International Journal of Production Research

ISSN: 0020-7543 (Print) 1366-588X (Online) Journal homepage: www.tandfonline.com/journals/tprs20

A conceptual framework for enterprise

management

M. Binder & B. T. Clegg

To cite this article: M. Binder & B. T. Clegg (2006) A conceptual framework for enterprise
management, International Journal of Production Research, 44:18-19, 3813-3829, DOI:
10.1080/00207540600786673

To link to this article: https://doi.org/10.1080/00207540600786673

Published online: 06 Oct 2011.

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International Journal of Production Research,
Vol. 44, Nos. 18–19, 15 September–1 October 2006, 3813–3829

A conceptual framework for enterprise management

M. BINDER and B. T. CLEGG*

Aston Business School, Aston University, Operations & Information Management Group,
Birmingham B4 7ET, UK

This paper reports on the theoretical foundations and the practical reasons for
the increasing popularity of the enterprise management perspective. Theoretical
foundations are given that discuss vertically integrated, virtual and extended
enterprises in terms of endogenous and exogenous factors, and the tensions that
these create. An exploratory study in the German automotive industry using
inductive grounded theory was conducted, involving data collection via 28
semi-structured interviews with 16 companies and data validation via a
questionnaire survey receiving 110 responses from 52 companies. The research
delivers a conceptual framework to show how enterprise structures emerge,
depending on the prevailing type of core competencies that they use.
Furthermore, it proposes contingency-planning recommendations to facilitate
managing the change from one structure to another as the demands placed upon
the enterprise change.

Keywords: Enterprise management; Core competencies; Contingency planning;

Organizational design; Collaboration; Automotive industry

1. Introduction

Due to environmental changes such as globalization, outsourcing, and virtualization,

more and more companies are becoming involved in activities that are outside the
boundaries of the traditional company (a single autonomous legal entity). This is
typically achieved by entering into collaborative relationships or joint ventures.
Such collaborative relationships and joint ventures are referred to in this paper as
enterprises, and the management of them is known as enterprise management.
The European Commission (2003) defines an enterprise as ‘. . . an entity, regardless
of its legal form . . . including partnerships or associations regularly engaged in
economic activities’. Therefore, in its most simple form, an enterprise could be a
single integrated company. However, this research shows that enterprises can also be
made up of parts of different companies, and the structure of the enterprise is
contingent upon a variety of different factors. The success of the enterprise as a
collaborative venture depends on the ability of companies to intermediate their
internal core competencies into other participating companies’ value streams and
simultaneously outsource their own peripheral activities to companies that can

*Corresponding author. Email: b.t.clegg@aston.ac.uk

International Journal of Production Research

ISSN 0020–7543 print/ISSN 1366–588X online ß 2006 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/00207540600786673
3814 M. Binder and B. T. Clegg

perform them quicker, cheaper, and more effectively (Lal et al. 1995). In other
words, the peripheral activities of one member-company should be a core
competence of another member-company within an overall enterprise.
This paper gives an overview of a research project that aims to develop a
conceptual contingency framework to guide enterprise managers to make better
strategic decisions for the whole enterprise; it specifically aims to investigate suitable
enterprise structures for different collaborative settings based on the causality
between the prevailing type of core competence and the emergent enterprise structure.
An enterprise management perspective has been taken in order to elucidate current
developments in operations and supply change management from a relatively new
and novel point of view. It uses novel analytical units (the enterprise and its sub-units
known as enterprise modules) to give a fresh perspective to emerging issues and
provide practical guidance for industrialists who must build and manage enterprises.
Using inductive grounded reasoning, a set of tentative propositions has been
developed and validated that reveal some critical factors affecting enterprise
management. They have been consolidated into a single framework building on
empirical evidence from the German automotive industry and existing theory.

