Directions for cosmopolitan manufacturing Sustaining customer value in the age of globalization Roelof J. van den Berg1,2

Arian J.R. Zwegers1

1

Baan Development B.V., The Netherlands Institute for Manufacturing, University of Cambridge, UK Email:[email protected]

2

Abstract Recent developments in ICT, causing e.g. the death of distance, cannot prevent that manufacturing is essentially still only global at best and not truly cosmopolitan, where only functional criteria would determine who is involved in a customer solution and where. More in general this paper uses historical precedent to suggest that benefits from opportunities due to ICT innovations do not materialize unless they are accompanied by a broad and profound change of mind across the workforce, enabling people to really start doing things differently. The paper discusses several directions for cosmopolitan manufacturing and concludes with a discussion of a recently launched product that is based on the notions outlined in the other sections. Keywords

Cosmopolitan manufacturing, Virtual Enterprise, C-project,

1. Introduction According to one of the tenets concerning the information age, our society has just started to face a rapid, global, technology driven change that takes place at a rate that is unprecedented in the history of mankind. Cynics who hold that computers still show up everywhere except in the productivity statistics say that the pretension of magnitude in the claim, the clever distancing from events in the past, is most of all meant to seduce the mind of decision makers into a universal cleansing of the sins of the ICT industry. With a less cynical view the alleged incomparability of our times at least discourages reflection about the past as a source for inspiration and guidance to maximize the benefits from and after the transition, while that is strongly needed in an era where so much seems to be new. We think that in many ways, history is repeating itself. Certainly, the proliferation of information and communication technology is unparalleled in comparison with technology adoption in earlier days. But if we look at the more important derivative socio-cultural phenomenon, resulting from the increased dispersion of ICT, even ancient times provide many examples that can help us to understand the current transition process and strengthen our recommendations accordingly. We will use the dramatic change of Greek society during the mere ten years of the conquests of Alexander the Great (around

330 B.C.) to set the stage for our claim that to a large extent we are witnessing a repetition of a socio-psychological phenomenon (and a business cultural change) that creates predictable anxiety, stress and uncertainty in the working life of agents in the value chain. These psychological limitations need to be overcome before one can reap the benefits outlined by the prophets of the “new economy” at a wide scale. To support this we propose concepts and tools, which together outline a truly cosmopolitan attitude towards manufacturing. We will first explain why we have used this name for our paradigm. 2. Historical precedent to the central claims From the 7th century B.C. till the victories of Alexander the Great, Greek civilization had been restricted to a small area of city states (a polis in Greek), such as Athens, Sparta and Corinth. These city states themselves were tiny - only Athens had more than 20,000 (free) citizens and quite isolated from each other, partly because land travel was difficult and treacherous. Consequently the world-view of the average Greek was highly myopic: he was a member of a small intimate community in which the details of his life, his moral code and his religious practices were determined by custom and environment and the close-pressing public opinion of a compact citizen body (Armstrong 1989; Russell 1961; Struik 1987). Inside the polis strong ties between a relatively small number of families made that everybody knew almost everybody else and “foreigners”, including people from other parts of Greece, were not given full citizen rights, e.g. to buy land. The system had been intellectually legitimized by even the greatest thinkers of this time. They did not appreciate its obvious limitations in fostering a dynamic atmosphere of variety, innovation and sustained improvement, including social improvement, e.g. with regard to the position of women (Engels 1972). Plato held that the one true criterion for the size of a polis was that all the citizens know one another (and everybody should know his precise place) and he determined that this could best be achieved with a population size of 5040 1 (Plato 1987). Somewhat later Aristotle confirmed that “it is necessary for the citizens to be of such a number that they know each other’s personal qualities…”, to make sure they would not err fatally in commercial or political life (Aristotle 1996). With convictions like this, citizens were intellectually and spiritually reconfirmed that prosperity was and should be based on security, stability and fixation and the political system was designed to secure it. This mind set – though not immediately the political system behind it - of closed, stabile city states as the ideal biosphere got dramatically overturned as a result of Alexander’s exploits. Greek civilization suddenly got spread thinly over the whole of the near East; a Macedonian dynasty came to rule in Turkestan and the Egyptian empire. Accordingly the horizons of the individual Greek were very greatly enlarged. (Armstrong 1989). An initial wave of Greeks 1

