Purchasers as Change Agents: Supply Leadership in the "Borderless Organization"
Dr. Dr. habil. Ulli Arnold
Dr. Dr. habil. Ulli Arnold Professor of Industrial Marketing and Supply Management, University of Stuttgart, www.uni-stuttgart.de/UNIuser/liub/, Stuttgart, D-70174, 711/121-3161, firstname.lastname@example.org.
Eberhard E. Scheuing, Ph.D., C.P.M., A.P.P.
Eberhard E. Scheuing, Ph.D., C.P.M., A.P.P., NAPM Professor of Purchasing and Supply Leadership, St. John's University, New York, 718/990-6770.
83rd Annual International Conference Proceedings - 1998
Abstract. Dramatic marketplace challenges and shortening life cycles have been forcing companies everywhere to engage in time-based competition. To become ever more agile and flexible, they have been increasingly outsourcing engineering and manufacturing activities to outside suppliers. They have redefined their role from being self-sufficient to providing the leadership focus for business ecosystems that combine the resources and capabilities of several participants into a synergistic whole. While outsourcing non-core activities has made them more dependent upon their external partners, it also has enabled them to respond more quickly to customer demands. As closer links are forged between the ecosystem participants, boundaries between them blur, and the end product manufacturer becomes a "borderless organization". Bringing about this change and providing leadership to the network of value partners is the new role of purchasers.
Purchasing and Time-Based Competition. Turbulent environments, shifting marketplace forces, demands for a greater variety of customized goods and services, and accelerating technological change are all challenging purchasers' ingenuity and adaptability. Two key trends, in particular, demonstrate the significant changes that lead to intensifying competition:
First, product life cycles continue to shorten. For example, Intel's 80386 PC processor chip has a market life of eight years. In contrast, the market life of the original Pentium processor has been projected at less than six years.
Figure 1: Time-based competition (Bullinger/Wasserloos 1990, p. 16)
Second, product engineering and testing have become more costly. Opel, the General Motors subsidiary that is responsible for markets outside of North America, implemented a global testing program to meet customers' demands all over the world. In testing the new Vectra model, Opel completed more than eight million test kilometers. The engineering phase tends to grow.
These two trends show the paradox of "time-based competition" (see Figure 1). Companies must obviously avoid situations where engineering time exceeds the market life of a product. Agility - the ability to respond quickly to the changing demands and opportunities of the marketplace - will increasingly become a core competency for purchasers and their employers alike. From an individual organization's perspective, agility is characterized by two key dimensions:
Internally, rigid functional separation and hierarchical structures are replaced by interdependent groups working together on cross-functional teams. Regarding each other as internal resources and clients, they relate to and support each other in a professional, market-oriented manner. We label this ability to combine individual employees' capabilities in ever-changing ways the principle of resource modularity.
Externally, supplier knowhow and capabilities can synergistically complement an organization's internal talent and technology mix to help shorten time to market and strengthen competitive advantage. Toward this end, supplier partners become involved early in new product processes and engage in concurrent engineering, providing solutions instead of parts. We call this strategy of integrating selected suppliers into the value-creation process the principle of resource linking.
In recent years, a number of management concepts have been used to adress the challenges of time-based competition (see Figure 2). Restructuring aimed to increase efficiency by reconfiguring organizational units. Reengineering added the process dimension to strengthen customer benefits. To move beyond reengineering, an organization must rethink its business by focusing on its core competencies a leveraging supplier contributions to efficiently supply real value to its customers.
Figure 2: From restructuring to re-thinking
Applying Resource Modularity: The Center of Excellence Concept. As an organization works on strengthening its agility, it evolves from a bureaucratic-hierarchical structure of independent units into a dynamic combination of interdependent resource modules. Major characteristics of these new ecosystems are a strong process orientation and value-driven coordination.
Three types of resource modules make up the new ecosystems:
- Leadership modules are broad-based talent groups that provide vision, drive, and competitive advantage to the ecosystem's resource combination. They are the strategic thinkers who orchestrate internal and external resources and energize their cooperation for mutual benefit.
- Competency modules are groups of expert professionals who excel in their respective fields and join forces to constitute one of the ecosystem's key competencies. Traditionally based on functional specializations, such as engineering, manufacturing, purchasing, and marketing, these groups increasingly cross functional boundaries to focus instead on joint process ownership and problem solving.
- Shared service modules are groups that enable the other two types of modules to function smoothly and aggressively by offering a broad spectrum of administrative support activities, ranging from human resources to bill payment.
Substantially based in the purchasing competency module, today's purchasers can and must deploy their talents to upgrade their group's role from that of a cost center to a center of excellence which serves as a prime source of their organization's competitive advantage in the marketplace (see Figure 3). The three center types can be described as follows:
Figure 3: Resource Modules/Centers Matrix
- Cost centers are units of an organization that incur costs but contribute little recognizable value to its marketplace success.
- Profit centers are units that produce measurable bottom line impact but contribute little to the long-term success of the organization.
- Centers of Excellence are units that serve as sources of lasting competitive advantage and future growth of an organization.
In this context, purchasers must draw on their unique competencies to become centers of excellence and provide leadership for their organizations to help them move toward the goal of integrated ecosystems. They must move from their traditional support services role beyond recognition as botton line contributors to strategic contributions as expert leaders.
