The Networked Enterprise: Competing for the Future through Virtual Enterprise Networks

Ken Thompson
ChinaValue: How do you define Virtual Enterprise?  

Ken Thompson: “Virtual” has three distinct and complementary meanings in a Virtual Enterprise:

1. Virtual… as the opposite of Physical, new (non-physical) enterprises forming and dissolving from other (physical) enterprises, each with different processes, systems and cultures, with the need to build trust, common aims and working practices very quickly.

2. Virtual… as not geographically in the same place, with the use of virtual team technologies and techniques to address this.

3. Virtual Capacity … in the sense of “Virtual Memory,” where a computer operates as if it has more capacity than it actually has, allowing enterprises to incorporate external skills and resources to exploit market opportunities.

ChinaValue: Could you share some of your interesting experiences on studing virtual enterprise?

Ken Thompson:    for three main reasons:

1. Unrealistic expectations. Small businesses expect results without major investment on their part. Experience shows it is unlikely that an business network will win a major collaborative new customer contract in less than 12 months. Opportunistic behavior and under investment kills collaborative business networks.

2. Bid Fright. When small businesses see the effort involved in preparing a major customer bid they often decide not to bid. The problem is, if they never bid they will never get any better at preparing professional and credible major bids. Experience reveals that the first two collaborative bids are only very rarely successful; they are just foundations for later successful bids. But you never get to the winning bid if you don’t make the other bids first.

3. Lack of scale and resources. Collaborative business networks need some big players to give them scale and credibility and resources. However, it is very difficult to avoid these big players effectively taking over the business network and turning into their own personal supply chains, with all the problems described previously.

All these problems have one common heading: Business collaborations fail for lack of a proven collaboration model which is exactly what the VEN model offers

ChinaValue: What's the dynamics of Virtue Enterprise?

Ken Thompson:   I believe a Virtual Enterprise is a type of “Bioteam” – a team which has a life beyond that of its individual members. Such teams have a number of unique characteristics

1. The group is not co-located and may only occasionally meet physically - in fact sometimes all the members of such a group never meet physically.

2. No single channel (e.g. email or web) suits the communications of the entire group - this may be a by-product of the first point but can also be a function of personal group member preference.

3. The group has fluid and/or complex structures such as groups within groups, groups within communities, overlapping group memberships or different types/levels of group membership.

4. There is no obvious single point of command - there is no single leader with the authority to command the entire team and leadership must be implemented collectively. If somebody says "working with these guys is like herding cats" its often a clue.

5. The group has to be formed via an incubation process over an extended period. Its growth looks very similar to that of an ant colony or beehive which are both exceptionally vulnerable until a critical mass is reached but almost indestructible after this point. This is in total contrast to the traditional (command and control) team which usually starts at its strongest but weakens quickly over time.

ChinaValue: Compared with traditional enterprise, what's the characteristics of virtual enterprise? What are the similarities and differences between traditional and virtual enterprise?

Ken Thompson:   I think a good way to understand the difference between Traditional Enterprises and Virtual Enterprises is to compare fixed wing aircraft with helicopters.

Helicopters fly by different principles than aircraft, they have less inherent stability, they have more degrees of freedom and they are much more sensitive to the pilots controls.  If a fixed wing pilot tries to fly a helicopter without training they will almost definitely crash on take-off or landing. Likewise if a traditional leader tries to lead a virtual enterprise they will also crash it. Leadership is one of the most important areas for Virtual Enterprises and a big priority is how to convert traditional leaders into virtual leaders.

[To make this easier a few years back I built a software Virtual Enterprise Leadership Flight simulator -]  

ChinaValue: Could you introduce how to establish virtual enterprise network and how does it evolve?

Ken Thompson:   VENs do not come “ready made;” they need to be created and nurtured, an idea detailed in Part 2 of this book. This nurturing, typically, involves a process of moving through a number of clear developmental stages over many months, as summarized in the diagram below:

ChinaValue: The employees of Virtual enterprise may be scattered all over the world, What should we do to manage the virtual employees?