This number only included the free male citizens and excluded women, foreigners, free laborers and slaves as they had no role to play in the official public life. In Athens the ratio of men with citizen rights to the other groups was roughly 1:10. Along these lines Plato implied a state with a total population of just over 50,000 people. This was significantly smaller than Athens itself, which had around 300,000 inhabitants at his time, but very close to the population of Sparta. After witnessing how Athenian democracy had failed in the prosecution of his tutor Socrates, Plato came to consider the system in arch enemy Sparta as preferable to the one in his place of birth.

penetrated the East as soldiers, traders, merchants, doctors and adventurers and brought their experiences and discoveries back to their home lands. Thus on their local market places the Greeks got confronted with influences from around most of the known world and likewise they suddenly could see opportunities to shed the limitations of their locality and take a cosmopolitan perspective on things, i.e. treat the whole world as their city or state. Yet, at the same time they lost the feeling of security which life in the old city-state world would give. Prosperity suddenly got based on opportunism, discovery and risk taking. In a sense the old city was still there, but its walls were down. And the security and definitive form which together with restrictions they gave to life had vanished. Consequently most Greeks felt more isolated than ever before. In an earlier paper (Van den Berg & Van Lieshout) we discussed the symbolon as an ancient tool to survive in an environment where not everything and everybody was familiar and unlucky choices of partners are likely, without suggesting that its rise coincided with the creation of the Macedonian empire. A symbolon was an object, e.g. a rock, split in two parts, which were held by two individuals for a specific purpose. The two pieces served to recognize the bearers (or their representatives or partners) who subsequently could enjoy the services that were previously agreed upon. Friendship and reliability were wrapped in – and triggered by – two pieces of stone. It will be obvious how the “city state” can be replaced by the “enterprise” and the “citizen” in the Hellenistic age by the “employee” in modern companies, who suddenly sees himself part of an inter-enterprise workflow and feels the pressure to be focused on customers that are no longer considered anonymous. Alexander’s conquest had a similar catalystic effect on the perspective of the citizen as the Internet on the perspective of the modern employee. The new economy has brought the realization that we find ourselves at the dawn of a new age where businesses have to tear down the walls around their businesses and their systems and get involved in collaborative commerce. But while the initial effects in the city states led to anxiety and uncertainty more than anything else and to a somewhat desperate search to replace old beliefs with new ones, the outline of opportunities in the “new economy” should also be accompanied by new concepts, architectures and approaches that will enable agents in the value chain to remain productive and competitive. In the earlier paper we reported on a search for the cyber-equivalent of a symbolon, facilitating e-commerce with complete strangers. In this paper we will present a more general and more comprehensive outline of a cosmopolitan mindset for manufacturing in the new age, i.e. a manufacturing strategy where only functional criteria determine who is involved in a customer solution and where, and e.g. historical lock-in or geographical constraints that go against business logic are not an issue. Our discussion will include concepts, architectures and approaches. Based on an analysis of customer value creation we will discuss: 1. the proliferation of the virtual enterprise as the organization type for manufacturing in the future 2. advanced competence management, competence publishing and competence selection as an absolute necessity to a “plug and play” configuration of manufacturing capabilities 3. extended relationship modeling to coordinate loosely coupled competences towards a dedicated customer solution

To illustrate the above we will conclude with a discussion of a tool for inter-enterprise delivery management that incorporates the notions in the three components of our paradigm. 3. Sustaining customer value 3.1 Combining value disciplines Commercial transactions are the result of satisfactory value propositions brought to the right customers. Three principal dimensions of customer value or ‘value disciplines’ have been identified by Treacy and Wiersema (1993): • Operational Excellence: focusing on highly cost-efficient production in order to minimize price. • Product Leadership: focusing on superior product performance and innovation. • Customer Intimacy: focusing on satisfying individual customer needs through close relationships with and intimate knowledge of the customer. Treacy and Wiersema argued that firms can only achieve leadership in an industry by concentrating their efforts on one of the three value disciplines (lowest price, best product or best individual solution), while still meeting minimum market requirements for the other two. Companies that achieve mastership in two or three value disciplines have been very rare until now. Today, however, market and technological evolutions make it both feasible and essential for businesses to strive for multiple superiority in order to create value. This is also illustrated in figure 1, which emphasizes the traditional trade-off of richness versus reach (Evans & Wurster, 2000). ICT makes it possible through better re-use of knowledge in the “engineer-to-order” side of the spectrum and mass-customization at the “make to order” side, to eventually move towards a “best of both worlds”. In the two following subsections we will further analyze the opportunities

