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Porter's (2008) five competitive forces represent a framework for organisations to analyze their industries and to develop strategies that create a competitive advantage. The framework can be used to evaluate the organisation's strategic position. Porter's (1996) strategic fit among activities includes consistency, reinforcing, and optimisation: a fit among activities is fundamental to achieve competitive advantage and sustainability. A fit creates an array of interlocked activities that become hard to imitate: individual activities are easy for rivals to copy, for instance, a management approach or sales-force.
Scheer's (2007) theory describes the intensity of control and connectivity within the organisation to facilitate creativity and communication. High levels of intensity of control ensures stability but inhibits connectivity. In contrast, high connectivity represents low control. Scheer (2007) suggests the 'edge of chaos' balance flexibility and stability for organisations structure to be adaptive. This is useful for ABN to consider achieving adaptability. Moore (2010) is concerned about differentiation of core and context processes: the resource recycling processes and the importance of repurposing processes to core processes to obtain funding and resources for innovation.
ABNs that combine resources from partners to obtain competitiveness can be further discussed by using Porter's strategies. Moore's (2010) process management and Scheer's (2007) approach to achieve adaptive organisation structure can be analysed and extended to derive implications in ABN context. These theories are usually used to analyse a single enterprise, to interpret ABN; a different approach is needed. From a holistic view, ABN can be seen as one virtual organisation; whereas at lower level, ABN consists of multiple organisations that interact dynamically. The heterogeneous partners and their relationships in ABN are important aspects to consider when applying these business theories in ABN environment.
Porter's (2008 and 1996) strategies include five competitive forces that help organisations analyse its industry: trade-off position theories that concern the focus of one position in saving its efforts to be spent on its unique position [????]. The three types fit among activities that create an array of inter-locked activity create a sustainable competitive advantage.
Five Competitive Forces that Shape Strategy
Porter (2008) discusses that there are five important forces that determine competitive power in the business environment shown in Figure 26: supplier power, buyer power, competitive rivalry, threats of new entrants, and threats of substitution.
Supplier is considered a threat to a company as it can easily push up the prices of raw materials and reduce profit margin because they have the input or resources that the business requires and the cost of switching to other supplier is high. The fewer the suppliers, the more powerful they are.
Buyer power-buyers can drive an business's price down. Individual buyers are important to a business, and the fewer the buyers, the more they can dictate terms.
Competitive rivalry-businesses lose power by offering equally attractive products and services, as suppliers and customers are likely to impulsively switch. In contrast, businesses offering superior or unique goods or services have tremendous strength, even monopolies.
Threats of substitute depend on the ability of customers to find different way to get the same service, for instance, the extent to which different product or services can be used in place of yours. Easy and viable substitution weakens a business's power.
Threats of new entrants to the market can easily enter and weaken a business's position and power, for instance, driving business prices down If the cost (capital, resource and effort) of entering is low and time required is short, and if there are few economies of scale, or if the technology can be easily implemented.
The five forces model allows an organisation to understand where the power lies in respect to its suppliers, buyers, threats, rivals and substitutes. Understanding and identifying the strength and direction of each force, businesses can assess the current competitive position, and the strength of a position that the company aims to move into. For instance, finding where the position is the weakest or the opportunity that is available to others informs how to gain strength. The end goal is to reduce the power of each force, and to increase the organisation's power in respect to those forces.
Figure : The five forces that shape industry competition (Porter, 2008)
Porter (2008) outlines two critical points from the five forces: 1) identify and understand each force and how it affects the power the organisation, and 2) find exposed opportunities or unique positions that could reduce the power of each force and obtain competitive advantage. Applying these key ideas into ABN context reveals two perspectives: high and low level. Firstly, at high level, ABN is seen as a one virtual enterprise that interconnects dynamically with partners with different strength together to deliver differentiated and valued product or services to targeted customers. ABN as a virtual enterprise essentially involves customers, suppliers, threats, substitutions and competitions outside the ABN environment. ABN needs to consider each force and how it affects the power of the enterprise to find a unique positioning. For instance, the threats of others imitating this form of relationship and offerings--there will still be buyer- and supplier-power if the product is not differentiated, and competition still exists if others are offering similar type of product or services.
