Organizational Forms of Innovation: The Network Enterprise


Organizational Forms of Innovation: The "Network Enterprise"

It is this set of structural conditions that largely accounts for the ascending importance of intangible organizational corporate assets in the process of value creation (Lev, 2001). The growing importance of intangible assets can be appreciated in historical perspective. For much of the early 20th century, multinational firms were domestic firms organized internationally on the basis of a structure of subsidiaries that were operating quasi-autonomously within territorially defined institutional jurisdictions. During the closing decades of the 20th century, multinationals tended to become increasingly organized on a global basis that was defined by product and service lines. More recently multinational corporate strategies are geared toward the development of structured relationships between companies operating in different sectors, markets, and institutional environments. In the emerging context, it is alliances, joint ventures, know-how agreements, and minority stakes that are becoming the critical components of innovation strategies. At the same time, the organizational topology of the operations of multinational firms spans diverse institutional and regulatory structures of global reach. This means that the critical tasks of management are becoming balancing acts of conflicting demands between short-term profitability and long-term strategic growth made by the modern corporation's stakeholding constituencies: shareholders, i.e., financial markets, especially institutional investors and pension funds, customers, knowledge employees, and communities (Drucker, 2001).

The growth of the strategic importance of intangible assets can be understood as a shift that places increasingly higher value on the information assets, or more correctly, knowledge assets of corporations. The differentiation of information from knowledge, in this context, acquires strategic significance. The value of information generated by computer systems depends on human interpretation. Knowledge, by contrast, resides in a social inter-subjective context, and the human capacity for action based on that information. Thus, knowledge in a corporate organizational context can be distinguished from information since it is more directly linked to action and organizational performance. Organizations, of course, cannot manage knowledge per se. They can, however, create an environment that fosters the continuity, creation, and sustained use of knowledge and its application within the organization (Davenport & Prusak, 1998; Von Krogh, Ichijo, & Nonaka, 2000).

In the emerging economic environment, timely access to information related to each market a company is operating in is critical for competitive success. However, such access in a constantly changing economic environment marked by highly diverse market dynamics is not feasible on the basis of rigid and top-down organizational structures. ICT allows for the simultaneous decentralization of the information retrieval process from different spaces and for its integration into a flexible system. This technological structure spans different institutional and regulatory spaces, which present the potential for large multinational firms to link with small and medium-sized enterprises according to contingent project demands forming networks that are able to innovate and adapt continuously. Business projects are implemented in diverse domains and can be directed to product and service line development and organizational tasks across different territorial areas. Successful business project implementation is a function of information that is generated by and processed through ICT systems between and across companies, on the basis of knowledge acquired from each area. In other words, the key passages of information and knowledge that underpin the process of innovation run through networks: ICT and organizational networks within, between, and across companies (Castells, 2001).

Looked at from the standpoint of the process of valorization, this means that the transition to the new economy involves a shift in the parameters of the process of value creation which increases the value of the intangible assets of organizations and more specifically their "organizational capital" (Brynjolfsson, Hitt, & Yang, 2000; Bounfour & Damaskopoulos, 2001). The term "organizational capital" refers to a nodal concept that is composed of several subcategories of intangible capital. It encompasses, but is not restricted to, the following:

  • Market capital: not the physical qualities of the products a firm produces, but the intelligence and know-how that go into creating and developing new products and services. It also includes intangible attributes that are closely related to products such as trademarks, patents, brand reputation, corporate reputation, and other marketing materials.

  • Intellectual capital: the knowledge, skills, and competencies that managers and employees possess.

  • Structural capital: any type of knowledge or innovation that affects IT platforms or internal processes, which are critical to the production and distribution of a firm's products and services.

  • Relationship capital: the company's relationship with its customers and other stakeholders, including financial markets and the investment community, government, and community institutional structures.

  • Communications capital: the benefits of leveraging and communicating intangibles that may result in positive analyst recommendations, increased investor demand, premium pricing, more committed employees, and so on.