Figure 1: richness versus reach

 

to enhance customer value in manufacturing processes based on two changes: 1. Modularization of the value life cycle This will lead to configuration of contributions to customer solutions delivery, optimized for competence, capacity and location. 2. Overcoming the manufacturing/services divide The traditional split between product creation and after sales services has been a important hurdle to true solution delivery. Enhancing customer value requires that both are coordinated within one integrated value chain. 3.2 Modularization of the value life cycle Four consecutive phases can be identified in the customer value creation life cycle (adapted from Ives and Learmonth, 1987): 1. 2. 3. 4.

requirements analysis acquisition ownership disposal

Requirements analysis and acquisition can be described as parts of the ‘pre-sales cycle’, whereas ownership and disposal can be attributed to the ‘post-sales cycle’. Each of the consecutive steps in the cycle phases can be analyzed both from the perspective of the supplier and that of the customer: Table 1 The customer value creation life cycle Phase Customer Supplier perspective perspective Requirements perception and market research, adaptation definition of to market needs, new needs product development Acquisition selection and tendering, sales, production, acquisition delivery Ownership utilizing and after sales service operating the product Disposal disposal and take-back and recycling replacing Preparation of new sales cycle See also figure 2 for a more graphical illustration of the value life cycle. Each of the steps in every phase represents ‘a value creation moment’ that will entail a certain degree of interaction between the supplier and the customer and supplier. The value life cycle offers a useful framework for analyzing a manufacturer’s different alternatives for creating value and ‘servitizing’ his product offering. Furthermore, combining the phases with the value disciplines enables an integrated approach to managing the different dimensions of customers value and

offers a fresh view on how IT may be used to solidify customer relationships. Paradoxically, this integration should be based on a modularization of the steps in the value life cycle. Why should each step be done by the same vendor? Why should most of them be done near the main contractor? An obvious first step towards modularization would be a clear separation (at least conceptually) of pure informational transactions (with no physical contact to the product, e.g. engineering or procurement) and info-physical transactions (affecting the physical state of the product in terms of properties, dimensions or location, e.g. production or transportation). Below we will discuss how modern ICT allows for sophisticated information exchange, enabling co-operation in a consortium that is optimized for a particular customer solution, but can succeed through contributions in highly distributed locations. Requirements Specifying Acquisition

Needing

Sourcing

Ordering

Preparation of new

Paying Delivery

Pre-Sales Cycle

Installing

Disposal Tracking

Ownership

Reselling/returning

Post-Sales Cycle

Training

Evaluating

Monitoring Maintenance

Replacing Upgrading

Figure 2 The customer value creation life cycle (adapted from Ives and Learmonth, 1987) 3.3 Overcoming the manufacturing/services divide Hammer and Champy (1994) distinguish four primary business processes within any enterprise: 1. Development and innovation: development of new products and services that provide solutions to the changing needs of customers. 2. Customer contact: development of commercial leads through marketing or sales efforts, prospection and responding to customer inquiries. 3. Order processing and fulfillment: order entry, logistics, manufacturing and delivery. 4. Service after sales: installation, repair, maintenance, quality control, complaints handling, and all other activities that take place after a sales transaction. In general, the service after sales process encompasses all activities related to enabling existing customers to quickly locate, contact and activate the supplier’s resources that are needed in order to create satisfactory product-related services, answers to inquiries or

