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3_So 31/1/06 11:18 am Page 42 42 Int. J. Services and Operations Management,Vol. 2, No. 1, 2006 A development of business agility enterprise model for competitive advantage: theory and practice Harry W.T. So Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hong Kong E-mail: firstname.lastname@example.org Angappa Gunasekaran Department of Management, University of Massachusetts-Dartmouth, North Dartmouth, MA 02747-2300, USA E-mail: email@example.com Walter W.C. Chung * Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hong Kong E-mail: Walter.Chung@inet.polyu.edu.hk *Corresponding author Abstract: The need for agility has been with some businesses for many years, but it is becoming more of an important factor for more and more businesses. This paper examines the case of an electronic component distributor and develops the business agility enterprise model from theoretical and practical perspectives. It is about how to build the business agility enterprise towards competitive advantage. The data collected are grouped into two major components: ‘architecture business’ and ‘infrastructure business’. The architecture business helps decrease the length of time that a company takes for a business change along the supply chain. The infrastructure business, on the other hand, lies in the better information shared, better customer relationship, sound ﬁnancial position and intellectual property owned by the company so that it secures its position and overrides competitors. The dynamics of building the two business dimensions will lead to achieve the competitive advantage of the enterprise. Keywords: agility; architecture business; business; business agility enterprise; competitive advantage; infrastructure. Referenceto this paper should be made as follows: So, H.W.T., Gunasekaran, A. and Chung, W.W.C. (2006) ‘A development of business agility enterprise model for competitive advantage: theory and practice’,Int. J. Services and Operations Management, Vol. 2, No. 1, pp.42–59. Biographical notes: Harry W.T. So is the Vice President, Business Development and Technology of SUNeVision Super e-Network Ltd. in Hong Kong. He is responsible for strategic planning for the company’s business. With the background of an MSc from the National University of Singapore and an MBA from the University of Louisville, he has also developed a range of professional experience on how to implement and integrate business Copyright © 2006 Inderscience Enterprises Ltd. 3_So 31/1/06 11:18 am Page 43 A development of business agility enterprise model for competitive advantage43 and IT in different life cycles. He is also a part-time lecturer, teaching in the University of Hong Kong. Dr Angappa Gunasekaran is a Professor of Operations Management in the Department of Management at the Charlton College of Business, University of Massachusetts-Dartmouth (USA). He teaches undergraduate and graduate courses in operations management and management science. Dr Gunasekaran has 170 articles published in 40 different peer-reviewed journals. He has presented over 50 papers and published about 50 articles in conferences and given a number of invited talks in more than 20 countries. He is on the editorial board of 20 journals. He has organised several international workshops and conferences in the emerging areas of operations management and information systems. Walter W.C. Chung is Associate Professor at the Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University. He graduated in industrial engineering and received an MBA from UNSW Australia. He was the Programme Leader for an MSc in industrial logistics systems (2000–2004). His research interests are in information systems and knowledge management for e-business. A recipient of the President’s Awards for Achievement 1996/97: Research and Scholarly Activities, he has successfully supervised research students up to the PhD level and published numerous research papers. He has been successful in research grants (HK$7.1 millions) and is active in consulting with business and industry. 1 Introduction The most successful companies today know that in order to compete, they have to manage change effectively. Companies that put their customer ﬁrst and take competition seriously are in the business of change. Handy (1996) stated that when change is discontinuous, the success stories of yesterday have little relevance to the problems of tomorrow; they might even be damaging. The world at every level has to be reinvented to some extent. For many years, companies have been encouraged to pursue strategies of identifying and focusing on core-competencies – the skill, knowledge and technologies that a company must own in order to compete effectively (Hamel and Prahalad, 1994). One result of such strategies has been extensive outsourcing and collaboration of activities where companies have no distinctive competence and can ﬁnd more competent external suppliers/partners. Some ﬁrms found this to be competitively inﬂexible in a rapidly changing business environment. They became interested in ‘quasi-integration’strategies like joint ventures, strategic alliance, technology licenses, asset ownership, franchising and long-term preferred supplier relationships. Large western manufacturers have been attempting to bridge the gap between the traditional make-versus-buy decision by combining the strengths of vertical integration and outsourcing in order to achieve operational integration without ﬁnancial ownership. Organisations are facing increasing complexity. Following the example of the Japanese, lifelong employment, loyalty of employees and quality improvement are not guaranteed competitive