The proliferation and acceptance by the customer of the Internet, and its associated technologies, has created a fundamental shift in what is possible, as well as what is expected by the customer. These expectations will have to be met, and sometimes, entities will not be able to do everything themselves, nor move quickly enough themselves, thus the need to partner with others, or extend the enterprise.
In a low-velocity market, this emphasis was indeed acceptable, as change was slower and more predictable.
Sarbanes - Oxley and Enterprise Security: IT Governance - What It Takes to Get the Job Done
Therefore, where managers once annually considered reconf iguring their resources to build a new strategy position more pivotal to overall corporate performance, now many organizations are generating a greater and more frequent focus on an ongoing strategic process. Further, management is focusing on agility and the ability to capture synergies and use them as part of a proactive, rather than a defensive, strategy.
They are looking at strategies emerging from the individual entrepreneurial business perspective. They require environmental analysis as a basis for managing their own group dynamics.
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This emphasis is critical, since it is becoming increasingly diff icult to predict which competencies or strategies will be successful and the length of time during which they will be valid. It requires effective decision making at the unit level to improve business strategy, at the multi-business level to create collective strategy and cross-business synergies, and at the corporate level to articulate the corporate mission, vision, and major redirection points in strategic directions.
To achieve great strategic outcomes in the extended enterprise, visionary leaders must be encouraged to emerge, thus enabling innovation. This has presented a new challenge in terms of risk management and strategic choices. Although such a business decision would enhance growth, it also Strategy: Challenge for the Extended Enterprise 21 creates uncertainty resulting from inability to accurately determine the likelihood that potential events will occur.
Enterprise risk management can be effectively applied across the enterprise in strategy setting. The desirable return from strategy, in practice, is commonly aligned with the established acceptable risk level or risk tolerance. Enterprise risk management facilitates senior management in selecting strategies that are consistent with the established risk tolerance. Examples of internal factors are infrastructure, personnel, process, and technology. Examples of external factors include economic, political, and technological events. For instance, the passing of the SarbanesOxley Act of by the U.
Select enterprises identified in the Act must ensure that they have business process management procedures in place to respond to the legislation. Along these same lines, in March , The European Commission published a proposed directive on auditing rules for corporations within the European Union EU , which included a plan for reforming 22 Governance of the Extended Enterprise corporate governance similar to the Sarbanes-Oxley Act of Sarbanes-Oxley Act of The Sarbanes-Oxley Act of , which was passed into law in the United States, has fundamentally changed the business and regulatory environment.
The act aims to enhance corporate governance through measures that will strengthen internal checks and balances and, ultimately, strengthen corporate accountability. It contains 11 main sections. It is important to emphasize that one of those subsections, , does not merely require organizations to establish and maintain an adequate internal control structure, but also requires them to assess and report on its effectiveness on an annual basis.
This distinction is signif icant. The Sarbanes-Oxley Act demonstrates a f irm resolve by the U. Congress to improve corporate responsibility. It was created to restore investor confidence in U. For those organizations that have begun the compliance process, it has quickly become apparent that IT plays a vital role in the internal control assessment process. Systems, data, and infrastructure components are critical to the f inancial reporting process. To this end, IT professionals, especially those in executive positions, need to be well versed in internal control theory and practice to meet the requirements of the Sarbanes-Oxley Act.
The proposal, which will need to go through and be approved by the European Parliament and the Council of Ministers, has as its purpose to begin to establish a base so that shareholders can rely on the accuracy of audited corporate accounts. It is part of a larger plan for reforming corporate governance and contains similar approaches and language that were part of the U. Corporations will need to ensure they have business process management procedures, including audit trails and document management, in place and are ready to respond to the proposed European Union auditing rules directive.
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Key provisions are expected to cover, among others: registration, public oversight, quality assurance, international standards, audit communities, and internal control reporting. This regulatory and compliance movement is bound to continue its swath across the world. Strategy, in this context, defines the way entities build advantages over the competition.
It has been the strategic objective for many organizations and, in itself, there is nothing wrong with this objective.
Managing Third-party Risks to Create and Protect Value
Organizations need to show distinct advantages over the competition to sustain them in the marketplace. Leaders typically assess what competitors do and then strive to do better. Such strategic thinking regresses toward the competition because organizations may be making tremendous efforts to be better than competitors. The end results may not be more than incremental improvement. The issue of innovation is not considered an end in itself or the ultimate solution to current business systems. However, in the extended enterprise, leaders in value innovation are among the most rapidly growing organizations.
According to W. They are: 1. Imitative, not innovative, approaches to the market where com- panies accept what competitors are doing and simply strive to do it better. Companies act reactively, resulting in time and talent that are unconsciously absorbed by responding to daily competitive moves rather than creating growth opportunities.
