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Challenges to operations management in an extraprise

Stockholm School of Economics, Stockholm, Sweden, and European Institute for Advanced Studies in Management, Brussels, Belgium
Keywords Operations management, Networks, Industry Abstract Companies organize in a way that involves more and more activities that are external to the traditional organizational boundaries and as a consequence managing operations contains more and more issues and actions dealing with external networks. Hence new challenges face managing operations. The perspective raised here may be called a shift from an enterprise to an extraprise. This article analyzes this changing operations context with the aim of identifying important issues in operations management in academia as well as in practice and concludes by proposals and hypotheses for future research.

The development of industrial networks

Christer Karlsson

Introduction The purpose of this speculative essay is to analyze what recent and current industrial network development and externalization of operations activities means for management of operations now and in the future. The analysis is built up by the following steps. It starts out with some major drivers in the development of industrial networks, particularly for the OEM industry, followed by outlining and exploring strategies concerning and related to companies' design of their industrial system. Then patterns of underlying organizational principles are identified, and eventually consequences for organizing and managing operations are analyzed. This essay deals with strategies for companies' industrial system design and discusses the effects on organizing and managing operations in networks. The focus of the discussion will be ``organization of industrial networks''. It should be noted that network should not be seen as an organizational form but as a perspective that can be taken on an organization. An organization can be described as a network or a system regardless of its form. Hence it is more correct to talk about a network approach (see Ha kansson and Snehota (Eds), 1995). Key elements of the network approach are actors, activities, and resources (ibid.). Hence the perspective taken here implies a look at an organization from the point of actors and activities in a network of internal and external organizational units.
International Journal of Operations & Production Management Vol. 23 No. 1, 2003, pp. 44-61 # MCB UP Limited, 0144-3577 DOI 10.1108/01443570310453253

Underlying research approach This essay deals with possible organizational responses to the development of operations in industrial networks. It is speculative with the aim to provide food

for thought concerning important issues in operations management in academia as well as in practice. The aim does not allow anchoring observations and analysis in one or few studies. Sources are a number of recent and ongoing action research activities in different industries, a set of OEM strategy oriented articles published in refereed journals along with operations strategy literature in general. In this way some aspects of reliability will rest with the credibility the reader wants to give to the author and otherwise disregarded since speculations cannot by definition be true or untrue. Reliability in the analysis is attempted by establishing a chain of evidence with the following proposed logic. The essay starts in driving forces that characterize the organizational environment and out of that discusses organizations' strategies. This leads to an emerging role model for organization of the company with the focus on operations in networks. The analysis is taken further by a knowledge-based view on strategies, organization, and management. This results in challenges for organization and management of operations in networks and eventually a discussion of hypotheses and thoughts about important issues in operations management in academia as well as in practice. The population, which the discussion is supposed to be valid for, is called the ``OEM-industry''. The original equipment manufacturer industry (OEM) consists of those companies, which mainly assemble and sell to end-users more or less complicated products based on a variety of technologies. Some characteristics of that type of industry are often the following. The products are complex, built up of many components and systems as well as many technologies. Production as well as product and process development for components and systems are often to a high degree sourced from a high number of suppliers, often in hierarchies. First tier suppliers are often big, powerful and global. The sample includes the automobile, heavy truck, bus, construction equipment, domestic appliances, mobile communication, office equipment, and aerospace industries as well as their first and second tier suppliers. The sample consists of ten OEM-companies and a few suppliers to each of them. A couple of case studies in services (hotels, restaurants, hospitals, management development, transportation) indicate fair validity while process industry indicates rather limited applicability. Basic starting points regarding general driving forces The role of this section is to clarify the basis for the following analysis why descriptions are kept very brief and limited to those thought to have particular impact on strategies for industrial networks. The text is intended to represent the common discourse and hence not introduce anything new other than general common knowledge and understanding among researchers and practitioners in operations strategy. A first starting point is that a major strategy and also realized development in industry is that of globalization. Global operations play an important role in supporting that strategy (Marquardt, 1999). Both product development and

