Managing Strategic Relationships by Leonard Greenhalgh

Author:Leonard Greenhalgh
Language: eng
Format: epub
Publisher: L S I
Published: 2001-07-15T00:00:00+00:00

Note: Lines connecting nodes indicate coordination of functions

FIGURE 5-1 Integration of the Virtual Corporation

Because there’s no hierarchical power to force value-chain partners to comply, core-group managers must negotiate all arrangements, and mediate disputes between partners. In other words, their job is to manage strategic business relationships. That’s how they achieve competitive advantage.

The virtual corporation can adapt very fast. It selects agile suppliers, and can quickly reshuffle suppliers in response to market shifts. Prices can be kept competitively low due to the “sparseness” of this extended enterprise: it’s a low-overhead operation that selects lean suppliers and holds inventory carrying costs to the minimum by means of just-in-time deliveries. Its quality is hard to beat because its selection criterion — distinctive competency — presupposes world-class quality. In short, the integrator organization selects the best-in-class to perform every vital organizational function. This is pretty scary to anyone employed by a conventional hierarchical organization. But it’s a reality of the new era that all managers must prepare for.

Let’s look next at each of the outsourced functions shown in Figure 5-1. The figure assumes, for illustrative purposes, that five functional areas are critical to success. Core managers are particularly attentive when out-sourcing these particular functions. Other functions — such as legal services — are not critical, so they don’t have to be outsourced to best-in-class.

The first task is to obtain information about the business opportunity. The needed information may be of a technical, marketing, or strategic nature. Managers in the core group don’t collect the data themselves; instead, they ask, who is the currently available world-class supplier of this particular type of research data?

Design is the next function that needs to be outsourced. The core group asks the question, how do we create actual product (or service) specifications that meet customers’ needs? How do we want customers to experience our product? What does it look and feel like? Publishers and advertising agencies use graphic-design firms to meet their design needs. Similarly, architects supply design services for commercial real-estate developers, software designers supply computer firms, and costume designers supply the latest fashions for the clothing industry. Outsourcing provides the flexibility to constantly shop for the world’s best designs as tastes change.

The next functional area, as we move clockwise around Figure 5-1, is manufacturing. Managers make strategic decisions about who will make the products, and where. The integrator organization is seeking value, rather than simply getting lowest price. Value includes high quality, current availability, the flexibility to adjust production volume, time to market, continuous improvement, just-in-time deliveries, contributions to innovation, environmental responsibility, and a willingness to integrate with other participants in the value chain.

Core managers’ jobs aren’t over, however, when they’ve selected the best manufacturer. They may have to manage further “upstream” in the value chain. Subassemblies should be produced at the most efficient point in the supply chain. This means that the manufacturer may be better off buying assembled components. Core managers may therefore have to help select and manage second- and third-tier suppliers, and to mediate negotiations between these entities.

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