TECHKNOW - The people and products shaping your future - Survival rules/HUNTER MADSEN/RULE 3 - SOFTEN YOUR BOUNDARIES.
Don't panic: this rule is not another plea for sensitivity training among icy managers like yourself. This is the New Economy, not the New Age, so we're really much more concerned that you soften the boundaries of your enterprise.
Consider the traditional company. It carries out the most important functions by itself: manufacturing, distribution, marketing, customer service, enterprise, IT management, accounting and human resources, plus half a dozen other fundamental tasks.
In their efforts to be self-contained, such companies are like armies on the march through foreign lands, packing up everything with them.
Shifting frontiers. The new, networked economy introduces opportunities to build scale and to achieve comparative advantage. It compels competitive enterprises to focus on their unique value-add and to let go of the rest, handing over everything else to more cost-efficient partners on the outside. This game has a familiar name: outsourcing.
What is new is the extent to which it will prevail during the coming era - to such an extent that business schools will be forced to rewrite their textbook theories of the firm. In fact, 'unfirm' will be a more accurate description, since these partnerships will entail rich, diverse flows of previously hermetic information across the increasingly soft, permeable membranes that divide the enterprise from its environment. It will become more difficult to tell where the company stops and its environment starts.
Handing over responsibility. Among the first functions to be outsourced widely will be accounting, recruiting and benefits administration, payroll, transport logistics, IT/network maintenance and customer service (such as help desks and call centres). It is already common to see payroll service providers such as ADP and transport companies such as Federal Express displace in-house operations. Now we also observe service categories - consumer banking, for example - whose firms originate almost no differentiated services of their own. In the product categories - for example, the PC industry - even manufacture of products is being outsourced, leaving the enterprise to do little more than optimise the value chain of partners and to market its brand.
The way forward. In short, success in the New Economy will be about shrewd, flexible and multiple partnering. A business must repeatedly ask itself and answer four questions: One, from the customer's perspective, what is the essential activity of my industry - and is that activity a true strength of my company?
Two, which core functions must be kept in-house to maintain the value at the heart of the product or service that the company offers?
Three, how can I dispatch the other activities? That is, where will e-business partners build functional scale that will give my enterprise extra leverage, without loss of manoeuvrability and competitive advantage?
Four, how can my enterprise develop the robust partner management skills that it will need for the next era? On this last point, perhaps a little sensitivity training would come in handy after all.