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production are dealt with as global activities. Technical development with engineers and operations with operators as well as other functions in the organization are linked in networks that exchange data, information, knowledge and resources (Upton and McAfee, 1996). This enables that facilities may be located in accordance with optimal availability of resources (human, physical, etc.). Technological development is a core enabler and as a consequence of the development of information technology ``information economics'' is changing the playing field. The development cost for information may be high but production and reproduction costs as well as distribution costs may be very low or sometimes even none. The traditional trade-off between richness and reach in information is undermined when high numbers of individuals can be reached with the richness of customized messages (Evans and Wurster, 1997). Transfer of technology is becoming much easier with the help of information technology. The possibility to transfer huge loads of data at little cost increases the possibilities of having geographically dispersed units operating in an integrated network. This results in a global product development and also a global manufacturing structure. Concurrently more flexible manufacturing systems make the production of more product variants and even customized products also in mass production possible. The networks may produce advanced customized products, constructed from modular base products where the scope for variation is very high (Starr, 1965; Baldwin and Clark, 2000). The concept of mass-customization (Pine, 1993) is in itself eroding the concept of market segments (user group, geographical, etc.), while having important effects on choices in operations hlstro management (A m and Westbrook, 1999). Automation in both manufacturing and assembly is another driving factor for increased freedom in choosing production locations. New process technologies surpass man in flexibility, precision, consistency, and carrying information on thousands of product variants (without looking in the manual). New distribution systems can develop based on the use of information technology and with customers linked more directly to the manufacturers. Actors based on new business models such as agents and navigators enter between the customer and the traditional company. These agents as well as customers can deal more directly with the production system. Contemporary strategies An analysis of contemporary strategies of OEM-companies is carried through in this section. This to create a base for that in the next section identify the important factors challenging the way industrial production networks should be organized and managed. The analysis is based on a selection of dominant discussions in the literature as well as studies of the ten companies in the sample together with observations in other companies. References are clearly chosen based on if they are representative in supporting the discussion here and may not always represent all the different respective fields of the literature.

The following descriptive overview and analysis of the implications for creation and managing industrial networks is structured in five parts. It starts with a discussion of how business missions of OEM-companies are challenged and changed. Then follows a discussion of the market context and the developing corporate structures. Eventually contemporary strategies for product development and production are discussed briefly. From vertical to horizontal business missions In a more competitive environment the product offering plays an increasingly important role in enabling the customers to tell products apart why it is not just the product itself that is important but also the product function and the brand. Companies move from the product level to the level of selling functions that create customer value (Kotler, 1976). To be able to handle much more complex offerings, companies abandon lower levels of technology and leave to suppliers to contribute systems, sub-systems and components (Chiesa et al., 2000). The in-house activities may focus on system integration and product characteristics. Hence the needed resources and ``core competencies'' (Hamel and Prahalad, 1990) may be focusing on system integration and product characteristics. This horizontal rather than vertical business is demonstrated in Figure 1 (Karlsson, 2000). The manufacturer may cover more and more product functions horizontally while keeping only core vertical technologies for offering this function. The vertical technologies can increasingly be sourced externally. To demonstrate the concepts we can use the following example from an automotive company in the sample. Horizontal technologies are related to functions in the product. Typical functions that are wanted concern for example safety, comfort and handling. There are also typical traditional automotive technologies such as brakes and engine management that here are called vertical technologies. These vertical technologies have major knowledge bases that are common between products although there are variants for different products. Hence they can to a high degree be sourced externally although competences

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Figure 1. Technology levels

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for sourcing them are needed. The horizontal technologies create the characteristics to the product that the customers will associate the product with. They must to a higher degree be based on in-house competence. The sourcing logic is different in the vertical and the horizontal external network of relations. This is a key issue in this article and will be dealt with more below. The global market context There are a number of market conditions driving networking. In this analysis the discussion is limited to factors affecting the industrial system (product development, production, procurement). There are obviously a high number of factors affecting the commercial (marketing, sales) system but they are not dealt with here. Manufacturers seem to become more global than international in their thinking. This means that market planning is based on a global concept (although the market can be divided into local markets and market segments) and that the location of production is determined on the basis of global considerations (McCormack et al., 1994). The global product concept is valid, but based on modular building blocks (Muffato, 1999) rather than different types for different markets. This combination of global and local thinking we may call ``glocal marketing''. A clear distinction should be made between consequences for marketing and for the industrial system. The fact that requirements vary between different countries does not imply that this creates different sets of product variants. The products may be built with modular systems that can be varied according to the need of the customer. This implies that needs for different product features on different geographical markets do not necessarily make these markets unique. The products may still be built with modules (systems and components and also accessories that are used in the full product line all over the world). A new challenge is the threat to the value chain. In addition to the changes below the top level in the pyramid, there is rapidly developing new business logic with new entrants between the OEM and the customer. These actors are agents or navigators coming in between the OEM and their customers. They may appear to offer improved ways of reaching consumers but may cause deterioration in the competence in the value chain. This because their action takes away margin from the OEMs that then will have less possibilities of financing resources for purchasing, development, and production. A possible strategic response for the OEMs is to move in the direction of offering more and more complete functions. Otherwise there is a risk that they will be overrun in the marketplace by agents who offer more complete functions and more choices but who may not care about maintaining an industry with strong development capabilities.