Applying Resource Linking: Creating Borderless Organizations. As an organization's leaders examine the objectives and success of its marketplace participation in today's turbulent environment, they inevitably and repeatedly must address the issue of optimal resource combination. In which instances and for what reasons are external resources preferable to internal ones? When and how should the two be used in combination with each other? Inasmuch as no organization can ever be an island to itself, to achieve maximum agility and lasting marketplace success, its leaders must strive for value-driven, ever-changing combinations of internal and external resources. As borderless organizations emerge, suppliers become integral parts of modern business ecosystems through systems integration, joint development, and gainsharing.
As Figure 4 illustrates, to succeed in the 21st century, organizations need to migrate from hierarchical structures to virtual networks of capabilities which we call borderless organizations.
- Hierarchical organizations are internally focused traditional mass producers of standardized goods and services who use external vendors to deliver specified parts.
- Center organizations are internally focused but use process orientation and leveraging of internal resource modules to generate some marketplace differentiation.
- Strategic alliances are resource combinations employed by progressive organizations that prominently include contributions by external suppliers who participate in joint value creation over the long term.
- Borderless organizations are highly flexible, virtual networks of internal and external resource modules for maximum mutual and customer benefit.
Figure 4: Creating Borderless Organizations
It is all but impossible and, in fact, rather undesirable to define organizational boundaries in the ever-changing resource combinations that characterize borderless organizations. Supplier and customer organizations employees readily work for extended periods of time on each others' premises, continually and openly share information, and readily contribute to each others' success.
Evolving Roles: Purchasers as Change Agents. The borderless company represents a fundamental change in the nature of supply leadership. Purchasers not only contribute their own competencies to the new ecosystems but also assume important leadership roles in choreographing the ongoing involvement of supplier partners as external resource modules. The traditional adversarial perspective between purchasing and an organization's suppliers has long given way to a cooperative stance that selectively and continually draws on supplier capabilities to complement internal value-creation processes. As supply leaders, purchasers are in a unique position to span organizational boundaries between firms and match internal requirements with external offers from supply markets.
In the new borderless organizations, purchasers assume the role of change agents by proactively driving change rather than falling victim to it. Due to forever evolving market forces and technologies, change is inevitable and necessary. By anticipating future conditions and opportunities, purchasers can and must lead change processes that creatively link external and internal resource modules in everchanging combinations. By doing so, supply leadership serves as the organizational catalyst that energizes the new ecosystems' agility. In the constantly permutating configurations of external and internal resource modules, the make, buy, or lease decisions of the past assume new urgency and meaning. As external and internal resource modules compete for participation in value-creation processes, purchasers serve as arbiters and umpires of external and internal teams' potential contributions and roles. Forever scouting and scouring the dynamic capabilities of current and potential suppliers, purchasers bring value to both their employers and supplier resources.
All this means that not only must organizations and their linkages to suppliers evolve, but so must the purchasers themselves. From bureaucratic controllers, they must transform themselves into visionary leaders, in the process developing new skills and abilities. In a recent article on the anthropology of supply chains, Price has presented a framework that can be used to capture and depict the emerging role of purchasers as change leaders.
Four basic organizational settings form the cells in Price's model which is shown in Figure 5. Bureaucracy is the traditional hierarchical organization while market includes the normal external relationships to supply markets which are dominated by spot transactions. All traditional purchasing roles are located between bureaucracy and market.
Figure 5: Traditional purchasing roles
Price defines the four traditional purchasing roles as follows:
- Commercial gatekeepers control the flow of information to and from suppliers. In this role, purchasers feel exclusively responsible for direct contacts with suppliers.
- Resource investigators examine the supply market in terms of technical and commercial aspects.
- Legal bureaucrats draft comprehensive contracts to cover all possible legal dimensions of a commercial relationship.
- Poker players try to bluff suppliers and haggle for a good deal by concealing their hands.
As they have increasingly moved away from these old-fashioned and rather limited activities, purchasers have broadened the scope of the contributions to new organizational settings (see Figure 6). A fief is a social organization composed of a small group of people who believe in common values. They work and communicate face-to-face and form the strategic core of the borderless organization. As this core expands to include people from overlapping organizations (i.e., suppliers), a clan is formed that encompasses members with shared objectives and values.
With the emergence of fiefs and clans in borderless organizations, supply leaders redefine their roles by forming interorganizational resource combinations:
- Negotiators displace poker players.
- Anthropologists are responsible for understanding the norms and values of suppliers and orchestrating them with those of their own organizations. They create resource networks with compatible cultures.
- Professors stimulate organizational learning processes in supplier relationships by forming interorganizational teams.
- Witch doctors articulate and clarify the vision and mission of the new borderless organization to its supplier members and integrate them into the resource network of the new ecosystem.
- Strategists identify and manage positions within the new borderless organizations and act as strategic hubs of the networks.
Figure 6: New purchasing roles
As part of a multi-country study, we compared purchasers' perceptions of their organizational roles in Germany and the U.S. In both countries, managers plan to hire more strategically oriented purchasers. Compared to their German counterparts, American companies place a somewhat greater emphasis on training in strategic purchasing. In the future, purchasing professionals in both countries will focus on strategic activities while delegating transactions to internal clients and suppliers.
Conclusion. Time-based competition dramatically changes marketplace dynamics. Borderless organizations achieve the necessary agility by combining resource modularity with resource linking. Supply leadership provides the strategic hub in this new network. To lead these new ecosystems, purchasers have to completely redefine themselves and their roles.
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