However, five forces and their definitions became more complex in ABN than in a single business due to ABN's features including network features, interdependencies, collaboration, coordination, self organisation and co-evolution. Seen from a lower perspective, ABN consists of focal organisation/s and multiple actors interconnected to form a powerful network. Customer and supplier forces threaten ABN in one situation but may be beneficial in another situation. Customers in this context refer to other organisations that provide goods or services that ABN needs to deliver its products. The customers and suppliers that collaborate within the network could be working with other organisations or other networks outside the ABN environment. This provides their bargaining power over prices with the focal organisation within ABN environment. In this circumstance, they are considered threatening; however, the threat could be substantially reduced if the partners are highly collaborative with the focal organisation. The level of coordination and collaboration relationship influences the level of threat of those partners for focal organisation in ABN. This brings discussion about the two critical aspects of ABN: collaboration and coordination.
Collaboration and coordination are important factors that determine the functioning and operating in ABN. The relationship between the focal organisation and the partners can be in the form of coordination and/or collaboration. Nevertheless, the level of coordination and collaboration can differ and have different effects. For instance, the relationship with suppliers can choose to have more collaboration and less coordination. More collaboration denotes that suppliers are willing to give up a portion of their margin of profit for a long-term relationship with the focal organisation. Collaboration emphasises that members are equal, and are equally motivated to participate in the network. In a collaborative environment, everyone is better off as a result of forming a network. Collaborative network supports high interaction, effective information sharing and high information visibility. Improvement of the network indicates improvement of the performance of every partner. In contrast, if more coordination and less collaboration, suppliers have low involvement in the network: the performance of the network does not affect the supplier as much. More coordination and less collaboration indicate that the focal organisation organizes the individual firms to achieve a goal established by the focal organisation, which in this case focuses on sourcing skilled resources. The other firms, having goals of achieving efficiency and speed, benefit less in comparison to the main company when the network performance is improved. Collaboration increases involvement, interaction, dependence and close relationships with suppliers-reducing their bargaining power. When partners involved in the network have the same goal as the focal organisation, they work towards improving the overall performance of the network, which then increases benefits of the individual firms. This gives the incentive that drives the suppliers to offer highest quality resources such as raw materials for the best prices, and promptly as required, thereby improving the performance of the whole network. The relationship between suppliers is thus best to take a collaboration approach rather than coordination.
End customers are threats as they have power to reduce price if other businesses are offering similar products. If the enterprise does not offer product or services that match customer needs, they are likely to shift to other companies who offering better products or services. Customer threats cannot be eliminated, but can be reduced when the customers are loyal with the enterprise. Increasing customer relationships to build loyalty that will reduce the likelihood of their shifting to alternatives requires extensive marketing effort. ABN with the ability to collect skills and strengths together to provide differentiated and valued products and services can coax customers from bargaining over prices and focus on the value that the enterprise offers. This allows buyers to move their purchase decision away from price and look for attributes that make the product unique. ABN can also cut out intermediaries-third parties, retailers, etc.-by selling directly to consumers. This reduces prices further decreasing customer threat.
New entrants can threaten the position and profitability of the organisation if the cost and capital required are low. This threat can be reduced through approaches including economic of scales, branding, supply chain management to tie up suppliers and distributors, and alliances between products and services. Since individuals do not have all the resources required to meet the opportunities in the market, to achieve a competitive edge, companies align with suppliers, customers, and distributors to streamline operations and work together to achieve a level of agility beyond the reach of individual companies (Lin, Chiu, & Chu, 2004). ABN that collaborate and coordinate with suppliers, customers, distributors, and other partners create networks with strong member-linkage: tightly coupled relationships become hard to imitate, requiring extensive amounts of time and effort to form a competitive network.
The threats of substitution can be reduced through increasing alliances, accentuating differences of offerings, or increasing switching costs for its customers. ABN can achieve these easily by collaborating with its partners. ABN itself is a form of alliance, where the relationship is built on agreement, and members unite achieve a common goal as well as securing their individual interests
Trade-off of positions
Porter (1996) emphasise that a sustainable strategic position requires trade-offs. A strategic position is not sustainable unless there are trade-offs with other positions. Organisations with limited resources need to focus on one unique position and spend all effort to make the position successful and make itself stand out from the crowd. Trade-off happens when activities are incompatible. For example, a luxury and high value position for a product cannot also have low-cost position. Trade off also creates the need for choice and protect against straddlers and repositioners who try to imitate profitable positions or management techniques. Trade-off in ABN context also implies the need to a choose what activities to perform and what not to perform. Porter (1996) discusses that trade-offs arise for three reasons: 1) to produce consistency in brand image, for instance, low cost or high value image. 2) Trade-offs arise from activities themselves: different positions requires different product configuration, different employee behaviour, different skills, resources, technology and systems. 3) Trade-offs arise from the limits on internal coordination and control; for instance, managers announce the strategy to compete in one way and not another, making clear what to perform and what not do perform.