2. Literature review

A growing body of knowledge in the literature focuses on enterprises rather than on

the traditional operation and its supply chain. For instance, Hamel and Prahalad
(1994) acknowledged that ‘many industries move away from vertical integration
towards virtual integration’ (p. 210). As a result, inter-organizational structures such
as enterprises are becoming more significant (Fine 1998, Ketchen and Giunipero
2004). Some recent works discussing enterprises include:
. Browne and Zhang (1999) and Bremer et al. (2001), on virtual enterprises;
. Browne and Zhang (1999), Boardman and Clegg (2001), and Meixell and Wu
(2005) on extended enterprises.
Other scholars discuss the strategically influential members within these structures,
such as the:
. Hub firm (e.g. Seuring 2003, Dyer and Hatch 2004);
. Systems integrator (e.g. Boardman and Clegg 2001, Mills et al. 2003);
. Orchestrator (e.g. Brown et al. 2002);
. Navigator (Karlsson 2003).
This emerging work recognizes enterprises to be new inter-organizational types that
combine traditional operations and their supply chains. They result from alliances,
partnerships, and joint ventures. It also recognizes that these collaborative ventures
can be between either whole or partial companies, and often have a strategically
dominant member.
Strategists need to understand the significance of these new developments to be
able to construct an appropriate enterprise structure that contains the most useful
parts of the most suitable companies. Traditional supply-chain management
literature has been criticized for lack of guidance concerning this issue (Ketchen
and Giunipero 2004). In response, De Toni and Tonchia (2003) stress the need to
 A conceptual framework for enterprise management 3815

integrate the traditional outside-in view of a firm with its inside-out view. To address
this crucial issue, the enterprise management perspective deliberately builds upon
both exogenous and endogenous theories. Exogenous theories include competitive
rivalry (Porter 1980) and transaction-cost economics (TCE) (Coase 1937, Williamson
1975, 1990). Endogenous theories include competence theory (CT), which
encompasses the resource-based view (RBV) (Penrose 1959, Wernerfelt 1984), the
dynamic capabilities view (DCV) (Teece et al. 1997, Eisenhardt and Martin 2000),
and the competence-based competition (CBC) view of the firm (Prahalad and Hamel
1990, Hamel and Prahalad 1994). Endogenous-based approaches should be used to
complement and balance exogenous factors (Chandler 1962, Child 1972). However,
excessive focus on either approach is wrong, and a simple conceptual framework
combining them is currently absent from the literature (Fynes et al. 2005). To address
this deficiency, and provide new insight, one is proposed from the enterprise
management perspective.

2.1 An exogenous approach: transaction-cost economics

The conceptual framework given by Coase’s (1937) and Williamson’s (1975) seminal
work on TCE argues that firms are best seen as a nexus of contracts which must,
‘. . . align transactions (which have different attributes) with governance structures
(which have different competencies)’ (Williamson 1990, p. 13). This addresses the
fact that firms constantly need to change their structures based upon market
competition but fails to consider situations when suppliers are seen as partners in a
joint strategic relationship. Cousins and Crone (2003) address this weakness of TCE
by suggesting that firms must not only consider their competitive contractual
situation (e.g. make-versus-buy decisions based on transaction costs) but also
consider other strategic business issues such as developing their competence and
resource base. Despite this, a connection with the enterprise management literature
has still not been made.

2.2 An endogenous approach: competence theory

The competence base of a firm focuses on the internal resources of an
organization as defined by the RBV. It provides ‘understanding for how
competitive advantage within firms is achieved and how advantage might be
sustained over time’ (Eisenhardt and Martin 2000, p. 1105). Generally RBV
scholars assume that each traditional firm or company (i.e. a single autonomous
legal entity) can be conceptualized as a bundle of resources (Wernerfelt 1984).
Recently, the traditional RBV has been extended to include a dynamic dimension
(Teece et al. 1997, Eisenhardt and Martin 2000) and recognizes that the pattern of
the resource base varies over time. This has created the DCV of the firm.
This recognition, married with the idea that a firm’s competitiveness derives from
the ability to build and maintain competencies at lower costs more quickly than
competitors (Prahalad and Hamel 1990) provides the main principles of
competence theory (CT). Despite this, a connection with the enterprise manage-
ment literature has still not been made.
3816 M. Binder and B. T. Clegg