Corporate structures The concept of globalization strongly affects structures and drives networking. Not having the globally best production system creates competitive disadvantages in comparison to other actors who take advantage of best sources. Since best sources are looked for the probability will be high that quite many components and systems in a complex product (e.g. around 10,000 components in a car) are sourced externally. Such a best sourcing strategy pushes a shift in perspective on economy of scale from the plant level to the global industrial network level. We see more collaboration between OEM companies, including competitors making the same kind of product. This type of collaboration concerns not only in operational and but also strategic issues, such as technical development (Karlsson, 1988; Quinn and Hilmer, 1994). These networks may be based not only on ownership but also on more complex and varied types of integration such as licensing agreements and joint ventures of various kinds (Teece, 1986). Even more specialized activities increasingly take place in collaboration between geographically dispersed specialized units connected in a global network (Chiesa, 2000). These units may be parts of the company as well as suppliers, consultants, or even competitors. The role of many individuals in the organization changes from being a specialist towards managing a network of relations and integrating functions. Product development Within the product development function there are obviously a number of forces driving the development of acting in networks. The effect from the demand for short development lead and cycle times, sourcing from the expert also having economy of scale, focusing final product functions, and maintaining technological flexibility are below analyzed as drivers for networking. Cycle times as well as lead times are reduced drastically (Cusumano and Nobeoka, 1992). With very high costs for developing new product generations, economy of scale is of paramount importance in product planning and product development. Product functions become more complex causing high development costs, while production systems become more flexible causing lower product specific investments. One can say that economy of scale is therefore gradually shifting focus from production to product development. Product development is increasingly based on platforms and modules enabling many variants for different customers on different markets (Muffatto, 1999). Product development is increasingly sourced externally, from fewer and larger sources that supply complete partial systems (Womack et al., 1990; Lamming, 1993). Specialized supplier networks enhance the competitiveness of the OEM (Dyer, 1996). As a consequence, big sub-systems may be supplied by specialists and a new type of specialization develop within the OEM company. This specialization is of growing importance for the OEM and concerns the development of the total product concept and its functions and characteristics.

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It can be called ``feature engineering'' and since its focus is on characteristics in the total product it is a level above systems engineering. We can here see a difference between specialized engineering which is typically sourced externally (Robertson and Langlois, 1995) and product function or feature engineering related to the core competence of the company and which will be typically sourced internally. The difference is important. Product function or feature engineering relates to the characteristics of the product. As an example they may be comfort, safety, climate, and handling in a car. I call them horizontal technologies. In figure 1 they are represented by the horizontal oval. Experts in sub-functions, sub-systems or components provide the vertical technologies. In a car it can be brakes, or air bags while the horizontal equivalents are stopping the car and safety. Although a lot of engineering is out-sourced, the complexity of the products and the development of product functions and characteristics demand even more development resources. It means that although more and more vertical technologies are out-sourced there may be even more development resources focusing the horizontal technologies, i.e. product functions and features. An important difference in the effects of these different kinds of technologies lies in that horizontal technologies are closely related to how the product is perceived by the user while the vertical technologies are more embedded contributing to the product function. The division of labor between the OEM company and its sub-contractors and suppliers is hence changing. Suppliers increasingly take care of technical specialization, while further development of product functions takes place within the OEM company. This means that the OEM manufacturer specializes in designing and constructing integrated concepts being responsible for concept development and integration of technical functions. Specialist technical fields, however, become the domain of even bigger and more technically proficient suppliers. This is a possibility but has also become a risk. So-called ``mega-suppliers'' achieve temporary monopolies (Karlsson and Nellore, 1998). These first tier suppliers are in several cases for example in the auto industry both bigger and more profitable than the OEM manufacturers, a change in business power OEM companies will have to observe. Another reason for the OEM to consider outsourcing is in order to become more flexible and responsive to technological and market changes. This includes sourcing from partners and even competitors. History shows the dangers of being tied up by investments in technologies, which have become obsolete by radical innovations. An example can demonstrate the logic of technological flexibility. One of the biggest automobile manufacturers concluded that they could achieve better economy of scale in manufacturing their own brakes. They built the biggest plant for making brakes. Unfortunately it was for drum brakes while the expert supplier was about to launch disc brakes. The OEM then had less efficient brakes for a long period.