ABN combine many skills and resources thereby creating great potential to perform a range of activities. However, making trade-offs limits what the enterprise offers and what would make the enterprise stand out from the crowd-achieve uniqueness. The essence of trade-off strategy lies in what not to do. Sacrificing certain activities that do not support the core strategy of the company also saves resources that can contribute to developing a unique position and competitive edge.
After the organisation establishes a unique position and trade position, the next step is to plan and manage to ensure that the activities fit with the strategies. Porter (1996) discusses three types of fit strategies for activities. These strategies are discussed in the next section.
Strategic Fit among Acitvities
To achieve differentiation and value to customer, Porter (1996) emphasises the importance of fit among activities within an organisation. Fit concerns that activities be closely aligned and matched to create an interlocked array: activities must not be separate and isolated. Individual activities are easily imitated by straddlers whereas interlocked activities are harder to replicate. Interlocked activities create a sustainable competitive advantage. The fit of a set of activities is critical while discrete activities such as a particular technology or a management technique such as a sales-force approach (Porter, 1996). This applied in ABN context implies that focal organisation need to ensure that there is a fit between activities performed by the partners.
Three types of activities fit are simple consistency, reinforcement, and optimization of effort. Simple consistency emphasises the fit between activities supports the overall strategy. Consistency ensures that strategy and activity do not erode each other, for instance, aligning all activities to either low-cost strategy or high-value strategy. This consistency implies that since strategies are differentiated, the activities fit with the strategy; activities that deviate from the strategy should be eliminated. Consistency thus ensures that competitive advantages of activities cumulate and not cancel themselves out. ABN is a collection of heterogeneous organisations that bring their competencies, skills, and resources to achieve a common objective (Chituc, Toscano, & Azevedo, 2008). The activities performed by heterogeneous partners need to be aligned to the common goal. At strategic level, consistency in ABN implies the need for a common goal that leads the individual goals of heterogeneous partners. Wycisk et al., (2008) describes that heterogeneous agents within a network have their functions and their individuals. These heterogeneous agents are distinguished by different abilities, goals and pattern of actions. A common goal ensures that each activity or individual goals are aligned to the previously determined objectives that provide the core customer value.
At business process level, consistency implies the need of interoperability, which allows the business processes to connect and operate to effectively offer products or services to its customers. The ability to interoperate is also essential to facilitate effective communication and information visibility among activities (Evgenious, 2002; Heinrich & Betts, 2003). This in turn supports a common ABN goal. At IS level, business integration is essential, as organisations run different business processes on different platforms, and methods are hard to communicate. Business integration ensures that businesses have access to the data of one another, thereby ensuring consistency of activities.
Reinforcement is insuring that activities complement each other to deliver the message of the core value. The competitive advantage comes from their supporting the overall strategy. This may also lower marketing or operating costs.
At strategic level it implies that ABN requires combination of core competencies from selected organisations to deliver a core value to meet a group of targeted customers. Partners are selected to join the network for their best business activity, jointly, they can achieve what they cannot achieve alone. The idea of capability synergy emphasised by Janneck, Nagel, Schmid, Raim, Connolly & Moll (2009) also supports this idea. Synergy describes a smart business network of multiple members working in sequence and communicating to carry out the activities. Janneck et al. (2009) provide an example of constructing a house: A contractor would hire skilled plumbers, electricians, and construction workers instead of building a house from raw materials. Through integrating different capabilities-hiring people performing what they are good at creates a synergistic environment.
Agility is the speed of the organisations to react to the changing market or customer demand (Sherehiy et al., 2007). To achieve such agility, activities must first be closely aligned so that when the time comes for change, each organisation can respond synergistically and effectively. In another words, the idea of reinforcing prepares an ABN better to achieve agility in responding to its environment in terms of configuring its business processes or a shift in business strategy. With activities that are reinforced and aligned, change can be achieved effectively. Collaboration and coordination also contribute to the reinforcing of activities performed within the network. Firms whose collaborating is based on agreement perform pre-agreed activities, thus minimize incompatibility between activities. Coordination involves some control; though collaboration exists, coordination of the focal organisation takes the initiative when implementing change: the coordinator provides a general direction towards achieving the goal through influencing the organisations in the network.
