing industrial environment whilst still operating within acceptable cost limits.
However, it requires tools to coordinate activities within the enterprise (Hammami et al. 2003), such as the Enterprise Matrix that was shown Figure 1 above. The Enterprise Matrix tool helps in identifying and mapping a suitable enterprise structure for each collaborative
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activity through the allocation of value members to process stages and tasks based on their
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value contribution. This is based on the enterprise modules that consist of unique competencies and common interfaces.
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an organisation has three separate products, one may be produced within a vertically integrated enterprise structure, one in an extended enterprise structure, and one in a virtual
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enterprise structure whilst drawing upon the same core competence. It is therefore useful to perceive enterprises as consisting of a nexus of semi-autonomous modules. Where each module is able to contribute value to a number of co-existing enterprise structures
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simultaneously.
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This research indicates that inter-organisational structures are indeed constantly changing. Cyclical shifts from traditionally vertically integrated enterprises (Lynch 2003) towards virtual and extended enterprises have been observed. This change is constantly reiterating and evolving, and tends to occur partially. Figure 2 shows the cyclical evolution that enterprise structures tend to go through.
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Insert Figure 2 here Figure 2: Evolutionary configuration of enterprise structures
The results also suggest that these configurations are primarily linked to the prevailing type of core competence present within the enterprise modules (perceived in terms of factors
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explored by the 35 propositions).
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For instance if there is a prevalence of enterprise modules with low maturity and high risk (which are endogenous factors) and untested market value (an exogenous factor) then
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companies will be very reluctant to make long term plans and investments, and so
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arrangements will be temporary and spread risk over many different companies – these are characteristics of a virtual enterprise. As the core competencies of the modules employed
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become more mature, and the marketability of them becomes better proven, the number of member companies interested in engaging with them will increase. Member companies will
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seek medium-to-long-term co-developmental strategies – these are characteristics of an extended enterprise. If the strategy becomes an operational and financial success, there is often a more permanent consolidation between the value members in the enterprise. These are
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characteristics of a vertically integrated enterprise (or what most closely approximates a traditional company or an autonomous single legal entity) .
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The results suggest that vertically integrated enterprises (VIE’s), virtual enterprises (VE’s) and extended enterprises (EE’s) are not, as some would believe, structures resulting from completely different strategies. This research shows that they are better thought of as a closed loop continuum of the same collaborative strategy (as shown in Figure 2) and the emergent structure of the enterprise at any one time is contingent upon the prevailing mix of 14
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endogenous and exogenous factors. It suggests that a prudent balance of different types of enterprise structures, each at different stages of evolution should be present at all times. This ensures that the strategy is both minimizing commercial risk (by having mature, established products in made in low cost enterprise structures) whilst simultaneously encouraging innovation (with new products being developed in relatively high cost newly formed enterprises). The results suggest that the number of different types of enterprise engagements
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for any one company is closely aligned with the number and sophistication level of their core competencies embedded in enterprise modules (known as engageability).
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This research assumes that core competencies are the most highly specific asset and
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strategically significant component within an enterprise module and forms the basis of its
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unique value proposition to the enterprise (e.g. an in-house design and engineering specialism). It also assumes that a core competence alone is useless unless it is supported by
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other less specific assets that are easily shared (e.g. communication technology, co-operative contracts, and shared processes). These less specific resources help to intermediate the
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enterprise module into a viable value stream within an enterprise structure.
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The conceptual framework considers core competencies as an enterprise-wide resource rather than just an individual company’s resource. Enterprise management discusses, amongst other
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things, how core competencies are designed and delivered to an enterprise. The enterprise integrator then designs and manages appropriate structures from these enterprise-wide resources. Enterprise management therefore differs from traditional supply chain management as it concentrates on simultaneous inter-organisational design of product, process and organisation rather than concentrating on the flow of products and services per se. Figure 3 represents these observations in a reference grid which shows the prevailing
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current and future type of core competencies and their engageability (ranked simply as ‘high’ or ‘low’).
Insert Figure 3 here Figure 3: The Reference Grid for Enterprise Management
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In each of the quadrants the best suited enterprise structure (extended, virtual or vertically integrated) is given with some of its key characteristics. Structural appropriateness varies
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over time depending on prevailing contingency factors. Based on Macbeth (2002), each of these enterprise structures (extended, virtual and vertically integrated) is considered to be a
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‘dynamic equilibrium’, i.e. a period of stability around which the activities cluster before
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flipping over to another structure. The Reference Grid is intended to show a picture of how one enterprise structure may change into another as a result of a changed predominance in the
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type of core competence that it is built upon. This is a two-way relationship as the enterprise structure will effect the development of future potential core competencies just as the
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development and deployment of core competencies will influence the emergence of enterprise structures. Figures 1, 2, and 3 combine to form the new conceptual framework for designing enterprises. This predominantly focuses on the causality between the prevailing core
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competencies and the emergent enterprise structure. The contingency planning aspects of the concept are discussed further, using examples, in the next section.
