Governing an Extended Enterprise

The concept of the “extended enterprise” is hardly new. The notion certainly picked up steam in the 1990s as global markets took on structure, and outsourcing and partnerships became an acceptable response. Today, however, the nature of “extended” has evolved into something heretofore unimaginable.

Toyota and Honda have developed a competitive edge over the Big Three U.S. automakers in part by building long-term relationships with their suppliers. This involves Toyota’s and Honda’s executives understanding everything about the supplier and the supplier understanding exactly what Toyota and Honda need. It also involves visits to each other’s sites at the executive level; no detail is too small for the brass. The Japanese firms are tough on their suppliers, but also see to it that the suppliers get more and more business—and greater profits—if they do well.

Cisco has created the “I Prize,” a competition for new business ideas, and it has drawn more than 1,600 entrants from nearly 90 countries. Suggestions came in the fields of wireless, automotive, health care and energy. The winner will get a chance to join Cisco in developing a business around the idea—collecting a $250,000 signing bonus and up to $10 million in funding. Cisco does this despite spending $4.5 billion annually on R&D and acquiring a new idea-rich company every three weeks. Cisco is looking for its next billion-dollar business.

Seven-Eleven, Japan’s supply chain isn’t built on fast or cheap deliveries, but rather on responding to changes in demand. It tracks sales in real time, as well as the gender and age of customers. Its systems alert suppliers to changes in demand among stores. Deliveries are scheduled within a 10-minute window, and employees reconfigure shelves at least three times a day. Suppliers consolidate shipments into the same trucks, and the company has used motorcycles, boats and even helicopters to deliver the goods.

What distinguishes the extended enterprise today, of course, is knowledge: of the customer, the supplier and new business ideas in the minds of anyone, anywhere.

And the challenge for leaders today is governing this new-fangled approach, which breaks most of the management rules we grew up with. Even the term “governance” seems arcane—too harsh and proscriptive for a fluid and ever-evolving enterprise. Just look at the words we use for it: value web, network and ecosystem.

I’ve observed the evolution first hand, starting in the early 1990s at GE, where we were creating new and exciting business models and their enabling technology—too new, too exciting, it turned out, for the customers we had in mind at the time. And then in my own company, where the focus is on innovative management applications, research and best practices on which agile and adaptive organizations would run.

Technology, of course, makes the extended enterprise possible. And technology makes it necessary: the new markets, the globalization of business, the lower thresholds to entry for competitors, the speed of everything, the novelties in business models and products—all of these are the devilish work of technology. And managing technology wisely, within your four walls and outside across the extended enterprise—using available, proven management standards—is the answer.