2.3 Balancing exogenous and endogenous approaches: contingency theory

Core competencies (an endogenous resource) are difficult to transfer because of
high transaction costs, dependence on tacit knowledge and high asset specificity
(i.e. exogenous barriers). Because of these factors, core competencies can usually
only be deployed effectively internally (Klein et al. 1978). However, firms may place
competence issues in front of organizational economics when deciding to engage in
collaborative ventures (Combs and Ketchen 1999) because decision-makers seek the
most appropriate organizational strategy given prevailing situational contingencies
(Watson 2003). This challenges the notion of ‘competitive advantage’ and suggests
that ‘co-operative advantage’ (Ketelhohn 1993) or ‘collaborative advantage’
(Dyer 2000) can sometimes be more suitable. This occurs when the minimization
of operational transaction costs has become a less significant factor than the gaining
of new external core competencies via the formation of new collaborative
organizational structures in an enterprise. In other words, to remain competitive,
new meta-core competencies need to be built alongside existing traditionally valued
competencies to help reconfigure operational competencies and organizational
structures on an increasingly rapid basis (Mills et al. 2003). This role is assumed by
the most significantly influential member of the enterprise.

2.4 Emergence of enterprise management

The above debate leads to an increasing emphasis on enterprises rather than on
traditional companies and their supply chains (Cousins and Crone 2003, Surana
et al. 2005). The authors of this paper argue that an enterprise engagement usually
occurs partially at a modular level with many different companies simultaneously.
To date, there has been little if any explicit identification of such partial multiple
enterprise structures and their evolution. This paper reduces this deficiency by
providing a conceptual contingency framework based on new empirical evidence.
A unique mapping tool was derived from the above debate to scope this study and
is shown in figure 1.
Enterprise structures that can be explored using this matrix include the virtual
enterprise and the extended enterprise. Davis and Spekman (2003, pp. 20–21) define
the extended enterprise as

‘the entire set of collaborating companies both upstream and downstream,

from raw material to end-use consumption, that work together to bring value
to the market place . . .. Members’ view that their destinies are interdependent.
This serves to separate the extended enterprise from other loose confederations
of buyers and suppliers’.

Byrne and Brandt (1993) define a virtual enterprise as

‘a temporary network of independent companies . . . linked by information

to share skills, costs, and access to one another’s markets . . . they have
an evolving corporate model that will be flexible enough to exploit a specific
opportunity’ (p. 38).
 A conceptual framework for enterprise management 3817

value stream
Collaborative activity:
_ _ _ _ _ _ _ ___ __ __ __ __ _ Process start Process end

Enterprise Environment: Stage 1 Stage 2 … Stage n

____ _____ ____ _____ ___
Enterprise module
high delivered by
Member 1 ‘member 1’ in
involvement ‘stage 1’ of the
value stream

Member 2
value
members

low Member n
involvement

Figure 1. ‘Enterprise Matrix’: a tool for mapping enterprise structures.

Browne and Zhang (1999) stress that extended enterprise and virtual enterprise
structures are complementary, where the purpose of the relatively stable extended
enterprise is to set up future speculative virtual enterprises. It is therefore critical that
the structure of the enterprise is appropriate for the evolutionary stage of the
enterprise.

3. Research methodology

The contemporary nature of the subject meant that an exploratory and qualitative
empirical approach was appropriate. This was based on inductive grounded theory
(Glaser and Strauss 1967, Strauss and Corbin 1990). Three distinct empirical phases
were employed: design, collection and analysis, and validation.

3.1 Design phase

The objectives of the empirical investigation were derived from the above debate.
Primary concerns identified are:
. strategic relationship building between value members in the enterprise;
. development and deployment of core competencies within the enterprise;
. management of operational transactions between different parts
(i.e. enterprise modules) of the enterprise.