At business process level, ABN needs to consider the activities in order to choose the potential partners. Reinforcing activities at business process level implies composition: choreography, orchestration and improvisation. Choreography is partners agreeing to perform some activities. Orchestration is the focal organisation influencing and guiding the operation. Improvisation is partners interacting and responding to the operations of others and constantly making adjustments. More insights of orchestration, choreography and improvisation will be discussed in section (2.3.2).
At IS level standardization develops technical standards for common operating procedure that is agreed to by the network partners. Standardization of business processes is essential as organisations run different platforms and rules. Standardization implies that the business processes within an ABN network are running on a consistent platform, ensuring smooth and effective operations between partners across organisational boundaries. Standardization also facilitates the reinforcing idea, as processes running on a consistent platform are easier to interoperate, allowing fast implementation changes in business processes. Standardization facilitates compatibility, interoperability and information sharing thus supporting collaboration between partners.
Optimization of effort focuses on the idea of coordination and information exchange across activities to minimize wasted effort, reduce redundancy and optimize results. Extending optimization of effort in ABN's strategic level implies the need for agility and high quality. High quality is an important factor for agility, as organisations responding to changes in customer demands must promptly produce high quality products or services. Within an ABN, the interdependent relationships where one decision could influence the rest of the network, indicate a trend of co-evolution over time: organisations are simultaneously adapting to one another (Wycisk et al., 2008). Co-evolution implies that organisations within ABN react to, and influences their environment. Interdependent relationship indicates that organisations may sequentially respond to each other's actions (Wyciswk et al., 2008). The decision of one organisation affects the decision of the others. Wycisk et al., (2008) also outline limited resources within the network, which forces coevolving adaptive responses within the network or between the network and its environment. Moore's Innovation strategy (2010) defined that optimize includes eliminating of redundant processes, automating processers, stream-line processes to reduce complexity, risk and costs. This optimization focuses on increasing productivity of context processes, when the cost is reduced as a result. Organisations then have the choice of either lowering their price or increasing their profit margins. Optimization, therefore, ensures that organisations generate enough profit for reinvestment or renovate. At business process level, Optimization further requires monitoring and controlling to reduce risks. Optimization considers costs, waste reduction, and achieving the optimal results from the partnering relationship. This requires enterprises to focus on aligning every aspect of customer needs, and promotes business efficiency and effectiveness while striving for innovation. For instance, BPM could enable enterprise's business processes to be more efficient and effective.
At IS level, to support optimization and agility, system modularity is essential. Moore (2010) contends that business processes that are modularized can then be optimized. Modularity is the degree to which the system components can be separated and combined to form new business processes. Modularization involves deconstructing the business processes into smaller components for easy reengineering for gains in productivity. This mix and match capability allows fast configuration and responding to changes in business environment. Table 1 shows the summary of three fit of activities in ABN context at three levels.
Table 1: Porter's strategic fit among activities in ABN context at three levels
Applying Scheer's (1996) Edge of Chaos idea in ABN environment, the level of coordination and collaboration between members in ABN is particularly important. High coordination restricts connectivity, whereas high collaboration implies a very low level of control. Firstly, cooperative partnership is defined here as collaboration. If all members within the network share a cooperative partnership, the network has high connectivity and low intensity of control. As discussed by Scheer (1996), this is in a state of maximum flexiblity and lowest stability. In contrast, if the network has all coordinated partnerships, it has a high intensity of control and low flexibility. Scheer (1996) emphasises the balance between intensity of control and flexibility to achieve a balance between flexibility and stability, which is described as the optimal status called 'Edge of Chaos' (Scheer, 2007).
According to Figure 29, Area 1 describes high coordination and low collaboration. When the enterprise has too much control which lessens the communication between network members and results in inflexibility. Area 3 describes a situation without rules or control: the enterprise will face chaos when every member collaborate with others and there is very little control throughout; then informed decisions are unlikely to be made. Area 4 represents the optimal status where connectivity and control are balanced, having maximum collaboration with minimal constraints or control for rigidity or chaos. At this point, ABN has the minimum control required to ensure stability while having the flexibility and adaptability to respond to a changing environment, to achieve innovation and creativity. Area 2 describes a stable situation when an enterprise has not yet become stagnated, but does not achieve flexibility as in Area 4.
