There are 10 really critical foundations to make a Virtual Enterprise Network a success: 1) Communities and Project Dynamic, 2) Network Ground Rules, 3) Group Membership Structures, 4) Practical Group Structures, 5) Complete set of Network Roles, 6) Appropriate Legal Frameworks, 7) Practical Exchange Model, 8) Viable Stakeholder Ecosystem, 9) Realistic Network Development Model, 10) Proven Development Road Map. This article offers an introduction to these ten foundations.]]>
1. Communities and Project Dynamic
A Virtual Enterprise Network (VEN) is a voluntary and dynamic community of SMEs that commit to working together for a period of at least six months (ideally, twelve months) to collectively seek opportunities to participate in collaborative projects of mutual business advantage. Each of these virtual enterprise projects involves a specific subset of members from the community and typically focuses on either winning new business contracts, implementing shared services (cost reductions) or new product adoption and development.
A symbiotic relationship exists between the VEN Community and VEN Projects. The community spawns the projects and the projects validate the community. If you have only the Community aspect, then eventually it will crumble as the only business outcome is networking. If you have only the Projects aspect, then eventually it will harden into a closed supply chain with no ability to attract new members or address new market opportunities
2. Network Ground Rules
Here are the main areas that Ground Rules must address:
1. What damages trust?
2. What destroys trust?
3. Conflicts of Interest, the most likely scenarios?
4. How will the information be shared?
5. Principles of Transparency versus Privacy
6. How will the issues and conflicts be resolved? Both Informally and Formally
7. How will the decisions be made? Day-to-Day, Operational and Strategic Topics
8. How will the new members be handled? Promotion, Selection, Induction and Mentoring
9. What sanctions will be employed and how will they be agreed upon?
10. On what basis will bid and project teams be constructed?
11. How will lead generation and business development be handled?
3. Group Membership Structures
There are typically four entry requirements for new VEN members:
1. Sign a Non-Disclosure Agreement
2. Commit a senior company director to active participation
3. Sign-up to the VEN Ground Rules
4. Be accepted by the other network members
All new members should be subject to a probation period.
Companies may also join the network as associate members if they do not wish to join (or are ineligible to join) as full members, or are fulfilling specific bid or contract roles, or as a first step to full membership.
4. Practical Group Structures/Governance
Experience shows that 6 specific work groups are typically needed in a VEN
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The first three groups concern the whole VEN community, whereas, the second three groups address specific projects and enterprises within the VEN:
1. VEN Board. This consists of representatives of all companies and sponsoring organizations. The board is responsible for overall network governance and strategic decision-making, and usually meets quarterly.
2. VEN Management Group. This typically has the same membership as the VEN Board, but typically meets monthly to discuss operational issues, whereas, the board deals with strategic issues and investments.
3. VEN Working Groups. Typically the VEN Management Group is too large and has too little time for meetings to deal with detailed issues. The best way to address this is by establishing smaller working groups for handling detailed VEN issues that typically include:
- Business and Market Development. Marketing the VEN to prospective customers. Defining, developing and researching the best VEN target sectors, collaborative offers and identifying opportunities.
- Network Development and Governance. Developing the VEN goals, objectives, ground rules, roles, working practices and technology and process infrastructures.
- Member and Capability Development. Increasing the VEN membership and member capabilities, and identifying, attracting and inducting new member companies.
4. Campaign and Bid Development Teams. Groups of VEN members who form teams around specific opportunities to engage prospective customers and make collaborative bids.
5. New Product Development Teams. Groups of VEN members who form teams around specific new product development opportunities and research projects.
6. Project Management Teams. Groups of VEN members who form teams to manage the execution of project contracts won by the campaign and bid development teams and also internal VEN projects.
5. Complete set of Network Roles
Six key roles are generally present in successful VENs
1. Architect. Qualify opportunities brought by the Brokers and others, and configure viable network supply chains that can win bids, satisfy the members and successfully deliver work to accepted quality levels and standards.
2. Brokers. Use their contacts and personal credibility to bring potential customer opportunities to the VEN, and manage these relationships during the bid process. A broker can also bring other opportunities such as research funding. In a sense, every VEN member should consider themselves as a broker, but there is also a need for dedicated brokers. Lack of a dedicated broker is one of the most common causes of a VEN's underperformance.
3. Coaches. Build Network Teams and Work Groups that trust each other, are able to surface issues and resolve conflicts, and effectively manage their commitments without having to be constantly chased.
4. Digital Technology Support. Train and support the network members in the effective use of virtual collaboration technology in the VEN and technically administer the network.
5. Executive Leader. Win the confidence of the other network members that their interests will be respected, attract new members, represent the public identity of the network and be the senior internal customer for all network activity.
