We can think of inspirational and motivational leaders like Hewlett and Packard; there are superstar CEOs like Gates and Jobs; there are even “narcissistic” or rock star leaders. But nowadays, many Chief Executives can also be described as disenfranchised or disempowered. The breadth of their influence, the extent of their authority has diminished, even if their responsibilities and accountabilities remain unchanged.
After the fall out from the 2005 and 2009 recessions, the major trends of globalisation and the Internet have enabled a restructuring of the organization. We speak of the global supply chain working alongside outsourced and off shored support activities. From R+D through to distribution, from manufacturing to accounting, many of the functions that were traditionally under the umbrella of a single organization have been transferred to external providers. The organization is now fragmented and with it the decision making capacity of the CEOs has changed fundamentally.
The typical hierarchical organization of CEO and operating board with reporting lines into divisions and functional silos has morphed into a board managing multiple external relationships. Tell the Sales Director to sell more, and he or she will talk about distributors’ and wholesalers’ inventory levels. Tell the Operations Director to increase production or cut costs and the discussion will turn to contractual commitments with contract manufacturing firms like Flextronics. The service and support operation is outsourced and offshored. Similarly, the accounting team is based in Manila or Sofia or wherever, and managed by a specialist third party.
These changes have brought with them undisputable and significant cost efficiencies, productivity and quality benefits. But they have also ciplicated the organizational governance processes. External parties need to be managed contractually, but these are not one off transactions. So contract management would be hard pressed to deal with all eventualities and enable the flexibility and responsiveness that firms need. These relationships are likely to be in place for years. There is a history and a future to most of them. These become partnerships that can enhance the firms competitive positioning.
The current day CEO and the board need to come to grips with the notion of controlling an organization which is to a greater or lesser extent beyond their direct control which is made up of external firms with their own agendas and priorities. A reliance on contracts in staid and destabilizing, it will never allow for the innovative development and growth of the organization. And it’s not just about control. Firms need to recognize that their competitive advantage most likely comes from this outsourced organisation that spans traditional inter firm boundaries. The CEO and the senior leadership team must understand and adopt an enterprise wide relationship management approach to govern their business.
About the Author
Richard Gibbs is a recognised expert in marketing channels and alliance management. His career spans senior sales and marketing positions in multinational companies such as Xerox and Novell Inc. His current research focuses on cross-cultural inter-organisational collaboration in global supply chains. Richard teaches at the University of Winchester.
Enterprise Relationship Management is the latest publication from Richard and co-writer Andrew Humphries. This title recognises that, increasingly, competition is no longer between individual organizations but between alliances of companies and networks of supply chains.
Enterprise Relationship Management is available from Gower Publishing priced at £70.00.