Overview of Network Enterprises

7.1 Overview of Network Enterprises

7.1.1 Background and Basic Characteristics of Network Enterprises

Various descriptions about virtual enterprise had appeared since the notion of “Virtual Organization” was promoted in Virtual Corporation, the first monograph published by Kenneth Preiss, Steven. Goldman and Roger.N.Nagel in 1992. John. Byrne pointed out in February, 1993 that the virtual enterprise is a temporary organization made up of human and capital by means of modern information technology, and disbanded when a mission is completed. Without clear organization architecture, it is a temporary organization constituted of individual corporations connected through information technology instead, sharing technology, cost and market of the partners. In March of 1994, Micha Malone from America pointed out that a virtual enterprise is a temporary alliance based on common trust by associating individual units in a “transformed enterprise”, as a common corporation does. It consists of manufacturers, suppliers, retailers and customers without formal organization chart, saying nothing of multilayer organization structure as traditional enterprises. According to Taiwan Economic Times, the basic spirit of virtual enterprises lies in breaking through enterprise limitation, extending enterprise intention, conforming to exterior resources and advocating managers to distribute his/her affairs to other members as much as possible. Enterprises should become miniaturized and decentralized. The internal investment should

be as lowest as possible in order to respond quickly to market, thereby having an edge in global competition. Some scholars in China were of the opinion that virtual enterprise referred to a union of two or more enterprises or projects with core capability achieving common benefits by sharing core capability together relying on information network resources, in the form of full business responsibility to complete part mission of the strategic alliance individually. Share of the core capacity was achieved by strategic alliance and business outsourcing. This core capacity is a kind of competitive, distinct and inimitable capability owned by enterprises in the knowledge economy and is the organic amalgamation of enterprises technology or capitals such as production, technology, management, sale, service, trademark and patent.

After World War Ċ, Japan surpassed USA in manufacturing in the form of “Lean Production” and was in the van of manufacture. In the late 1980s, USA endeavored to regain the advantage in manufacturing and keep its international competitiveness. Therefore, the US Congress and Department of Defenses entrusted Iacocca Institute in Lehigh University with the task to establish an infrastructure of long-term program for manufacture technology in 1991. In the report 21st Century Manufacturing Enterprises Strategy: An Industry-Oriented Viewpoint submitted by scholars Goldman, Nagel and Preiss in the institute in 1994, they put forward the new Agile Manufacturing pattern on the basis of

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dynamic alliance after drawing the ideas from successful enterprises in the modern world, and creatively summarized the new type of enterprise named “Virtual Organization”. They pointed out that the so-called virtual enterprise could make the enterprises succeed in the rigorous market competition by integrating the entire manufacturing resources of society with dynamic alliance.

The intrinsic requirements of market economy development and the maturity of the corresponding technology lay a solid foundation for the emergence of the new-style enterprise organization.

(1) The new characteristics of market competition demands enterprise to implement flexible strategy. The social development diversifies and individualizes customers’ demands. The competitiveness of enterprises lies not only in product quality, price and after-sale services but mainly in its quick-reaction capacity to market changes, that is, the productive flexibility to meet special requirements of customers, which obviously cannot be achieved by the traditional large-scale, massive, single-functional rigidity production fashion. It is necessary for an enterprise faced the ever-changing market to implement an agile, brand-new strategy to seize the evanescent market opportunities, and to integrate original dispersive technology resources, human resources and management resources quickly and effectively, which can only be carried out by corporations with a new enterprise form. The initiator of the virtual enterprise theory owed the reasons why virtual enterprises came into being to the needs of enterprises to respond to agile competition.

(2) Information technology provides technical foundation for the forming of such new enterprise organizations. With the uprising of optical fiber communication technology and computer network technology, it creates a communion manner that gets away from the restriction of time and space for enterprises, eliminates barriers in information communication, and greatly changes the communication method within enterprises and between enterprises. At the same time, it influences manufacturing deeply and furnishes technical conditions for deep sharing and exchanging of product information.

In a word, in the era with changes within a short time and the trend for enterprises for speed, innovation and flexibility, the coming up of virtual enterprises will mark

a new revolutionary epoch in enterprise organizations, and virtual organization seems to be the “optimum solution” for enterprises to response to environmental impact. In reality, many world-famous enterprises became tremendous success by adopting virtual organization.

7.1.2 Knowledge Management

Knowledge Management, which is on the basis of comprehension and perception of knowledge, is becoming an important paradigm in the management domain in China. Knowledge is an important resource which, together with matter and

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energy, constitutes the world. Currently, the world economy is transforming from industry-dominant to knowledge-dominant, which can be summarized felicitously by “Knowledge Economy”.