Figure : Edge of chaos between collaboration and coordination
Figure : Edge of chaos (adapted from Scheer, 2007)
Achieving this balance between coordination and collaboration is difficult as ABN involves different interdependence relationships between partners. Considering this, ABN needs to consider two things: 1) the traits of the member, which Wycisk el at., (2008) describes as heterogeneous agents, and 2) the fact that ABN is a demand-driven network (Christopher, 2000). These two factors determine cooperative or coordinated relationship between the focal organisation and the other partners: suppliers, distributors, manufacturer, and complementary organisations (those who have agreed to bind their product or service with the product or service of the network to deliver to its customers).
That the network is demand-driven denotes both collaboration and coordination are required in ABN environment. The end-customers are the threat to the enterprise as they have the power to reduce the price of product or services and their requirements are constantly changing. In order to meet customer needs an enterprise requires strong collaboration that ensures having the resources and strategies to match the demand (Word, 2009). Collaboration increases engagement levels, provides mutual commitment, combines knowledge, and creates overall value that allows the enterprise to successfully respond to change (Li, Chou & Zajac, 2009). Coordination is essential as the focal organisation takes the initiative in bringing the new strategy (change) to the whole network. This process requires some degree of coordination in which focal organisations plan and organize the activities required to collaborate in meeting the objective (common goal). Members within the network also collaborate; for instance, supplier and manufacturer collaborate to ensure timely delivery of materials for production. However, there is minimal coordination between members, as they are different enterprises (suppliers, manufacturers, distributors) and are less likely that one would take control over the others. Figure 30 illustrates the idea that the focal organisation has a strong collaboration with its suppliers, distributors, and manufacturers while also having some degree of coordination. ABN needs to maintain its relationship with its customers to ensure constant feedback on their satisfaction and requirements. The diagram below provides an example of a possible approach of distributing collaboration and coordination levels between network partners. The focal organisation collaborates with partners and also coordinates during certain times. Members also collaborate through sharing critical information and learning from each other to be adaptive.
Figure : The dynamics of collaboration and coordination in ABN
Scheer (2007) also discusses the importance of choreography, orchestration and improvisation in business management. Choreography and orchestration terms are used in music for an orchestra. Choreography is the plan of movements in a dance and a choreographer is the planner. Once the overall dance and steps have been determined to the satisfaction of the choreography, at performance, the choreography exerts no further control (Talbot, 2007). This concept can be extended in business context at process level: In an orchestrated enterprise, there is always a central point of control, whereas in a choreographed enterprise, the central control is removed, and each partner in the network knows what it is supposed to do in relation to all other partners. To ensure that each organisation reinforces the others, there needs to be an orchestrator.
At the beginning, the focal organisation selects partners that add value to the network to achieve a common goal. The partners are selected based on agreement. Once the partners are joined, the focal organisation has minimal control over how well they operate. This depends on how the partners interact: improvisation. Scheer (2007) used Jazz music to describe the adaptive management of enterprises: when performing, the musicians are constantly communicating, listening and responding to each other with the emphasis on the soloist. During an improvisation the soloist uses the structure of the music lead sheet as the scaffold, upon which to create new melodies on the spot. Applying this analogy to business context, the process of improvisation is one of constant emergent change. Improvisation therefore in ABN context denotes that partners are operating in respect to what its partners are performing. By considering what others are doing in the network, business patterns can adjust their behaviour to support and complement each other.
Moore's Business Process Lifecycle
At business process level, business operations need to be planned and managed to implement the unique position. Differentiation refers to when business offers are distinct from those of competitors. This is achieved by finding and amplifying a specific business activity from the core for innovation in order to generate an 'unmatchable' differentiation. This includes managing the business process lifecycle of an enterprise (shown in Figure 31). According to Moore (2010) an organisation might engage in, "Mission Critical activities and Enabling activities." Mission critical activities refer to innovation of core processes and standardization of context processes; enabling activities include invention of core processes and commoditization of context processes.
At business process level, the focal organisation (actor) needs to differentiate its core processes from its context processes. A business's core is to drive business innovation and create competitive differentiation to sustain competitive advantage. The context processes involve everything else that the organisations do. The goal of core is to create competitive advantage, whereas the goal of context is to meet the market standards. Performing context badly will be punished by the market for not meeting its standards; however, performing context brilliantly will not be rewarded (Moore, 2010). Context processes are built up from the core processes that have been imitated. Organisations engage in constant business process change-invention, innovation, standardizaton, and commoditization.
