“The term ‘extended enterprise’ represents the concept that a company is made up not just of its employees, its board members, and executives, but also its business partners, its suppliers, and even its customers. The extended enterprise can only be successful if all of the component groups and individuals have the information they need in order to do business effectively.” (Information Builders).
The extended enterprise is alive and well. Businesses are concentrating more and more on their core competences and outsourcing all other activities. This results in such businesses being very dependant on their suppliers of both product components and services. This has proved to be a good thing. According to Smith and Reinersten (1995), as much as 80 per cent of a product’s value can be purchased from suppliers.
Key to the Extended Enterprise is trust and information sharing - the latter being greatly facilitated by advances in technology and, in particular, the web. This bodes well for rural based businesses with the appropriate technological infrastructure. The expertise that exists within rural businesses can become part of an extended enterprise. The need for geographic proximity to all parties in a business relationship are quickly diminishing - we need only look to the successes many companies in Ireland have had in outsourcing manufacturing to places as far away as India.
So my advice to rural based businesses, not only do you have to be very good at what you do, you also need to have the technology to allow you to integrate with other businesses. If you don’t currently have the technology then work hard at ensuring you have the capacity to absorb the technology if the opportunity arises.
Information Builders: http://www.informationbuilders.com/extended-enterprise.html
Smith and Reinersten (1995), ‘Developing Products in Half the Time: New Rules, New
Tools,’ John Wiley and Sons Inc.
Recently I gave a talk to a group of, rural based, micro-enterprises entitled “Getting more from your business through technology”. I had 20 minutes in which to say my piece. Here were my main points:
- No one knows your business like yourself. It is difficult, nay impossible, for anybody to tell you how to get more from your business through technology without them first understanding your business model (especially in just 20 minutes).
- Are you clear on how you compete? Are you following a low cost strategy or a product/service differentiation strategy? Why? How do you seek to create and sustain a competitive advantage? If you know the answers to these questions then you can start determining how to get more from your business through technology.
- Know your value stream, that is, be clear as to how you add value to the customer. Seek out technologies that either
- help you increase the customer value you provide or
- help you provide new customer value.
- Technology is generally a means through which customer value can be provided. Customers value the products of technology and not usually the technology itself.
- Develop a technology strategy which focus on realising your business strategy through, technology assisted, customer value creation. Don’t over document such a strategy.
- Continuously ask the question “How does this technology add customer value?”.
- The use of technology is, for most businesses, no longer optional. Ignoring technology is akin to ignoring your competitors and your customers.
Areas in which technology can assist you create customer value:
- Marketing e.g. web site, blogs, online advertising, email
- New product/service development
- Supporting existing products/services
- Reducing costs
Today, I read an interesting article in the Irish Sunday Independent by Roisin Burke entitled ‘Adapting and surviving: Reports of the demise of Irish manufacturing have been exaggerated, but the nature of the sector is changing here as it is everywhere.’. Roisin correctly identifies a shift in the manufacturing sector and states that the “manufacturing is no longer a function in isolation and is becoming integrated with other areas such as customer and technical support, supply chain management and research and development to produce complete product lines…Companies will become extended enterprises, which are flexible and responsive to customer needs.“. So what are extended enterprises?
Extended enterprises have, according to the researchers Browne and Zhang (1999), have three main characterisitics:
- Manufacturing organisations concentrate on their core business and technical activities and outsource all other non-core activities.
- Manufacturing organisations establish long tern relationships with key customers and treats them as key business partners.
- Methods, business processes and technology are available to support business activities that cross traditional enterprise boundaries. These methods particularly support supplier-customer integration through the interchange of commercial and technical information, seamlessly and effectively.
The extended enterprise is a collection of organisations working together, all concentrating on their own core competences, in the sale of a product. What brings them together is an increased focus on customer service and a knowledge that modern day customers demand more than just high quality customisable products but clear advantages from the intangible services and accessories that come with the product (such as customer support, finance, recycling, etc). For example, car dealers, car manufacturing, finance companies all coming together on the car lot, through the embodiement of the sales person, to offer you everything you need to purchase a car.
Why extended enterprises are of interest to me is because extended enterprises achieve competitive adavantage through the integration, using technology, of information and the efficient flow of products, goods and services between the organisations involved in the enterprierse and ultimately to the customer who purchases the “extended product” (the product is extended with such services as customer support, finance options, etc). It is the use of technology in such a way that is of real interest to me. Organisations can start to become extended only if they enable external access, to collaborating partners in the extended enterprise, to their key information systems. This allows everyone in the enterprise, i.e. other organisations, to use everyone elses systems so as to improve the sale of the product. Web services offer great potential in assisting organisations to become more integrated and mobile and wireless technologies (such as RFID) promise to improve the efficiency of information flow.
- Browne, J. & Zhang, J. (1999) Extended and virtual enterprises - similarities and differences. International Journal of Agile Management Systems, 1, 30-36.
Addition 8/1/07:
Irving Wladawsky-Berger has just posted an interesting blog on this subject