3.2 Data collection and analysis phase

This methodology was deployed by conducting 28 semi-structured interviews
with 31 experienced managers in the German automotive industry covering
3818 M. Binder and B. T. Clegg

16 companies (four car manufacturers and 12 supplier firms) between December

2004 and March 2005. The research followed the recommendations of Eisenhardt
(1989) and Pettigrew (1990) by choosing cases that would potentially reflect extreme
situations to be observed. Interviews were therefore conducted in value members that
reflected different roles in the enterprise (e.g. car manufacturers (OEMs), system
suppliers, module suppliers, parts or components suppliers, and engineering service
providers).
Topics explored in the interviews were derived from the literature debate and
formed into a semi-structured interview guide that was used to structure the
interviews and enhance comparability (Bryman 2001). Topics included exogenous
aspects (such as the nature of the competitive environment), endogenous aspects
(such as development and deployment of core competencies), and collaborative
issues (such as strategic relationship building and the management of operational
transactions). The interviews (each lasting 1–2.5 h) were conducted face to face,
taped, transcribed, and validated to ensure the data were reliable and traceable
before proceeding with any interpretation (McCutcheon and Meredith 1993).
The codification of the data (310 transcribed pages) was done using the QSR
NVIVO 2.0TM software tool based on Strauss and Corbin’s (1990) theoretical coding
paradigm involving open, axial and selective coding in order to reach the necessary
conceptual density. It was applied at the intra- and inter-case level as suggested by
Strauss (1987). This took place between April 2005 and November 2005. A total of
237 initial codes for datum types emerged in an open coding approach. These were
subsequently condensed, aggregated, and clustered into 158 codes, 16 analytical
categories, and 19 sub-categories during axial coding leading to the formation of five
core categories during further selective coding:
1. industrial impact;
2. enterprise design;
3. enterprise management;
4. competence as main contingency factor;
5. enterprise competitiveness.

3.3 Data validation phase

The findings were summarized by developing a set of 35 tentative propositions based
on theoretical narratives that themselves are based upon the empirical codification.
The tentative propositions were validated using a questionnaire survey.
This strengthened the transferability, dependability, and conformity of the data
(Jick 1979). Each respondent was asked to assess the tentative propositions on
a 5-point Likert scale to indicate their:
. agreement (A): whether they agreed or disagreed with the propo-
sition (strongly agree ¼ 2, agree ¼ 1, neutral ¼ 0, disagree ¼ –1, strongly
disagree ¼ –2);
. importance (I): the importance of the proposition for daily business activities
(very high ¼ 5, high ¼ 4, medium ¼ 3, low ¼ 2, very low ¼ 1).
Additionally, some demographic data were collected (working experience,
company type, functional experience, responsibility level, etc.) to establish the
 A conceptual framework for enterprise management 3819

credibility of the respondent and facilitate comparability of the data.

Within 3 months 110 valid responses were received from 52 different companies,
with each respondent having an average of 11.27 years of relevant working
experience in the automotive industry. For a descriptive analysis of the data, the
central tendencies of responses for each tentative proposition were calculated based
on the numerical codification of the scales as shown above (Blaikie 2003). A synopsis
of the 20 highest rated propositions (as rated by the respondents) under each core
category is given in table 1.

4. Results in the context of enterprise management

In general, the respondents agreed with the majority of the propositions and
considered them to be topical. This provides supporting evidence that the academic
debate framed above has practical implications and needs to give further insight
to guide practitioners.
A cluster analysis (Ketchen and Shook 1996) was performed based on the
calculated means of the two measured dimensions Agreement (A) and Importance (I)
leading to the identification of three basic clusters. Propositions in Cluster 1 showed
a very positive Agreement (between 1 and 2, i.e. ‘agree’ and ‘strongly agree’) and a
high to very high Importance (between 4 and 5). Propositions in Cluster 2
predominantly showed a positive Agreement (around 1) and a medium to high
Importance (between 3 and 4). Propositions in Cluster 3 showed a neutral to positive
Agreement (between 0 and 1) and a medium to high Importance (between 3 and 4).
Analysis showed that enterprise management is generally regarded as an effective
instrument to maintain and achieve competitiveness for the whole enterprise
(cf. proposition #20) that is affected by a variety of exogenous and endogenous
forces (cf. propositions #1, #2, and #8). Managing core competencies is considered a
principle factor for achieving this successfully as the competencies determine the role
of the individual partners in the collaborative venture (cf. proposition #7) via the
value they are creating for the enterprise (cf. proposition #16).
Ratings for proposition #13 showed that in the early stages of collaboration
within an enterprise, competence development rather than transactional cost
optimization should be the primary focus as competence exchange (technical and
knowledge based) is a precursor to establishing effective operational transactions
(cf. proposition #9). In the opinion of the interviewees, this is best achieved by taking
a long-term strategic perspective (cf. proposition #10) and an intense integration
of partners at early stages of a project (cf. proposition #12).
Furthermore, the existence of a multiplicity of dynamic relationships within an
enterprise (cf. propositions #4, #5, and #6) requires a leader or coordinator who has
enough competencies to clearly define the boundaries and manage the interfaces
between the partners but also allow for a certain degree of autonomy within the
venture (cf. propositions #11, #14, and #15) to deploy competencies through
effective collaboration (cf. proposition #17).
However, despite all good intentions, analysis also showed that current practice
does not apply the necessary mechanisms for enterprise management to become a
reality. This is probably due to an adversarial approach to sourcing that still prevails
(cf. proposition #3).
 Table 1. Propositions and their validation.
3820

