The Next Generation Enterprise
Editor's Note: I met Steve Goldman when he participated with us in the original 1991 study that gave birth to the concept of Agile Enterprise. He was the editor of the vision document produced from that study, and subsequently co-authored the two initial books published on the subject. He was a senior fellow and Director of Strategic Analysis at the Agility Forum, the successor to the original study which provided a forum for industry self-discovery of agile concepts. Steve continues his interest in this area as an active lecturer, seminar producer, workshop facilitator, and white paper author on the subjects of agile, virtual, and next generation competitive enterprise.
Companies of all sizes and across all sectors of the economy are confronting new market realities that are driving fundamental change in the creation, production, and distribution of goods and services. Behind a variety of different-sounding names among them, agile, lean and next generation, cybercorp, high velocity corporation, interprise, learning organization, fractal corporation, holonic enterprise, kinetic corporation, networked enterprise, and virtual organization a global consensus has emerged on the core attributes of a competitive company today:
Responding rapidly on a continuing basis to constantly changing customer opportunities for new kinds of solutions requires that a company develop:
Next Generation Enterprises have highly flexible operations in which distributed (human and physical) resources can be configured quickly into a total business capability adapted to constantly changing, high value customer opportunities. At the core of this core is excellence at relationship management. Managers are highly competent at sustaining cooperative workforce relationships across the enterprise and relationships among collaborating enterprises: nurturing a workforce with a think-like-an-owner mentality and managing fluid, reciprocally beneficial relationships with suppliers, customers, and partners.
Companies are being driven to reposition themselves, both in their current markets and in emerging new markets, because the center of marketplace value has shifted decisively for the second time this century. First there was a gradual, half century-long, shift from an economy centered on manufacturing to one centered on services. By the end of the 1980s, however, the traditional distinction between goods and services was outflanked by the emergence of customer-specific solutions that integrated goods and services in innovative ways: beepers, cell phones, PCs a la Dell and Gateway. Traditional manufacturing companies among them, Unisys, DEC, IBM aggressively competed in markets that previously had been dominated by services-only companies such as EDS. At the same time, there was an enormous expansion in the number of companies whose only "product" was information.
In 1999 Autobytels free informational Website was generating 200,000 leads a month that converted into monthly auto sales of $1.7 billion. Microsofts CarPoint Website was only brokering the sale of $600 million worth of automobiles each month, from 140,000 leads, but formed an alliance with Ford to sell directly to consumers who could custom configure their own new vehicles. Amazon.com has consistently leveraged an evolving generic expertise in electronic commerce processes into pyramiding growth strategies. CEO Jeff Bezos used books to learn how to sell online effectively. He used what he learned from books to expand to selling similar products (music, videos), then moved to selling very different kinds of products (groceries, pharmacy products, appliances, and toys), added online auction services, and now is selling to all comers the ability to sell effectively online.
The successful exploitation of the solution option by more and more companies across the economy is thus forcing all companies to reposition themselves strategically. A marketplace centered on solutions rather than on either goods or services, requires of companies coordinated change in their:
To develop and introduce solutions routinely on a proactive basis requires totally different capabilities from those that made for corporate success until now. It requires an unprecedented degree of organizational and operational flexibility. It requires a continuing engagement with the social, as well as the economic, forces affecting the behavior and the changing requirements of individual customers. It requires accepting new levels of risk:
Above all, the Next Generation Enterprise is able selectively to integrate people and processes, expertise and physical resources, regardless of their organizational location, within a company or within its suppliers, partners, customers, even competitors. Its operations are as spontaneous, as collaborative, as customer-centered as those of a hospital emergency room. Only such a company is capable of competing in a marketplace that expects and rewards business strategies that promise sustained growth, not just cost-cutting.
Growth strategies require the ability to create a continuing stream of new variations on current solutions and the regular introduction of new kinds of solutions, ones that create whole new markets. Recent illustrations include creating markets for portable, laptop, notebook, subnotebook, and handheld computers; for cordless, analog cellular and digital cellular telephones; for increasingly competent beepers and pagers and their convergence with cellular phones and handheld computers and then moving these markets from selling hardware to selling their associated services, pricing the hardware at an almost negligible fraction of the service contracts.
In every industry, from aerospace and consumer electronics to health care and financial services, the rate of introduction of new models and new services is faster than it has ever been, and it is still accelerating. Furthermore, because the key to the value of solutions is an innovative idea for integrating products and services, solutions are easily imitated. At the same time, a continuing high rate of innovation and intense global competition have dramatically reduced the market lifetimes of even the most successful solutions. They have equally dramatically narrowed profit windows. The ensuing competition, repeated over and over again in industry after industry, inevitably pushes solutions to commodity pricing as if they were mass market goods and services!