It is quite different from building layers of competitive advantage and it strives to do more than outperform the competition. Value innovation makes competition irrelevant by offering fundamentally new and superior buyer value in existing markets and by enabling a leap of capability to create new markets. These companies are committed to their pursuit of innovation outside a conventional context.
It is also one of the biggest believers in the extended enterprise concept. In all of these examples, technology certainly is an integral part of that innovation. Innovation without value can result in too strategic or too technology-driven or too futuristic a focus. Value innovation is not the same as value creation; instead, it anchors innovation with buyer value.
Knowledge and ideas human creative input are the major inputs for value innovation. It can occur in any organization and at any time in a sustainable manner with a proper process. Value innovation is the essence of strategy in the extended enterprise and knowledge economy. Senior leaders need to foster the development and use of proper tactics to stimulate value innovation.
After a value innovation initiative is created, line-of-business extensions and continuous improvements can maximize prof its before the next value innovation initiative is launched. Senior leaders should always ask: What can I do to further my mission? How does this move me closer to my vision?
These two questions are fundamental to value innovation. There are three important aspects that relate to internal governance: 1. Pursuing growth and innovation 2.
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Cultivating strong corporate business-unit relationships and ethics 3. Fostering interbusiness unit linkages The rate of change in organizations, and in the extended enterprise environment in particular, has been so rapid that many entities have not been able to transform their internal governance strategy or processes to meet the new changes. Although organizations recognize the need for rapid transformation of their internal governance, most of the problems confronted are in determining how to accomplish that transformation.
It is not because of the constraints in employing either knowledge or globalization of economies and f inancial constraints, IT data warehouse, Internet, etc. The problem, of course, is that shortfalls in the processes mentioned previously cannot be attributed to tangible resource constraints. With the introduction of Net-centric technologies, the Internet enables virtually endless connectivity where everything can be connected to everything else with one click. Within a network, everything is potentially equidistant from everything else.
Managers face competitive challenges such as those described in the following paragraphs. The traditional value chain channel structures are being confronted. Manufacturers are now in direct contact with the end users by eliminating intermediaries, such as wholesalers and distributors. Organizations 26 Governance of the Extended Enterprise are gaining increasingly sophisticated knowledge of their consumers, and are strategically retaining more information on each individual to allow the enterprise to serve them better micro-marketing.
Selling and administrative costs, as a percentage of sales, are likely to decline in most organizations. Learning how to harmonize traditional technologies with new ones is a challenge. For example, consumer electronics entities such as Sony Corporation need to learn to harmonize what used to be the separate domains of telecommunications, computing, and software and combine these capabilities seamlessly.
Governance of the Extended Enterprise: Bridging Business and IT Strategies
Technology products such as cellular phones, pagers, personal digital assistants, and Web TV are examples of the results of such integration. The traditional industry boundaries are quickly disappearing among telecommunications, computing, and consumer electronics industries. The personal computer today might be serving as a bridge between those three traditional industries, and it is the personal digital assistant PDA or other such devices that will most likely perform such a function in the future.
The transformation of traditional industry boundaries to the extended enterprise is also taking place in other industries such as investment, insurance, and banking. These changes suggest that the business models developed to compete in a traditional industry structure are becoming less and less relevant in the extended enterprise. The life cycle of products and services are becoming dramatically shortened and are approaching a zero cycle. Senior management now expects competing products to be produced and appear almost immediately. One of the issues caused by this is that it means that the organization must gain volume rapidly to amortize its investment.
Scaling up the value chain, supply chain, distribution, and marketing has been a critical competitive capability. This imposes huge new demands on organizations. Access to a responsive supplier base, global logistics and f lexible manufacturing systems and a global workforce are becoming new sources of competitive advantage.
All established organizations are faced with these competitive challenges, but these challenges are often viewed as loss of market share, unattractive products and profit declines as the result of inefficiencies rather than of the rapid change in the competitive landscape.
Management must recognize the futility of old solutions and begin to recognize the new internal governance issues that competitive challenges are generating. The goal is to create new competitive space. It cannot be used as a source of private power. Management must step out of the zone of comfort and into the zone of creating opportunity. Looking at the transformation process, it is clear to see the strategy at its heart identif ies challenges, determines their impact on markets, and develops new business models.
A successful transformation depends on matching strategic thinking with f lawless execution. In a similar yet different role, local and national governments will have a critical responsibility for shaping an effective regulatory framework that provides for suff icient f lexibility to allow markets to function effectively and to respond to expectations of shareholders and other stakeholders. Although the OECD has outlined these issues in its draft document, it will always be up to each particular government as well as the individual enterprise to decide exactly how they intend to apply these principles in developing their own frameworks for good governance.
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