solutions to problems. Contrary to the other three main generic business processes (innovation, customer contact and order processing), the concept of service after sales has long been treated by business literature without the attention it deserves. Until recently, most theory and practice of marketing have been focusing almost exclusively on the art of attracting new customers (e.g. advertising and selling) as opposed to retaining existing ones and caring for the customer afterwards. In a saturated and highly competitive environment where margins are suffering, this is no longer a viable approach: retaining customer becomes equally important to survival than winning new ones. Developing a post-sales relationship with customers offers a way of solidifying customer ties, gathering valuable customer information and providing opportunities for cross-selling and up-selling (Peters, 1997). From a more fundamental point of view we can say that customers do not want products, but solutions. Providing a solution implies services in the offering, to complement the physical product (Coombs, 1999). See Verstrepen et al. (1999) for a more detailed study concerning this idea in the automotive industry. Information technology can play a role in the support of the service components for each of the different elements in this cycle, by either focusing on personalizing the service (e.g., integration and analysis of customer information, anticipation of specific needs, identifying and focusing on profitable customers, building an information network around the customer) or by enabling the transformation of the business processes (e.g., evolve from make-to-stock to make-to-order, mass customization, e-commerce). 4. The virtual enterprise In support of these ideas concerning customer value creation the “new economy” hype gave rise to quite a number of concepts that were used in pretentious and premature ways, given that current applications work in single-tier environments, and provide limited support for complex partner relationships. At first glance, the notion of the virtual enterprise (Pedersen et al., 2000; Tolle et al. 2000; Vesterager et al. 1999) is one of the most suspect among these terms. Yet, while a significant part of the rhetoric of this most recent of ages of great expectations has already been drawn into the dark depths of oblivion, the concept of the virtual enterprise (VE) stands a good chance of eventually becoming solidly established in management theory and the day-to-day practice of the business world. After all, the body of thought behind it, ranging from fields like computer science (Camarinha-Matos et al., 1998; Zwegers et al., 2001) to management and economics (Williamson, 1979; Hamel & Heene, 1994; Davidow & Malone, 1992; Prahalad & Hamel, 1990; Katzy & Schuh 1997) and sociology and cognitive psychology (Morley & Robins 1995; Levy 1997; Berger & Luckmann 1971), convincingly outlines a novel way of organizing inter-enterprise co-operation. It shows how modern ICT can already leverage a superior match between a market opportunity and the provision of resources, especially in the business domains for one-of-a-kind production (OKP), e.g. shipbuilding, most parts of the aerospace and defense industry, and most types of construction. These projects are split into many activities, deliverables, and milestones. They take place in a distributed environment within a temporary, product-driven, inter-enterprise structure and usually with geographical distributed sites (plants, construction sites, and so on).

With the more generally requirements for customer value creation across the board in mind one can easily see how the canon concerning the VE provides a solid conceptual basis to truly enhance business productivity in many industries. Figure 3 illustrates the VE concept.

Customer B Network Assignment of core competencies

Customer A

Virtual Enterprise A

Virtual Enterprise B

Local contractors and sub-suppliers

Figure 3: The virtual enterprise In a VE autonomous companies contribute distinct competencies to a temporary interorganizational cooperation and tailor a value chain to meet the exact requirements of a specific business opportunity. Ideally, world-class competencies can be assembled for each market opportunity (Hamel & Heene, 1994; Davidow & Malone, 1992; Prahalad & Hamel, 1990; Katzy & Schuh 1997). The virtual enterprise is supposed to behave as one unified company although it is composed of competencies from various, geographically dispersed partners. Thus, business processes are not carried out in isolation by single companies, but must be dynamically configured and coordinated to serve the common mission of the virtual enterprise partners (Rupprecht et al., 2001). Dynamic, collaborative relationships are thus at the heart of the virtual enterprise. In addition, the quick acquisition of complementary competencies allows for a highly agile response to changing market demands and pursuit of business opportunities with a short life-time. Clearly, successful implementation of the VE requires flexibility in terms of ICT infrastructure and advanced cognitive and social abilities of the people in the participating enterprises (Pedersen & Van den Berg 2000; Van den Berg & Tolle 2000; Senge 1990). We want to stress that modern ICT is crucial to make a VE efficient, competitive and thus feasible. In fact, even ‘modern ICT’ needs to be pushed to a higher level before it can support a full-fletched VE. In that sense, the above description of the VE with its emphasis on dynamic exploitation of market opportunities makes it first of all a lighthouse for ambitious ICT applications, a destination instead of a milestone already reached. After all, many important life cycle phases of the VE are not yet supported by commercial products. One of the areas that is hardly addressed by the currently available tools is inter-enterprise delivery management. We will focus on this business process in the discussion of the trial application in section 7.

