typological issues in enterprise networks

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Typological issues in enterprise networksK.-D. Thoben & H. S. JagdevPublished online: 15 Nov 2010.

To cite this article: K.-D. Thoben & H. S. Jagdev (2001) Typological issues in enterprise networks, ProductionPlanning & Control: The Management of Operations, 12:5, 421-436, DOI: 10.1080/09537280110042666

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PRODUCTION PLANNING & CONTROL, 2001, VOL. 12, NO. 5, 421 ± 436

Typological issues in enterprise networks

K.-D. THOBEN and H. S. JAGDEV

Keywords enterprise collaboration, enterprise networks,conceptual network models

Abstract. In modern manufacturing, a single enterprise doesnot often possess a complete set of resources and skills to oå ercompetitive solutions. Therefore, such enterprises become partof enterprise networks of independent core competencies inorder to produce marketable products. In an enterprise net-work, even smaller enterprises, provided they have uniquecore competencies that are important to the enterprise network,can have a clout that is larger than if they operated alone.Within an enterprise network, the attributes of a small, ¯ exibleand independent partner will augment to that of the network asa whole. Based on the political, economic as well as techno-logical developments of recent years, almost no restrictions areleft limiting the range and scope of so-called enterprise net-

works. Today in® nite variations of enterprise networks havebeen set up. However, there is too little systematic knowledgeabout the behaviour, the structure, the lifecycle, etc. of enter-prise networks of integrated, multidependent nodes. Objectiveof this paper is to contribute to a better and systematic under-standing of the various types of enterprise networks. Relevantdimensions as well as key features by which industrial collabora-tions of independent enterprises can be characterized andclassi® ed will be identi® ed and discussed.

1. Introduction

Industrial collaborations occur because of the eco-nomic necessity. Modern manufacturing imperativesare the production of complex goods under highly com-

Authors: K.-D. Thoben, University of Bremen, Bremen, Germany, E-mail: [email protected] and H.S. Jagdev, UMIST, Manchester, United Kingdom. E-mail:[email protected]

Klaus Dieter Thoben has studied mechanical engineering at the TU Braunschweig. After® nishing his studies, he became a staå member of the Faculty of Production Engineering(Department of Systematic Design and CAD applications) at the University of Bremen, wherehe received his Doctor of Engineering degree in CAD applications in 1989. In the same year hejoined BIBA (Bremen Institute of Industrial Technology and Applied Work Science at theUniversity of Bremen) as Manager of the CAD/CAM Lab. Since 1990 to 1997 he has headedthe Department of Computer Aided Design, Planning and Manufacturing. For years he has beenresponsible for various project management and research functions in consultancy projects as wellas national and international cooperation research programmes and networks on technology devel-opment for industry. For several years he has lectured on various design and production-relatedthemes at the University of Bremen and is currently engaged in co-ordinating a new course onengineering economics. His special interests are organizational issues and applications of informa-tion and communication technologies in concurrent engineering, rapid product development andcustomer driven manufacturing.

Harinder Singh Jagdev graduated from Indian Institute of Technology, Madras, inMechanical Engineering with 1st class honours, in 1974. After working for two years asProduction Engineer at Mercedes Benz, he joined UMIST in 1976. He gained MSc and PhD inManufacturing Technology from Victoria University of Manchester in 1977 and 1980 respectively.Since 1980 he has been with UMIST, working in Manufacturing and Machine Tools EngineeringDivision, Control Systems Centre, and presently in the Computation Department. His researchinterests lie in the development of Decision Support Systems for all operational aspects of themanufacturing industries in the broadest sense and particularly for the job-shop type and process-based semicontinuous production processes. Dr. Jagdev is the editor of the Journal Computers inIndustry and also serves on the Editorial Board of Production Planning and Control. For the past 18 yearshe has researched for and been consultant to many organizations in Europe. For many years he hasbeen proposals reviewer for several Basic Research Framework programmes funded by the EuropeanUnion. He is also very active in many EU funded research programs.