Invention stage includes innovating business processes that can increase business performance and are different to its competitors. This is a non-mission critical core, as it involves extensive experiments and pilot-projects, taking risks to pursue differentiation (Moore, 2010). When the invention is judged and ready for prime time, it moves upwards to become the mission critical core. Innovation is the realization of the invented business processes to form its core process with the intention to improve the business processes. When new business processes bring differentiation, new effort and resources are required to realize the benefits: a new marketing campaign and expanded customer base, for instance. This is where organisations expect highest return as dfferentiation offers distinct competitive advantage.
However, innovation often does not last: competitive differentiation does not sustain. Competitors always find ways to neutralize the advantage through imitating the business process or offerings. When this happens, the core processes become a non-mission critical context process (standardisation). Managers must change attitudes and ensure that context processes are done well; for instance, in meeting the market standards, the focus shifts from differentiation to productivity. This may include replacing talented people with automation to free up resources. Businesses must maximize resource extraction-mission critical tasks must be moved to become the non-mission critical context processes. This minimizes the risks of tightening the high value resources in processes where companies can outsource to those who do better at lower cost and effort. This process is described as commoditization.
Outsourcing allows efforts to be focused on core processes rather than non-mission critical context processes. Outsourcing can also become a mission critical activity through composition process. Outsourcing is difficult as each organisation has its own systems and applications; it requires interoperability with external systems and integration of internal and external systems, which further requires managing the performance of third-party vendors on service-level agreements, going beyond normal organisational boundaries. The success of outsourcing relies on the ability of multiple systems with different logic, rules, and functions to work consistently with each other.
Consolidation is difficult as it involves upgrading IT, acquiring new skills, and supporting integration with the new applications. Applications are hard to integrate in terms of various technologies it comprises and proprietary codes that are too complex to integrate. The process of returning context processes to core processes requires composition. This is challenging as it is not easy to leverage existing investments. Although some organisations use EAI to integrate enterprise applications, the composition requires employees with specialized skills who understand both systems to create tightly coupled integration. In addition, it is also not easy to turn the tasks over to people less familiar with them, as they are less productive and efficient in performing them.
Taking this business process lifecycle into ABN context, ABN is a network that finds the high value partners for their core competence to start the collaborate processes (Camarinha-Matos, et al., 2009). ABN and other organizations with whom it interoperates is perceived as one virtual entity, the effectiveness of which depends on selecting suitable partners and processes to form a collaborative network. Each organisation is selected for its competencies, its core processes that the network needs to meet its customer demand.
Moore's (2010) cycle of innovation discusses the importance of extracting and repurposing resources to obtain funds for reinvestment. This ensures that organisations do not have to constantly seek funding for inventing and implementing new core processes that take extensive effort and resources, for instance, marketing effort to convince customers to use the new service or product offered by the organisation. The fact that organisations do not always have the financial support to constantly invent and scale up new core processes further indicates the importance of extracting resources from context to repurpose for core process.
Moore (2010) describes that innovation creates differentiation for businesses and, therefore, gives competitive advantage through providing value so that customers are willing to pay premium prices for their preference. Without innovation, offerings become commoditized as they look more and more alike and customers are able to pay one vendor off against the other. When an organisation starts up, most of its resources are committed to core processes so as to differentiate itself from competitors. As it matures and competitors imitate it, it must convert core to context, while still adding new core to continue to survive in the market. Over time, as more resources became context in the established enterprise, the ratio of core to context becomes inversed. Moore (2010) discusses that the context process is the breeding ground of inertia. Inertia is identified as resistance to change (SAP, 2005). Inertia in a business context occurs when processes are stuck and resources become hard to repurpose. Established organisations with inversed core and context ratios, even when able to fund processes, find it hard to stay competitive as the inertia of context becomes so great that investment in core cannot overcome it and innovations are unable to get into the market. When the resources are stuck in core, and organisations lack profit or investor support, the only way to overcome the growing inertia is to extract resources from context to repurpose for core. Quadrants three in Figure 31 is where the resources get stuck.