Production systems A summary of contemporary strategies in the production system field may be the most difficult to get any common comprehensive perspective on. Many elucidations may be made concerning the focus of the discussion. Certainly this essay is limited to strategic and managerial perspectives as well as to the aim of analyzing challenges for operations management. For a more general analysis the reader may turn to Bartezzaghi (1999). The evolution of production models: is a new paradigm emerging. Within the production function there are obviously numerous forces driving the development of acting in networks. Still a few central drivers for networking may be identified. Classic demands on production in terms of quality, speed, dependability, flexibility, and productivity is a possible starting point. All factors carry drivers towards networking. The expert with higher process competence and larger volumes may offer higher quality and better productivity. The business relation should give dependability as long as the supplier doesn't want to loose the contract. Flexibility is offered through own investments being replaced by contractual relations. Speed could be hampered but is often offered by the supplier locating next to the customer. Access to global manufacturing resources expands alternatives for purchasing and procurement as a whole. There is a choice of best inputs from worldwide locations along the value chain (Fawcett, 1992). Price has an influence but it needs to be addressed together with the product function. Core deciding factors tend to be related to what value added the product contributes to the customer's final product and production process. As an effect suppliers become integrated parts of the virtual plant. The OEM company uses few suppliers, each of which is more competent technologically, has a better economy of scale, and is capable of developing and producing larger sub-systems for the final product. Another point of departure in the following discussion is that a basis upon which production systems will be designed is the need to be innovative and fast to market, as well as to produce high performance products of high quality. A high degree of innovation in the final product may be supported by sourcing from (the) leading supplier of each partial product function. The technology knowledge structure The analysis is now taken further through a knowledge-based view on strategies, organization, and management. Technology is by semantic definition a field of knowledge (cf. biology, geology, etc.). Management of technology can then be seen as management of knowledge. A central emerging concept in this essay is the one of technology levels. They form the bases for the business mission definition, the required core competence, sourcing, and the view of a knowledge network to be managed rather than the traditional organization. We have earlier identified two generically different types of technology to manage: the vertical and the horizontal technology. The vertical technologies

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involve specialized areas while the horizontal ones involve areas like system integration, product characteristics, and product functions. The shift towards the horizontal dimension creates for example a need for engineers with wider perspectives. More important, however, is that it requires involvement of many more functions and employees in managing the technology. Sourcing strategies Technologies are increasingly sourced externally. They can be sourced vertically as well as horizontally in the external network of organizations. However, the sourcing logic is somewhat different in the two kinds of relations. Vertical sourcing is generally based on a combination of experts' economy of scale, experts' technological knowledge, and a wish to have technological flexibility (by the opportunity to change supplier and not be locked by own investments). Horizontal sourcing is rather based on partners' economy of scale or partners' competence. Sourcing organizations are of different types. The first that may come to one's mind is the classic organized network of suppliers and sub-suppliers. Two other forms also emerge. These are the narrow but deep specialized organization and the broad partner being similar to our own company. Intermediate forms such as joint ventures are also available. In addition to the organizational form, the contractual relation should also be defined to screen the whole spectrum of relational issues and to fully understand the collaboration (Hagedoorn, 1993). The choice of sourcing, internal or external, is made from a number of factors. An example of deciding factors is provided by Williamson (1975; 1979). He claims that bounded rationality, opportunism, small numbers, and uncertainty will drive vertical integration (internal sourcing) and the opposite thus external sourcing. How to make the choice is however not covered in this article. The knowledge network The different types of sourcing organizations described above come in many variants. We find different types of organizations with different roles and relations in the vertical and the horizontal structure. In the vertical structure there are typically suppliers at different tiers in a hierarchy of system suppliers, sub-system suppliers and component suppliers. Some lower tier suppliers may deliver directly to the OEM. There are also suppliers in the form of ``integrators'' so called because they integrate components and systems from different suppliers normally into bigger physical units but do not add any particular own technology. In the vertical structure there are also many holders of specific knowledge like consultants and educational ventures. There are also the horizontal partners, joint ventures, and other manufacturers in the industry. There may be capital ventures as investment in emerging technologies and also internal ventures established as autonomous companies.