advantages with todays highly competitive environment. While the product variety gets ever more complex, the product life span is decreasing because of diversiﬁed customer requests (Westaemper, 1999). Issues such as lead times, waste, and capital rationalisation, and other applied solutions such as JIT, TQM, time-based management, 3_So 26/1/06 6:37 pm Page 44 44 H.W.T. So,A. Gunasekaran andW.W.C. Chung and lean production have reached a point that requires research looking at how companies combine their internal processes with those of the customers and suppliers (Dubios and Hakansson, 1997). More companies are going for globalisation because of saturation in the local market. It is no longer sufﬁcient to have an international presence with stand-alone bureaus in multiple countries. A company’s operations, customers and employees must now be coordinated globally and yet enable local operators to react to the local market on a local basis. A business needs to be agile enough to respond to the change and to manage a sizable increase in sales, management depth and integrity, R&D excellence, a leading sales force, outstanding labour and personnel relations, a strong balance sheet, consumer’s higher expectations and improving proﬁt margins.The enterprise needs to develop quick response on a global basis. Some of the research looks for different cases to apply networked knowledge for simpliﬁcation, standardisation, modularity and integration in order to build the agility of the enterprise, for example network support integrated design (Li et al., 2002). Not only is agile manufacturing looking for ﬂexibility for agile beneﬁts (Quintana, 1998), but also the supply chain management practices to achieve operational ﬂexibility (Narasimhan and Das, 1999). Some look at the way to develop effective technology strategies (Bone and Saxon, 2000) and manage technological knowledge (Bohn, 1994). This paper is based on a case study of the electronic component distributor industry looking at how distributors can achieve a competitive advantage through the two basic business dimensions: ‘architecture business’ and ‘infrastructure business’ so as to form the business agility enterprise for the new economy. It is hoped that the analysis of this paper can serve a dual function: • it may help to enrich the conceptual framework of business agility enterprise • it should provide information for managers and practitioners interested in creating a greater responsive value for their businesses. This paper begins with describing business agility and then the value creating activities for competitive advantage in business networks, and the type of changes required in a typical organisation. It moves on to highlight the performance requirements of a business agility enterprise and formulates a model of the business agility enterprise. A case study from the electronic component distributor industry is used to demonstrate how the model of business agility enterprise is formulated to build the competitive advantage of the business. 2 Business agility 2.1 Agility A dominant deﬁnition of agile enterprise by Oleson (1998) is that the pathway to agility represents the avenues for change to a more competitive company. Agility is one of the major components of a 21st-century manufacturing enterprise strategy.There are demands for integrating business processes across collaborative product design. The supply chain, especially the product cycle, has been shifted from months to weeks, shifting manufacturing from in-house to outsourcing and customisation from make-to-stock to make-to-demand. The company has to increase its responsiveness to the market and to customer opportunities. In the industrial age, companies were built on the principle, 3_So 26/1/06 6:37 pm Page 45 A development of business agility enterprise model for competitive advantage45 ‘Do more, and do it cheaper .’ The means were vast scale and scope as well as rigid internal control. However, in the information age, the concerns are ‘fewer, faster, less’ – fewer assets, faster growth, and less managed activities under one roof. But being cheaper, better, and faster today is not sufﬁcient to be agile. In fact, agility is the ability to change to be cheaper, better and faster in a more proﬁtable and dynamic change. It is the ability of an enterprise to have business agility towards competitive advantage. It is a logical evolution of agility for businesses. Without the agility of the enterprise, it is almost impossible to achieve mass customisation in reaction to the customer’s needs. 2.2 Value creating activities for competitive advantage in business networks In an industrial network, interrelated industrial activities are performed and each activity is more or less dependent on the performance of other activities, which have to be done before or are expected to follow after (Hakansson and Johansson, 1994). Furthermore, activity is considered to be the basic unit of competitive advantage (Porter, 1996, 1998). A ﬁrm’s competitive advantage in relation to the external environment is deﬁned by the conﬁguration and interrelated activities within the ﬁrm; the conﬁguration of activities is deﬁned by a ﬁrm’s strategy (Porter, 1991). Strategically speaking, competences are a form of competitive advantage. When these competences are applied in the production of goods and services, they create greater value in the process. The value can either be captured by the ﬁrm and passed on to the customers. Therefore, during the past decades, companies have become more aware of competences and knowledge as the key for competitive advantage. One rationale behind this is that ﬁrms in general have access to the same kind of equipment, products and technology. Competitive success lies in how to more effectively use these resources than other ﬁrms (Nonaka and Takeuchi, 1995). However the world’s economics is changing. Value increases at the exchange relationship when heterogeneous resources are combined, allowing their joint performance to increase through experiential learning and adaptation (Hakansson and Johansson, 1994). The challenge is to integrate technologies and value created activities to tackle the changes of industry and market effectively and efﬁciency. 