The Improvisation-Efficiency Paradox in Inter-Firm Electronic Networks: Governance and Architecture Considerations

Abstract

The need to simultaneously achieve operational efficiency, while accommodating a continuous morphing of alliances and network arrangements, is a key challenge in the modern enterprise and market. Inter-firm interdependence and unpredictable market shifts heighten the need to establish an architecture and governance arrangement that permits rapid adaptation. Fully integrated firms have increasingly morphed into networks of collaborators. The demand for efficient and effective inter-firm coordination is no longer a desired condition, but essential for competitive position. Historically, the cost of this efficiency has been loss of flexibility, yet volatile markets reward efficiency and flexibility. Market trends demand an ability to improvise in the marketplace - converge execution with planning - while being simultaneously efficient. In this paper, we explore this improvisation-efficiency paradox. The architecture and governance issues are considered that seek the strengths of both effects. Efficiency need not come at a high cost in attaining the ability to be adaptive and spontaneous. We explore the key considerations of both network architecture and governance structures that characterize improvisational networks. Trade communities and trading partners establish a discipline of processes and decision rights that serve the community of collaborators.