Chapter 3

Building Networked Businesses



Chapter 3 could easily have been two chapters.  The first describes how to effectively organize a business.  The questions raised here tie nicely into the AXI case.  AXI has created new businesses and now must decided what to do with them.  One question they have to resolve is the optimal corporate size.


Advantages of big – financial resources for the long haul, a staff of knowledgeable people, experience that can be used in new situations, economies in purchasing and manufacturing, substantial R&D to lead innovation.


Problems of big – Employees may be stuck in ruts, management may be risk-adverse, new ideas can be lost in the bureaucracy, plus rules, policies, and hierarchies can add costs to otherwise simple tasks.


So what can larger companies do to avoid the problems of being big?  How can they get the most out of size?  As you read the section of history, you may recognize some of the activities you have seen in your firm in the last few years, or you may be lucky enough to have missed much of the process.  As businesses attempted to flatten the hierarchy and cut out middle management, a lot of ugliness happened.  While the motive for the change may have been to improve operations and empower employees, much of the result was to lay off managers who had worked for the company for decades, end all loyalty to the firm, and leave line employees with fewer supervisors and fewer resources for help.  This was the time when the phrase “twin fifties” was coined.  It meant any man over fifty earning fifty thousand a year was probably going to be dumped.  These were the guys in middle management, and these were the casualties of the process.  The attempts made in the 80s and early 90s left a lot of bitterness behind.


What’s new now?  The book defines an ideal.  It describes what could be done with IT to share information, what could be done with employees if they were trusted and nurtured, what could be done with business processes if information were shared and employees worked as a team.  A good starting place for our class discussions this week is a reality check on this ideal. 

Connecting the Company


The second half of the chapter takes the network concept and expands it past the traditional borders of the firm.  I wish the second half of the chapter had maintained the same format as the first half and asked how you lead outside your company, or manage outside the firm.  The connections described in this portion of the chapter relate mainly to operational issues.  That may be because we are having enough trouble determining the best conceptual, legal, and informational links between companies.  Just getting product from Company A to company B is occupying our thinking at the moment.


The main point of all this thinking is a question every company asks periodically, and has asked from the beginning:  Should we make it or buy it?  Do we pay for the service or do it ourselves?  What are we best at?  What are our core competencies?


I think we would all say that the trend is away from making and toward buying the product or service.  But whatever we buy makes us dependent upon the supplier.  We not only give them money, but we give them a portion of control over our ability to do business.  This gets us back to IT.  If we can know more about our suppliers, up to and including real-time data on their processes and capacity, we can feel more comfortable with our ability to control our own business.


In the last five years there has been some real progress in creating information links between companies.  First EDI, and now XML are easing the technical burdens of sharing information.  The book also describes a series of new infomediaries that are arising.  But the process is still time-consuming and expensive. 


In the end the chapter leaves us considering linkages – linkages to our employees, linkages to our own divisions, and linkages to our suppliers and distributors.  IT has enabled a whole series of intranets and supply chain communications.  The technology is there.  But where is the management model that uses the technology optimally?  As new MBAs, the invention of the new management model falls to you.