2.3 Types of change With reference to the basic state diagram of the company; it can be expressed in three states: input, process and output. Often, agility is considered in terms of changes in customer demands. However agility is not just response to changes. It is a strategic approach of the company to build in the attributes to react to the changes. We can develop various types of change according to these three states of change: input, process and output. According to Edvinsson and Malone (1997), they realised the company’s true value by ﬁnding its value components of an enterprise in different types of capitals. Readjusting those capital components into different states with the technological capital, is shown in Figure 1. In Figure 1, change in customer demand is one of the most powerful driving forces in the industry. Today’s customers demand rapid service-to-product and service-to-service at no additional cost. This rise of customer expectation has the effect of moving to market niches by fragmentation of mass markets. Tailor-made solutions become normal practice to meet the different demands from the customers. Customer capital in response to the changes in customer demand is the value of a company’s relationship with the people or organisations to which it sells. The enterprise that has better relationships with its 3_So 26/1/06 6:37 pm Page 46 46 H.W.T. So,A. Gunasekaran andW.W.C. Chung customers has a better chance of keeping them, of extending business with them beyond the normal business and of selling them new products or services. A typical example is the huge customer base in eBay.To know the customer’s preferences and needs, more and more algorithms and theoretical research, like CRM and Data Mining, are conducted. Enforcing the relationship and co-creating the experience make customers more attached to the company. In the future customer capital can then increase the margins, revenues and cash generation potential in return. Figure 1 Three key types of change Next is the change in process. Managing processes and operations have become important nowadays especially in cost reduction and productivity increase. It is the process that organises how customers receive ordered goods and services (in supply chain management) and how related ﬁnancial (such as billing and collection), marketing and sales (promotion campaigns, direct marketing) and service tasks (consulting, installation, maintenance) are executed. It is about the value creating activities in a collaborative relationship, so as to increase the productivity and drive down the cost. It can be inter-enterprise (internal) for structural capital or intra-enterprise (external) cooperation or outsourcing or becoming a network organisation for partnership capital so as to react quickly to market and technology needs. Structural capital is the right organisational infrastructure, an innovative and stimulating culture and the procedures which support smooth and efﬁcient knowledge and information ﬂows within the entire organisation. On the other hand, the partnership capital, in the form of value-adding communities, is to form the value network, in which an enterprise establishes a cost structure and operating process and works with suppliers and partners in order to respond proﬁtably to the common needs of a class of customers. For example, Dell imposes a complicated partnership with suppliers and OEM contractors to create its competitive advantage. Only replicate parts of Dell’s infrastructure cannot guarantee to be successful. This infrastructure complexity also happens in Walt Disney. Its portfolio integrates different areas like theme parks, hotel and resorts, TV programming, animated feature ﬁlms, web online, ﬁlm distribution (Buena Vista), magazines, retail stores, books, tapes, videos and cable channels. How can an organisation replicate the whole portfolio? It refers to the structural capital and the partnership capital an organisation owns for the organisational capability to learn, innovate and adapt quickly to changes in customer’s needs. The last one is related to the input state: the change in resource. Resources/assets can be tangible and intangible. A tangible asset is variable in an enterprise and every investment comes with decision making, such as returns on asset and returns of investment. 