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Research on Management Innovation of Traditional Chinese Enterprises in Network Economy Era 1 2 FU Haiyan , BAI Danxia 1. Department of Business,Northeastern University at Qinhuangdao, P.R.China, 066004 2. School of Business Administration,Northeastern University, P.R.China, 110004 Abstract In the background of economic globalization, the development of all new network economy modes which are based on the Internet and electronic business is becoming a new rise of world economy. This article studied the effects of the network economy on the management mode, organizational structure, produce mode and competition mode of the Chinese traditional enterprise. The measures for implementing the management innovation of Chinese traditional enterprises in network economy are put forward as follows. The enterprises should be rebuilt using the information technology and network technology. The informational and networked administration mode should be designed based on own core ability and competition advantages. The upstream and downstream of the supply chain should be effectively combined. The individuation service should be supplied. Key words Network economy, Network economy age, Traditional enterprise, Electronic business, Management innovation 1 Introduction Since the early 1990s, with the rapid development of information and Internet technology, the network economy began to emerge and developed quickly. As a new economy form different from agricultural and industrial economy, not only did network economy accelerate the economic globalization, it also caused a sound change on the type of production and living in the human society. Nowadays, the development of network economy has become an inevitable trend, and the development condition of one country’s network economy has been regarded as an important standard for measuring its national power[1]. At present, the growth, integration, and sophistication of the information technology and communications are changing our society and economy. The changes of the style of life, working, and thinking are caused by the appearance of the Internet which can not be limited by time and space, and it can break the borders of countries and areas and lead to the human being to share the global resources and implement free trade. Consumers and enterprises have been particularly quick to recognize the potential and realize the benefits of adopting new computer networks. Consumers now routinely use computer networks to identify sellers, evaluate products and services, compare prices, and exert market leverage. Enterprises use networks even more extensively to conduct and re-establish production processes, streamline procurement processes, reach new customers, and manage internal operations. Under the background of economic globalization, the Internet is playing an important role in increasing the competition ability of global enterprises. In 2005, the trade value in electronic business had reached 740 billion Yuan (RMB) in China, which is 50% more than that in 2004. The consumer amount of online shopping had reached 22 million, which is 6 million more than that in 2004. In order to accelerate the application of electronic business, Chinese government initiates the enterprise network project, which encourages the enterprise to begin the electronic business activity through the network. Up to now, the amount of the registered enterprise domain name has occupied over 80% in all domain names. The development of the absolutely new commerce mode based on the Internet and electronic business is becoming into a new increasing factor of the world economy. In this article, the influences of the network economy on the enterprises are studied, and the concrete measures to innovate Chinese traditional enterprise management are also expatiated. 2 The Influences of the Network Economy on the Traditional Enterprises 1046 As a new economy mode, the network economy makes the Industrial Business become E-Business, and brings the business strategy, information technology, the role of senior management, organizational knowledge processes, corporate assets, and organizational design many changes, as depicted in table 1[2]. Strategy Technology Management Knowledge Assets Organizations Tab.1 Transitions to the World of E-Business Industrial Business E-Business Prediction Anticipation of Surprise Convergence Divergence Compliance Self-Control Utilization Creation & Renewal Tangibles Intangibles Structure Edge of Chaos The network economy has a great influence on production, exchange, distribution, consumption mode in the condition of traditional economy. The economic operational mode social economic value standard and increment mode of traditional economy have been remodeled. The application of the network technology has cut the costs of the collection transmission, and processing of the information, reduced the trade cost of the total economic activities, and also increased organization performance and productivity, changed the industrial structure and economic structure. 2.1 The changes of operational modes The electronic business based on the Internet greatly changes the operational modes of the traditional enterprise, and it is not limited by the time and space and leads the human being to implement the global resource share and free trade. The electronic business reduces the midst link, shortens the trading time, decreases the operating costs, and extends the business scope. By using the Internet, each link from purchasing to sale can become electronic, interactive and facile. Wal-Mart, for example, is famous for its ability to combine information from companies across their supply chain with demand and inventory data from its stores to minimize operating cost and reduce prices. It has about 3000 branch stores and 40 distribution centers in the global. Using the Internet, the company’s headquarters can facilely contact branch stores, distribution centers, and all suppliers in the global to supplement the goods, add to the order, and decrease the inventory. 