Successful management of "organizational capital" depends on the knowledge-creating capabilities of organizations and the deployment of organizational knowledge, and the development of learning capabilities for innovation and value creation. The correlation between knowledge and organizational change and adaptation is a function of the fact that in the new economy, though investment in technology is important, it is innovation in processes, product, and service lines that is the key determinant of an organization's competitiveness and market capitalization (Brynjolfsson et al., 2000). However, this process depends on the availability of labor, able to navigate both technologically and in terms of content the emerging information-intensive environment, to organize information, to identify its relevance, and transform it into specific knowledge, appropriate for the purpose of the work process. This kind of labor must be highly educated, motivated, and autonomous in terms of its capacity to take initiatives (Castells, 2000).

The quality of knowledge in the context of the new economy is not a function of the duration of formal education. Instead quality refers to the "type" and "relevance" of education to specific tasks involved in particular business projects. Labor in the knowledge-driven economy requires specific types of education characterized by continuous modification and expansion of the workers' knowledge throughout their working lives. The most important feature of this learning process is learning "how to learn," since in the context of accelerated economic and technological change, most context-specific information is likely to be obsolete in short periods of time (Castells, 2000). Learning "how to learn" involves addressing the kind of learning that goes beyond mere acquisition of facts for the purpose of performing a specific task better. It involves developing the ability to forge meaningful connections that results in an awareness of different perspectives, and teaches one to ask the right questions. It also involves the development of the ability to transform the information obtained from the learning process into knowledge and action geared to improving organizational performance (Freeman, 2002).

Organizational learning depends upon individual learning and builds upon it. As Nonaka and Takeuchi (1995) have noted, organizational learning "amplifies the knowledge created by individuals and crystallizes it as part of the knowledge network of the organization. This process takes place within an expanding 'community of interaction' which crosses intra- and inter-organizational levels and boundaries." In other words, organizational learning depends not only on communities of interaction within an organization, but also between and across organizations. Indeed, today the connection between organizational learning and innovation has become so critical that many enterprises consider organizational knowledge, coupled with organizational processes geared to continuously improving information and communication channels, as risk management. The reason is that sharing and transferring knowledge within and between organizations enables enterprises to increase organizational and operational transparency, which, in turn, helps to reduce risk. In other words, organizational knowledge is about access to timely and relevant information, and the conversion of information into knowledge through open organizational channels of communication, which combine to improve judgment on the performance of an enterprise (Dore, 2001).

Efficiently managing "organizational capital" and the knowledge assets of an organization depends in a fundamental sense on the development of organizational forms that generate mutually reinforcing dynamic interrelationships between ICT, organizational flexibility, and highly skilled and motivated labor (Bresnahan, Brynjolfsson, & Hitt, 2000; Bounfour & Damaskopoulos, 2001). Indeed, it is arguable that a flexible and agile organizational structure is the vehicle that valorizes both ICT and organizational knowledge. Recent research points to a particular organizational form that has emerged as a critical component of competitiveness in the new economy: the "network enterprise" (Powell, 1990; Powell & Smith-Doerr, 1994; Applegate, McFarlan, & McKenney, 1999; Hagel & Seely Brown, 2001; Dutta & Evgeniou, 2002).

In contrast to earlier vertically integrated hierarchical organizational structures, the "network enterprise" is a flexible organizational form of economic activity, built around specific business projects and strategic objectives. The business projects themselves are set in motion through the cooperation of networks of various and flexible duration periods, diverse origins, and compositions of skills and competencies. In terms of its internal organizational structure, the "network enterprise" is characterized by several main trends: its organization is structured around process, not task; it has a flat organizational hierarchy; the work process is organized on the basis of teams; customer satisfaction is the primary measure of business performance; the structure of reward is based on team performance; the maximization of contacts with suppliers and customers is an integral ppart of the business process; and information and continuous training of employees at all levels are considered critical to business success (Castells, 2000). Indeed, such is the structural change associated with the transition to the new economy that the basic unit of economic activity and theoretical analysis is increasingly the network, not the firm. The firm continues, of course, to be the basic repository of property rights, strategic management, and the accumulation of capital. However, business practice is increasingly a function of ad hoc networks whose expertise is solicited for the achievement of specific business project goals (Castells, 2000; Drucker, 2001).




Social and Economic Transformation in the Digital Era
Social and Economic Transformation in the Digital Era
ISBN: 1591402670
EAN: 2147483647
Year: 2003
Pages: 198

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