Wednesday, April 9, 2008

What is the Extended Enterprise?

The "Extended Enterprise" is a loosely coupled, self-organizing network of firms that combine their economic output to provide product and service offerings to the market. Firms in the extended enterprise may operate independently or cooperatively.

Alternatively referred to as a "supply chain" or a "value chain", the extended enterprise describes the trading relationships among a community of participants involved with provisioning a set of goods and service offerings. The extended enterprise associated with "McDonald's," for example, includes not only McDonald's Corporation, but also franchisees and joint venture partners of McDonald's Corporation, the 3PL's that deliver food and materials to McDonald's restaurants, the advertising agencies that produce and distribute McDonald's advertising, the suppliers of McDonald's food ingredients, kitchen equipment, building services, utilities, and other goods and services, the designers of "Happy Meal toys, and others. In this example, McDonald's Corporation has organized local purchasing cooperatives, made up of representatives of local McDonald's franchisees and McDonald's stores, which determine how the local stores will source local advertising, food ingredients and other materials.

Extended Enterprise is a more descriptive term than supply chain, in that it permits the notion of different types and degrees and permanence of connectivity. Connections may be by contract, as in partnerships or alliances or trade agreements, or by open market exchange or participation in public tariffs.

The notion of the Extended Enterprise has taken on more importance as firms have become more specialized and inter-connected, trade has become more global, processes have become more standardized and information has become ubiquitous. Process standardization has permitted companies to purchase as services many of the business functions that previously had been incorporated directly into the organization of the firm. By outsourcing certain business functions that had been previously self-provided, such as transportation, warehousing, procurement, public relations, and information technology, firms have been able to concentrate their resources on those investments and activities that provide them the greatest rate of return. The remaining core competencies determine the firm's unique value proposition.

How the Extended Enterprise is organized and structured and its policies and mechanisms for the exchange of information, goods, services and money is described by the Enterprise Architecture.

See also:

Jeanne Ross et al. (2006) Enterprise Architecture As Strategy: Creating a Foundation for Business Execution, Cambridge, Harvard Business School Press. ISBN 1-591398-39-8

Chris Zook with James Allen (2001). Profit From the Core: Growth Strategy in an Era of Turbulence, Cambridge: Harvard Business School Press. ISBN 1-578512-30-1

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