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6. Implications for industry
To explain how and why enterprise structures change using the Reference Grid (shown in Figure 3) examples are drawn from the interviews. A different example is used to explain each quadrant as this has been a cross-case study rather than a longitudinal one. For: 16
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Quadrant 1: Innovation is often brought about as a result of a collaborative venture in an initially temporary and flexible virtual enterprise structure using highly specific but untested and hence risky core competencies. Arrangements will be temporary and the risk spread over many different companies.
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For example, BMW use a virtual enterprise structure for highly innovative technologies
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in the early stages of a joint product development process to increase collaboration with small and medium sized companies perceived as being innovative. This happened in the
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case of BMW’s i-drive navigation system, where one small company identified the
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technology, another company developed the initial concept and another partner conducted the industrialisation of the production-ready product. All the partners were co-ordinated
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within an enterprise that was co-ordinated by BMW. The structure of this joint venture had the features of a virtual enterprise.
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Quadrant 2:
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Once the proof-of-concept point is passed and competencies have matured the partners who own them seek closer connection with partners in a similar situation. At the same time such
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partners seek to eliminate any non-critical or unsuccessful members. The remaining members try to establish a more stable, connected and long-term venture in order begin to lower transaction costs. This structure of such a venture has the characteristics of an extended enterprise.
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For example, VW is re-designing the structure of its product development process using so called ‘Project Houses’ (an enterprise module); these are totally autonomous but wholly owned subsidiaries of VW that compete directly with external suppliers for future development. Successful models such as the Golf or Passat each have a VW ‘Project House’ and an external supplier competing for the business to develop new derivative models. This gives VW the option on a fair and planned basis to re-intermediate their
Fo
position in the value stream for any particular venture. The final decision on who wins the business is primarily based on maximising strategic advantage, and secondly on
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minimising transaction costs. This is a decision that only VW as the enterprise orchestrator can make.
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Quadrant 3:
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If re-intermediation occurs, then structure of the enterprise now has the features of a vertically
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integrated enterprise. Market viability should be well established and previous high profit margins experienced by the early movers will have begun to erode, the remaining value
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members may seek whole ownership of assets that they have become interdependent upon. This can mean a quest to establish a vertically integrated enterprise structure (or what most
On
closely approximates a traditional company or autonomous single legal entity).
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For example, complete integration happened in the case of the engineering service provider IVM. IVM was recently acquired by the Edscha Group (a large systems supplier who specialises in convertible roofs) so that IVM’s research and development competencies could be deployed internally with lower transaction costs. Alternatively the enterprise orchestrator may decide that mature core competencies should be engaged in new joint ventures and form new virtual enterprises of the future (and the evolutionary cycle begins
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again). This could increase the Edscha Group’s potential to rise towards the role of an orchestrator themselves in the future by becoming more influential.
Quadrant 4: No plans are made to have joint ventures that fail and form defunct enterprises. Contingency strategies for getting out of this scenario have not been covered in this research (but would be
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useful to cover in future research).
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Figure 4 puts the cyclical change in enterprise structures (from Figure 2) and their contingency on the prevailing type of core competencies (from Figure 3) together, this gives a
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simple unified view of planning strategies for enterprise design and management. The
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planned changes to enterprise structures are summarised in Figure 4a as it shows the most appropriate structure for the prevailing type of core competence. Such actions are largely due to controllable endogenous factors.
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ev Insert Figure 4 here
Figure 5: Reference Grid: (a) Proactive Planning (b) Reactive Planning
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Unplanned reactive actions are depicted in Figure 4(b). These contrast to those shown in
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Figure 4(a) as they are predominantly caused by adverse and uncontrollable exogenous factors.
7. Summary and conclusions This research has proposed a conceptual framework for the design and contingency planning of an enterprise (not the traditional operation and its supply chain). This has enabled the
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unification of endogenous and exogenous theories of the firm in a pragmatic way substantiated by new empirical data from the German automotive industry.
In summary, the conceptual framework characterises different types of enterprise structures assumed to be built from enterprise modules originating from a variety of different companies. At the heart of each of these enterprise modules is a highly specific core
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competence asset (e.g. new proprietary technology or superior knowledge) that is complemented by other less specific assets (e.g. shared information or process technology)
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that enables the core competence to be used effectively. Four different types of enterprise structures and four different types of core competencies have been parsimoniously
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characterised and a two-way causality proposed between each respective pairing. Core competencies with: •
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low current but high future engage-ability are associated with virtual enterprise structures
high current and high future engage-ability are associated with extended enterprise
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•
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structures •
high current but decreasing future engage-ability are associated with vertically
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integrated enterprise structures •
low current and low future engage-ability are associated with defunct enterprise
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structures.