Production Planning & Control ISSN 0953± 7287 print/ISSN 1366± 5871 online # 2001 Taylor & Francis Ltdhttp://www.tandf.co.uk/journals

DOI: 10.1080/0953728011004266 6

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petitive market environment where the cost, quality andtime to market are the facts-of-life. In this so called buyersmarket of sophisticated goods a single enterprise canhardly successfully compete without collaborating withother enterprises that complement its competencies,goods and/or services. To meet these challenges, com-panies have learned to focus on their key competencefeatures (focused factory) and collaborate with comple-menting enterprises to produce a complete range of prod-ucts and services to meet the ever-changing marketneeds.

The increased dynamic of changes demands a quickerorientation on dynamic, unstable markets. To achieveeconomies of scale global markets have to be addressed.Products and production processes have to be adoptedaccording to the emerging diversity of these new markets.Based on the increasing complexity and heterogeneity ofproducts the critical size of a single enterprise for anautonomous engagement on the market has changeddramatically. This problem can be solved by appropriateindustrial co-operations. Especially for SMEs or evenmedium sized companies the co-operation with otherenterprises, whether they are competitors or not, moreoften seems to be the most promising approach to besuccessful on future markets. As the impacts, motivationsand requirements for industrial co-operations are subjectsof alterations, the variety of real life applications willincrease dramatically in the future and will becomemore diæ cult to be anticipated.

Industrial collaborations are not new they have beenwell known for years even for decades. In the one-of-a-kind business, product-speci ® c or project-speci ® c indus-trial co-operations are well introduced for years. OKPcompanies see themselves very often more as a systemintegrator for customer-speci ® c products and less oftenas a manufacturing company dealing with the wholerange of industrial manufacturing including all partsand component manufacturing activities. This has beenrecognized as a critical asset for serial and mass produc-tion only in the last ® ve years. Accordingly manyapproaches as well as methods have been known foryears and have their roots in the one-oå domain. Well-known examples are the formation of temporarily limitedenterprises from large-scale engineering, constructionand shipbuilding industry.

However, the relevance, the need as well as thechances of successful industrial co-operations havechanged dramatically and will become more and moreimportant in today’ s information society.

Industrial co-operations are a complex multidimen-sional phenomenon. As there are ® nally no restrictionseither at political, economical or technological level, thatmight prevent certain types of industrial co-operations ,the potential variety is more or less unlimited.

Accordingly an unambiguous and clear distinction orclassi® cation of typical types of co-operations will becomediæ cult or might even be impossible. However, thereduction of today’ s vast variety of cases to a small num-ber of types will not be suæ cient to get a better under-standing and a systematic overview of the phenomenon ofindustrial co-operations .

In this paper, the focus of attention is on the noncon-tractual and contractual type of collaborations amongindependent enterprises pooling their core competenciesto form so called ` enterprise networks’ aiming to achievea common goal. Enterprise networks considered are com-posed of two or more partners collaborating under avariety of bilateral relationships (Jagdev and Thoben2000).

Analysing typological issues of enterprise networks willsupport:

. a systematic problem analysis and solution synthesiswith respect to co-operating enterprises,

. a more structured view on the vast amount of poss-ible real-life cases of industrial co-operations bycharacterizing these cases in a systematic way,

. the analysis of cases and relevant types of industrialco-operations with respect to typical problemsrelated to decision-making, production planning,etc.

2. Nature of co-operation

In general to co-operate means to act or to worktogether. Co-operation between companies materializesfor one purpose and one purpose alone: self-interest.Potential motivations for setting up a network of co-oper-ating enterprises are short-term opportunities as well asan intended optimization of cost, time and/or quality.Accordingly the added value of a co-operation must bemeasurable for the co-operating companies. Co-opera-tion will usually involve the exchange/sharing of goodsor services or any combination that one can imagine inbetween. According to the literature, there is no commonunderstanding about the term co-operation. However,with respect to production management two majorspeci® cations can be distinguished:

(1) Co-operation in a broad sense comprises all typesof collaboration between organizations , participat-ing in the economic life.

