Implementing Virtual Organizing in Business Networks – A Method Of Inter-Business Networking

Virtual organizations and knowledge management have been discussed on a very broad scale in literature. However, a holistic view and methods that support implementation of these concepts are rare. Based on the understanding derived from literature and the experience of many action research-based projects, a method is described that addresses these issues for business networks. This includes the dimensions of strategy, process and IS required for establishing and managing business networks. By providing a systematic and documented procedure model, techniques and results, this method aims to improve the efficiency of setting up business networks, thus improving a company’s networkability. In order illustrate why this method is needed and how it can be applied, a project for implementing a business-networking solution for electronic procurement is described. It shows how a structured approach helps to identify the scenarios, aids implementation and applies previously as well as newly created knowledge. The outlook describes areas for future research and new developments. INTRODUCTION TO BUSINESS NETWORKING Essence of Business Networking Business networking (BN) has become one of the most powerful strategic business trends. A deconstruction of the economy is taking place, involving a move from vertically integrated hierarchies towards flexible network organizations, and the ability to quickly and efficiently set-up, maintain, develop and dissolve partnerships with business partners a competence we refer to as networkability (Österle et al., 2000) is a critical success factor. Implementing Virtual Organizing in Business Networks – A Method for inter-Business Networking 2 Networkability includes the collaborative advantage termed by Moss-Kanter (1994) as “the propensity to be a good partner” and aims at pursuing common goals when applied to a specific relationship. Achieving networkability is at the heart of business networking, which describes the design and management of relationships between (internal or external) business units. There are two main driving forces behind the need for business networking which are highly interrelated. First, management is being confronted with trends such as globalization, shorter innovation cycles and deregulation leading to increasingly dynamic markets. This requires new strategies, such as core competence focus, outsourcing, and a stronger customer orientation. Business networking is an inherent element of these strategies. Second, information technology (IT) allows for the efficient exchange of information among organizations and acts as a main enabler for networking among businesses. Wigand et al. describe the consequences as follows: “Classical corporate boundaries are beginning to blur, to change internally as well as externally, and in some cases, even dissolve” (Wigand, Picot, & Reichwald, 1997). During the last decade companies have integrated their functional information systems (IS) in enterprise resource planning (ERP) systems which provide an integrated database for various functions, such as finance, marketing, and production. These ERP systems have emerged on a large scale and have become the backbone for business networking. ERP vendors such as SAP, Baan, Oracle or Peoplesoft are eagerly adding business networking functionality for electronic commerce (EC), supply chain management (SCM) and (customer) relationship management (RM). Enhancing and extending existing ERP systems as well as implementing business networking strategies is of foremost importance for companies and requires decisions concerning strategy, processes and systems. Implementing Virtual Organizing in Business Networks – A Method for inter-Business Networking 3 Role of Virtual Organizing as a Method in Business Networking Virtual organizations denote an organizational form which is based on a “temporary network of independent companies – suppliers, customers and rivals – linked by IT to share skills, costs and access to one another’s market” (Byrne, 1993), (Wang, 1997). This organizational form is largely enabled by IT in order to overcome the limitations of time, space and stable organizational forms (Skyrme, 1998). Following (Faucheux, 1997), (Venkatraman & Henderson, 1998) and (DeSanctis & Monge, 1998), the term virtual organizing is chosen instead of virtual organization in order to emphasize its process-like nature as well as to avoid connotations of a static nature and a limitation to an organizational form. According to (Venkatraman & Henderson, 1998), virtual organizing is defined as “a strategic approach that is singularly focused on creating, nurturing, and deploying key intellectual and knowledge assets while sourcing tangible, physical assets in a complex network of relationships”. As described by (Rockart, 1998), virtuality allows for both economies of scale and local innovation as well as a ‘single face to the customer’. We see an increasing acceptance of these ideas both in academia and in practice. However, these forms are temporary in nature and require more information and coordination. This can be achieved by a more intensive use of IT, as IT can lead to more coordination-intensive structures due to reduced coordination costs (Malone & Rockart, 1991). This mainly concerns transaction partners and patterns, exchanged products and services as well as the negotiated conditions. Typically, this level is covered by ERP, EC and SCM Systems. Role of Knowledge Management in Business Networking Knowledge about setting-up relationships with partners, about their preferences and performance profiles, is not bound to a specific transaction although some knowledge may be Implementing Virtual Organizing in Business Networks – A Method for inter-Business Networking 4 derived from individual transactions. This is the domain of knowledge management that aims at making unstructured information, implicit or tacit knowledge available. According to (Wiig, 1999), “knowledge management is the systematic and explicit management of knowledge-related activities, practices, programs and policies within the enterprise”. Multiple phases of the knowledge management process are usually distinguished: goal definition, identification, acquisition, development, distribution, application, maintenance and assessment of knowledge (Probst, Raub, & Romhardt, 1997). In their survey of knowledge management projects, (Davenport, De Long, & Beers, 1998) identified four categories: • creation of knowledge repositories (e.g. databases with research reports, marketing materials, techniques, competitive intelligence or experiences), • improvement of knowledge access (e.g. Yellow Pages, competence directories or videoconferencing), • enhancement of knowledge environment (e.g. guidelines for performing activities) and • management of knowledge as an asset (e.g. patents database for improved monitoring of licensing revenues). Knowledge management is a key process for establishing and sustaining networkability. Firstly, knowledge on business partners, their processes and systems is required. Secondly, knowledge of how to set-up and configure these relationships allows rapid identification and qualification of potential partners. Thirdly, it enables an increase in efficiency due to the effects of experience in linking processes and systems. One focus of knowledge management in BN is the identification of relevant cooperative areas and partners, its support with IT and IS tools and the acquisition of knowledge about partners from transaction systems. Therefore, both concepts, knowledge management and virtual organizing are inherent elements in business networking projects. This Implementing Virtual Organizing in Business Networks – A Method for inter-Business Networking 5 argument is supported in the model of (Venkatraman & Henderson, 1998) who distinguish three dimensions of virtual organizing (Figure 1): customer interaction, asset configuration, and knowledge leverage. The advantage of this model is that it already includes knowledge management as an element of all business networking strategies. Electronic Commerce Supply Chain Mgmt Relationship Mgmt Customer Interaction