Knowledge, taking rising proportion in the economic development and creating rising value, has become the inner core element in economic growth. Moreover, the determinant of enterprise competitive capability increasingly consists in the productivity of knowledge which gradually substitutes the productivity based on physical workers. Because of the following reasons, knowledge, as an economic resource, possesses the advantages to which traditional substantial resources cannot compare — it is non-consumable, and can increase in the process of usage; it is not exclusive and can be shared by many people; it is non-scarce and extremely abundant and can be replicated and spread at very low cost; it can expand infinitely and can be enriched in use; the value of knowledge is gradually recognized by society and attached importance to by enterprises. Therefore, knowledge management is becoming the core matter of enterprises and organizational management.

In recent years, economists, enterprisers, scholars and media all began to pay attention to knowledge management, a management field with very prolific content. Different from any other traditional management, it improves enterprises’ capability to deal with an emergency and build up enterprises’ competitive power through exerting collective wisdom by identifying, acquiring, sharing and using knowledge. However, different from ordinary physical resources, knowledge has unique characteristics: it is indeterminate, hard to estimate and difficult to manage; there is an aging problem with it, that is, it will become out of season along with the development of science and technology; dissemination of it and extension of its use value cause prompt decline of the economic value of knowledge; it is implicit, that is, it cannot be separated from the person who masters it.

Since knowledge management had come into existence in the ancient times, it is inevitable that it will become an item on the agenda for both an organization and an individual with advent of knowledge economy, intense market competition and the development of knowledge itself:

(1) Knowledge management derives from “knowledge axiology”. Knowledge is valuable and may create value. The essence of knowledge management lies in that it could improve capability of individuals and organizations to create value by making use of knowledge more efficiently.

(2) Knowledge management is a brand-new management pattern. The start point of knowledge management is to view knowledge as the most important strategic resource in organizations, and to take command and utility of knowledge as the key to advancing competitive power of organizations. It coordinates human resources in enterprises with information technology, market analysis and even management strategy to service enterprise development and create the effect that the collective is stronger than individuals.

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(3) Knowledge management is with information technology as the tool. The fast development of information technology promotes quick derivation of information and knowledge. For instance, advanced information system, groupware and global information network provide technology foundation and communication platform for knowledge management.

(4) The core of knowledge management is to advance the capability of meeting an emergency and innovation. In the times of knowledge economy, the quick- reaction to external requirements and the innovational capability constitute the key factor to determine the enterprise’s future.

(5) The introduction of knowledge management is the necessary demand of organization survival and development. Knowledge management and innovation become the focus and spotlight of enterprises because capital assets bring less value daily, while the competition of survival and development of organizations gradually turns to management practices. The key to enterprises’ survival lies in the orderly management of enterprise knowledge and the creation of special knowledge.

To make full use of knowledge management at the lowest cost, it requires enterprises to master three principles—accumulating, sharing and communicating.

(1) Accumulating principle: Whether for organizations or for individual, knowledge accumulation is the foundation to implement knowledge management. The process of knowledge accumulation is just the growth of enterprises, and also the determinant factor of fast enterprise development. It is the gradual information and knowledge accumulation that forms enterprise culture, value and core capability.

(2) Sharing principle: Sharing knowledge refers to opening internal information and knowledge of enterprises as well as possible, which could make every employee have access to and use enterprise knowledge and information. Knowledge sharing could make new project operate on the basis of experience and knowledge of the whole corporation.

(3) Communication principle: Knowledge communication is the key to the embodiment of knowledge value. On the basis of accumulation and sharing, knowledge communication can inspire potential implicit knowledge of knowledgeable talents, and furthest inosculate organizational knowledge, which makes knowledge communicator better study, use and innovate knowledge. It’s just the topmost pursuit of knowledge management to sparkle innovative idea in knowledge communication.

It does not mean that knowledge management embodies everything. With accurate understanding of knowledge management, its core function includes the following four parts: conforming information resources, increasing reactive speed, strengthening innovative capabilities and improving enterprise core competitive power.

(1) Conforming information resources. Conforming information resources is the fundamental function of knowledge management. Knowledge is taking effect

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in usage. Accumulating, communicating, sharing and increment of knowledge are all built up on the basis of knowledge management. The so-called “integration” is just to resolve the problems of knowledge “unfound”, knowledge drain and selection by making knowledge in order, increasing repertory, and decreasing redundancy so as to achieve sharing and collaboration of knowledge.