5. Enabling the VE: competence management and competence selection 5.1 Competence defined The idea of the VE requires conscious management of competences: maintaining and advertising ones own, and profound selecting of others elsewhere when required (Pedersen & Van den Berg, 2000; Brouthers et al., 1995; Medcof, 1997). The notions of resources, capabilities and competencies have gained considerable attention in strategic management research as they attempt to explain performance differences between firms. Particularly, what has become known as the resource-based view of the firm is dedicated to research on this matter (Peteraf 1993; Wernerfelt 1984). As a result many definitions of resources, capabilities and competencies exist. For this paper a distinction between the three concepts is made based on the definitions set forth by Amit and Schoemaker (1993). They define resources as “stocks of available factors that are owned or controlled by the company”. Resources encompass both tangible and intangible assets and can basically be categorised into three types: physical capital resources, human capital resources and organisational capital resources. Physical capital resources include the physical technology, facilities, equipment, and materials. Human capital resources include education, experience, judgement, intelligence, and relationships. Organisational capital resources include formal reporting structure, formal and informal planning, controlling and coordinating systems as well as informal relationships. In the view of Amit and Shoemaker capabilities refer to a company’s capacity, or ability, to deploy resources. Capabilities are information- and knowledge-based processes deploying resources in an often co-ordinated way to a desired outcome, e.g. products, services, organisational behaviour, trust and the like. Like resources, capabilities can be both tangible and intangible, but they are in essence limited to the information- and knowledge handling of human capital resources. Competencies are a subset of resources and capabilities, with the potential to lead to competitive advantages. The above characteristics of resources and capabilities also apply to competencies. Resources and capabilities must meet the following criteria to be considered a competence: a) they must promote firm efficiency and effectiveness and be perceived as valuable by the market and environment; b) they should not be readily available at competitors; c) they should be difficult to acquire for competitors; d) they should not have strategically equivalent abundant substitutes. Note that a competence is defined here relative to resources, capabilities and competencies of other firms. 5.2 Competence specified To create a successful VE it is necessary that its potential members have a thorough understanding of each other’s competencies. For this purpose each one of them should be able to demonstrate the viability of its competencies to the others. In addition it should be able to show how its competencies add value to the planned VE by complementing those of others. Thus it is not sufficient to have an intra-firm focus on competencies. Companies should be willing and able to look beyond their own boundaries as well. Specification of competencies should in this respect be perceived as a way for companies to qualify themselves to participate in VEs. Modelling competences has many advantages, both intra- and inter-organizationally. Here we want to emphasize that the specifications facilitate

much better communication about competences with external parties, for the above mentioned reasons. This is especially true when some kind of standardized technique and format is used. It is not unlikely that eventually dedicated agencies will arise, which assist enterprises in modelling their competencies and also assess their suitability for a certain network or a particular virtual enterprise. See (Van den Berg & Van Lieshout 1999) for a description of the state of the art in audits for e-commerce and (Van den Berg & Tolle 2000) for an outline of what is needed in this respect. To participate in a VE, companies should basically possess two types of competencies: - functional competence This is a competence related to the product life cycle, supporting the creation of the customer solution. - alliance competence This is competence related to the VE life cycle, representing the ability of a partner to enter into and participate in VEs. These two types of competencies are implicitly recognised by. They will be discussed subsequently. 5.3 Functional Competence Partners bring functional competencies to a VE to form an operational entity that can carry out the phases of the product life cycle. At this moment in time very few companies have an accurate and living model of their business processes, let alone their wider capabilities and competencies. To facilitate an agile formation of VEs, allow a somewhat objective comparison of partners, and reduce misperceptions and dishonesty between partners, systematic and standardised methods for defining and modelling of competencies are needed. Unfortunately, the competence literature rooted in the resource based view of the firm does not at the current state offer operational support for description of competencies. In an initial attempt, the dimensions mentioned below could be relevant for description of functional competencies. A) Solution addressed by the competence This is an overall description of what market need the competence addresses. B) Supporting resources and capabilities This includes a more detailed model of the application sphere, constraints and uniqueness of the competence, which is useful for evaluation of the competence against more specific project requirements. It should indicate how the competence results in specific products or services, e.g. by describing basic assumptions, paradigms, theories, or methods. C) Interfaces This should be described what input, typically in terms of information and knowledge, the competence requires as well as what output it is expected to deliver. This should clarify dependencies and make expectations explicit. D) Agility This should describe how agile the resources and capabilities can operate (i.e. internal agility) as well as the degree of agility the competence bring to the VE (i.e. external agility). E) Sensitivity A description of sensitivity should describe how well rooted the competence is in the organisation and hereby how resistant it is to especially resignation of key employees. F) Additional measures

