Building an e-Consortium Governance Structure
With the Internet changing how companies interact at every level, establishing an e-business consortium, or e-consortium, is a growing priority for numerous industries. The goal of an e-consortium can vary, but it typically revolves around a group of companies in a given industry that wish to collectively leverage the Internet to improve some aspect of their business.
An e-consortium is a recent phenomenon, characterized by companies, often competitors, who believe they can increase sales or reduce costs through a collaborative venture that uses the Internet. Such a venture typically involves disparate companies coming together to buy and/or sell goods or services. These ventures may have a business-to-business or a business-to-consumer focus. In some cases, the group creates an electronic marketplace where buyers can find similar goods and services from a variety of sellers. In other cases, companies may band together to streamline the exchange of goods within a supply chain. In all cases, companies expect to gain value by working with other companies, under a common infrastructure, toward a shared goal.
The race to capitalize on e-consortiums is picking up speed. Earlier this year, The Wall Street Journal reported on a plan for fourteen oil and chemical giants to launch an electronic procurement exchange to reduce supply chain expenditures. The nation’s five largest airlines have created an e-ticketing venture called Orbitz. Major retailers have created the World Retail Exchange, which competes with a similar joint venture called the GlobalNetXchange. The automotive industry is also working on e-marketplace and supply chain management initiatives.
There are risks in the e-consortium model, however. For example, an e-consortium may form to manage the exchange of component parts through the Internet. This new organization could ultimately replace the existing supply chain management model. If this happens, a handful of large companies could gain leverage over the supply chain by dominating the consortium. These companies could potentially run up fees, limit supply chain access, or even force some companies out of the exchange. In another scenario, companies may band together to market certain products through an Internet e-marketplace. One or more companies could similarly dominate this e-marketplace and position their products ahead of those from smaller companies.
Dominance over an e-consortium by a small number of members can be avoided if the consortium is created with the appropriate governance structure, one in which all participants have equal representation in all decisions and no single company or small group of companies can dominate. Due to the collaborative governance requirements inherent in the e-consortium model, the governance structure cannot be based on hierarchical, command-and-control structures. Designing and institutionalizing an alternative to the hierarchical governance structure is essential to the success of an e-consortium.
Designing an e-Consortium Governance Structure
The challenge facing these consortiums is to create an organization that melds a wide variety of management structures, technologies, and data for a common purpose. Integration specialists may see this as a technology challenge, but the reality is that any type of large-scale joint venture must first address organizational challenges. Technological challenges will sort themselves out once an infrastructure for addressing those issues has been put in place.
In the 1960s, Dee Hock, backed by various financial institutions, founded Visa International as a member-owned organization. Visa was created to enable companies that competed with each other to collaborate on an effort to increase the overall efficiency and effectiveness of the credit card industry. The result was wildly successful. Visa has over 22,000 members worldwide and clears more than $1.2 trillion in transactions annually. No single company or group of companies dominates Visa. Dee Hock went on to form the Chaordic Alliance and outline the concepts of chaordic governance in his book Birth of the Chaordic Age. Chaordic organizing disciplines help frame the discussion of how to design an e-consortium governance structure.
The chaordic design process involves gathering relevant and affected parties to create a purpose, guiding principles, participant structure, and organizational concept for the e-consortium you are trying to create. Each of these documents are then ratified and codified in a constitution that all members read and acknowledge prior to joining the consortium. Under this type of governance structure, membership is optional, not required. Members can join the consortium if they agree to abide by the constitution. They can leave whenever they wish, but cannot be removed unless they do not abide by the constitution.
A sample purpose for an e-consortium dealing with supply chain issues might read:
"Increase the effectiveness and efficiency of the flow of goods and services through the supply chain to reduce costs and speed time-to-market for the members and customers of the supply chain."
The organizational principles to support this purpose might state that each member should share their list of suppliers with the consortium or agree to use common Web-based technology to manage the flow of parts through the supply chain. Another principle might provide for common data exchange formats. Regardless of what these principles say, they should clearly communicate the shared commitments of the participants.
The participant structure outlines requirements for joining and leaving the consortium, along with a member’s rights and obligations. The organizational concept describes how participating companies should be organized. An e-consortium can typically be broken into high-level functional or regional categories. Each major functional and/or regional category can be decomposed into sub-functions or sub-regions. Each of these functional units is considered a hub, linked to related functions or regions through a hub-and-spoke structure.
The governance structure requires that functional or regional units send representatives to central hubs to address unique challenges for that function or region. This has the effect of creating a series of cascading hubs, each containing representation from outer hubs. For example, suppliers within a three-state area may send a representative to a regional hub or steering committee. This hub, along with other regions, sends a representative to a northeast regional hub. The northeast region, which might form a board, would then place a representative on the US board of directors.
Under this type of cascading hub structure, no company or small group of companies can dominate the e-consortium. Coming to an agreement on an e-consortium governance model, particularly when it involves a large number of companies, could take months. It is important, however, to craft an infrastructure that has representative governance and that can evolve and adapt along with the needs of its constituents.
Deployment and Maturation
One feature of the chaordic governance structure is its capacity to self-organize and adapt to change. As new functions or regions emerge, they can self-organize into new hubs as required by the situation. The only requirement is that new hubs function in accordance with the guidelines established within the constitution. This includes adhering to the purpose and principles that guide the e-consortium as a whole.
It is not a coincidence that the e-consortium’s hub-based infrastructure resembles the Internet, a self-organizing entity. In accordance with this infrastructure, one e-consortium requirement is being able to accomplish tasks virtually, without the need for face-to-face meetings. This requires deploying collaborative Internet tools to facilitate online meetings, expedite communications, and support a hub-based governance structure.
This type of communication medium is essential, given the diversity of the technology and data structures involved in many of these e-consortiums. Coordinating the exchange of information, creating shared technological solutions, and setting common business goals are key elements in the evolution and maturation of the e-consortium.
As the Internet evolves in directions that are difficult to predict, the e-consortium has the capacity to evolve as well. A centralized, top-down governance structure would not have the capacity to adapt quickly to changes in a diverse, technologically dependent entity such as an e-consortium. The hub-based infrastructure, guided by shared purpose and principles, does not need to wait for commands to travel down a hierarchical structure. (The constitution can be changed as required, but this should be done only with a majority vote of all participants.)
The natural evolutionary process for organizations coming together to solve complex problems is the hub-based infrastructure, guided by chaordic organizing disciplines. The key element in deploying and nurturing this type of infrastructure is to design a governance structure where ideas, creativity, and collaboration can thrive in a virtual world.