What is an Open Networked Firm?

We are all aware of the ramifications and impact of digital disruption. Everything from ordering meals, to catching a taxi is being disrupted. The consumer is the winner but many of these consumers are employees as well, and they and their employers face a challenging battle to navigate the disruption and sustain the firm and the new digital economy.

For many firms the advent of digital technologies has evolved to become an existential threat – that is they are fundamentally grappling with whether they will be in business in 10 years and what they should do to continue to survive and thrive. One thing seems certain; assuming that the status quo will sustain your business in the long term is probably a path to oblivion.

Strategy and Purpose

To face into the challenges arising from the digital economy, a firm must rethink its value proposition and more importantly its purpose. At the heart of a firm’s existence lies its purpose, and supporting that is its strategy. Firms in existence for many years offering basically the same products and services through the same business models, are often disconnected from their purpose i.e. they lose sight of it, or what was originally their purpose is now no longer relevant. Ironically being disconnected from a purpose, is why strategy often fails to get executed. Strategy in simplest terms has been described as the way a firm achieves its purpose. Having a clear purpose and supporting strategy will better enable firms to survive digital disruption.

The Open Firm

In the digital economy a firm’s purpose and strategy should be predicated on it having porous boundaries. The firm should aim to be open in terms of business processes, knowledge creation and sharing, and innovation. A truly open firm will open its boundaries and integrate with third parties so that risk and reward is shared, management decisions are made jointly with external third parties, and using knowledge from within and without the firm (refer to this Deloitte press article). Further, the cultures and business processes of these networked firms should be seamlessly interwoven and connected.

Being open is also very different to adopting outsourcing or undertaking joint ventures. It’s about creating a networked firm who success depends on the cumulative effectiveness of the network itself, and core to this is that all participants gain value from being a part of the network.

Conversely, firms with closed boundaries, or firms with leaders who do not seek the infusion of new ideas from outside of their firms, will ultimately fail. This is reflected in various research studies on innovation practices.

Moving to be Open

For a firm to adopt this ‘open’ mindset it must first acknowledge and believe that it is essential for long term survival. Acknowledging the strategic value of being ‘open’ is a significant cultural shift as it contradicts the concept that the firm can singlehandedly compete in the market. Secondly, the firm must go through a radical process of reimaging its purpose. This conceptualisation can be very hard to do. Third, its open business model must be defined. Fourth, its strategy should be aligned to its purpose, and support an open networked operating environment.

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