(2) Increasing reactive speed. The market competition depends on the competition of reactive speed to exterior, which determines the efficiency of enterprises in studying and managing external knowledge to a very great extent. It’s not only the demand of reducing cost for enterprises, but also reflects the impact of information and communication technology on management. Hereon, we can borrow the concept of “digital nervous system” introduced by Bill Gates. According to him, the data network and feedback system built by simulating human’s central nervous system makes internal resources orderly and conformity based on applying knowledge management and founds expert network to reply to clients, market and emergency, in order to increase external reactive speed. This kind of quick reaction is reflected in the internal of enterprise department, between departments, between enterprises and clients, between suppliers, and all places where the “nerve” of enterprises could touch.

(3) Strengthening innovative capabilities. The innovative ability of business enterprise includes every aspect of capabilities, such as technology innovation, product innovation and mechanism innovation, etc., but the basic headspring of carrying out these abilities lies in creative ability of the knowledge of business enterprise. The knowledge innovation comes from the knowledge backlog of every little bit. In the ages of knowledge-based economy, innovation of knowledge is especially important. According to Schumpeter theory, the “innovation” can be viewed as resetting of the knowledge management elements or the new knowledge elements in the production and the service processes. Peter Drucker expands the “innovation” to the management, puts forward the concept of “society innovation”, and regards innovation as the capacity to create new wealth by new resources, “not only a kind of economic mechanism or the technical processes, but also a kind of social phenomenon”.

(4) Sharpening the business enterprise edge. In the knowledge-based economy times with intense and unstable competition between enterprises, the key to enterprises success rests on its core competitive power. The fundamental reason why the market value of many new and old business enterprises attain geometric growth by breaking the traditional economic growth laws lies in the increase of its core competitive strength, all of which is based on innovation abilities of enterprises.

Though knowledge management can be defined in different ways, it is neither an infinitely generalization concept, nor confined to knowledge management in the narrow sense. As for knowledge management, great importance shall be attached to the following five aspects: organizational knowledge, knowledge coding, processing, and knowledge platform and innovation.

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(1) Organizational knowledge The object of knowledge management is organizational knowledge, which is

difficult to define. If an enterprise is concerned, it should include interior knowledge and exterior knowledge. The internal knowledge of business enterprise shall cover the knowledge materialized in the machinery, the coded knowledge within the book, data, manual, reports and sense knowledge within employees’ brains. The exterior knowledge of business enterprise mainly refers to knowledge and information concerning the business enterprise management and existing in the exterior of the enterprise.

The exterior knowledge of the business enterprise is infinite. The organization knowledge involved here refers to enterprise interior knowledge and internalized exterior knowledge. In this sense, the knowledge management belongs to the internal enterprise business.

The classification of the organizational knowledge is very important. According to the classification of OECD, knowledge can be divided into four categories: know-what, the knowledge concerning facts; know-why, the knowledge concerning natural principles and rules; know-how, the knowledge about technical skills and ability; know-who, the knowledge about who knows and who knows how to deal with some matters.

(2) Knowledge code In the organizational knowledge, recessive knowledge possessed by individual

is the most difficult to dig out and make use of. The effect of knowledge coding just lies in effectively storing this knowledge and presenting to users concisely, which makes it easier for other people to use the knowledge of business enterprises and individuals.

ķ Knowledge coding: The knowledge coding is to digitalize (computerization) entities, relationship and processes in the realistic world. The coding within the inner business enterprise is trying to visualize the implicit and explicit knowledge, to change implicit knowledge into explicit knowledge as much as possible, and to accumulate exchange and to share knowledge conveniently. Knowledge coding lays the foundation for organizations to carry out knowledge management.

ĸ Explicit knowledge coding: Explicit knowledge refers to the structural and non-structural information that can be explicitly presented by languages, words, numbers and diagrams etc. It is the exterior and tangible knowledge.

Ĺ Implicit knowledge coding: The implicit knowledge refers to the implicit experience knowledge in the employees’ brains or in the structure and cultures of organizations and difficult to describe accurately by languages or written materials and to learn and code by others. The difficulty of knowledge coding is to code the implicit knowledge because it usually is materialized in the machinery equipment, contained in value culture of business enterprises, and exists in the employees’ brains, which is invisible and hard to master, much more difficult to code. However, it plays an important part in the growth and development of enterprises because it is of high portion and valuable in the enterprise knowledge, accordingly, it is necessary to code implicit knowledge.