Finally a competence model should be accompanied by a set of additional measures including measures for quality, capacity, and financial performance (Talluri & Baker, 1996). Each of the above dimensions needs to be complemented with specific metrics to make them sufficiently descriptive, measurable, and thus fully operational. Probably it will never be possible to complete describe all aspects of a competence, due to the inherent complexity and presence of tacit knowledge. 5.4 Alliance competence Possession of functional competencies is not sufficient to qualify for a VE. A VE is in essence a partnership between autonomous companies, which implies a high degree of interaction and integration to achieve common objectives. Thus companies must also possess alliance competence: the ability of a company to enter into and participate in alliances. The notion is introduced by Spekman and MacAvoy, who characterises it as “partly a function of individual skills and capabilities and firm-level attributes that enhance, encourage, and support alliancelike thinking and behavior throughout the firm”. (Spekman & MacAvoy, 1996; Spekman & MacAvoy, 2000). Like functional competencies, it can be a source of (sustained) competitive advantage. Two main elements of an alliance competence are ability to manage and implement alliances and ability to display alliance spirit and behaviour. An ability to manage and implement alliances includes both the formation, operation, and decommission of the VE while considering the product life cycle and starting from the partners in the network. Naturally, the scope of resources and capabilities comprising an ability to manage and implement alliances should depend on the particular role(s) a company expects to have in VEs. For a design office or a production facility with a more secondary role in managing and implementing the VE this scope can be more limited than for the main contractor. An ability to manage and implement alliances should preferably qualify a company to enter into and operate in VEs in an agile, plug and play fashion. It is possible to reuse and enhance the company’s existing alliance knowledge and realize a certain degree of preparation for participation in VEs. Such preparation could be achieved by reference models for the VE formation process including partner selection criteria, standard contracts, models for risk and profit sharing, and ways of co-operating and communicating. When these elements are combined by powerful technology for process configuration in a virtual enterprise, the alliance competence increases significantly (Pedersen & Van den Berg 2000). This directly addresses the need for flexibility to partner with a variety of companies. Additional elements of an ability to manage and implement alliances are the ability to certify potential unqualified partners, acquire new qualifications, and to manage changes across the entire set of partners. Ability to display alliance spirit and behaviour is largely a matter of organisational behaviour and relationship management. According to Spekman and MacAvoy (2000) alliance spirit builds on an atmosphere of flexibility, commitment to mutality, sense of solidarity and preference for harmony. It should be stressed that displaying alliance spirit and behaviour relies on human skills and personal match between people. Partners in VEs should display tolerant and respectful behaviour and in general act in the common interest of the VE, thus avoiding opportunistic and power based behaviour. Partners should besides be willing to share information, respect IPR and trusted information, be open for teaching as well as learning, respect cultural differences, and understand motives of partners. Althought alliance spirit builds very much on characteristics that are intrinsic to a potential partner, an

atmosphere of trust in a VE is always the result of interaction between partners. Business logic precludes an attitude of complete naivety in partnering and sharing, as an viable business strategy. Trust has to grow on joint successes. See (Sabherwal, 1999) for more on this issue, including a growth model of trust. 6. Functionality for extended relationship management (XRM) 6.1 Rationale for XRM One of the assumptions concerning the VE is that it can be activated in a short period of time. This implies that the VE is based on lean ICT, which can be implemented quickly. This means that from an architectural point of view only what needs to be shared should be shared. The specific, intra-enterprise parts of the ICT provisions, e.g. an ERP system implemented at the site of one of the partners in the VE, should be left to the scrutiny of that individual enterprise. Such enterprise-internal systems are not dedicated to the VE. The lean application on top of it, dedicated to the VE, should maximize the exploitation of these generic ICT systems already available in enterprises and from it create an information flow specific for the VE. A solution for a VE should be accessible with an Internet browser and should have the possibility to be easily integrated with existing applications that execute the intra-company processes. It should not replace the pre-existing applications, but should offer functionality to link up the different enterprises involved in project networks to support and enhance the inter-company processes. It should be independent of any enterprise-internal back-end system and it should even be possible to use it in a “stand alone” mode, without any link to e.g. ERP systems. Furthermore, it should be a multi-tiered application. This means that different enterprises in various levels in the project value chain can use the same application, thus creating maximum visibility to each other. Most of the current offerings for collaborative work are based on enterprise-centric applications. Enterprise-centric applications essentially can only distinguish between what is inside and outside the enterprise in terms of people, processes and products. Obviously this makes for difficult inter-enterprise applications, where the underlying systems should be able to deal with entities that are outside the enterprise, but inside the extended enterprise (and thus “inside”, but only to some extent). To deal with this one needs a powerful modelling engine is able to deal with the nuances of such business relationships and the corresponding needs to share some of the data available in the enterprise, but certainly not all. This type of functionality is generally referred to as extended relationship management services (XRM). XRM services defining the relationships among partners in a virtual enterprise need to exhibit certain characteristics, namely: support of a network view, viral effects, many-to-many relations, and ‘configuration’ of the integration infrastructure. These elements will be discussed in more detail in the next section. 6.2. Essential characteristics of XRM XRM services need to provide a network point of view. Enterprise applications such as ERP and SCM typically consider an enterprise or an enterprise plus its direct suppliers and customers. They adopt an enterprise view and an ‘enterprise + tier 1’ view respectively. However, XRM must go beyond the paired relationships and must create transparency across multi-tier boundaries. They take the whole supply chain or virtual enterprise and thereby the