3_So 26/1/06 6:37 pm Page 47 A development of business agility enterprise model for competitive advantage47 Financial capital refers to the funds which are available to acquire real capital. But companies, which have created and owned more intellectual capital or intangible assets, will have more value creating potentials than traditional businesses. Intangible value creating activities like R&D investment and knowledge workers are now part of the company’s strategies for competitive advantage. Intellectual property capital comprises elements like the patrons, brands and goodwill. For an intangible asset company, like Microsoft, the market value can exceed the book value by up to 20 times. Microsoft’s value originates from its software development knowledge from its involvement and its partners. Its dominant position of the Wintel community capitalises on a huge market and proﬁts.Also, brand capital, loyalty and image are important, especially for price setting. Often, price and brand serve a similar purpose – to inform purchasers about their potential purchase (price). Even in the area of internet business, one study found that amazon.com, which enjoys strong customer trust, has been able to sustain prices 7–12% higher than online competitors such as books.com (Smith et al., 2001). Customers may have preferred brands, or they may have strong relationships with their existing suppliers, which they are reluctant to break. New entrants would have to persuade customers that it was worth their efforts to incur the switching costs involved in moving to the product of a new entrant. This may act as a strong barrier to entry. Technological capital is critical to the response to the change, especially nowadays with wireless technology. Wal-Mart has spent more than a billion dollars on information technology and was one of the ﬁrst in the industry to wire their retail stores with their logistic system and recently deployed the RFID solutions. Historically, productivity increases have resulted in increased revenue. By enabling a quicker response to customer requests, a better quality and faster service, improved sales and renewal rates, and faster and more accurate billing resulting in improved cash ﬂow, mobilising enterprise applications results in other measurable beneﬁts besides revenue and productivity increases. Utilising technology and enabling your line-of-business applications help your organisation achieve these goals through technological capital. We are in the middle of rapid changes in technology. Rapid decision making is being forced on all those who want to remain on the cutting edge of technology. The ﬁnal attribute related to resource is the human capital. It includes their knowledge, skills, competencies and experiences of the employees. Imagine if IBM PC drops its price by 10%, how long will it take for HP/Compaq to drop the price of a similar product by 10%. It may take less than 48 h to make such a decision. But can you establish the culture of Virgin Airline in 1 or 2 years? Probably no. That’s why many companies nowadays weight the importance of the human capital and spend more money on training and cultural change. It is the key attribute which is hard for competitors to replicate.Therefore, those individuals whose capabilities are of great value to the company are of strategic importance. The study of business agility enterprises concerns the formulation of the capital components needed to achieve the competitive advantage of the enterprise based on these types of change. Besides, many customers today are looking for something more than just a good product; they are looking for a memorable experience as part of that product and service (Pine and Gilmore, 1998).Therefore, business agility enterprise development is also essential to create a unique memorable experience for the customers, partners and suppliers for long-term customer value and competitive advantage (Prahalad and Ramaswamy, 2004). 3_So 26/1/06 6:37 pm Page 48 48 H.W.T. So,A. Gunasekaran andW.W.C. Chung 3 Business agility enterprise model – performance requirements Figure 2 depicts our performance requirement model of business agility. Basically the performance is driven by the objectives of business agility, including decreasing the length of time to take the business change, decreasing the breath of change, easing the level of change – value-creating activities to improve the competitive position. With these objectives in mind, as well as our business environment being dynamic, our system has to be adaptable enough to cater for these dynamic changes so as to achieve the objectives. Figure 2 The objectives and performance requirements of a business agility enterprise model There are ﬁve requirements for the system. Firstly, it needs to sense or monitor the changes, since the changes are dynamic (MONITOR). Secondly, it needs to automatically adapt to the changes (AUTO-ADAPT), for example price adjustment almost simultaneously to competitors changing price; and thirdly, it needs to feedback or communicate with the users or management (FEEDBACK) to make optimisation decisions and take swift and appropriate actions. Communication also serves the purpose of integrating all the other four components with all the stakeholders. Fourthly, it allows users to have ﬂexibility or options to response to the dynamic changes by adjusting the system (FLEXI-ADAPT); it may involve long term strategy with top management. Finally, it can learn from previous information and mistakes for self-improving the other four components (LEARN). This approach provides a generic deﬁnition of business agility performance requirements to contribute to the competitive advantage of the company. From this objective-oriented approach, the business agility enterprise model has the ability to monitor and feedback to the system and continuously adjust so that the objectives can be matched. 