Moore (2010) discusses the 'five levers' which are the management actions that reengineer mission critical workloads to allow extraction of resources: 1) Centralization concerns bringing operations under a single authority to reduce management overhead, free resources for reassignment, and create a single decision-making authority to manage operations. 2) Standardization refers to similar processes being put under one authority, the next goal is to reduce the variety and variability of resources delivering the same or similar output to further reduce resource consumption, and minimize risks. 3) Modularization involves deconstructing product or process into subsystems to be reengineered to increase productivity. This requires specialized support, for instance, from expert consultants or external agencies to identify a simple process that meets input and output criteria for quality results. 4) Optimization aims to eliminate redundant processes, automate standard sequences, stream processes, and reduce complexity and risk, while freeing up experienced people. 5) Outsourcing increases productivity as it drives processes out of the enterprise to further reduce overhead, minimize investment, and free up resources. This strategy benefits organisations in three ways: 1) not having to seek additional investors, 2) not having to initiate cost-reduction programs to increase revenue to reinvest 3) reducing inertia resistance to core, as the more resources move from context to core, the more powerful this will be.
Figure : Cycle of innovation (adapted from Moore, 2010)
Summary of theories used in ABN context
Porter (1996) and (2008), Moore (2010) and Scheer's (2007) critical aspects of strategies are extended and applied in ABN context. The table below give a summary of the implications from each of these theories. Porter (1996 and 2008) discusses three main strategies, five competitive forces that allow an organisation to find its unique positioning, trade of positions, and three types of activities fit. The summary below shows the key points of these strategies' implications in ABN context. Table 1 provides the summary of Porter's theories in ABN context.
Table 1: Summary of Porter's strategy in ABN context
Scheer (2007) discusses the main concepts of 'edge of chaos' where the level of intensity control and connectivity are achieved thereby achieving stability and flexibility. The composition and orchestration concepts are extended in ABN context for effective business process operations as well as improvisations that achieve innovation. Table 2 shows the summary of Scheer's theories in ABN context.
Table 2: Summary of Scheer's (2007) business management in ABN context
Moore's (2010) process lifecycle is critical for network organisations as well as for the whole ABN. Moore's (2010) continuous innovation concept allows for better management to free up resources and reinvent for the core process to maintain its competitiveness. Table 3 shows the summary of Moore's theories in ABN context.
Table 3: Summary of Moore's business process lifecycle in ABN context
Section 2.2 and 2.3 analysed definitions, concepts for ABN based on existing studies, and the implications from the business theories. These provide a holistic view of what components ABN should have to be successful. Based on these, existing ABN frameworks can be drawn for analysis to find out their underlying problems. The next section analyses the existing frameworks of ABN.
Review Frameworks from Research
The existing frameworks for ABN are drawn for analysis and to identify problems, issues, and requirements for ABN, for instance, agile enterprise supply chain, adaptive supply chain. Ivanov et al. (2010) propose an adaptive supply chain management (SCM) framework, and see the framework as integrated; for example, SCM serves as a basis for integration, cooperation, and coordination (Figure 32). SCM agility and flexibility are achieved from core competencies, building virtual enterprise, using technologies such as web services. SCM sustainability involves new product development, adapting, and complying with policy and social changes. The combination of supply chain management, agility, and sustainability produces Adaptive Supply Chain Management (ASCM). The ASCM framework has two main components: 1) a supply chain management includes integration, cooperation, and coordination of business partners in achieving the goal of the supply chain, and 2) agility that supports SCM's sustainability. ASCM is described as having three drivers: its product and life cycles, customers, and suppliers.
The framework illustrates that agility, and sustainability create an adaptive supply chain management, which then provides profitability for the organisation. Profitability is achieved through such as creating a competitive advantage, the ability to be responsive, cost-efficiency, and supply chain flexibility. The framework covers some concepts needed to achieve adaptive supply chain. However, not all concepts are included (such as collaboration continuous business process improvement). The framework does not provide a good illustration on how the concepts are related to one another. The adaptive supply chain basically depicts in three dimensions. Nevertheless, to achieve adaptivity and agility, the relationship between the major components need to be better illustrated.
Figure : Framework of adaptive supply chain management (Ivanov, et al., 2010)
Problems of "Framework of adaptive supply chain management' (Ivanov, et al., 2010)
Problem 1 Absence of continuous business process improvement
The framework covers the Product Life Cycle (PLC); however, PLC is a small part of the enterprise improvement and does not imply Moore's (2010) continuous business process improvement. In ABN context, this process improvement become more complex as it involves considering improvement in relation to its business process partners. In order to survive and sustain in a competitive environment, enterprises need to continuously improve and innovate their business processes to meet the challenges.