Core category No. Proposition Mean A Mean I Cluster

Industrial impact #1 Change in the automotive industry is driven by a 1.24 4.01 1

combination of internal company issues and general
industrial forces
#2 Increasing complexity, cost pressure and shorter 1.15 4.21 1
development lead times have led to more product
modularization
#3 Car manufacturers are changing their adversarial pricing
0.38 4.10 –
policies in supplier selection towards more collaborative
strategic sourcing policies
Enterprise design #4 Different relationships and collaborative practices exist for 1.21 3.47 2
different inter-company (car manufacturer and supplier)
projects in the supply network
#5 Relationships between companies in the supply network 1.18 3.68 2
change over time
#6 An individual company can collaborate in more than one 1.37 3.54 2
project within the supply network at the same time
#7 The role of an organization in the supply network is 1.23 4.21 1
determined by what competencies are offered by it
#8 Product modularization affects how a supply network is 1.18 3.94 1
M. Binder and B. T. Clegg

structured
Enterprise management #9 An inter-firm collaboration in the supply network is formed 0.87 3.76 2
on the basis of technical competencies and mutual
exchange of knowledge
# 10 Strategic and long-term thinking for the whole supply 1.42 4.19 1
network increases the chance of successful inter-firm
collaboration
# 11 The boundaries of responsibilities between collaborating 1.69 4.51 1
parties need to be clearly defined to deliver a successful
inter-firm project within the supply network
# 12 Early and intense integration of strategic collaborators 1.64 4.28 1
facilitates the successful delivery of a project
 # 13 At early stages of the collaboration process, competencies 1.06 4.13 1
rather than prices have to be measured and compared
# 14 There is the need for a coordinator and leader within the 1.30 4.13 1
supply network that has the competence to evaluate and
manage the interfaces
# 15 The co-ordinator of the supply network should have its 1.37 4.08 1
own core competencies and encourage those of other
organizations to participate
Competence as main # 16 The more advanced and unique a competence is the more 1.17 3.90 1
contingency factor potential value it can create for the supply network
# 17 Competencies can be deployed through collaboration with 1.06 3.73 2
other companies
Enterprise competitiveness # 18 The short-term motivation for inter-firm collaboration in 1.09 4.01 1
the supply network is to reduce cost and lead time
# 19 The long-term motivation for inter-firm collaboration in 0.93 4.10 1
the supply network is to improve quality and innovation
# 20 Establishing inter-firm collaboration is an effective way of 1.05 4.04 1
reducing lead times and cost
A conceptual framework for enterprise management
3821
3822 M. Binder and B. T. Clegg