(2) Co-operation in a narrow sense characterizes theclose interorganizationa l collaboration of autono-mous organizations .

422 K.-D. Thoben and H. S. Jagdev

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One of the fundamental market transaction is betweentwo parties where they agree to conduct a one-oå markettransaction. This transaction (® gure 1) consists of custo-mer placing the order, supplier supplying the product/goods and ® nally, the customer reimbursing the supplierfor the goods received. Of course, this three-stage transac-tion could be conducted in one single step as it transpireswhen an individual shops, or, based on the credit worthi-ness (as judged by the supplier) of the customer, duringan agreed time scale. For the present discussion, the issuehere is not the time scale or whether the transaction isconducted face-to-face, but the freedom to conduct thebusiness once this transaction is complete. In the funda-mental market transaction, the customer is free to seekanother supplier for the following transactions for thesame products/goods.

The concept of contract in this scenario is fairlystraightforward. When the goods and payment isexchanged it implies the goods conform to some expectedstandards. These standards could be mutually understoodor de® ned by the supplier or the legislation (consumerprotection). For example if the product is a softwareprogram, it is mutually understood that the suppliedprogram will work according to the given speci® cationsand it will not have any bugs.

Similarly, if a supplier is claiming a certain perform-ance of its products in advertising will form an implicitpart of this transaction. Therefore, if the goodsexchanged are foodstuå s, legislation dictates that suchgoods are of edible quality. The term expected standards isnever ® xed, since there is no explicit written contract.Hence, based on the perspective of the supplier andcustomer, it could be disputable. In those cases, onenormally needs the services of an intermediary party oreventually the courts to ascertain the facts and resolve thedispute.

Aiming at a detailed systematic speci® cation of types,attributes, dimensions, etc. of industrial co-operations ,the term co-operation will be understood as an alterna-tive type of transaction, bounded by the transaction types` Market’ on the one hand and ` Integrated Company’ on

the other hand (® gure 2). These two types of co-opera-tions, market and integrated company, depicted in ® gure2 are the idealized extremes. All possible types of co-operations that can materialize between any two enter-prises lie within these two extremes.

At Market level only Single Market Transactionsoccur. The parties have no obligation to repeat the trans-action of continue the business. However, if they continueto conduct transaction-based business over time, con® -dence between the parties could increase, resulting inthe breakage of the explicit link between the exchangeof goods and the payment. For example, once the creditworthiness of the customer is established, the invoicingand payment cycles need not synchronize with the dis-patch of goods. At the other extreme, all parties belong-ing to a single enterprise are expected to co-operate fullyand direct their eå orts towards a single goal.

3. Conceptual model of enterprise networks

Figure 3 depicts the interrelations between customer(demand), product, production process and manufactur-ing resources from a systems point of view.

In general products can be described by threesigni® cant attributes: Quality and product functionality,time (availability on market) and cost (price on market).The underlying demand for a product can occur in twoways: A customer requires the product and comes onmarket for its purchase. Secondly, a market survey of amanufacturer ascertains a need (a potential market) for aproduct, which triggers its production. Since the trend istowards customer driven manufacturing, these threeattributes will be in¯ uenced directly or indirectly, bythe end (or perceived) customer. Once the attributesand saleability of a product is established, it requiresproduction process to manufacture it. Productionprocess will require manufacturing infrastructures tomanufacture it to the speci® ed attributes.

For decades the classical approach of an enterprise wasto invest in the required resources and thus to realizeproduction process by using its own resources. This haschanged dramatically. Today no single enterprise is ableto provide all manufacturing resources as well as compe-tencies necessary for the realization of the ever-changingcustomer demand. Enterprise networks as a dynamic,

Typological issues in enterprise networks 423

Figure 1. Fundamental market transaction.