6. Group Leaders. Lead workgroups in key VEN areas, described under VEN Workgroups in the previous section
NOTE: A Bid Manager will also be required if this role cannot be fulfilled by the Broker
6. Appropriate Legal Frameworks
A set of Model Contracts for VENs was developed by the EU Alive Project (IST 2000-25459) [20], that suggested generic but detailed guidelines and templates covering the pre-contract, contract and post-contract aspects of collaboration for businesses cooperating in virtual networks and clusters covering three instruments:
1. Letter of Intent (LOI). This is a pre-contractual bilateral agreement between a network business and the network "Business Integrator" used in the opportunity evaluation phase.
2. Memorandum of Understanding (MoU). This is an optional consortium agreement that can be used before a Virtual Enterprise Agreement is created, if it is particularly important to create clarity concerning the roles and IP.
3. Virtual Enterprise Agreement (VEA). This is a very detailed agreement between every member of the network and covering all aspects of internal relations (e.g. IP), external matters (e.g. future relationships and ownership of customers) and hybrid matters
Additionally if a VEN is to be a legal contracting entity then additional Legal Structures will be required. This will require specialized advice.
7. A Practical "Exchange Model"
This must address four key commercial elements:
1. Pricing/Costs: In supply chains bids, it is common practice for suppliers to add in extra overheads as padding, typically in the region of 15-35%, to protect their costs. When Supplier1 submits costs to Supplier2, Supplier2 also adds its padding factor to Supplier1's padding, and the result is "padding being padded." With typical supply chains running to five levels, it is very easy to see how this practice can make the final set of costs offered to end customer somewhat uncompetitive. VENs need to use pricing and costing models that are consistent with the objectives of commanding new markets.
2. Payment: In a traditional supply chains, the payment model is "trickle-down." The prime supplier gets paid, and then, and only then, will it pay its sub-suppliers, who in turn pay their suppliers. Unfortunately, this trickle-down approach can destroy the peer nature of a VEN because money is power and the suppliers higher up the chain control the payments to the smaller suppliers. Even worse, top-tier suppliers can withhold payments for reasons not related to the quality or timeliness of its suppliers work. VENs need to devise alternative payment models that, as much as is practical, result in all parties that have successfully completed their work get paid at the same time: One paid - all paid.
3. Liability and Risk: In a traditional supply chain, the customer holds the prime contractor fully liable and accountable. The prime contractor then uses back-to-back contracts to off-load as much of the liability as possible to its suppliers. This can lead to non-collaborative and combative behavior. For example, if the prime contractor is not careful, it may end up picking up issues that fall between the cracks - sometimes after all the other suppliers have been paid and are no longer under contractual obligation. On the other hand, a prime contractor may try to unfairly offload liabilities to a supplier for parts of the contract the supplier is not directly involved in or has no control over. A VEN needs to explore alternative mechanisms for creating joint accountability among all parties
4. Sustainability and Investment: In a supply chain, it's unusual for the suppliers to make any investments unless the customer or prime contractor "guarantees" the return on investment. For example, if a prime contractor encourages a supplier to buy a new machine, the prime contractor is expected to commit to keeping it busy for the first two years. In a VEN all parties need to be prepared to make investments on the basis of sound business analysis, but without any cast-iron guarantee of a return.
8. A Viable Stakeholder Ecosystem
The figure at the head of this article identifies the 5 major stakeholders who all need to be fully engaged and laigned to support the network:
- The VEN Core Companies
- The Big Players
- The Enterprise Support Bodies
- The Major Customers/End-Users
- The Research Institutes
9. A Proven Network Development Model
Successful networks need to navigate many stages before they reach sustainable commerciality - typically there are around 7 key development/maturity stages:
Selection - > Incubation -> Mobilisation -> Market Testing -> Viability -> Differentiation -> Commerciality
10. A Proven Development Road Map
Networks need a proven roadmap to ensure sufficient attention is paid to 3 critical types of activity
- Member/Capability Development
- Network Development/Governance
- Business/Market Development
For more details see my book The Networked Enterprise
About Ken Thompson
Ken Thompson is an expert practitioner in the area of bioteaming, swarming, virtual enterprise networks, virtual professional communities, virtual teams and management simulation and has published two landmark books:
Bioteams: High Performance Teams Based on Nature's Best Designs
The Networked Enterprise: Competing for the future through Virtual Enterprise Networks
Ken writes the highly popular bioteams blog which has over 500 articles on all aspects of bioteams (aka organizational biomimicry) - in other words how human groups can learn from nature's best teams.
Ken is also founder of an exciting European technology company Swarmteams which provides unique patent-pending bioteaming technologies for all shapes and sizes of groups, social networks, business clusters, virtual/mobile communities and enterprises. Swarmteams enables groups to be more responsive and agile by fully integrating their mobile phones and the web with bioteam working techniques.
The latest Swarmteams implementation is SwarmTribes which helps social object owners (e.g. musicians/bands, sports teams, film-makers) and good cause sponsors (e.g. Volunteering, Environmental, Public Health) to form unique collaborations with their fans/supporters for mutual benefit.
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