Cooperative strategy

Traditional enterprises can enter into various forms of cooperation depending on what their goal is and this book describes six reasons why firms seek to establish cooperative networks: 1) certainty – by developing relationships , 2) flexibility – by being able to quickly allocate a range of resources, 3) capacity – by “outsourcing” work to other network members, 4) speed – by being able to quickly respond to a wide range of business opportunities, 5) skills and competence -  by gaining access to resources other than one’s own, and 6) intelligence – by sharing market information.

Networks

Placing cooperative networks on a scale, going from independent to integrated, five degrees of networks can be discerned: 1) Equal-partner network, 2) Unilateral agreements, 3) Dominated network, 4) Virtual corporation, and 5) Strategic alliance. The virtual corporation is described as “a loosely coupled enterprise in which the parts are held together through the medium of sophisticated information technology packages”. Interestingly, and somewhat contradictory to Ken Thompson’s The Networked Enterprise, they consider virtual corporations as “a transitional stage of company development on the path to complete hierarchy”.

Virtual corporations

The chapter on virtual corporations focuses not so much on the virtual corporation itself,  as The Networked Enterprise does. Instead it focuses on management. The authors state that a virtual corporation needs a brain and a central nervous system, because a virtual organization too requires strategic direction. In their appraisal of the virtual corporation they do not see it as a solution to all solutions, and in most circumstances, the integrated corporation outperforms the virtual corporation. So they say. Especially when it comes to the communication of tacit knowledge, where there is a need for industry standards and where the growth potential lies in extending existing markets rather than exploring new markets. However, in markets with considerable turbulence, where there is a need for response and flexibility across a global perspective, a single firm may not have the required resources, and that is the place for the virtual corporation. Virtual and integrated corporations are likely to exist side-by-side, with one becoming the selected winner in certain markets, but not in others.

Conclusion

For my part, and for what I needed, the book was very useful. It gave me an insight into different kinds of cooperative networks, what distinguishes them, benefits, disadvantages and pitfalls. Five stars.

Reference

Child, J., Faulkner, D., & Tallman, S. B. (2005). Cooperative Strategy. Oxford: Oxford University Press.

Author links

• rhul.ac.uk: David Faulkner
• richmond.edu: Stephen B Tallman
• bham.ac.uk: John Child

amazon.com

• Buy this book at amazon.com

Related

• husdal.com: Trust, control and risk in strategic alliances
• husdal.com: Biting the hand that feeds. Or why all firms are snakes
• husdal.com: Vulnerability in business relationships: the gap between dependence and trust

A new experience

Writing a chapter for a book has been a whole new experience to me.  Daunting at first…how do your come up at least 9000 words on a topic you don’t really know much about? Following the references in Ken Thompson’s The Networked Enterprise as a starting point, it wasn’t too hard in the end, reaching some 12.700 words. Besides investigating a new field of study hitherto utterly unknown to me, writing a book chapter is considerably different from writing a journal article or a research report (which I do a lot of in my day job), let alone reviewing books or literature or websites and thinking up some posts for this blog. My posts on  Virtual Enterprise Networks are actually partly taken from my chapter proposal. For the sake of copyright and other issues, the full chapter will not be published on this blog until it is finalized and sent to the printers. The preliminary chapter proposal can be seen in my post on Understanding Risks in Virtual Enterprise Networks.

Virtual Enterprise Networks

I must admit that I knew very little, if anything, about Virtual Enterprise Networks when I started this adventure some months back, but I can now say that I am fascinated by the concept, and I believe that much of the future of supply chains lies in virtual enterprise networks. Supply chains have evolved in so far four stages, from the mere optimization of flows to economies of scale and further to economies of scope. The current stage is economies of integration, integrating and involving customer requirements in a value-driven rather than value-pushed supply chain, which leads to the next stage: economies of relationships. The basis for any virtual enterprise network is are the relationships among its partners, and my hope is that my chapter can contribute to managing the risks in the relationships that make up a virtual enterprise network.

What if

What if my chapter submission is not accepted? Well, as we say in Norwegian, “nothing is so bad it’s not good for something else”. I’ve covered some solid research ground and discovered many new articles on topics related to supply chain risk (and re-discovered som old ones I deemed not useful at that time). This means that large parts of my chapter could be re-worked into a journal article, or, if nothing else, at least I will be able to produce a whole string of posts about Virtual Enterprise Networks here on this blog.

