What is an Extended Enterprise and what questions do you need to find answers to?

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What is an Extended Enterprise and what questions do you need to find answers to?

Risk Advisory | Extended Enterprise

What is an Extended Enterprise and what questions do you need to find answers to?

As Herbert Marshall McLuhan said, we live in a global village. The times when single companies like Standard Oil Trust controlled more than 95% of the market are gone. Whether we want it or not, today the economy is becoming increasingly globalized. Information and communication technology is developing rapidly and companies operate in line with the economic policy established in the Washington Consensus. In effect, the role of supply networks and chains is growing. It’s nothing unusual today that local market companies do business and engage in various interactions with third parties all over the world or that before reaching the consumer an end product is assembled from components which have been manufactured not only in different countries but also on different continents. So, whether we want it or not, virtually every organization, from local businesses to multi-national corporations, may be defined as an extended enterprise, the only difference among them being the scale of their operations and typically the spectrum of entities in their respective ecosystems.

Current challenges facing extended enterprises

Extended enterprises seize the many opportunities offered by the global economy. The very definition of an extended enterprise as a group of organizations that work in close liaison, where each of them is a leader (in terms of costs, products and innovations) in its field, is based on the assumption of searching for the best partners and contracting parties globally. And it usually works well – an extended enterprise makes profits, grows and strengthens its market position together with the third parties in its ecosystem.  But as practice shows, effective management of an extended enterprise is not an easy thing to do and represents a serious organizational and logistic challenge. Success does not depend only on the company itself, its business strategy or market intuition but also the degree of understanding, effective cooperation or trust to those entities it does business with. Needless to say, in everyday business life the success of an organization and its people may not be based on good faith and mutual trust only. Thus, it is imperative to protect the interests of the parties in a contract. But are contracts themselves a sufficient guarantee that our interests have been secured? What if their scope does not cover some key risk domains? And does the mere fact of entering into a contract ensure that it will be performed completely and in accordance with the intentions of both parties? Although the answers to these questions are quite straightforward, the number of organizations which pro-actively manage the related risks is still quite low.  So what are the basic questions a company’s executives should find answers to so as to be able to manage such risks adequately? Let’s take a closer look:

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Together or alone?

The issues mentioned above are just a few of the challenges facing extended enterprises. However, they show that even in times of stability an extended enterprise needs to find answers to a number of questions in order to be able to operate efficiently. Sometimes, they may even be key to business continuity and in times of a crisis determine the company’s chances to survive on the market. They should be addressed by each organization which is managed effectively and focused on its future – not only to ensure compliance with regulations that impose a strict obligation to verify fourth and fifth parties but also to improve its market position, financial health and operations as well as responding to the risks inherent in their ecosystems. A company may go through this process alone or engage a third-party, independent and objective team of experts, relying on a proven methodology and world-class know-how.

Whatever decision you make, do not forget that today no company is an island. The future of each extended enterprise is also shaped by a number of external factors. And the truth is that these are beyond the company’s direct control. However, they should be reviewed and considered by every extended enterprise which is managed efficiently.

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