It follows that working "smarter, faster, cheaper" is only "better" if a company is working on the right thing at the right time; that is, targeting its highest value market opportunities. And today even the right thing is only right for a little while. Cheap analog cellular phones are no more a platform for profit growth after a market shift to digital phones than cheap portable typewriters after the shift to word processors!
The constantly reexamined strategic goal of a Next Generation Enterprise's management, therefore, is to optimize overall organizational responsiveness to a rapidly and unpredictably changing marketplace. Controlling process costs remains important, but it is not enough. Organizational responsiveness requires competency in anticipating and absorbing the potential impact of sudden change. It requires, as well, competency in quickly configuring the human and physical resources necessary to exploit the most promising opportunities that sudden change creates. Both of those competencies require open access to information and an enterprise-wide understanding of the benefits to customers of all kinds commercial, consumer, public service client, military of new solutions that can be created based on that information.
The single leverage point for meeting all of these requirements is cooperation. The ability to work cooperatively with the resources distributed across an organization, and the ability to work collaboratively with resources distributed across multiple organizations is a core competency of the Next Generation Enterprise. Acquiring this competency poses a profound challenge to established managerial wisdom. Intra-enterprise cooperation is difficult because inherited managerial power structures and evaluation metrics promote internal competition, protect fiefdoms, and suppress operational initiative. They actively impede synthesizing new business capabilities out of available human and physical resources distributed across lines of authority.
Speed to Market: Internal Cooperation
Given an entrepreneurial workforce imbued with a think-like-an-owner mindset, speedy responses to new customer opportunities occur naturally. Cooperation, in such an environment, does not need to be preached. It is an obvious value validated by improved business outcomes. At the same time, teaming and empowerment become obviously valuable means to growth and increased profitability. How to implement teams, when to use them, and how to distribute decision-making broadly while maintaining coherence with enterprise-level strategic goals remain problems to be solved, but the value of teaming and empowerment becomes self-evident when enterprise-wide cooperation and initiative are valued.
A primary responsibility of management is to put into place processes for providing operational personnel with the resources that they have determined that they need in order to accomplish the operational goals that they have had a hand in setting in support of enterprise-level strategic objectives.
If cooperation is to become the preferred mode of operation in an organization whether it be a traditional organization migrating to NGE capabilities or a startup management must implement new metrics for evaluating cooperative behaviors and new policies for rewarding them. Without evaluation and reward policies adapted to cooperation, nothing will change.
Speed to Market: External Collaboration
No individual company, regardless of its size or market position, can rely solely on its own resources to meet customer needs in rapidly changing markets for information- and services-rich, individualized solutions. The Next Generation Enterprise is, therefore, an extended enterprise, or Interprise, that is, a company that routinely works interactively and collaboratively with other interprises. The interprise selectively and opportunistically links its information systems and its business, production and relationship management processes to those of all of the other companies that are stakeholders in the creation, production, and marketing of its solution offerings. By doing so it gains speed, acquires access to complementary competencies, and reduces risk and costs, at the price of a measure of autonomy and sharing in, rather than owning, the anticipated profits. The business goal is to shift from a linear model of value chains to a more complex model of looping value circles in which companies assist one another to create customer value.
The virtual organization is a natural extension of the interprise. It is an opportunistic integration of a total business capability out of competencies that remain distributed, either within a single enterprise or among a group of collaborating enterprises. The distinctive feature is coordination without centralization, a networked production capability through electronic integration of resources and expertise distributed among peer participants.
Virtual Organization Virtues
Share risk and costs
What is new about the virtual organization model today is not the concept, but the relative ease with which any company willing to make the effort can configure a total business capability by coordinating human and physical resources, competencies and technology, that remain physically distributed within a group of collaborating companies.
Though it is proving to be valuable in a growing number of diverse applications, the virtual organization model is, nevertheless, a means, not an end. It is one option to be considered in addition to internal growth, outsourcing, or creating a joint venture. The evidence is unequivocal. Today, a vertically integrated business capability can be created efficiently and effectively by using bytes rather than bricks. Before adopting the model, however, a company needs to be confident that it has the supporting infrastructure to integrate the level of distributed work required by a virtual organization, and it needs to be able to make a business case for using the virtual organization model, rather than developing the new solution all by itself or through a more familiar partnership arrangement.
Virtual Organization Caveats
Virtual organizations require innovative approaches to evaluation and reward, and to operational performance metrics that will keep management informed about the status of operations across companies. Intensive collaboration creates vulnerabilities as a corollary to the synergies they make possible. Abusing intellectual property is one of these. Another is quality control issues and the residual liabilities that can remain after the virtual organization is dissolved, or evolves into producing new solutions for different markets.
There is no alternative to selling solutions for companies competing in the highest value markets. The customer-specific nature of solutions, and the variety that is characteristic of them, precludes a formula for their successful creation and production. But while there may be no universal formula, there are generic guidelines applicable to all solutions producers.