2.2 The changes of the organization structure The form of the organization structure of traditional enterprises is pyramid-like. In this organization structure, the right is concentrated in the top of the pyramid, and the information and instructions have to be transferred from the top to the lower. This organizational structure emphasizes on the labour distribution, right and responsibility, concentration and sequence. The operation and communication of the organization strongly depends on the arrangement of the grade system and the position authority. However, under the network economy, the borderline between departments in the organization structure becomes ambiguous, and the horizontal information communication is dominant in stead of the vertical information communication which is dominant in the pyramid-like organization structure. Cooperation and knowledge share take the place of the restricting and blocking the passage of the information between departments. The administration span is widened, and the administration links is decreased. The organization structure is becoming flat, until form the network-like planar organization. This structure is round. The leader is in the center position sending the instruction to the outside terminals. The middle administrators who transferred the instruction from top to lower in transferring chain is not needed. Networking and flattening of the organization structure rebuild the relationship between employees and function. Employees are assigned according to the requirements of tasks. Tasks are not invariable. Departments are dependent and supporting each other. 2.3 The changes of the production mode With the wide adaptation and application of the network information technology in enterprises, the network has already become the main media and applicable place in each link in the enterprise value chain. Many operations, such as product design, manufacture, marketing, network auxiliary sale, and auxiliary transportation are mainly carried out by means of the Internet. On-line product manufacture , 1047 , and service will become the main management style of enterprises in the network economy era. Each production link contacts each other by the Internet, many production processes can be in operation at the same time. The traditional linear production became the concurrent production in the condition of the network economy, and then a lot of unnecessary waiting time can be saved. In the auxiliary production department, the scientific network auxiliary transportation system can help to greatly increase the efficiency of the cargo transportation[3]. In addition, a new production organization style, i.e. virtual perpendicular integration occurs in the network economy. As leaders, the well-known world enterprises possessing famous brands give the production process to the downstream suppliers by OEM Original Equipment Manufacturer . The design and marketing are the only things they make. Moreover, it should be note that the enterprise size is not important in the network economy. Because the threshold for entering the virtual market is very low, each one can supply immaterial products to the global market, and they needn’t to have production equipments themselves. 2.4 The changes of competition style The competition ability of enterprises is affected by many factors, such as the environment, resources, and the system. Michael E. Porter[4] indicated that the cost advantage and product difference are the most important for the enterprise competition. Essentially, the enhancement of the enterprise competition ability must be based on the advanced technology. The use of the information technology will strengthen primary competition advantage or form the new competition advantage of enterprises. For example, banks expand businesses on the Internet making every one deal with all businesses which had to do in the bank beforetime on any computer entered the Internet. This new service style brings many conveniences to people. The deepgoing social reform caused by the network economy is faced to any enterprise. Many traditional enterprises have been aware of the importance of the network economy from the height of strategy. Taking part in the network economy development is the only choice for enterprises to expand the new business channel and enhance the competition ability. ( ) 3 The Concrete Measures to Innovate Chinese Traditional Enterprise Management China is the follower of the network economy. Limited by the economy development stage and the national economy informatization horizontal, China has a big gap from developed countries in network economy development. The technologic environment, legal environment and the market environment are not good enough to the development of the network economy, such as the very high cost of using Internet, lacks of the system of payment and distribution condition, imperfect systems of information security authentication, electronic payment of bank and the community credit. These negative effects greatly limit the course of informatization and the network. In China, the informatization horizontal is low. Most enterprises can not regard the informatization as the inherent requirement in the self-development of enterprises. The engraftment of traditional enterprises with the network economy is only in the primary stage. Electronic business is a traditional business based on the electronic, network. The traditional enterprise can do many things by means of established websites, such as information publishing, customer service, network marketing, and market expansion. However, the combination of most companies with the network economy is only limited in establishing websites for self-advertising due to the limitations in cognition and the difference in understanding to the network economy in China. Therefore, traditional enterprises must do the following things for the engraftment with the network economy. 