The authors do not claim that all companies follow this behaviour. Neither is it claimed that a deterministic relationship exists between enterprise structure and the prevailing type of core competence. It is only claimed that a probabilistic causality exists and that behaviour is driven by a combination of exogenous and endogenous factors. This research is limited by its
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predominant focus on core competencies as a factor effecting enterprise structure. However, these findings are part of on-going research that will further validate the groundings of the framework and the implications for contingency planning via a series of industrial workshops.
Acknowledgements Extensive thanks to all the companies and interviewees from the German automotive industry
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who have contributed to this research. For reasons of confidentiality the majority of the companies and interviewees wish to remain anonymous.
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Core Category Industrial Impact
Enterprise Design
Proposition
Mean A
#1
Change in the automotive industry is driven by a combination of internal company issues and general industrial forces
1.24
4.01
1
#2
Increasing complexity, cost pressure and shorter development lead times have led to more product modularisation
1.15
4.21
1
#3
Car manufacturers are changing their adversarial pricing policies in supplier selection towards more collaborative strategic sourcing policies
-0.38
4.10
-
#4
Different relationships and collaborative practices exist for different inter-company (car manufacturer and supplier) projects in the supply network
1.21
3.47
2
#5
Relationships between companies in the supply network change over time
1.18
3.68
2
#6
An individual company can collaborate in more than one project within the supply network at the same time
1.37
3.54
2
#7
The role of an organisation in the supply network is determined by what competencies are offered by it
1.23
4.21
1
#8
Product modularisation effects how a supply network is structured
1.18
3.94
1
#9
An inter-firm collaboration in the supply network is formed on the basis of technical competencies and mutual exchange of knowledge
0.87
3.76
2
Strategic and long term thinking for the whole supply # 10 network increases the chance of successful inter-firm collaboration
1.42
4.19
1
The boundaries of responsibilities between collaborating # 11 parties need to be clearly defined to deliver a successful inter-firm project within the supply network
1.69
4.51
1
# 12
Early and intense integration of strategic collaborators facilitates the successful delivery of a project
1.64
4.28
1
# 13
At early stages of the collaboration process competencies rather than prices have to be measured and compared
1.06
4.13
1
There is the need for a coordinator and leader within the # 14 supply network that has the competence to evaluate and manage the interfaces
1.30
4.13
1
The co-ordinator of the supply network should have its # 15 own core competencies and encourage those of other organisations to participate
1.37
4.08
1
# 16
The more advanced and unique a competence is the more potential value it can create for the supply network
1.17
3.90
1
# 17
Competencies can be deployed through collaboration with other companies
1.06
3.73
2
# 18
The short term motivation for inter-firm collaboration in the supply network is to reduce cost and lead time
1.09
4.01
1
# 19
The long term motivation for inter-firm collaboration in the supply network is to improve quality and innovation
0.93
4.10
1
# 20
Establishing inter-firm collaboration is an effective way of reducing lead-times and cost
1.05
4.04
1
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Enterprise Management
Enterprise Competitiveness
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Competence as main contingency factor
Mean Cluster I
No.
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Table 1: Propositions and their validation
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value stream
Collaborative activity:
___________________ Process start Enterprise Environment: _____________________ high involvement
Member 1
Process end
Stage 1
Stage 2
…
Stage n
Enterprise module delivered by ‘member 1’ in ‘stage 1’ of the value stream
Member 2
value members …
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low involvement
Member n
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Figure 1: The ‘Enterprise Matrix’: a tool for mapping enterprise structures
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Extended enterprise
Virtual enterprise
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Figure 2: Evolutionary configuration of enterprise structures
High
Current ‘engage-ability’ of a core competence in an enterprise
Low
Low
Quadrant 1
enterprise – extended (EE)
enterprise – virtual (VE)
• quasi-permanent
• temporary and exploratory
• lean and agile resource base
• fragmented resource base
• medium transaction costs
• high transaction costs
• medium asset specificity
• high asset specificity
• medium ability to integrate
• low ability to integrate
Quadrant 3
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Future potential ‘engage-ability’ of a core competence in an enterprise
High Quadrant 2
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Quadrant 4
enterprise – vertically integrated (VIE) • potentially permanent • extensive resource base • low transaction costs
enterprise – defunct • no active engagement
• either premature or dormant • negligible amount of trading
• low asset specificity • high ability to integrate
Figure 3: The reference grid for enterprise management
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Current ‘engage-ability’ of an enterprise module in an enterprise
Current ‘engage-ability’ of an enterprise module in an enterprise
(a)
(b) Low
Q2
Q1 Extended Enterprise
Virtual Enterprise
Vertically Integrated Enterprise
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Q4
High Future potential ‘engage-ability’ of an enterprise module in an enterprise Low High
Future potential ‘engage-ability’ of an enterprise module in an enterprise Low High
High
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Low
Q2
Q1 Extended Enterprise
Virtual Enterprise
Vertically Integrated Enterprise
Defunct Enterprise
Q3
Q4
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Figure 4: Reference Grid: (a) Proactive Planning (b) Reactive Planning
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