Volume 19, Number 1 Article by Sunil Bhardwaj and V S Pai March, 2007
The Extended Enterprise: Gaining Competitive Advantage through Collaborative Supply Chains : By Edward W Davis and Robert E Spekman, 2004, New Jersey: Prentice Hall.:
In the book under review, Davis and Spekman convey the concept of the extended enterprise as a strategic framework for initiating and managing enterprise partnerships. It is evident that managing a business in the competitive era involves managing strong collaborative partnerships. The book establishes the need for extended enterprise thinking and demonstrates the benefits of collaboration and integration among business partners in the present competitive world through the illustrative examples of IBM, Lucent and Texas Instruments. This book will form a good foundation if one wants to get into more advanced works such as those of Boyer et al and Donovan1.
Davis and Spekman dwell on the development of buyer-supplier relationships. They refer to the 1960s as the Dark Age, when buying was seen as a reactive activity. In the 70s, purchasing started getting attention from senior management primarily due to the increase in the prices of raw materials. The late 70s saw an increasing emphasis on materials management. The idea was to minimise the cost of system wide procurement without affecting the production schedules. The total number of suppliers decreased and the emphasis on long term relationships commenced. Quality became the primary criterion and cost took a back seat.
Supply Chain Management is now seen as a set of manageable interrelated processes with the aim of increasing effectiveness and efficiency. Many practitioners are leveraging such SCM practices as joint planning and technology sharing2. Companies like Dell and Lucent have achieved significant improvements in their supply chain planning and scheduling through collaboration and mutual trust. This aspect is well described and supported in the case studies of Chopra and Meindl3.
The authors believe that it is the top management of an organisation that has to take responsibility for adopting this approach. The set of relationships in an extended enterprise must be aligned with the overall strategy of the firm. The three Cs (connectivity, community and collaboration) have been presented to substantiate the philosophy of the extended enterprise. Connectivity refers to the extent to which various partners are connected with each other for achieving a common goal. Community refers to the members living in harmony and following a defined and agreed set of norms and procedures. Collaboration is the heart of the extended enterprise. This view is in consonance with Donovan. Collaboration is ensured by a well-defined set of principles, processes and structures.
The extended enterprise is not untouched by present day phenomena such as outsourcing that are changing the face of the business world. The authors warn that in an extended enterprise managing business process outsourcing is not an easy task and may invite challenges from existing members. Another important phenomenon discussed is the development of information technology such as Electronic Data Interchange and the Internet. Information technology is a key enabler in achieving the three Cs of the extended enterprise and can play an important role in today’s competitive context. The strategies described by Cagliano et al4 to harness information technology and the examples cited by them are complementary to the ideas presented in this book.
Trust is the backbone of extended enterprise and is difficult to build and maintain. Trust is described along two-dimensions – character and competence. The character-based dimension consists of integrity, honesty, consistency of behaviour, openness to sharing information and discretion. The competence-based dimension constitutes specific expertise, interpersonal skills, broad-based expertise and judgement-capability. One of the approaches suggested for maintaining trust among the partners is to ensure the equitable distribution of gains.
The authors deal with the changes that are required in running an extended enterprise. These changes cannot be brought about all of a sudden, but require the development of enterprise wide thinking rather than rigid rules and emphasis on a single department or partner. Extended enterprise thinking is based on the building blocks of commitment, transparent communication, integrative mechanisms, decision-making style, company culture and win-win orientation among the partners. Competences described for managing these networks are of two categories, teachable competencies and non-teachable competencies like creativity and cleverness in dealing with situations, embracing new cultures, and innovative and independent thinking.
The authors stress the need to track the performance of the extended enterprise through appropriate measures in order to assess its benefits. They suggest some measures derived from the supply chain balance scorecard. The metrics emphasised are cash-to-cash cycle time across the chain, total return on assets across the supply chain, system wide cost savings and equitable division of profits. Non-financial measures include market share, share of wallet, conversion of customers to loyal customers, speed of market entry and level of cross selling. Though some of the metrics are difficult to monitor, commitment towards performance necessitates constant monitoring.
In conclusion, the extended enterprise is projected as a framework of collaboration to win. However, parts of the book appear simplistic. Achieving the kind of integration described in the book across the entire supply chain will be a Herculean if not downright impossible task for most firms, although it has been done by organisations like Dell. Even if such coordination and integration is brought about, creating and maintaining specific extended enterprises which deliver success in a sustainable manner will be a challenge.
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