A Conceptual Framework for Risk and Vulnerability in Virtual Enterprise Networks

A Conceptual Framework for Risk and Vulnerability in Virtual Enterprise Networks

Jan Husdal (Molde Research Institute, Norway)
DOI: 10.4018/978-1-61520-607-0.ch001
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Abstract

Is managing risk in Virtual Enterprise Networks different from managing risk in supply chains? It is not unusual for firms in a supply chain to come together and act as a Virtual Enterprise Network (VEN) and the supply chains of today’s globalized and outsourced business environment exhibit many VEN-like features. Looking at VEN risk management from the perspective of supply chain risk management, current ideas on VENs will serve as a base onto which ideas on supply chain risk will be transposed. Many concepts related to supply chain risk will be explored and related to their possible VEN counterparts: risk, vulnerability, robustness, flexibility, resilience and business continuity. Conceptual in its approach and drawing from other areas of research, this chapter introduces four distinct groups of VENS, namely Constrained, Directed, Limited and Free VEN, and concludes that VEN risk management can and should learn from supply chain risk management.
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Background

It has been more than 15 years since the shape of today’s virtual enterprise networks began to emerge when Snow, Miles, Coleman, & Henry (1992) identified 3 types of networks: 1) internal, 2) stable and 3) dynamic, the latter composed of “lead firms who identify new opportunities and then assemble a network of complementary firms that meet the market needs” (Child, Faulkner, & Tallman, 2005a,). From this starting point, the definition of what constitutes a virtual enterprise network, in literature, varies considerably.

Virtual Enterprises: A Special Form of Cooperative Strategy

Traditional enterprises can enter into various forms of cooperation without necessarily establishing what is called a VEN. Child et al. (2005a) describe six reasons why firms seek to establish cooperative networks: 1) certainty – by developing relationships with mutual solidarity, 2) flexibility – by being able to quickly allocate a range of resources, 3) capacity – by “outsourcing” work to other network members, 4) speed – by being able to quickly respond to a wide range of business opportunities, 5) skills and competence – by gaining access to resources other than one’s own, and 6) intelligence – by sharing market information.

Placing cooperative networks on a scale, going from independent to integrated, Child et al., describe five degrees of networks: 1) Equal-partner network, 2) Unilateral agreements, 3) Dominated network, 4) Virtual corporation, and 5) Strategic alliance. The virtual corporation is described as “a loosely coupled enterprise in which the parts are held together through the medium of sophisticated information technology packages”. Interestingly, they note that the virtual corporation may be “a transitional stage of company development on the path to complete hierarchy”, a statement that is somewhat contradictory to Nolan & Croson (1995), who foresaw networks emerging as the organizational forms of the future, replacing and transforming the traditional pyramid-shaped hierarchical organization.

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