The difference between solutions and traditional products and services is the way that information and knowledge are used to exploit customer-perceived value in advance of customer-expressed need. Only a continuous stream of new solutions can keep a company ahead of its imitators, reducing the impact of the inevitable commodity pricing, and sustaining the higher profit margins that motivated becoming a solution producer in the first place. That is why solutions must be designed as platforms for high variety, rapidly changing, families of product-services-information combinations that can be tailored to evolving customer requirements. It is also why a solutions producer must nurture enduring proactive relationships with customers, the better to anticipate those requirements. The value of a solution exists in the mind of the customer who perceives it as a solution for them.
Intel chips, which function as solutions from the customer's perspective, are in fact mass produced in accordance with Intel's "Copy Exactly" manufacturing system. Every Intel plant manufacturing a particular chip uses equipment and processes that are exactly the same as every other plant manufacturing that chip, and is laid out in exactly the same way, too. Why isn't Intel a high tech mass production manufacturer, then? Because Intel sells solutions, not the chips it manufactures. The cost structure of Intel's manufacturing is critical to its profit margins, of course, but what drives Intel's success is its ability to position its chips at the heart of constantly changing, symbiotic hardware-software solutions that Intel uses to create new markets.
Leveraging Information and Knowledge
Managing a Next Generation Enterprise well requires methods, values, and tools fundamentally different from those required by a traditional enterprise. The ability to leverage knowledge distributed throughout the workforce, and throughout the network of inter-enterprise relationships managed by an interprise, is a more effective means of creating a continuous stream of solutions than centralized expertise. Motivation and support of the entire workforce, including responsibility for recruiting and maintaining a knowledgeable and skilled workforce, is more closely coupled to successful management than command and control.
Because of the dynamism of the Next Generation competitive environment, the competencies that a company must possess to sustain competitiveness are shorter-lived today than ever before. One consequence of this is that it is a mistake to recruit personnel primarily for their current knowledge/skills. The most valuable attributes of any employee, at any level, are openness to continual learning, especially learning outside their current competency, the ability to work well collaboratively, and a willingness to accept shared responsibility for the success of the enterprise as a condition of their own success.
On the one hand, by making job security a function of the employee's evolving ability to add value for the company, as the company's requirements from its workforce change, the employee becomes responsible for job security. On the other hand, management must "grow" its workforce, by providing continuous education and training processes, and appropriate and effective evaluation and reward measures.
It is encouraging that so many companies are creating the position of Chief Knowledge Officer. It is not clear, however, that there is an understanding of what that position entails; and how knowledge, through the position of the CKO, is to be made central to strategic planning and the organization of operations.
A primary responsibility of the CKO is to define what "knowledge" means for his/her company, and to continually redefine it as the company routinely repositions itself to exploit changing market opportunities. Once useful knowledge has been defined, it must be acquired and organized. This harks back to the distinction between data, information, and knowledge. Flooding the workforce with data is worse than useless. Flooding it with vast quantities of organized data, that is, with information, is not as bad, but far from optimal. Providing what people recognize as helpful knowledge, that is, suitably interpreted information, that people can use to do what they do better, or use to create different, more valuable new things to do, is the ideal. But this requires coupling the organization of knowledge to the people, processes, and operations of the enterprise. The CKO must know his/her own company, and very well. Once organized, knowledge must then be disseminated such that the people who can best use it acquire it in a timely fashion, but more importantly, personnel must be motivated by management to use the knowledge to impact the enterprise's bottom line.
From an understanding of current and emerging market realities, it is possible to identify the specific business strategies, organizational models, and operational capabilities that a company must acquire if it is to grow and thrive. Now is the time to create wealth for companies by enabling the adoption of these strategies, models, and capabilities at a time when they still confer competitive advantage. In very little time they will be the price of admission to being competitive at all, as market leadership passes to those companies that recognize the next generation of market opportunities.
Dr. Steven L. Goldman (email@example.com), 610-758-6119
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From: firstname.lastname@example.org (Bob Dove) Date: Sat, 16 Oct 1999
Your comments about what the CKO must do are on the mark. I would add that the CKO can only accomplish the task of delivering "helpful knowledge" in a timely fashion and motivating personnel to use the knowledge to impact the bottom line by involving the end users of the knowledge in creating the architecture of the knowledge delivery system. The CKO should also involve them in providing input concerning what knowledge is needed and in what format. Constant dialog with end users provides them with a sense of ownership of the knowledge delivery system and the stream of knowledge that they have access to, indeed they can/should contribute to the knowledge base as well as be receivers of knowledge. Reward systems should work to motivate personnel to be a part of the knowledge management system on three levels: as contributors, as users, and in their skill at converting knowledge to bottom-line value.
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