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Together all these organizational units form a complex network as can be seen in Figure 2. This is of course just one network. The company may well be involved in several different networks for different parts of its businesses. The figure also only contains one unit of each kind. There can of course be hundreds of suppliers, many different consultants, etc. The point aimed at here lies in the figure itself. The combination of the internal organization and all the external units form a network that is not only complex in structure, forms of relations, and logistics but also demonstrates how little of the total product development and production may take part within the OEM company itself. A large proportion of not only manufacturing but also product and even concept development may take part outside the traditional organization. It is not uncommon (at least in the study sample) that the external development is 70-80 per cent of total development efforts (in money or time). Then it is obvious that the attention of not only top management but also many other managers must be to manage activities in the whole network, not only within the own organization. We may state that the strategically most important unit of management is the network that all these organizations form, not the internal organization. Hence we further analyze what challenges face managing the demonstrated unit for management in Figure 2. In this further discussion it should be understood that there is not only one but there are actually many networks since the organization may form and be involved in different networks in different parts of its activities. That is to say that there are many such different networks to manage simultaneously. The netwrok perspective A few more words should be said about the network perspective before the analysis of challenges for organizations. There are three basic building blocks: (1) actors;

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Figure 2. The unit of management

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(2) resources; and (3) activities. These are related to each other in the following way. Actors have knowledge of resources and control them. Actors have knowledge of activities and perform them. Activities change or exchange resources. Actors exist on all levels from individuals to companies. Resources include human, physical, and financial. Activities include transformations and transactions. The three building blocks and their relations constitute the network that is used for the analysis. See Figure 3. Challenges for organizations The analysis touches on many ways in which operations management is and will be influenced by the development of industrial networks. On some issues there are actual choices to be made, on others one can only prepare to deal with the changes. A fundamental preparation lays in the soft issue of changing perspective from units and dyads to networks. This will be discussed first. Then further implications for operations management are elaborated and commented on. The analysis follows the network perspective with its three basic building blocks actors, resources, and activities and their relations. At the end of each section follows reflections about questions (Q) and/or hypotheses (H) that appear important for further discussion and research on operations management in industrial networks. Shifting perspectives the organization in a network perspective What can be said to be the corporation or business unit in this multi network structure? The core essence of a business is the value creator for the customer. Its ``raison d'e tre'' is to provide value for the customer by offering a function that the customer is willing to buy. The corporation is focused on developing that function through system integration. It will create the best possible demanded function by putting together the best sub-systems from the best sources. The new corporation is not one company or a specific organization that has a clear boundary. Rather, the system boundary can be defined

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Figure 3. The network perspective

