Traditional business models just
What They Are Saying
Future winning enterprises will excel at inter-organizational collaboration
as they evolve successful joint strategies and drive the development of whole
industries. This book shows you how to become a master of such collaboration.
--Denis Murphy, Co-Chairman of the SDP Alliance of leading
telecoms software companies
This book represents an important milestone in helping executives understand the
power of virtual enterprise networks as a means of achieving competitive
advantage. It has great examples, powerful logic and a keen sense of what's
achievable through collaboration.
--Bob Barbour, Director & Chief Executive, The Centre for Competitiveness
This very welcome book is an insightful distillation of the first-hand
experiences of a leading practitioner on how to guide ambitious businesses
through new forms of collaboration to enhanced performance.
--Ken O'Neill, Professor of Entrepreneurship and SME Development and former
President of the International Council for Small Business and the Institute for
Small Business and Entrepreneurship.
Mobilizing and organizing people so that their endeavors are maximized is key to
success in any organization or grouping. In this book, Ken Thompson looks
outside the traditional business model and sets out thought-provoking ideas and
drills on how to achieve this using networks on both a local and worldwide
--Ronnie Kells, Chairman United Drug PLC
This book is for two audiences: huge multinational corporations (Big Fish)
and small innovative companies (small fish). Sounds paradoxical? Not
really. When you consider that innovation is the key to success in the 21st
century, and that huge corporations like Proctor and Gamble and IBM are going to
the ends of the earth seeking innovation, the picture comes into focus.
going on. In most economies, smaller enterprises are much greater in number than
large firms. For example, in the EU, small and medium-sized enterprises (SMEs or
small fish) comprise approximately 99% of all firms and employ among them
about 65 million people. Interestingly, in many sectors, SMEs are also
responsible for driving innovation and competition.
But how do these
two distinctly different entities --the Big Fish and the small fish--
come together to create business innovation and to swarm around new business
Many ambitious SMEs (small fish) have bought into a competitive strategy espoused by
management gurus such as Harvard's Michael Porter. Porter's strategy suggests
that to take SMEs to the next level, their leaders have to find some way to move
beyond their current customer bases and begin to work with the bigger, more
demanding, Big Fish enterprises.
The strategy, which stacks up pretty well in practice, concludes that if the
SMEs are good enough, then these Big Fish will make them even better by
stretching them through ongoing strategic innovation partnerships. If,
however, an SME is not good enough, it will quickly find out, which is painful,
but yields valuable information for both parties. So either way it is a
"win-win" situation if a small fish can somehow engage a Big Fish to test the
waters for mutual benefit. It's summed up by the legendary economist Joseph
Schumpeter's notion of "Creative Destruction," a process in which the old ways
of doing things are endogenously destroyed and replaced by new ways.
As the business strategy expert, Peter Fingar, notes in his ground-breaking
book, Extreme Competition, "Schumpeter pointed out that
entrepreneurs innovate, not just by figuring out how to use inventions, but also
by introducing new means of production, and new forms of organization. These
broader innovations, he argued, take just as much skill and daring as does the
process of 'invention.' This broader form of business innovation leads to
existing ideas, technologies, skills, and equipment becoming obsolete --
sometimes overnight. The question, as Schumpeter saw it, was not 'how capitalism
administers existing business structures,... but how it creates and destroys
them.' What counts is competition from the new technology, the new source of
supply, the new type of organization... competition which strikes not at
incremental margins or profits of firms ... but at their foundations and their
Welcome to 21st century competition.
But wait. There is the bad news for SMEs trying to follow this
connect-and-collaborate partnership strategy because Big Fish are almost
impossible to reach directly by an individual SME for many reasons:
--Big Fish worry about small fish longevity and stability
--There are cultural chasms between Big Fish and small fish
--Small fish are too much trouble to deal with -- far too disruptive
--Small fish don't understand or fit Big Fish structures and processes
--Small fish find it hard to participate in extended information sharing
sessions with Big Fish that often last 12-18 months before any revenues are
--Accessibility issues are commonplace as Big Fish are not generally
headquartered in a given small fish's region
--Local Big Fish operations may have limited autonomy for strategic sourcing
and forming new alliances
The irony is that while these Big Fish desperately want and need the innovative
products, services and thinking that specialized small fish bring, every
single procurement process Big Fish have is designed with the express purpose of
stopping such a relationship ever developing. Though the Big Fish know that
relationships with the right small fish are strategically vital, they
institutionally discriminate against this under the very respectable but
ultimately misguided mantra of "Supply Chain Rationalization."