4 Formation of business agility enterprise model The competition on the different types of change in Figure 1 suggests that all businesses are linked and made up of two business dimensions: infrastructure business and architecture business. Infrastructure business is based on co-creating value experience 3_So 26/1/06 6:37 pm Page 49 A development of business agility enterprise model for competitive advantage49 and architecture business is managing the ﬁrm’s position within the supply chain. Infrastructure business deals with managing the business and the operational infrastructure to enhance the competitiveness and the product/service performance level through co-creating value experience to remove the threat of competitors. Architecture business, on the other hand, deals with managing the ﬁrm’s position within the supply chain network, which predominantly focuses on ﬁnding the means, in terms of technology or process efﬁciency, to link up with suppliers and customers. By combining the performance requirements to achieve the objectives of business agility in Figure 2 and capital components in Figure 1, Figure 3 illustrates the overall business agility model. Figure 3 A model of business agility enterprise development in a competition environment Both architecture business and infrastructure business form the infrastructure to create the competitive advantage by ﬂexi- or auto-adapting the objectives of performance requirements. Infrastructure business comprises human capital, customer capital, ﬁnancial capital and intellectual property capital, which is the result of the relations a company maintains with its customers in co-creating the value experience. This collaborative experience can be positive by capturing more customer ideas or knowledge and in turn, can build greater customer satisfaction and loyalty. With an increasing number of customers, suppliers and partners, there will be higher chance of designing reconﬁgurable, extensible designs for different needs. In addition, architecture business comprises human capital, structural capital, technological capital and partnership capital, which is the result of how to position the company in the supply chain. The design and implementation of business agility comes as the cross-fertilisation of infrastructure business and architecture business.The interest lies in whether an enterprise can gain the competitive advantage in the long-run during the change. Therefore, we concern the agility of the enterprise effectively adaptable internally self-organised response and externally responsive with partners. In the case study with the electronic component distributor, it shows how the model explains that distributors can still gain the competitive advantage even those facing the serious problem of disintermediation. 3_So 26/1/06 6:37 pm Page 50 50 H.W.T. So,A. Gunasekaran andW.W.C. Chung 5 A case study of business agility of an electronic component distributor Disintermediation occurs when some organisation is cut off the loop, as for example when airlines pressurise people to book via the internet. Therefore, it endangers the survival of travel agents and their commission. Dell’s success with a direct-sales business model redirected the attention of the PC industry away from an indirect distribution channel model. In the old days, where diversiﬁcation and vertical integration were fashionable, companies had subunits that managed these interfaces, forwards and backwards in the chain, as well as simply outwards. In the disintermediation climate, these subunits are marginalised, which therefore results in downsizing with more contracting out of non-core business.The electronic component distributor faces the same problem. However, with reference to the industrial report (EBN News, 2003), the top-10 market sales of the electronic component distributors still reached about US$27,016 million in 2002. The question is what is the role of the electronic component distributor in the supply chain? How does it contribute to the values of their customers? Figure 4 The supply chain in the electronic industry Figure 4 shows the general supply chain of the electronic industry to the end users. The common deﬁnition of distribution is buying large volumes of standard products from suppliers and reselling them in small quantities to a variety of customers, earning a proﬁt on the mark up. The supply chain provides a major role of electronic component distributor where the production line cannot afford to be ceased because of lacking components in the past. Distributors are valuable to OEMs as sources of inventory, particularly when demand is running ahead of supply and in areas of the world where the supply chain is underdeveloped, such as some of the new low-cost manufacturing locations, for example in China. Next, through proprietary IT systems, distributors have also become timely providers of the products necessary to support a just-in-time manufacturing environment through EDI, as well as information and engineering to speed design. Distributors are also valuable to suppliers as extensions of their internal sales efforts, able to reach those smaller customers that suppliers simply cannot. Compared to many suppliers, distributors are able to offer OEMs a better service, quicker response times, and local stock. Distributors position themselves to log-on the customers and increase the business agility of their customers through their services. 3_So 26/1/06 6:37 pm Page 51 A development of business agility enterprise model for competitive advantage51 5.1 Adding service-to-product and adding service-to-service From Figure 5, it can be noted that different parties are moving up to the value-chain with the support from technology and every company speaks of getting closer to its customers. This is also expressed as ‘working back up the customer’s decision chain’, i.e. you are working some of your customer’s jobs, such as design, R&D etc. There is no difference with the electronic component distributor.This includes knowing exactly what the customer is buying. They may procure a design solution, and even collaborate with the customers and suppliers to help raise their productivity, perhaps by handling the parts of the operation like logistics.Another key concern of adding service-to-product is the lead times. No