5. A proposed conceptual contingency framework

In order to reduce this deficiency, the authors propose a novel contingency

framework and use the enterprise (emphasizing joint collaborations) and its modular
parts (allowing part-to-part relationships to be expressed) as units of analysis.
This was to give an insightful perspective.
The conceptual framework proposed assumes that each enterprise module is built
upon a particular highly specific core competence that belongs to an individual
company that gives part of that company a unique and valued proposition (e.g.
an in-house design and engineering specialism). The core competence should be
combined with other less specific resources (e.g. communication technology,
cooperative contracts, and shared processes) that are shareable across the enterprise
to form a structure with economically acceptable transaction costs. This requires
industrialists to overcome traditional thinking about internal sub-units being
functions and departments and think radically differently in terms of enterprise
structures and enterprise modules (its sub-units). This means connecting enterprise
modules (parts of a company) with enterprise modules owned by other companies
(parts of other companies). This is in order to create an enterprise structure that can
meet the demands of a rapidly changing industrial environment while still operating
within acceptable cost limits.
However, it requires tools to coordinate activities within the enterprise
(Hammami et al. 2003), such as the Enterprise Matrix shown in figure 1. The
Enterprise Matrix tool helps in identifying and mapping a suitable enterprise
structure for each collaborative activity through the allocation of value members to
process stages and tasks based on their value contribution. This is based on the
enterprise modules that consist of unique competencies and common interfaces.
This research suggests that an individual part of a single company (i.e. an
enterprise module) can be part of numerous different enterprises that operate quite
independently. For instance, if an organization has three separate products, one may
be produced within a vertically integrated enterprise structure, one in an extended
enterprise structure, and one in a virtual enterprise structure while drawing upon the
same core competence. It is therefore useful to perceive enterprises as consisting of
a nexus of semi-autonomous modules. Where each module is able to contribute value
to a number of co-existing enterprise structures simultaneously.
This research indicates that inter-organizational structures are indeed constantly
changing. Cyclical shifts from traditionally vertically integrated enterprises (Lynch
2003) towards virtual and extended enterprises have been observed. This change is
constantly reiterating and evolving, and tends to occur partially. Figure 2 shows the
cyclical evolution that enterprise structures tend to go through.
The results also suggest that these configurations are primarily linked to the
prevailing type of core competence present within the enterprise modules (perceived
in terms of factors explored by the 35 propositions).
For instance, if there is a prevalence of enterprise modules with low maturity and
high risk (which are endogenous factors), and untested market value (an exogenous
factor), then companies will be very reluctant to make long-term plans and
investments, and so arrangements will be temporary and spread risk over many
different companies—these are characteristics of a virtual enterprise. As the core
competencies of the modules employed become more mature, and the marketability
 A conceptual framework for enterprise management 3823

Extended Virtual
enterprise enterprise

Vertically
integrated
enterprise

Figure 2. Evolutionary configuration of enterprise structures.

of them becomes better proven, the number of member companies interested in

engaging with them will increase. Member companies will seek medium- to long-term
co-developmental strategies—these are characteristics of an extended enterprise. If
the strategy becomes an operational and financial success, there is often a more
permanent consolidation between the value members in the enterprise. These are
characteristics of a vertically integrated enterprise (or what most closely approximates
a traditional company or an autonomous single legal entity).
The results suggest that vertically integrated enterprises (VIEs), virtual enterprises
(VEs), and extended enterprises (EEs) are not, as some would believe, structures
resulting from completely different strategies. This research shows that they are
better thought of as a closed-loop continuum of the same collaborative strategy
(as shown in figure 2) and the emergent structure of the enterprise at any one time is
contingent upon the prevailing mix of endogenous and exogenous factors. It suggests
that a prudent balance of different types of enterprise structures, each at different
stages of evolution, should be present at all times. This ensures that the strategy is
both minimizing commercial risk (by having mature, established products made
in low-cost enterprise structures) while simultaneously encouraging innovation
(with new products being developed in relatively high cost newly formed enterprises).
The results suggest that the number of different types of enterprise engagements for
any one company is closely aligned with the number and sophistication level of their
core competencies embedded in enterprise modules (known as engageability).
This research assumes that core competencies are the most highly specific asset
and strategically significant component within an enterprise module and forms the
basis of its unique value proposition to the enterprise (e.g. an in-house design and
engineering specialism). It also assumes that a core competence alone is useless unless
it is supported by other less specific assets that are easily shared (e.g. communication
technology, cooperative contracts, and shared processes). These less specific
resources help to intermediate the enterprise module into a viable value stream
within an enterprise structure.
The conceptual framework considers core competencies as an enterprise-wide
resource rather than just an individual company’s resource. Enterprise management
discusses, among other things, how core competencies are designed and delivered
3824 M. Binder and B. T. Clegg

