The Network Enterprise

July, 2022
Bob Vinson

Since the successful conclusion of the United States Army’s participation in World War II, the reigning vision of a successful business enterprise has been that of a command and control structure managed from the top and consisting of a homogenized group of dedicated workers with a common mission and set of objectives motivated by the desire to advance each unit’s and worker’s success and prestige within the enterprise. The enterprise owned and directed most of the resources required to produce a particular set of products meant to address a defined market. The various segments of the productive apparatus; workers, assets, knowledge were located contiguously and contemporaneously and had a common clear path of authority and responsibility.

In this world, lines of communication are largely internal under direct control of the command structure. In the past communication methods available largely determined such an organization – word of mouth, written memos and other documents, letters, fax, demanded proximity and organizational and cultural consistency for successful delivery, comprehension and execution

While this management model enabled strict control over the use of resources and the direction of strategic effort, it did not necessarily result in the most efficient use of resources. It tended to foster competition for resources between various internal units. Resource allocation by fiat in many cases, did not result in the most effective use. Finally, the imposition of organization, objectives and processes from the top tended to limit flexibility in the face of a dynamic external environment.

However, we now have a completely different set of communication and control options with the development since the 80’s of the internet and all the options that it enables – especially its world-wide presence and near instantaneous nature.

What holds together an organization and gives it direction. Two major factors are authority and communication. In the past authority came automatically through the command and control structure. Communication came through physical and cultural proximity.

With newer communication capabilities verbal and written direction spread almost instantaneously regardless of geographical dispersal. So what about authority? In the networked business world where many of the components of an enterprise are not owned by the core business, authority must be established outside of the authority of ownership; negotiated with the providing organizations.

In the unified business model, one organization owns and operates the assets and mechanisms of value creation and also owns the resulting produced value. Who then, in a network enterprise, takes possession of the collaboratively produced value? The answer is that it will be divided and distributed among the various producers depending on the relative strength of their individual negotiating positions.

Other concerns of network enterprise managers are quality and control.

Unlike the direct authority managers have over internal units, authority over third-party providers comes from agreement between the supplier and the customer enterprise in the form of contracts, service agreements, verbal commitments, etc. Quality provision also can be the subject of such agreements and must be continually monitored just as in internal production processes. Network customer enterprises must be especially diligent in the establishment of levels and limits of authority and of quality standards and performance requirements.

Finally, what advantages accrue to the enterprise by going to such a model? Two come to mind: efficiency and improved core capability concentration.

We would expect a company which specializes in such disciplines as human resources, information technology, sales and marketing, accounting, legal, finance, or public relations to be more efficient than the company that takes on these disciplines as auxiliary to their main production.

And, by unburdening themselves of tasks not directly involved in production, assumedly the enterprise can devote more time and effort to its core capabilities.