differently in different situations and for different parts of the business. Or changing from a systems to a network perspective: Different actors control different resources and perform different activities that uses different resources while these actors, resources and activities do not overlap fully in one organizational unit. In this perspective the classic concept of an organization fades away. The network becomes the prime unit of management, not the company. The organization is extended, hollow, virtual, or whatever buzzword is preferred. Q. What really differentiate network management skills from unitary and dyad management? H. New network management tools are relevant and hence needed. Actors, from individuals to companies OEM companies are actors who can be expected to increasingly offer new functions and product characteristics rather than just new products. This raises demands on competence in feature and systems engineering and problem solving. New actors form new business models that create new forms of competition. One measure for the OEM to take can be actual development of navigator or agent functions that in turn can work with many resources beyond the earlier organizational boundaries. The understanding of a business is changing with the industrial networks. An increased focus on value networks (in stead of value chains) can be expected when more units are interrelated. What value is created in each position in the network, what costs are involved and who is willing to pay what for that? In the global competition it is important to manage or at least have some control over the value chain all the way to the customer. The OEM is threatened from both directions in the value chain. First tier suppliers are becoming bigger and stronger. Agents are threatening to take much more out of the margin if the OEM cannot produce unique product offerings. Q. What characterizes different positions in a network? Q. What strengths and risks arise from different positions? Q. How is feature engineering managed? Resources, human, physical, and financial The undertaking of operations is to a large, maybe major, proportion taking place through resources and activities external to the organization. The perspective of the organization will have to change not only from a closed to an open system but to a multistructured body or network. The company as an entity is less clearly defined. Potential operations resources in the network organization have no clear limits. The managerial unit can be said to change from the enterprise to the extraprise. That extraprise is built on the core company being the central actor in its network, together with other actors, other resources, and other activities in its network. The company will of course be involved in different networks and they will look different at different times.

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Many organizational units then form the operations system. They will often have market rather than hierarchical relations since they often belong to different legal entities. The formation of the networked resources has to be continuously evaluated and frequent changes can be expected. There is not one organization with specific structure, roles and responsibilities. The organization of the moment is task dependent where a temporary task oriented structure will be a natural setting. It brings us to an almost paradigmatic shift in perspective; that of continuous organizing instead of there being an organization. The task dependence may be seen as if the concept of division of work (Smith, 1776/1994; Taylor, 1911) is being restored to its place of honor. However, the locus of interest is not division of work between workers but between productive units around the globe. Activities are ideally allocated to where they are carried through in the most effective way. Hence the importance of economy of scale is moving from the individual production unit to the global production system when productive units are ``focused plants'' (Skinner, 1974) in a global set of operations (Carson, 1998). Not only production but also other functions are allocated with global considerations for division of work. Product development can be allocated where the best engineers are found and management where executives like to live. The employee will then have less physical and organizational phenomena to cling on to. Instead (s)he will naturally associate with the business or project. Q. How is the ability of networked resources to contribute to different actors assessed and evaluated? Q. How do we describe and analyze ties between networked operations resources? H. There is a need for a new form of contract with individuals. H. There is a need for a new form of contract between actors. Activities, transformations and transactions What is then the way of managing activities in the network organization? We may get the most feasible instruments from studying management of supplier relations, joint ventures and other external activities. It is proposed that primary managerial tools will be strategic management tools like visions, objectives, goals, and policies, for many reasons. One is the fast development leaving less time for detailed technical communication. Another reason is that sourcing increasingly takes the form of strategic outsourcing. Then partners need to have a good understanding of what the OEM wants to achieve, not only comply with specifications. A third is that actors in the network will often be rather competent and self-sustained meaning that less detailed communication is needed. One effect of the global network organization on relations is a move from hierarchical to market like transactions inside as well as outside the traditional organization. Another is more international transactions. Because of a higher number of market type relations there is an increasing demand for skills in

many kinds of negotiations. A higher number of international intercultural settings where the individuals are little used to each other and each other's languages will increasingly be a natural working environment. Transformations and transactions do not only take place in individual companies and dyads but in complicated networks of actors. The feeling of belonging will then move from the own organization and its business relations to a complicated network of relations in a flock of actors. Q. What demands are there on managerial instruments in the networked organization? H. The importance of trust in dyads is replaced by a new form of social relation based on flocks. Actors have knowledge of resources and control them With the corporation's task to be a value creator for the customer, the role of management will be to build an organizational system that is the best possible value creator and function provider. This task of building and developing a network involves being a network boundary definer concurrently with being network developer, internally and externally. For each emerging network the actor in form of the company is involved in the actor in form of the manager must be the resource contractor, again externally as well as internally. The best possible resources must continuously be contacted and negotiated. Consequently managers will more and more have to deal in market relations rather than with hierarchies (Williamson, 1975). Production units form a global plant network. The production function will be an actor with many inter-relations, both for the exchange of technical knowledge and for the purpose of logistical flows. Global products are being developed using global systems, but using local inputs and taking global differences into account. Q. Negotiation skills are a rising needs for operations managers. Q. What creates network loyalty? Q. How ``sticky'' are different forms of ties? Q. How are different external actors and operations resources contracted? Actors have knowledge of activities and perform them The focus of management is changing from the individual company to the global network. Managers will act in the networked organization. Different activities may take place in different locations. Activities are allocated according to a global division of work concept. Management as well as unions will increasingly deal with the strengths and weaknesses of the extended network in which they are involved. Both outside and inside the company there are market-type relations with many entities. The whole organization changes in the direction of a ``projectified'' organization since organizational units are increasingly task contingent and temporary. The project becomes the key actor. Eventually there is a vision of a network with projects only.