one accepts four to six days to deliver electronic components. Speeding up the delivery is a typical trend or development of value added service. IBM in IT outsourcing is a typical example. It becomes part of the customer business network. Another example is that of Wal-Mart sometimes is also treated as the sales department of Procter & Gamble. Figure 5 By the 1990s component suppliers evolved into suppliers of entire subsystems: today their role continues to grow Another clear observation is adding service to service. More and more customers demand knowledge and training of the services. A one stop service or one stop solution is common in the industry. DIY stores in the USA are equipped with the cutting edge of this type of service, for example, a company wants to develop in the customers’ perception by dealing effectively with a situation leading to empowerment and consistency. It poses a challenge of service enhancement acting as a solution hub for their customers. The solution hub is provided by value activities and these activities are created through the business network. The distributors therefore offer different value added services based on the value creation chain, as shown in Figure 6. The characteristic of value added drives the largest possible wedge between costs and differentiation (Brandenburger and Nalebuff, 1996). In Figure 6, there are six areas that can be value added for the electronic component distributor (Sullivan, 2001). They are: 3_So 26/1/06 6:37 pm Page 52 52 H.W.T. So,A. Gunasekaran andW.W.C. Chung delivery and logistics: JIT delivery, electronic order tracking, and third-party • logistics/support/collaboration • materials: auto replenishment, in-plant stores and inventory forecasting • product enhancement: bar-coding, kitting, tape and reeling and programming • electronic commerce: online pricing and availability of data and online ordering • technical design: product training, seminars and ﬁeld engineering support • assembly: cable and harness, connector, board and switches. Figure 6 Three options of value-added business for distributors It can be seen that the value of the distributors is adaptive to the changing environment for their customers globally (structural capital and customer capital). It is interoperate with inter-ﬁrm adaptation to collaborate to handling with the changing environment. According to Easton and Rothschild (1987), adaptation refers to the long-term changes in technology or markets. The distributors’ aim is to decrease the time-to-market, adjust the breadth of change and the effort to get the change (performance requirements) by inter-ﬁrm collaboration and adaptability to the challenge business environment in the business network (partnership capital). Outsourcing is a clear overall driver here and the distributors have an opportunity to leverage their skills and expertise (human capital) to take a piece of the opportunity. The challenge will be not only to provide the best service, but also to do so with a competitive cost structure.There are many elements of the service tie-in (structural capital) and also serve as a creditor for the customers (ﬁnancial capital). Distributors know exactly what their customers are demanding and build part of the structures for their customers and are responsive to their customers (positioning in the 3_So 26/1/06 6:37 pm Page 53 A development of business agility enterprise model for competitive advantage53 supply chain management). For instance, it could be difﬁcult for distributors to compete on price in a services model that does not include parts, when the distributors continue to be burdened by the parts-related overhead of its traditional warehousing model. If distributors do not succeed with such service strategies, they should continue as viable businesses, in our view. They could possibly realise modestly better pricing and margins over competitors toward small- and medium-sized customers. 5.2 Technological capital – technological supply chain management In the previous section the value added services provided by the electronic component distributor, offered design support, material planning, inventory management, programming and assembly services, and a comprehensive suite of online supply chain tools highlighted the range of the services. Their mission is to represent the chosen suppliers by assisting their customers in the design, manufacture, and use of electronic products from concept through production – globally and profitability, most of applications are interoperable through the technological supply chain. Figure 7 shows the conceptual diagram. Figure 7 Technological supply chain management Distributors are opportunistic aggregations of small units from sub-system manufacturers, OEMs and component manufacturers that come together and act as though they were a larger, long-lived enterprise. Now they are part of the supply chain to fulﬁl customer needs through the technologies of EDI and extranet. The capability to forge stronger technological supply chain alliances through sharing information and services in the supply chain to drive down costs and delivery times is critical to the success of business agility enterprise development. 