Related

• husdal.com:
  Understanding Risk in Virtual Enterprise Networks (chapter proposal)
• husdal.com:
  Is managing risks in Virtual Enterprise Networks different from managing risks in Supply Chains? (conference presentation)
• husdal.com:
  Finally, my book chapter is published

To VEN or not to VEN

A VEN is 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.  Traditionally, a VEN has been described as a collection of  enterprises linked by intensive use of ICT for collaboration, but Ken Thompson’s perpective on VENs deviates from this blueprint for what makes a VEN a VEN. Thompson employs a more general perspective, looking at organisation and cooperation rather than just ICT as the basis for a VENs success or demise.

Small Fish take on Big Fish

This book is for two audiences: huge multinational corporations (Big Fish) and small innovative companies (small fish). 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 Networks.

Reference

Thompson, K. (2008) The Networked Enterprise. Tampa: Meghan-Kiffer Press.

Author link

• linkedin.com: Ken Thompson

Link

• bioteams.com – The BumbleBee: Ken Thompson’s shared know-how on team dynamics, virtual collaboration and bioteaming

amazon.com

• amazon.com – Buy The Networked Enterprise

Related

• husdal.com: The definition of agility
• husdal.com: Book Review: Virtual Teams

What is a VEN?

Thompson (2008) defines a VEN as “a voluntary and dynamic community of Small and Medium Enterprises that commit to working together for a set period of time, to collectively seek opportunities to participate in collaborative projects of mutual business interest”. A VEN is by definition a time-limited structure; it has a set life-cycle, i.e. the duration of a project in which the participating enterprises partake. This life cycle perspective poses certain challenges in how to manage VEN risks, as they may change from project to project.

Drivers of Supply Chain Vulnerability vis-à-vis Drivers of VEN Vulnerability

The view of a supply chain network that comes closest to a VEN is that of Peck (2005), where the “chain” is not a chain, but a complex web or network of interlinked businesses. Here, this network is seen as operating on four levels, where the links within one level may not match the links within the other levels:

At level 1, the supply chain is seen as a logistics pipeline, where the focus on lean and agile practices have made supply chain performance the overall goal but at the same time it also exposed the supply chain to many risks. At level 2 the focus is on the supply chain as a carrier of goods and information, and supply chain vulnerability is determined by production sites, distribution centers and warehouses, as well as IT and other communication facilities, and also the whole transportation network from supplier to end customer. At level 3 the view is further afield, looking at the supply chain from a strategic and management perspective, where organizational management, power-sharing, collaboration and competition become important factors in evaluating vulnerability. At level 4 the view is a broad macroeconomic perspective, political, economic, social, legal and technological factors, and disruptions or sudden changes in these factors are more often than not beyond the control of the company, but must be dealt with accordingly.

The 4-level model employed by Peck is easily transferable to a VEN environment and is an excellent tool for explaining the scope and dynamic nature of supply chain risk. It emphasizes that a resilient network involves much more than the design and management of robust supply chain processes. It is also important to recognize that by taking actions to reduce risk at one point within the four levels, at the same time the risk profile for the other levels is changed, including players and stakeholders not thought of in the initial risk assessment. Supply chains are dynamic and constantly evolving, and so is supply chain risk, and managing this risk is a constant battle and a never-ending process. A VEN is by definition a time-limited structure; it has a set life-cycle, i.e. the duration of a project in which the participating enterprises partake. In a VEN, where the players are constantly changing, the risk is constantly changing, too.

VEN risk management vis-à-vis Business Continuity Management

A VEN is a collaboration rather than a competition, a collective effort rather than a set of individual efforts, and hence, the underlying idea of a VEN is that it is a win-win undertaking. Nonetheless, in today’s global and interwoven business environment, where supply chain disruptions can occur more or less frequently, the subsequent failure of one contributing participant in the supply network (or chain) can potentially lead to the collapse of the whole network (or chain). In a VEN environment, win-win turns into loose-loose, and consequently, the term business continuity management should be explored and related to VEN continuity management.