Problem 2 Absence of collaboration
This framework depicts cooperation and coordination, which an ABN environment requires. Both need to be managed well to assure the enterprise operates on the 'edge of chaos.' Cooperation is the partners joining for the success of the focal organisation's mission. Collaboration, however, emphasises the mutual benefit when the firms work together; they join based on the mutual intention to improve the overall network performance.
Problem 3 Absence of information visibility
The framework covers web services, which support certain level of agility, by which real time demand and inventory can be detected. Porter (1996) describes information visibility as the ability to share critical data required for informed decisions regarding product or services. Information visibility is facilitated through effective collaboration, which supports sharing information among multiple participants across the network.
Problem 4 Absence of standardization of business processes
The framework covers integration of business processes, which is different from standardization of business processes (Moore, 2010). Standardization highlights operational procedures: all network participants run the same business procedures or operating systems while integration focuses on streamlining business operations to ensure communication among businesses. For instance, data and information can be transferred across application and data structures of the partner's systems.
Problem 5 Absence of alignment between individual goals to the common goal
Heterogeneous organisations have different characteristics, roles, functions and responsibilities (Wycisk et al., 2008). The activities and operations performed by these partners need to be consistent with the common goal that was established based on agreement and policies (Chituc et al., 2008). Porter (1996) discusses the importance of fit among activities in order to support the accomplishing of the core strategy. Heterogeneous partners work together based on agreement of what each of them will perform. This requires concise clarifications of the distribution and classification of activities to perform, and avoiding or minimizing activities that could jeopardize the core strategy.
Problem 6 Absence of effective communication to facilitates learning
ABN network is unstructured due to the partners being heterogeneous and relationship being loosely coupled in the network. This, therefore, requires shared goals, mutual agreement, and high involvement of members to find and share the critical information when required to make informed decisions. Heterogeneous partners learn from each other information they are unaware of, thus support learning among partners, in turn improving the knowledge of the network. This idea is also discussed by Rose-Anderssen et al., (2009) through his discussion on expansive learning which happens when the organisations interact and learn from each other, reaching beyond the boundaries of the organisations. Additionally, Rose-Anderssen et al., (2009) emphasised the importance of forming a learning community where the knowledge is transformed to produce innovative results that provide competitive ability.
Problem 7 Absence of management of resources
Sharing resources is a significant aspect of ABN network that requires careful management. Open and seamless sharing of resources is facilitated by legal agreement to minimize risks and conflicts. Peltoniemi and Vuori (2004), who describe ABN as an ecosystem, emphasize that the most critical in a natural ecosystem is the energy that needs to be used efficiently for the ecosystem to prosper. Resources in ABN are analogous to energy in ecosystem which requires efficient use in order for the organisation to increase its performance.
Problem 8 Absence of platform flexibility to allow connects/disconnects in the network
ABNs as adaptive networks are constantly engaged in renewing resources, in dynamically changing its partners and relationships in response to changes in the environment. Adaptability in Section 220.127.116.11 emphasizes that competitiveness is maintained through its ability to "pick, plug and play" (Heck and Vervest, 2007). This adaptability allows organisations to capture opportunities emerging in the market and accruing value to the network.
Problem 9 Absence of constant review of strategic directions
Porter (2008) mentioned the five competitive forces that are considered as threats to the organisations. These require managing to acquire competitive advantage and to be sustainable. Threats are constantly emerging from customers, substitutions, suppliers, and new entrants. Being adaptable also implies the need to detect the changes in the five forces and adjust strategic directions to improve business performance.
Haeckel's (1999) Sense-interpret-decide-act (SIDA) loop can also be used to analyse the framework in Figure 34 to identify if the framework satisfies the basic requirement of sense and respond. Haeckel's (1999) SIDA loop describes that enterprises adapt to changes in the environment through sense, interpret, decide, and act. Sense is the ability to hear or see,changes in the environment. The sensed information needs to be interpreted in terms of its implications for the organisation at different levels; for instance, strategic direction and business processes require change. The information sensed could be an opportunity or a threat, and the ability of the organisation to use the opportunity or to avoid threats depends on the enterprise's ability to interpret the sensed information correctly. Once the information is interpreted, the organisation decides to incorporate what needs to be changed in response to the environment. Lastly, the enterprise takes action on what been decided. Sense and interpret has been classified as "sensing" and decide and act can be classified as "responding."
Figure : SIDA adaptive enterprise framework (adapted from Haeckel, 1999)