So there is a
Catch-22: small fish need to work with Big Fish, but they cannot directly
engage them. Does that mean it's game-over?
Two plausible, but different, tactics can be considered.
The first tactic is a well-tried path that involves a small fish finding
one of the Big Fish's approved suppliers to work through to eventually reach the
Big Fish itself. These suppliers tend to be major enterprises in themselves and
the small fish will attempt to join their supply chains --usually at the bottom
of the food chain. The show-stopper with this tactic is that, no matter what
these major suppliers might say or promise a small fish, they tend to do
everything in their power to keep the small fish at arms length from
their major customers, their Big Fish. They usually achieve this by making sure
all conversations between the small fish and Big Fish are routed via
themselves, and they tie the small fish up in all kinds of non-circumvention
clauses to stop the possibility of any direct small fish to Big Fish
trading relationships from developing. In the major supplier's private, unspoken
view of the world, such a relationship is generally considered as "not in our
A second, less well-known tactic has the potential to be much more successful.
In this case like-minded small fish directly engage key Big Fish through
collaborative business networks that have sufficient scale and resources to
interest and engage the Big Fish.
small fish in a Virtual Enterprise Network engaging Big Fish
Thus, this book,
The Networked Enterprise, is for the owners and managers of SMEs (small
fish) and explains in simple terms, illustrated with numerous real examples
and practical techniques, exactly how they can use Virtual Enterprise Networks
to develop the kind of strategic partnerships they need with the Big Fish to
propel them to the next level of competitive success.
The Networked Enterprise is also ideal reading for large
enterprises (Big Fish) and their more far-sighted major supply chain players
that want to enhance their access to innovation, agility and alternative
risk/reward and cost models by developing and partnering with Virtual Enterprise
In short, this book provides strategic insight, specific guidelines and
real-world case studies for small fish and Big Fish alike. Big Fish and
small fish simply don't get along in the real world, because Big Fish
constantly swallow and consume small fish without even noticing it.
Enterprise Network creates a symbiosis, a living, mutually beneficial
relationship among dissimilar organisms, where the participants, big and small,
can thrive together in the 21st century world of extreme competition.
The Virtual Enterprise Network (VEN)
The goal of a Virtual Enterprise Network (VEN) is to connect Small and Medium
Enterprises (SMEs) into peer networks, supported by appropriate collaboration
practices and technologies, to give them the capabilities and competitive
advantages of large global enterprises, particularly in:
--Human Capital and IT Capital
Moreover, an overarching goal of a VEN is to achieve these capabilities while
retaining the VEN's inherent competitive advantages over large enterprises in:
--Speed and Responsiveness
--Entrepreneurship and Innovation
A VEN is, therefore, a way for businesses to achieve virtual scale, enabling it
to operate as if it possesses more resources and capacity than it actually has
within its own physical organizations. This allows the VEN to function with all
the resources and reach of a large enterprise, but without sacrificing its
speed, agility and low overhead. This enables it to compete for bigger, more
profitable contracts with higher innovation and design elements, with bigger
customers that are more willing to build strategic partnerships rather than
simple transactional relationships with the VEN's individual suppliers.
What do we mean by "Virtual" Enterprise Network?
"Virtual" has three distinct and complementary meanings in a VEN:
1. Virtual -- as the opposite of Physical, new (non-physical) enterprises forming
and dissolving from other (physical) enterprises, each with different processes,
systems and cultures, with the need to build trust, common aims and working
practices very quickly.
2. Virtual -- as not geographically in the same place, with the use of virtual
team technologies and techniques to address this.