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(3) Knowledge flow ķ Knowledge chain: According to Michael Porter, an American strategic

management expert, all different but connected production and management activities in enterprises constitute a dynamic process that creates value, thus forming a chain to create value, namely value chain. It is the same with the flow and updating of organizational knowledge, namely knowledge chain. It refers to knowledge flow in the people-centered business process, which is usually closely related to problems in the business process. Knowledge, the organizational wealth, accumulates along with the growth of the organization. The essence of the knowledge management is to manage the knowledge value chain and continuously increase the value of the organizational knowledge in the movement.

ĸ Knowledge and business flow: A successful knowledge management lays both in managing each link within the value chain and in optimizing the correlation between links, in order to speed up the flow velocity of knowledge. The organic integration of the knowledge process and core business process is the key to effective knowledge management.

Among the relations of the knowledge process and business flow, one is consistent with problem solving. Knowledge flow is determined at some time by the implementation plan of business process. Knowledge seekers and knowledge providers are all employees who participate in one part of the business process. For example, in the semiconductor designing and manufacturing process, design engineers (knowledge providers) arrange product design according to business process, and then transfer the knowledge to the manufacturing group, thus completing knowledge flow.

Ĺ Working point of knowledge: Knowledge, a huge, extensive intersectant network system, creates value in the process of flow. The uneven distribution of working point of knowledge results in parallel increase of the value of all links in an enterprise, but mainly on some particular value links, and it is impossible to control all links that create value. Therefore, it is of great importance to take into serious account those links that have intensive knowledge points, and to maintain the competitive advantages of the strategic links by its own special knowledge assets.

(4) Knowledge platform The knowledge platform refers to sets of tools and methods provided for

employees to use, share and create knowledge in business enterprises. This general concept is not designated for certain knowledge management software or concrete tools and it also includes places, things and software etc. for employees to use, create and share the knowledge. The knowledge coding emphasizes the foundation of knowledge management, and the knowledge process emphasizes the process of knowledge operation and conversion, while the knowledge platform emphasizes the tools that promote knowledge usage. According to its functions, knowledge platform can be divided into three types: knowledge foundation platform, knowledge application platform and management platform.

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ķ Knowledge foundation platform: The knowledge infrastructure platform provides tools to store, present, categorize and update knowledge. For example, knowledge managers categorize on-file knowledge according to the knowledge of enterprise classified catalog and store coded knowledge into database.

ĸ The knowledge application platform is for knowledge users: Users can acquire the knowledge quickly, retrieve knowledge needed very expediently,

deliver the knowledge to other employees quickly, and convert knowledge to the format needed by means of the knowledge application platform. For example, an employee can obtain knowledge in the headquarters’ repository anywhere through digital portable devices, or obtain the work experience summarized by other people in the reference room. Both digital portable devices and reference rooms are part of the knowledge application platform, which can help users to obtain knowledge quickly.

Ĺ Management platform: The management platform is for managers, and is the tool and method to manage knowledge for managers. For example, the manager process documents with the text file in order to put knowledge under control, decide the knowledge that should be removed by the check machine, and judge what faculty training is needed by means of basic management in order to improve knowledge of an organization.

(5) Knowledge Innovation The innovative process of knowledge includes knowledge creation, detection,

application and value-creating. The knowledge innovation occurs in the course of knowledge processing.

ķ Knowledge creation: In the progress of heading into the knowledge society, characteristic knowledge and demand for knowledge turn out to be more and more obvious, and the capability to create the knowledge becomes the most fundamental source of the wealth of organization and society. Knowledge creation is the creation of new knowledge and re-combination, and committed to practice, which is the most challenging in the knowledge management and the important symbol of knowledge management success.

ĸ Knowledge detection: Knowledge detection, the recombination and use of knowledge derives from the foundation of knowledge management. It is a knowledge expressing process which drives valid, novel, potential, useful and ultimately apprehensible knowledge that is represented by pattern from the database. After accumulating a great deal of data, the knowledge detection identifies the valid, novel, latent, useful and ultimately apprehensible knowledge, by which people can improve work and improve efficiency and performance.

Ĺ Knowledge application: The knowledge application is the important process to realize the value of knowledge.

ĺ Knowledge creates value, which is the ultimate meaning of knowledge innovation: Karl Erik Sveiby, the famous knowledge management master, defined knowledge management as the “art of creating value with organizational intangible assets” from the epistemological angle. Chinese government and Chinese theories

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circles pay attention to the development of knowledge-based economy and knowledge management theory increasingly, and many high-tech parks, represented by Zhong Guancun, have practiced the knowledge-based economy and knowledge management. These all indicate that, much attention shall be paid to the role of knowledge in the social economic development, and strengthening the research into the knowledge management theories and practices.