Ken Thompson:   Charles Handy, one of the thinkers I respect most in the area of new forms of organization ( such as his inside-out “donut organization”), talks about the need for virtual employees to “meet, greet and eat” together. A virtual employee can become very isolated if they don’t speak with other employees enough. Also research shows that if you do not know someone in a physical way you are more likely to break your promises to them.

However I have worked successfully with a number of people I have never met through the extensive use of modern technologies such as video conferencing and VoIP. It takes a wise leader to manage virtual employees – I will say more about this later [under Q5]

ChinaValue: What's the advantages and disadvantages of Virtual Enterprise?

Ken Thompson:   VENs are very powerful in markets which require “Agility” (the ability to handle unexpected change well) – this is becoming the norm in more and more markets today. In very stable industries where “Lean” rather than Agility is more important VENs are not as relevant – however there seem to be less and less of such markets.

With a VEN – every member of the group is a potential leader – this is a great advantage in terms of innovation, responsiveness and entrepreneurship. However this can sometimes also mean it takes longer to make decisions as everybody has to be involved. Also there is a lot of effort required in keeping everyone happy and managing relationships.

ChinaValue: Form your point of view, establishing a virtual enterprise is one way for small enterprises to compete with big enterprises, what's the main strategies?

Ken Thompson:   Until recently small enterprises who wished to participate in the wider global economy had to follow one of only two possible strategiess:

§ Option 1: Join a major supply chain − Many small to medium businesses go down this route and some are very successful at it, and see their businesses grow rapidly. There are, however, a number of serious disadvantages such as low margins, unrelenting pressure on price, over-dependence on the main player and the constant threat of the supply chain owner replacing the company with competitors. A small to medium business is often at the bottom of the “food chain” in any major supply chain, and is the most vulnerable to any economic changes in the marketplace.

§ Option 2: Go it alone − This is a rewarding but difficult option for a small to medium sized business. It involves staying out of major supply chains and creating its own infrastructure for reaching the market directly. If this works, it can be a major strategic win for a business that the competition will find hard to copy. However, this approach often drains an enterprise’s limited financial resources, can involve huge technology risks, and can stretch management to the breaking point. It is a High risk and High Reward option.

Virtual Enterprise Networks are an alternative to these two options a a third way that can yield the reach and resources typically associated with major supply chains, yet retain the independence and agility that can be gained from going it alone. VEN participation can be a “best of both worlds” solution that manages and mitigates the twin risks of loss of independence and the draining of valuable investments and resources.

ChinaValue: What's the key values of virtual enterprise?

Ken Thompson:   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. This allows the VEN to function with all the resources and reach of a large enterprise, but without sacrificing its speed, agility and low overhead. This enables it to compete for bigger, more profitable contracts with higher innovation and design elements, with bigger customers that are more willing to build strategic partnerships rather than simple transactional relationships with the VEN’s individual suppliers.

ChinaValue: Could you describe your expectation of virtual enterprise in future business landscape?

Ken Thompson:   In my book I collate 8 major trends/predictions which taken together mean that virtual enterprises will be massively important in the future:

1.  (Professor Marco Iansiti)

2.  (The Economist Intelligence Unit)

3.  Predicted (McKinsey Consulting)

4.  (Forrester Research)

5.  Policies (UK eGov Monitor)

6.  (Professor Shoshana Zuboff)

7. Metanational Companies (Insead Professor, Yvez Doz)

8. Value Driven Intellectual Companies (Professor Anders Gustafsson, University of Karlstad)

ChinaValue: You have published your new book The Networked Enterprise: Competing for The Future through Virtual Enterprise Networks, could you recommend some of key points of view?

Ken Thompson:   I think the leaders and owners of ambitious Small/Medium Businesses (small fish) should study The Networked Enterprise (TNE)  to find out how to use VENs to develop strategic partnerships with BIG FISH (large enterprises) to propel them to the next level of competitive success.

Leaders of Major Enterprises (BIG FISH) can also study The Networked Enterprise (TNE) to gain enhanced access to innovation, agility and alternative risk/reward and cost models by partnering with small fish via VENs.

Economic Development Bodies (Fish Farmers) also need to use The Networked Enterprise (TNE) to discover how they can nurture the right kind of ecosystem where both small fish and BIG FISH can co-exist and thrive.
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