Current ‘engage-ability’ of a core

High competence in an enterprise Low
High Quadrant 2 Quadrant 1

enterprise–extended (EE) enterprise –virtual (VE)

Future potential ‘engage-ability’ of a core

• quasi-permanent
• lean and agile resource base
competence in an enterprise
• medium transaction costs
• medium asset specificity
• medium ability to integrate
• temporary and exploratory
• fragmented resource base
• high transaction costs
• high asset specificity
• low ability to integrate

Quadrant 3 Quadrant 4
enterprise–vertically enterprise–defunct
integrated (VIE)
• no active engagement
• potentially permanent
• either premature or dormant
• extensive resourcebase
• negligible amount of trading
• low transaction costs
• low asset specificity
• high ability to integrate
Low

Figure 3. Reference grid for enterprise management.

to an enterprise. The enterprise integrator then designs and manages appropriate

structures from these enterprise-wide resources. Enterprise management therefore
differs from traditional supply-chain management as it concentrates on simultaneous
inter-organizational design of product, process, and organization rather than
concentrating on the flow of products and services per se. Figure 3 represents
these observations in a reference grid which shows the prevailing current and future
type of core competencies and their engageability (ranked simply as ‘high’ or ‘low’).
In each of the quadrants, the best suited enterprise structure (extended, virtual,
or vertically integrated) is given with some of its key characteristics. Structural
appropriateness varies over time, depending on the prevailing contingency factors.
Based on Macbeth (2002), each of these enterprise structures (extended, virtual, and
vertically integrated) is considered to be a ‘dynamic equilibrium’, i.e. a period of
stability around which the activities cluster before flipping over to another structure.
The Reference Grid is intended to show a picture of how one enterprise structure may
change into another as a result of a changed predominance in the type of core
competence on which it is built. This is a two-way relationship, as the enterprise
structure will affect the development of future potential core competencies just as the
development and deployment of core competencies will influence the emergence of
enterprise structures. Figures 1–3 combine to form the new conceptual framework for
designing enterprises. This predominantly focuses on the causality between the
prevailing core competencies and the emergent enterprise structure. The contingency
planning aspects of the concept are discussed further, using examples, in the next
section.
 A conceptual framework for enterprise management 3825

6. Implications for industry

To explain how and why enterprise structures change using the Reference Grid
(shown in figure 3), examples are drawn from the interviews. A different example
is used to explain each quadrant, as this has been a cross-case study rather than
a longitudinal study.

6.1 Quadrant 1
Innovation is often brought about as a result of a collaborative venture in an initially
temporary and flexible virtual enterprise structure using highly specific but untested
and hence risky core competencies. Arrangements will be temporary and the risk
spread over many different companies.
For example, BMW use a virtual enterprise structure for highly innovative
technologies in the early stages of a joint product development process to increase
collaboration with small and medium sized companies perceived as being innovative.
This happened in the case of BMW’s i-drive navigation system, where one small
company identified the technology, another company developed the initial concept,
and another partner conducted the industrialization of the production-ready
product. All the partners were co-ordinated within an enterprise. The structure
of this joint venture had the features of a virtual enterprise.

6.2 Quadrant 2
Once the proof-of-concept point is passed, and competencies have matured, the
partners who own them seek closer connection with partners in a similar situation.
At the same time, such partners seek to eliminate any non-critical or unsuccessful
members. The remaining members try to establish a more stable, connected, and
long-term venture in order to begin to lower transaction costs. The structure of
such a venture has the characteristics of an extended enterprise.
For example, VW is re-designing the structure of its product-development
process using so called ‘Project Houses’ (an enterprise module); these are totally
autonomous but wholly owned subsidiaries of VW that compete directly with
external suppliers for future development. Successful models such as the Golf or
Passat each have a VW ‘Project House’ and an external supplier competing for the
business to develop new derivative models. This gives VW the option on a fair and
planned basis to re-intermediate their position in the value stream for any particular
venture. The final decision on who wins the business is primarily based on
maximizing strategic advantage, and second on minimizing transaction costs.
This is a decision that only VW as the enterprise orchestrator can make.