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The projectified organization demands more and more of its members to understand the whole of their specific business. A consequence is more crossfunctional activities with little specialization and increasing need for understanding the whole business. Another aspect of managing the network organization comes from the philosophies of sourcing. In a projectified network organization where each technology level as discussed is focusing horizontal technologies and sourcing vertical technologies there will be a lot of sourcing. Understanding procurement and sourcing skills tend to be a must for many members of the network organization. The individual operator issues purchasing orders to a supplier and integrates purchasing in his/her work role. The product engineer buys technical development, the process engineer buys equipment, and the salesperson market information. Due to this integration of work roles (e.g. feature engineers) we see fewer and fewer staff or indirect personnel in the network organization. H. Projectified organizations replace other types such as functional ones. H. The projectified company outperforms functional organizations in speed and innovativeness. H. The projectified company risks becoming too shortsighted. H. The projectified company will need more process supporting staff. Activities change or exchange resources Specifically the idea of technology levels leads to a kind of ``black-boxprocurement'' at different levels of and different directions in the network organization. As an effect it becomes important to develop skills in communicating characteristics of interfaces as well as integrating technologies into product features and functions. To understand and practice these new forms of communication, hands-on skills in knowledge management may be a tool. The network organization with its many resources and relations will have a tendency of being ever-developing. Competitors, partners, suppliers, and others inside or outside the several networks the company is engaged in may act anywhere anytime. Then time becomes an important competitive factor why we will need new ways of registering and assessing our utilization of resources. One consequence is that we need better ways of observing how we use time. H. Buying functions will be a major engineering skill. H. Hands-on knowledge management skills among a high number of associates will create considerable competitive advantage. H. There will be a change in attitude from planning to action. H. Managing time becomes a critical managerial skill. Discussion In this essay challenges for organization and management of operations have been discussed. The point of departure was driving forces that characterize the organizational environment followed by organizations' strategies in different

areas. A knowledge-focused analysis dealt with strategies and organization of the knowledge network. The analysis of effects on operations management is done from a network perspective with actors, resources, and activities. The outcome is of course a result of the perspectives taken in the analysis. There is no right perspective on operations management. Here a network perspective is taken and hence the results describe and analyze the operations system as a network. Network studies contain a variety of forms, terms and theories with approaches such as agency theory, resource dependence, population ecology and transaction cost studying networks such as supply networks, agreements/joint ventures and regional industrial systems (Nassimbeni, 1998). The focus in this essay is limited to a managerial perspective on inter-organizational relations. Doubts may be raised whether this is a representative or fruitful perspective to analyze challenges for operations management. There may be no answer to that question. However, it can be argued that the industrial network perspective adds some dimensions to the conceptual framework for operations management. Hence, there may be a bit of contribution to an ``architecture'' for operations management. It will probably be difficult to claim validity in an emerging architecture for operations management. Hayes (2000) writes on ``Toward a new architecture for POM'' but refrains from defining one and instead underlines the importance of developing such architecture in close collaboration between academics and practitioners. To this can be said that this essay is based on numerous longitudinal field studies and the framework has been applied in clinical research with dozens of companies. However, as stated in the introduction, the discussion is based on an empirical context of companies producing complex products with considerable final assembly although found to be applicable in individual service organizations. When perspectives are changing or added there is not only a need for new thinking but also a need to get out of earlier paradigm. Hence, an overall conclusion may be on the need for un-programming the mind from the paradigm of managing an organization with dyad relations to a paradigm of managing the continuous organizing of a network.
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