3.1 Rebuilding enterprises by application of information technology and network technology Considering the information strategy of the enterprise, the technical reconstruction for the traditional management style should be performed by applying the electronic information technique. This will promote the upgrading and optimizing of enterprise structure and advance the reform of enterprise management system and the innovation of operation pattern, reforge the business process and organizational model raise the level of operation and management of business process. , 1048 3.2 Building core ability and competition advantage Different enterprises should design their own management mode of informatization and the network and business mode in developing electronic business according to their own core ability, the competition advantage, the macro environment, and the change of marketing. The concrete procedures are as follows: (1) Building the electronic information management platform and electronic business platform. (2) Building the office automation to satisfy the high efficient computer supported cooperative work. (3) Building the enterprise website and promulgating information. (4) Building the system of electronic business support and the system of enterprises core business management and application, for example, ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), and SCM (Supply Chain Management). Especially, small enterprise can set up a simpler management mode such as using e-mail to advise customers of upcoming sales promotions and new products, or to accept customer orders. They never even build an independent website themselves. They can develop electronic business by platforms of the online transaction, like eBay, Alibaba, and Yahoo. 3.3 Combination of upstream with downstream firms in the supply chain to supply personalized service Electronic business methods enable enterprises to link their internal and external data processing systems more efficiently and flexibly, to work more closely with suppliers and partners, and to better satisfy the needs and expectations of their customers. With the improvement of material life and spiritual life, customers demand more and more personality of the product and service. Supplying the open personalized service is one of the characteristics of the second generation network. It is possible the automatic service become work-for-me which is enjoyed by customers. The direct selling model used in Dell is a typical case of personalized service. The enterprises should implement a transportation planning and optimization system to enhance their downstream supply chain operations[5]. This broad upstream and downstream supply chain co-ordination using the Internet is what we call e-integration. Most importantly, products are delivered quickly and reliably when and where they are needed. 3.4 Strengthening the brand management by the strong combination ability of the Internet The Internet offers enterprises an accessible, low-cost platform for reaching consumers and business partners alike. The brand can increase the loyalty of customers. Loyal customers can help the enterprises to get the huge sale increase and the market share. Loyal customers appreciated regular communication and various other information content from the brand more than mere offers. The Internet has the effects of strengthening the core competition ability of the brand and obtaining the brand equity, which cannot be substituted by other media[6]. Application of scientific methods in building brand can give prominence to the personality and increase the difference of brands. By the Internet the brand globalization can be achieved. The Internet becomes the only media for the potential customer and investor in any place in the world to search and find the enterprises and their brands. 3.5 Accomplishing the network strategy transition At present, although it can’t be predicted the date when the electronic business mode is able to become the main model, the development potential of electronic business market is great. Not only the increase of potential consumer is amazing, but also the increase rate of trade value in electronic business is very speedy. According to the estimate by Forrester, the well-known consulting corporation, the trade value in electronic business can reach 12800 billion US dollars in 2006, which will occupy 18% of the trade value in the global, and the increase rate will be above 30%. In the present world, the electronic business market has a highest increase rate of the trade value and cheerful prospect. Thus, Chinese traditional enterprises must find the right point of contact to develop the electronic business and implement the network strategy transition. These strategies include electronic business profit strategy, customer relationship strategy, and supply chain strategy, etc. In process of the network strategy transition, enterprises should reconsider the consistency, continuity and dependability of the combination of business process, and the market positioning as well. , 1049 4 Conclusion The development of network economy brings us both new opportunities and challenges, so Chinese traditional enterprises must adopt new thought, new sense, new knowledge and technology to confront network economy, follow the development tide of the network economy and innovate the enterprise strategy, the operation pattern, and organization structure in order to enhance their core competitiveness. So and so only they will not be defeated in the global competition. References ~ [1]Debra M. Amidon . Blueprint for 21st Century Innovation Management. Journal of Knowledge Management, 1998, 2(1): 23 31 [2]Yogesh Malhotra. Knowledge Management for E-Business Performance. Information Strategy: The Executives Journal, 2000,16(4): 5 16 [3]Richard K. Cho, Yigal Gerchak. Supply Chain Coordination with Downstream Operating Costs: Coordination and Investment to Improve Downstream Operating Efficiency. European Journal of Operational Research, 2005, 162(3):762 772 [4]Michael E. Porter. Competitive Advantage. Beijing: Huaxia Publishing House,1999:35 53(in Chinese) [5]John McLaughlin, Jaideep Motwani, Manu S. Madan, A. Gunasekaran. Using Information Technology to Improve Downstream Supply Chain Operations: A Case Study. Business Process Management Journal, 2003, 9(1):69 80 [6]Marko Merisavo, Mika Raulas. The Impact of E-Mail Marketing on Brand Loyalty. Journal of Product & Brand Management, 2004, 13 (7): 498 505 ~ ~ ~ ~ ~ 1050