supplier’s suppliers and the customer’s customers into consideration. In addition, each individual virtual enterprise member has visibility into its position in the virtual enterprise, possibly restricted to one tier only, depending on the authorities it was given. XRM services need to support “viral effects”, so that partners can introduce their own suppliers and customers. While XRM services are sponsored and hosted by a single firm (usually a main contractor or dedicated service provider), partners can pay to extend the services to their other partners and customers. New partners, such as sub-subcontractors, can be integrated into the cooperation structure without central registration and administration by the main contractor. The inter-enterprise project is decomposed in a decentralised manner, and new levels and relations can be introduced without the explicit approval of the main contractor. The cooperation structure is expanded by rather autonomous actors, and the whole virtual enterprise can be set up more efficiently this way. Although the similarity of this phenomenon with a virus might be debatable, this paper uses the original term as introduced by (Radjou et al., 2001). XRM services need to support many-to-many relationships. In supply chains with rather standard products, a component manufacturer supplying to multiple OEMs, wants to give access to its production schedules to all OEMs. However, a building contractor hosting XRM services and collaborative project management applications does not want its subcontracted engineering firms to set up virtual enterprises with other, competing building contractors. XRM services need to ‘configure’ the integration infrastructure, i.e. regardless of where a partner is located in the virtual enterprise, it will be able to set security, encryption, alerts, permission and data access to enterprises further up or complementary in the value chain according to the defined cooperation structure. This way, information flows can be orchestrated. 7. Example: a tool for Inter-enterprise delivery management in a VE 7.1 Leveraging inter-enterprise delivery management Based on a modeling environment for XRM, Baan developed a first release of a tool to leverage inter-enterprise delivery management. In a VE, the scope of a delivery project is unique due to customer specific product requirements. As the VE is conceived in a context of (world-class) specialisation, fulfillment of the scope is typically achieved by distributing activities over multiple enterprises. This distribution of project activities is subject to the dynamics of required and available capabilities and capacities of each enterprise; trade-offs must be made for each individual project (Rupprecht et al., 2001). Delivery processes in such unique environments cannot be managed adequately by supply chain tools as used in repetitive industries, e.g. conventional interorganizational workflow management systems or approaches assuming relatively stabile supply chains as described for the high-tech industry in (Moonen & Zwegers 2002). Traditional techniques to synchronize supply and demand (Lee 1997) do not apply to this case, because production is not repetitive in a VE. Instead one needs to coordinate the cooperation of the enterprises in the VE as if one were building a

complete new business from scratch, spanning the delivery process from customer contract to final handover of the delivery or even provision of after-sales services. The aim of the R&D project was to facilitate the collaboration between enterprises in a VE along those lines. The research had to result in a prototype that could support business processes for collaborative project management. It should lead to: 1. More reliable project plans Via a shared model of project activities and requirements, 2. Better project monitoring Via on-line access to project status, with real-time notification of events and “alert” conditions and with impact evaluation for deviations based on changes in downstream activities, 3. A decrease in project risk Via clear visibility of the status of activities for all partners in the VE, 4. Higher flexibility and efficiency Via a faster response to customer change requests, through better use of the network potential and accelerating and controlling the flow of information during the project lifecycle. Based on these requirements, a detailed prototype specification was made. 7.2 Overview of the C-project architecture We identify the following system components: the Enterprise Network, the Enterprise Relationship Modeler, the C-Project Application, individual partners’ enterprise systems, and an interoperability layer with the adapters to these latter systems.