7.1.3 Virtual Enterprise

What is a virtual enterprise? When “virtual” was used in the management mode in 1991, the phrase of “virtual enterprise” came on the scene. Currently there is neither specific definition about it in theory circles nor universal definition among scholars. According to the current available reference, the definition of the virtual enterprise can be classified into two major types:

From the angle of the information network, virtual enterprise is the immaterialization of enterprise organizations and organizations connected by information network, such as online stores and online banks etc.

From the angle of organization, it refers to a temporary network organization that is composed of two or more enterprises by application information network technology to achieve an anticipatory object. Each member is mutually non- interfering in the cooperation process, and shares the risk and benefits together; once the expected object is attained, the organization will soon be disintegrated.

Actually there is an obvious difference between the first definition and the second: the first refers to an individual enterprise body; whereas the second the enterprise group constituted by several actual entity enterprises. Compared with the first, the second is more meaningful and more promising.

As a new organization form, virtual enterprise differs from traditional enterprises in the following ways:

(1) Networking: Production and operation of the virtual enterprise is based on computer network. Generally the virtual enterprise is not confined to geographic boundaries, that is to say, enterprises with different core capabilities form a network in a certain way and communicate through the information superhighway. Therefore, the virtual enterprise then could gradually become the mainstream enterprise form on the condition that enterprises could make full use of the computer network to reduce the cost of trades cooperatively in network economy.

(2) Sensitive: The reaction of the virtual enterprise for the market information is extremely sensitive, because it will integrate every aspect such as management and technology to react to the changes of the market quickly. Moreover, the virtual enterprise, the support for the existence of organization, could feedback to the center and organizes production and sale quickly as soon as the market changes.

(3) Dynamic: Properly speaking, the virtual enterprise is not a real enterprise, which does not exist all the time. Its appearance is on the condition that a market

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opportunity appears and will disappear when a certain market task is completed and the corresponding virtual enterprise is also disintegrated. This characteristic of the virtual enterprise can more effectively and optimally configure the resources, and be advantageous to reduce the cost.

(4) Virtual: The virtual enterprise and the traditional enterprise differ in its form such as the virtualization of function and region. These virtual characteristics are actually networking and sensitiveness etc.

(5) Parallel management: The traditional enterprise management is like a pyramid, while the modern enterprise management is like a parallel network. The virtual enterprise can explicitly reduce the management levels and personnel from the value-generated process to value-confirmed process by adopting computer network. Therefore, this organization is flat-pattern.

Apart from the characteristics (namely the function/process characteristic, the organization characteristic, the physical system characteristic, the information system characteristic, the logistics/information flow/funds flow characteristic etc.) of the general enterprise, the virtual enterprise still has some characteristics such as the global fellowship characteristic based on public networking environment, enterprise cooperation characteristic, process optimization characteristic, agile PRS (refactorablity, reusability and scalability) characteristic. Therefore, the establishment and operation of the virtual enterprise in particular, need the guidance of corporate model.

The Virtual Enterprise’s Model (VEM) composed of workflow view, organization view, physical view and information view can describe the virtual enterprise with concrete information, which is the base to analyze, imitate and optimize the process, activity, function and action of the virtual enterprise, as shown in the Fig. 7.1.

It can be figured out from the analysis of VEM that the workflow view is the core of the enterprise model. Enterprise model cannot only analyze and design the virtual enterprise from different aspects, but describe the whole virtual enterprise through integrating other views with workflow view. In addition, because the process is the core content of the workflow view, the process modeling is the key to workflow modeling and virtual enterprise modeling.

The set of virtual enterprises includes many interaction relations and some processes that the member enterprises does not have, for example, monitoring partner’s performance, coordinating partner relation and benefit analysis and distribution. In addition, owing to some other characteristics of the virtual enterprise process, such as dominance, provisionality, refactoring and distributivity, the composing structure of virtual enterprise process is different from that of the member enterprises, as shown in Fig. 7.2.

The virtual enterprise process can be divided into two parts: one is the process particular to the virtual enterprise, which is not in any individual member enterprise; the other is provided by member enterprises, which is the processes that is independently undertaken by member business enterprises in virtual enterprise.

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Figure 7.1 VEM

Figure 7.2 Process structure model of virtual enterprise

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The contents of the network enterprise management mainly includes: strategy management, operation management, stock and production management, marketing management, logistics management, organization management, human resource management and coordination and control. This book deals with the following three aspects in details: supply chain management, logistics management and human resource management.