From an Extended Enterprise to a Digital Enterprise

I find myself reflecting on a common phrase as I watch the digital enterprise unfold: “history is repeating itself”. So much of what is happening today, feels like a second and more attainable version of what was happening about eleven years ago. Back then, I remember developing a framework for the extended enterprise – a popular way to describe the inclusion of other value chain members in end-to-end business process. The Internet was going to change the game by providing the infrastructure required to extend a company’s inward-focused business processes to the value chain. It was to become the catalyst for value chain optimization.

I thought back then about the delivery of innovative product and services comprised of differentiated internal services and value-added external services. The Enterprise would in effect be a functional specialist within their value chain, focused on connecting with partners to gain access to information and services. There would be a divestment of assets, as companies focused on their core competency, making external optimization, synchronization and integration critical success factors. Companies would realize that the ability to adapt to market change was inversely proportional to investment in fixed assets.

The traditional market approach driven by industrial age thinking – drive down cost and improve efficiency by owning every part of the value chain – would give way to a new networked market structure. The notion that information flow effectiveness could only be achieved through ownership, would give way to new ways of thinking about information access and sharing. We would move away from operating strategies built around vertical integration – and effectively reengineer industry processes. There would be challenges, as company weaknesses could be exposed and products and services could commoditize at an accelerated rate. Differentiation would become more difficult and old management beliefs and practices would no longer be effective.

So eleven years ago, there was a realization that business strategies needed to change. Effectiveness would require access to information outside the enterprise and competitors would become partners. Customer value would come from product and service bundles from within the value chain, and new distribution channels would enable broader coverage. Innovative companies would package their strategic processes as services and launch them via the Internet. The adoption of virtual enterprise business models, using strategic partnerships and outsourcing would present significant challenges in managing a new extended enterprise.

Yes, I believe history is indeed repeating itself. “The Death of “E” and the Birth of the Real New Economy” was published back in 2001. Here are some of the key messages from that very forward looking book:

– The customer becomes a dictator
– Mass customization supersedes mass production
– Business becomes ubiquitous
– Relationship management becomes holistic
– Customers and trading partners become virtual employees
– Digital corporations achieve hyper-efficiency
– Excellence in both the electronic and physical world drives success
– Competition becomes value chain versus value chain
– Digital markets reduce friction
– Operational requirements become 7×24
– Cycle times are slashed
– Branding is still important
– Pricing becomes dynamic
– Inter-organizational design is a really big challenge
– A new kind of software powers the digital corporation

The book also defined some of the challenges of 21st century computing and focused a great deal on knowledge management. The authors described the importance of capturing information and the knowledge in people’s heads and placing it in computer systems. Systems would be knowledge-based, adaptive and able to learn from experience. Knowledge and information assets would be captured and shared in a way that provides context for effective decisions and actions. It fascinates me that almost exactly eleven years since the book was published – these are more relevant than ever – but remain elusive.

Back in 2001, many futurists spoke of a new kind of software to power the digital corporation, and a dramatic increase in software complexity. Services delivered by an industry ecosystem would be laden with an overwhelming number of tasks that require judgment, and the knowledge of experts – but humans would simply be overwhelmed by the number of knowledge-based tasks inherent in the digital enterprise. As a result, many believed that software in the coming decade would evolve to take on these tasks through intelligent agent technology. Today, the explosion of mobile apps, context-aware computing, artificial intelligence (think IBM Watson) and the decomposition of processes to the task level marks the realization of this vision.

So, that “Real New Economy” may be upon us, and it’s hard to argue with the thinking positioned over eleven years ago. So I went back to customer presentations that I used back in 2001 to see if the key catalysts of change are still relevant today:

– New business strategies for creating value
– Responsiveness as a key differentiator
– A focus on core competencies
– Tight partnerships that leverage the core competencies of others
– A relationship-based enterprise
– An integrated value chain

I’d say back then, we captured a world that is just now coming to fruition – fueled by the incredible pace of change and innovation. So let’s fast forward to 2012. Disruption is a popular term, as companies reevaluate their role in the value chain. Business and existing organizational models are in question, there is a growing need to manage a portfolio of relationships, and business speed drives the need for faster decisions.

But the Extended Enterprise might be better described today as the Digital Enterprise, and unlike eleven years ago, the lines between digital and business are blurring. Although there are many similarities between our thinking in 2001 and today, we can create a new list that captures the characteristics of the Digital Enterprise:

– Sustained innovation
– Engagement and insight-driven
– Mobile first
– Context-aware
– Business Technology NOT Information Technology
– Relationship-based
– Flexibility in operating & business models
– Experiential versus transactional
– Prescriptive

Evolving towards this Digital Enterprise is far more attainable today than it was back then, thanks to rapid technological advances over the last decade. But the challenges are still there, and some challenges on this list might look very familiar:

– Markets and business conditions are shifting rapidly
– The complexity of multi-channel coordination
– Shadow IT expansion
– Isolated innovation initiatives
– Organizational silos
– Struggles with organizational change, risk averse cultures
– Growing need to manage an ecosystem of partners
– Transaction-oriented business processes
– Infrastructure ill-prepared for exploding activity volumes
– Rapid expansion of big data and data silos

So history is indeed repeating itself, but this time, instead of Extended Enterprise frameworks, we need a framework for the Digital Enterprise. Identifying Industry disruptors and their implications to the value chain is the starting point. The framework must then enable the dimensions of change; value chain repositioning, product and service innovation, go-to-market redefinition, and customer centricity. It should drive the effective and holistic use of the perfect storm of innovation: Social, Mobile, Cloud and Big Data. It should facilitate the orchestration of processes that include value chain services, partner services, hybrid cloud services, internal systems and processes, and outsourced services. A framework like this would help us manage in this fast pace environment, with a focus on delivering optimized outcomes. It would leverage the vast amount of insight available today – one of the key advances in the last eleven years – and one that grows exponentially in the next several years. It would create operational agility, and most importantly, enable us to address the above challenges in a holistic and effective manner.

Eleven years later, we are better equipped to deliver on “The Real New Economy”. “The Death of “E” has given way to a digital birth, and the result is a new kind of enterprise.

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