3_So 26/1/06 6:37 pm Page 54 54 H.W.T. So,A. Gunasekaran andW.W.C. Chung 5.3 The process owner in structural capital and human capital The left hand side in Figure 8 shows the traditional organisational structure, which is a departmental hierarchy structure. However, in the future business agility enterprise, it is redesigned to be the structure with a process owner totally accountable for the key process. They are organised in groups of related activities that together help run the business and create customer value. They are not new names for traditional departments or groups of people. The focus is not on individual units of work, but on an entire group of value creating activities effectively brought together internally and externally. To demonstrate the importance of the process owner, let us take an example of the technical design service offered to the OEMs and sub-system manufacturers by the electronic component distributor. Figure 8 Future structural and human capital in business agility: process owner In today’s highly competitive environment, with new products being introduced at a rapid rate, being ﬁrst to market with your product is more important than ever. At the same time, however, thousands of new components are being introduced each week, making it increasingly difﬁcult to be sure your design contains the latest in component technology. Product development can also be broken down into three major stages; the discovery, design and implementation stages as shown in Figure 9. Figure 9 Design cycle for the process chain The discovery phase is where the engineer reviews the requirements and decides how he or she should go about designing the product from the overall architecture to the key components used on the design. Or as one engineer said ‘this is the phase where the engineer does the thinking in his head’. 3_So 26/1/06 6:37 pm Page 55 A development of business agility enterprise model for competitive advantage55 Engineers, therefore, need a solution that gives them access to the most current technology information, enabling them to validate their design concept early in the research of a new product – the ‘discovery’phase – and avoiding design mistakes that can cost substantial time and money later in the design process. Then, after the design stage, the implementation can be done through the design cycle. However, there are roughly 1,000,000 active components in circulation at any given moment, with almost 1000 new parts introduced into the market, and as many parts discontinued each week. This ﬂood of components to the market has led to confusion and frustration for many manufacturers. Everything the engineer does in the discovery and design phase are carried forward to the other stages and can have a positive or negative impact depending on how well this phase is carried out. Insufﬁcient discovery and design can lead to development using incompatible, outdated or expensive components and can cause the implementation of product design to be too slow or expensive and not meet market demands. Distributors evaluate the design cycle process. Then the process owner, who cooperates with partners, employees and suppliers (partnership capital), offers the design process value service to their customers as a networked organisation. Distributors understand that the completeness of the database is essential to the power of the company. They have a database group of engineers building up their database that includes hundreds of thousands of components and reference designs the majority from suppliers and some working inside their companies (intellectual property capital and human capital). It is a virtual platform (technological capital) through the internet to help all the parties to co-create the winning experience.The process owner is responsible for the ﬂow, so as to create a tool for the customers available to simplify and helps in the discovery and design stages to shorten the design cycle and in terms faster time to the market. The whole cycle time is measured for the success of the process owner. This uniqueness of business process owner increases the business agility of the company. The uniqueness of co-creating the customer experience is also important to drive customer satisfaction of the winning experience. The process owner also needs to be innovative and to manage different knowledge from their suppliers to build an effective platform to keep a database which is up-to-date with the fast changing nature of the electronic component industry (intellectual property capital). Distributors cultivate an organisational culture within its research and development (R&D) function focused on personal performance and accountability. The challenge is to align individual performance with organisational objectives to improve business results, and to restructure the organisation accordingly. In addition, the distributor’s ability to draw on broad and deep global resources to quickly deliver innovative solutions made it a natural partner for industries. It can achieve both the auto- and ﬂexi-adapt at the same time and these productivity and adaptability gains are sustainable in the long term. 6 Discussion Drucker (1994) is very clear as to what sort of organisation will copy. Each will have to have four abilities: the ability to create the new, the ability to exploit developing new applications, the ability to build into its culture continual innovation, and a structure that is decentralised. Handy (1994) is also sure that little changes can make the biggest impact on our lives, and some of the things we think are going to make a huge impact don’t. He is 3_So 26/1/06 6:37 pm Page 56 56 H.W.T. So,A. Gunasekaran andW.W.C. Chung telling us that we are therefore going to be in a world of continuous surprise as so many ideas emerge from the new world of technology. If the organisations which we are part of do not think in radically different ways, we will be left behind wondering. It’s true that companies have to be agile to compete effectively. Implicitly, agility is about improving the response time for managerial action, especially the opportunity and proﬁtability action. Business agility is how the