The Shifting Industrial Landscape
Ask typical U.S. executives about the global economy, and they'll think offshore outsourcing because so many companies have used it to shave costs and operating expenses. But in the larger, emerging global economy, efficiency and cost savings alone won't yield a sustainable competitive advantage. In the future that will come from a capacity to work closely with other highly specialized companies around the globe to get better faster.
Ask typical U.S. executives about the global economy, and they'll think offshore outsourcing because so many companies have used it to shave costs and operating expenses. But in the larger, emerging global economy, efficiency and cost savings alone won't yield a sustainable competitive advantage. As we describe in our upcoming book, The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization (Harvard Business School Press, April 2005), sustainable competitive advantage in the future will come from a capacity to work closely with other highly specialized companies around the globe to get better faster.
To reach this goal, companies in all industries and of all sizesenabled by what we call global process networkswill have to undergo a three-stage transformation: deepening specialization within the enterprise, mobilizing best-in-class capabilities across enterprises, and, ultimately, accelerating learning across broad networks of enterprises. IT will help companies navigate this migration path. In particular, as we've written in Optimize previously, the convergence of service-oriented architectures (SOAs), virtualization, and interaction tools such as social networks will be especially important. Companies will use these tools to coordinate resources on a global scale and provide a robust platform on which to quickly build new capabilities.
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What's involved is nothing less than a dramatic shift in the rationale for the modern business organization. Existing theories will be challenged by a new, dynamic view that incorporates accelerated capability building and a deepening of the talent pool. Of course, product and financial markets will still matter, but the center of gravity for value creation will inexorably move to talent markets.
The groundwork for these changes is already being put in place in the form of global process networks, an innovative way to flexibly mobilize specialized capabilities on a global scale. These networks take an end-to-end view of business activity that extends well beyond the traditional boundaries of an individual enterprise. For example, most companies today focus on the challenge of coordinating activity with their first-tier suppliers and distribution channels. But few have developed the skills needed to reach beyond this tier and coordinate the sourcing of raw materials to their final delivery.
In fact, most companies have dealt with the complexity of managing extended operating processes by simply reducing the number of business partners and, where possible, encouraging the remaining partners to co-locate their facilities for mission-critical business operations such as manufacturing, distribution, or product development. These approaches reduce operating costs and compress cycle timesfor example, in the automotive industry, which has seen significant restructuring over the past several decadesbut the benefits come at a high cost. Companies that work with fewer business partners generally must compromise on access to specialized skills.