Strategies for managing VEN risks

Robustness, flexibility, and resilience stand out as three strategies or approaches towards supply chain disruptions. These three terms are distinctively different and which strategy that works best would depend not only on the supply chain in question as a whole, but also which part of the supply chain that may be vulnerable. A best-practice supply chain is likely to encompass all three, making it robust, flexible and resilient at the same time. There is a distinct notion of severity in these definitions, and in a business setting, the ability to survive (resilience) is likely to be much more important than the ability to quickly regain stability (robustness) or the ability to divert (flexibility). While on the supply chain side resilience may be the right way forward, on the VEN side it is more likely to be agility,  that should take priority, since essentially VENs are agile by nature. Agility in supply chains is a concept that is explored by for instance Christopher and Peck (2004).

Resilience as a key ingredient for managing VEN risks

A good illustration of where the susceptibility to disruption (and hence, the resilience and ability to recover) is a determining variable in the strength of a supply chain can be seen in a report from the New Zealand research initiative “Resilient Organisations” (Mc Manus, 2007). Here, resilience is a 3-fold construct, depending on 1) keystone vulnerabilities, 2) situation awareness and 3) adaptive capacity. The adaptive capacity becomes particular important in recovering from a disruption. In a supply chain this could be viewed as the the inter- and intra-organizational “preparedness” (or worst case, “un-preparedness”). It is the preparedness then that determines the actual impact of supply chain disruptions.  However, supply chain resilience is not only a function of organizational preparedness; it is also a function of supply chain design, as in Craighead et al. (2007).

Supply chain vulnerability and VEN vulnerability

There is no one definition of supply chain vulnerability, and it is likewise difficult to make one definition of VEN vulnerability, but the closest definition is probably found in McManus (2007), where vulnerability is a function of the impact of a disruption and the organizational preparedness towards the disruption.

VEN characteristics as disruption impact parameters

The notion that both structural and organizational supply chain characteristics play a major role in supply chain disruptions is further underscored in Craighead et al. (2007), where the severity of supply chain disruptions is related to supply chain design characteristics (supply chain density, supply chain complexity and node criticality) and supply chain mitigation capabilities (recovery capability and warning capability). In brief: supply chain structure and supply chain organization.

These factors are presented in the form of 6 propositions: Firstly, proposition 1 to 3, an unplanned event that disrupts a supply chain is more likely have a severe impact if the supply chain structure is 1) dense or 2) complex or 3) contains critical nodes or bottlenecks.  Secondly, proposition 4 and 5, an unplanned event that disrupts a supply chain is less likely have a severe impact if the supply chain 4) has proactive or reactive recovery capabilities or 5) warning capabilities,  as in detection and dissemination of critical information. Thirdly, proposition 6, combining the previous 5 propositions, an unplanned event disrupting a supply chain that is dense, complex and with many critical nodes is less likely to be severe if there is a capability to quickly detect and disseminate information about the event and thus respond and correct in a proactive or reactive manner.

It appears then that propositions 4, 5 and 6 are inherent to VENs, due to their collective and collaborative structure, and VENs should fare better vis-à-vis disruptions compared to traditional supply chains.

Conclusion

Supply chains are competitive, VENs are collaborative. Approaching VENs from a supply chain perspective can assist in defining the risks and challenges a VEN faces and how to manage them, particularly since many of the traditional supply chain risks stem from a lack of collaboration and visibility, the hallmarks of VENs, making VENs the ideal setup for supply chains and making supply chain risk management a fertile ground for researching VEN risk management.

Selected Key References

Christopher, M. (2005) Managing risk in the supply chain. In: Christopher, M. (Ed.) Logistics and Supply Chain Management. 3rd ed., Prentice Hall, pp. 231-258.

Christopher, M. and Peck, H. (2004) Building the Resilient Supply Chain. The International Journal of Logistics Management. Vol. 15, No. 2, pp. 1 – 14.

Craighead, C. W., Blackhurst, J., Rungtusanatham, M. J. & Handfield, R. B. (2007) The Severity of Supply Chain Disruptions: Design Characteristics and Mitigation Capabilities. Decision Sciences, Vol. 38, No. 1, pp. 131-156.

Mc Manus, S. et al (2007) Resilience Management – A Framework for Assessing and Improving the Resilience of Organisations. Research Report 2007/01, Resilient Organisations, New Zealand. www.resorgs.org.nz

Peck, H. (2005) Drivers of supply chain vulnerability: an integrated framework. International Journal of Physical Distribution & Logistics Management, Vol. 35, No. 3/4, pp. 210-229.

Thompson, K. (2008) The Networked Enterprise. Meghan-Kiffer Press.

Related

• husdal.com: Risks in Virtual Enterprise Networks