3. Virtual Capacity -- in the sense of "Virtual Memory," where a computer
operates as if it has more capacity than it actually has, allowing enterprises
to incorporate external skills and resources to exploit market opportunities.
I'm not sure why it has taken so long for something like this book to appear.
But at least we finally have it. It has been more than ten years since we
recognized that there was more to this notion of the virtual enterprise than the
usual consultants' buzzwords. A decade ago, there was a sort of tipping point
when information technology and management science exceeded existing limits, and
the virtual enterprise phenomenon was obvious and leverageable for competitive
benefit. Back then, the best minds in the related disciplines put together a
sort of small Manhattan Project to provide insights and new tools. But, alas,
nothing very useful to the business world emerged from that work--until now.
That's why this book is essential reading if you are interested in adding the
virtual enterprise network to your competitive options.
You might be interested in examining with me why such a valuable book on such a
useful collection of ideas is so rare. The history of the virtual enterprise
movement is a history of wise and unwise government attention. Nearly every
advance in management science has become affected by and entangled with
government action, and so was the case here. The U.S. military had a serious
problem: complex weapon systems were simply costing too much, and some sys-tems
were unattainable at any price. The management systems of the large system
integrators were simply responding too slowly to technology cycles and market
needs. In response, a research program was established within the Defense
Advanced Research Projects Agency (DARPA). DARPA had incubated or enhanced
nearly every advance in information technology, including the Internet. Large
amounts of money were spent on DARPA's industrial infrastructure research, much
of it wisely. At the beginning, we all thought this would be merely an
information technology challenge, and quickly learned that all sorts of other
disciplines were involved. The research group I was associated with took this
challenge very seriously and produced real results in both approach and example.
Surprisingly, it was those examples that caused us problems.
The DARPA effort was shut down because it was working. The large defense
contractors cried foul. How could they compete with better, cheaper, faster? Our
program was defunded.
The European Community, seeing an opportunity to compete, set aside significant
amounts of funding in their research frameworks for things along these lines.
The funding was much smaller than in the U.S., and as it turned out suffered
from more severe problems in the way the work was designed. It's widely
recognized now that these defects probably confused the disciplines for creating
the virtual enterprise. Though there have been lots of conferences and technical
papers, these are fueled by artificially subsidized graduate student projects
that allow readers to only see the movement in terms of computer connectivity.
Lost is the common-sense awareness that there are simple things you can do to
innovate in your management approach to succeed. The concept of virtual
enterprise networks is a new area and is empowered by technology, but it is
guided by smart management principles as you'll read here. These dynamics
explain why we haven't seen dozens of high quality studies like this in the
area, and why this book is so valued by this researcher.
Read it and prosper.
Chief Research Scientist, Earl Advanced Research, and author of The Agile
Virtual Enterprise: Cases, Metrics, Tools. For many years, Goranson, who
holds multiple degrees from MIT, has been involved in the intelligence community
and played a key role DARPA's industrial infrastructure research.
Table of Contents
WHO SHOULD READ THIS BOOK AND WHY
PART 1 -- VIRTUAL ENTERPRISE NETWORKS INTRODUCED
1. THE VIRTUAL ENTERPRISE NETWORK (VEN)
2. THE BUSINESS ARGUMENT FOR VENS
3. VIRTUAL ENTERPRISE NETWORKS ARE A MAJOR GLOBAL TREND
4. THE FIVE KEY COMPONENTS OF A VEN
5. SIX VEN CASE STUDIES
6. VIRTUAL ENTERPRISE NETWORKS ARE NOT STANDARD INSTITUTIONS
7. FUTURE VEN DIRECTIONS
PART 2 -- VIRTUAL ENTERPRISE NETWORKS IMPLEMENTATION GUIDE
8. VEN QUICKSTART
9. VEN BLUEPRINTS
10. VEN PRACTICES AND TECHNIQUES
11. VEN TECHNICAL ARCHITECTURES
12. DEVELOPING EFFECTIVE VEN LEADERS
13. EXPLOITING VENS IN NOT-FOR-PROFITS
ABOUT THE AUTHOR