6.3 Quadrant 3
If re-intermediation occurs, then structure of the enterprise now has the features of a
vertically integrated enterprise. Market viability should be well established, previous
high-profit margins experienced by the early movers will have begun to erode, and
the remaining value members may seek whole ownership of assets on which they have
become interdependent. This can mean a quest to establish a vertically integrated
3826 M. Binder and B. T. Clegg

enterprise structure (or what most closely approximates a traditional company or

autonomous single legal entity).
For example, complete integration happened in the case of the engineering service
provider IVM. IVM was recently acquired by the Edscha Group (a large systems
supplier that specializes in convertible roofs) so that IVM’s research and
development competencies could be deployed internally with lower transaction
costs. Alternatively, the enterprise orchestrator may decide that mature core
competencies should be engaged in new joint ventures and form new virtual
enterprises of the future (and the evolutionary cycle begins again). This could
increase the Edscha Group’s potential to rise towards the role of an orchestrator
themselves in the future by becoming more influential.

6.4 Quadrant 4
No plans are made to have joint ventures that fail and form defunct enterprises.
Contingency strategies for avoiding this scenario have not been covered in this
research (but would be useful to cover in future research).
Figure 4 puts the cyclical change in enterprise structures (from figure 2) and their
contingency on the prevailing type of core competencies (from figure 3) together,
giving a simple unified view of planning strategies for enterprise design and
management. The planned changes to enterprise structures are summarized in
figure 4a, as this shows the most appropriate structure for the prevailing type of core
competence. Such actions are largely due to controllable endogenous factors.
Unplanned reactive actions are depicted in figure 4b. These contrast with those
shown in figure 4a as they are predominantly caused by adverse and uncontrollable
exogenous factors.

Current ‘engage-ability’ of an enterprise Current ‘engage-ability’of an enterprise

(a) module in an enterprise (b) module in an enterprise
High Low High Low
Q2 Q1 Q2 Q1
Future potential ‘engage-ability’ of an
Future potential ‘engage-ability’ of an

enterprise module in an enterprise

enterprise module in an enterprise

High
High

Extended Virtual Extended Virtual

Enterprise Enterprise Enterprise Enterprise

Vertically
Low

Vertically
Low

Defunct
Integrated Integrated Enterprise
Enterprise Enterprise

Q3 Q4 Q3 Q4

Figure 4. Reference grid: (a) proactive planning; (b) reactive planning.

 A conceptual framework for enterprise management 3827

7. Summary and conclusions

This research has proposed a conceptual framework for the design and management
of an enterprise based on contingency planning of an enterprise (not the traditional
operation and its supply chain). This has enabled the unification of endogenous
and exogenous theories of the firm in a pragmatic way substantiated by new
empirical data from the German automotive industry.
In summary, the conceptual framework characterizes different types of enterprise
structures assumed to be built from enterprise modules originating from a variety of
different companies. At the heart of each of these enterprise modules is a highly
specific core competence asset (e.g. new proprietary technology or superior
knowledge) that is complemented by other less specific assets (e.g. shared
information or process technology) that enable the core competence to be used
effectively. Four different types of enterprise structures and four different types of
core competencies have been parsimoniously characterized and a two-way causality
proposed between each respective pairing. Core competencies with:
. low current but high future engage-ability are associated with virtual
enterprise structures;
. high current and high future engage-ability are associated with extended
enterprise structures;
. high current but decreasing future engage-ability are associated with
vertically integrated enterprise structures; and
. low current and low future engage-ability are associated with defunct
enterprise structures.
The authors do not claim that all enterprises follow this behaviour. Neither is it
claimed that a deterministic relationship exists between enterprise structure and the
prevailing type of core competence. It is only claimed that a probabilistic causality
exists and that behaviour is driven by a combination of exogenous and endogenous
factors. This research is limited by its predominant focus on core competencies as a
contingency factor affecting enterprise. However, these findings are part of ongoing
research that will further validate the groundings of the framework and the
implications for contingency planning via a series of industrial workshops.

Acknowledgements

Extensive thanks to all the companies and interviewees from the German automotive
industry who have contributed to this research. For reasons of confidentiality, the
majority of the companies and interviewees wish to remain anonymous.

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