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Orchestration: Most Evident in Its Absence

The need for network orchestration can be seen most clearly in its absence, in the failures of offshoring, outsourcing, and strategic alliances. Several recent studies have concluded that half the organizations that shifted processes offshore failed to generate the financial returns they had anticipated.9 A study by Deloitte Consulting found that major stumbling blocks include governance, management attention, and change management.10 Companies have also turned to alliances, mergers, and acquisitions to achieve global reach and growth, with worldwide deal flow reaching $2.7 trillion in 2005. But studies have found that only about 40 percent of all mergers and acquisitions (M&A) deals are successful in achieving their goals. (Some estimates put the figure as low as 25 percent.) Strategic alliances are also fraught with risks, with almost half of them failing. Culture and integration issues are a big part of the problem, so success rates can be improved significantly by having a dedicated alliance function within the firm.11

One of the primary reasons global outsourcing and offshoring, as well as acquisitions and alliances, often fall short of their potential is that managers have not recognized the importance of orchestration. This is the missing piece of the puzzle. It is different from managing a typical internal process. It requires a more fluid approach that empowers partners and employees, yet demands that control be maintained at the same time.

Networks need orchestration. In spite of the mythology, networked enterprises are not grassroots democracies, as they are sometimes portrayed. They are very different from the enterprises of the past, but when they work well, they have a structure and governance that, while distinctive, is rigorous. These networked enterprises do not just run themselves. They are designed and managed through network orchestration.

For example, although Wikipedia is democratic, it is not a completely open playing field. A network of some 13,000 writers and editors keep an eye on entries to ensure that they are kept current and accurate. Editors weed out nonsense pages, prevent the malicious rewriting of history, and ensure continued development. The architecture of the community, which often is forgotten in celebrating its populist origins, is largely responsible for ensuring that Wikipedia and other open-source projects don't disintegrate into chaos. Active orchestration of this network seeks to ensure that it produces something of value.

A core set of Wikipedia entries has been "protected" so they no longer follow the celebrated "anyone can edit" policy. These entries, such as "Albert Einstein," "George W. Bush," and "Adolph Hitler," were particularly susceptible to vandalism or "drive-by nonsense," in the words of founder Jimmy Wales. A 14-member arbitration committee also serves as the court of last resort for disputes about entries. Founder Jimmy Wales ultimately has the last word on difficult issues.12 For open-source software collaborations such as Linux, a governing body ensures tight oversight and control of the work of the diffused community of programmers.

The success of the community depends upon its design, its governance, and the processes around which it is organized. Wikipedia has no autocratic CEO, but it has a system for generating and vetting entries that helps to improve the network and ensure that it operates according to a set of core principles. In a supply network, this role of governance and design is played by the network orchestrator. The orchestrator ensures that the collective wisdom of the crowd is tapped and that the network thinks and acts more wisely than any individual member.

Social networks such as MySpace and YouTube, on the other hand, which are less designed to produce a collective product, have less of a need for this governance and orchestration. They are channels and marketplaces, facilitating interactions or transactions. They are valuable in their own right, but because they are focused less on creating a collective deliverable from the network, they have less need for network orchestration. Manufacturing, on the other hand, is at the other extreme. Orchestration is essential. Otherwise, how can you be sure to turn out 100,000 perfect shirts at the end of the line?

Li & Fung is a network orchestrator in its purest form. The company owns no factories, no needles, and employs no factory workers. Other networked companies might modify this approach to their own needs. But where there is a network, there is a need for network orchestration. Someone has to play the role of orchestrator in the flat world. It could be the company itself, its partners, or an outside orchestrator. This role of designer and manager of the network is a new role and a new capability, which is often overlooked. But it is perhaps the most important capability for competing in a flat world.

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