Figure 4: C-Project system modules The Enterprise Network component contains information about a group of enterprises (the network) with their individual capacity and competencies for any (potential) Virtual Enterprise. Information on competencies of other firms such as discussed in section 4 could be stored

here. See (Van den Berg & Tolle, 2000; Van den Berg & Van Lieshout, 2001; Sabherwal, 1999) for various ways to assess the validity of claims about the quality of potential partners. Functionality in the prototype includes displaying competences of the members of the network and their availability at a given moment in time, as presupposed in the selection approach for VE partners (Rupprecht et al., 2001). In addition, documents such as general agreements, procedures and so on can be stored for later use during the setup and operation of a VE. The functionality of this component is not related to a specific VE. The Enterprise Relationship Modeler is where all enterprises and their relationships in one or more VE are modeled based on Work Breakdown Structures, Organisation Breakdown Structures, Project Network Diagrams and Bills Of Materials (BOM). This model forms the base for all other business process support and services provided by C-Project. The core C-Project Application consists of a number of services offered to the enterprises with a specific task in one or more projects. Examples of these services are: document sharing, collaborative project scheduling and progress tracking. Which service will be available to whom depends on his role in a VE, as modelled with the use of the Enterprise Relationship Modeler. The interoperability & communication part of C-Project consists of an interface to the Internet and possibly standard integration products. Via an Internet browser it will be possible to get basic access to the C-Project Services only. For more sophisticated use and high volume transactions, adapters could be made based on standard integration tools such as described in (Van Busschbach et al., 2002; Van den Berg & Zwegers 2002). 7.3 Trial application The case concerns the construction of a new office building (‘building’) for a company called ABC International (the customer). The main contractor for this project, SkyHigh Construction Plc., will design and construct the ‘skeleton’ of the building and subcontract the construction of its ‘foundation’ to RockSolid Building Company. This company will subcontract the ‘design’ of the foundation to Archimedes Engineering and the production and delivery of the ‘concrete’ to Kricon Supplies. The work breakdown structure for this project is illustrated in Figure 3. The details concerning deliverables and agreements with regard to this work breakdown structure can be stored in C-project. An interface with MS project exists to simplify uploading of project details. In this example, the main contractor hosts the C-Project application. It is also possible to run C-project via an application service provider (ASP) and have each of the participants in the VE concentrate on their core competence. In that case, each one of them is only user of the application against a certain fee. The host of the application controls the access rights for the other partners in the VE and the customer. For its immediate (the so called first tier) business partners this control is direct. For the others it is indirect, i.e. the direct partners of the host have the possibility to adjust access rights within the limitations set by the host. In this case, SkyHigh Construction could for instance give designated staff at ABC the possibility to check progress on the main deliverable ‘building’ and give certain people at RockSolid the possibility to update and/or check information concerning the ‘foundation’. RockSolid in turn could provide its subcontractors with access rights to information about deliverables that are relevant for them. Of course it is possible that one person has several roles in the value chain of the VE, e.g. John Doe at RockSolid is main contact point for

ABC International Office Building SkyHigh PLC

Skeleton

Foundation RockSolid

Design

Concrete

Archimedes Eng.

Kricon Supplies

Figure 5: work break down structure SkyHigh but also the project leader for the work with Archimedes Engineering. The application separates people/names from roles and can provide different views depending on the role perspective an individual user wants to take on the available information. During the course of the project, the status of the project will be updated. This could be done manually by authorized people in the VE or through a dedicated link with pre-existing systems in the participating enterprises. For instance, SkyHigh could get much of its information on the foundation from the ERP system of RockSolid. With each change in the available information in C-project, an automatic warning will be sent to those who need to know (and only to them). Unlike traditional supply chain applications, C-project will give SkyHigh visibility on status information beyond RockSolid. It could for instance show that the production of concrete is delayed due to quality problems. This multi-tier orientation of the application will make it much easier for the main contractor to notice exceptions anywhere in the project almost as they occur and react more swiftly to keep the project on track. 8. Conclusion The increasing opportunities concerning the information age in itself do not suffice to effectuate quite radical changes in how people live and especially work in our society. Along the lines of historical precedent the technical developments have to be accompanied by a broad and profound change of mind across the workforce to enable people e to really start doing things differently. Such leverage to change should be a mix of new concepts and tools to support them. We discussed directions for a more cosmopolitan manufacturing based on: - The use of the virtual enterprise as the leading organization model behind customer value creation - More explicit competence management to - The use of Extended relationship management functionality to coordinate Baan recently released a product encompassing these notions and others are following. The first experiences with the tools in practice show how it helps customers to sustain value by enabling its employees and business partners to work along the lines discussed in this paper.

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