company reduces the time, the range, the ease of response to the market and achieves proﬁtability and a competitive advantage. We suggest that there are two basic building blocks of business agility enterprise. They are at the heart of this issue: architecture business and infrastructure business. Business agility enterprise is based on the requirements to build business agility in response to the customer’s needs in terms of co-creating value experience and positioning of the supply chain, which can monitor, learn, feedback, ﬂexi-adapt and auto-adapt to the different types of change. The case of the electronic component distributor leaders has the ability to win orders from the top brand OEMs. The key characteristics driven by the value creating activities, based on the architecture business and infrastructure business, including a signiﬁcant technology lead, economics of scale, a strong balance sheet and the right management in place are listed in Table 1. Table 1 The six key characteristics in the context of architecture business and infrastructure business for electronic component distributor competitive advantage Key Architecture business Beneﬁts characteristics and infrastructure business Scale Customer capital Beneﬁts of scale include being large Structural capital enough to maintain a strong competitive Technological capital position. Other beneﬁts include earlier access to new technologies and ability to minimise purchasing component costs. Technology Intellectual capital Technological changes help companies Technological capital to reduce production costs and move-up the value chain earlier through differentiated products. Companies without technology property can license from others and compete on price at the expense of margin. Technology supply chain is one of the key success factors in technology application. Customer base – Customer capital It is important to have a blue chip the importance of customer base that is diversiﬁed by diversity product and geography. From a product perspective, strength in specialised, higher margin products is important. Geographically we believe it is critical to be exposed to the top global OEMs. 3_So 26/1/06 6:37 pm Page 57 A development of business agility enterprise model for competitive advantage57 Table 1 The six key characteristics in the context of architecture business and infrastructure business for electronic component distributor competitive advantage (continued) Key Architecture business Beneﬁts characteristics and infrastructure business Vertical integration Partnership capital Integration beginning with the customer boosts production in the form of cooperative R&D is a efﬁciency signiﬁcant advantage because companies receive development design for new models well ahead of other players globally. Short lead-time capability is another critical factor. Management is key Human capital Another key success factor is management Structural capital with a proven track record, the ability to do business outside the home market and superior strategic decision making. Management’s ability and willingness to articulate a clear plan of attack with measurable metrics is also important to competitive advantage. Financial strength Financial capital Companies with strong balance sheets will be best positioned to become long-term winners. Business agility enterprise is not just about reacting to a decision scenario created by an external or internal event. It is the ability to react with best practices embedded in current business processes. It builds the key characteristics of the business agility enterprise and proactively evolves new business models through the redeﬁning position in supply chain management and the co-creating experiences of all parties in the dimensions of architecture business and infrastructure business. It is shown that achieving a competitive advantage through agility requires the right mix of agile business structure and process (structural capital), reliable partners (partnership capital), better customer relationship (customer capital), sound financial position (financial capital), better brand and image (intellectual property capital), agile people (human capital) and agile technology (technological capital), all working in equilibrium. 7 Conclusions The need for agility has been with some businesses for many years; it is not a new need at all. However, it is becoming more of an important factor and for more and more businesses. Business agility is different from other management techniques, like lean manufacturing and activity-based management. Business agility is an essential strategy for some enterprises where the market need moves unexpectedly, technology developments are rich or some unexpected events could be fatal. A new business agility 3_So 26/1/06 6:37 pm Page 58 58 H.W.T. So,A. Gunasekaran andW.W.C. Chung model is required to build the agility of the business. Business agility is the ability to know the opportunities and react to market needs, leading to proﬁtability and competitive advantage of the company. The business agility model is an interconnected model in a network structure. The organisation has to rethink their position in supply chain management (architecture business) and co-create value experiences for all partners (infrastructure business) to build the entire business agility in the enterprise. The two businesses are further decomposed to different capitals of structural, technological, partnership, human, customer, ﬁnancial and intellectual property. Companies are forced into continuous measures of actions to reach their goal of sustainability and long-term successful development. 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