IntegratedCompany

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Expected Figure 2. Range of co-operations (see also accompanying paper in this issue).

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inter-enterprise con® guration of manufacturing resourcesand competencies have become a promising alternativein oå ering the requested manufacturing infrastructure.In the following the term ` enterprise network’ charac-terizes a suitable collaboration of two or more co-operat-ing enterprises, aiming at a common and collaborativerealization of a certain product and/or service. Thus, theterm enterprise network is always related to a speci® cproduct and/or service.

Diå erent partners of the enterprise network, takeresponsibility for the elements of the value chain.Therefore, the generation of the added value can takeplace simultaneously and at varying locations. In aninter-linked manufacturing environment, customer andsupplier relationship becomes a critical asset. The knowl-edge about the capabilities of potential partners isbecoming part of the know-how of an enterprise.

Based on the dependencies within a customer drivenmanufacturing system as depicted in ® gure 3, a concep-tual model of a generalized enterprise network is docu-mented in ® gure 4. Elements highlighted in the ® gure arediscussed in detail in the following sections.

Each enterprise network will have distinct and clearlyde® ned set of members (Nodes), which are usually inde-pendent enterprises. Once a network of enterprises deci-des to co-operate, this network will have a distinct life-cycle, which will be in¯ uenced not only by the respectivepriorities of the co-operating nodes but also by the prod-uct-market combination. Furthermore, each node willhave its own objectives which will in¯ uence the primaryproduct-market combination, which brought this nodeinto the game in the ® rst place. The function of the co-ordinator is to manage the dynamics of the enterprisenetwork. Quite often the role of co-ordinator of the


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Figure 3. Information- and material ¯ ow in a demand/customer driven manufacturing system (Thoben, 2000).

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Figure 4. Conceptual model of collaborative manufacturing system.

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whole enterprise network is taken over by the ® nal assem-bler. However, there may be circumstances where anexternal specialist agent can more eå ectively performthis role.

Goal of the model is to act as a baseline for a systematicview on enterprise networks and to give a systematicstructure to the vast amount of attributes to be consid-ered while forming a new or analysing an existing enter-prise network. However, it is not intended to use theconceptual model as a baseline for an overall modelincluding all possible aspects of enterprise networks.

4. Enterprise network related attributes

Aspects that characterize the overall network from asystems perspective are considered under the category` Enterprise related attributes ’ . The discussion is restrictedto the attributes given in ® gure 5.

4.1. Type of network

In general networks are de® ned by nodes and relation-ships between these nodes. As already stated the mini-mum amount of nodes in a network is two. Byconsidering more than two nodes various types of enter-prise networks are possible. Figure 6 depicts some well-known types of networks.

The communication between any two peripheral nodesin star-type of network will always be conducted throughthe central node. Therefore the central node could be

considered as a ` controlling’ node of the star-type ofenterprise network. The bus-type of enterprise networkimplies some form of ¯ ow of goods or information fromleft to right. In ring-type of enterprise networks there isno unique direction of the ¯ ow of information or prod-ucts. It can take any path. Furthermore, the distinguish-ing feature of the ring-type from star-type of enterprisenetworks is the absence of the central controlling node.Therefore, in ring-type of enterprise network, all nodesare hierarchically equal and any two can communicatedirectly. The tree-type of enterprise networks can be con-verging (as shown in ® gure 6) or diverging (which will bea mirror image of the converging type). In either case oftree-type of enterprise networks, the information andgoods ¯ ow is usually assumed to be from left to right.The controlling node in a converging tree-type of enter-prise network is often the one downstream to operations,


Enterprise Network

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Figure 5. Enterprise network related attributes.

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Figure 6. Types of networks.

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with overall responsibility taken by the extreme righthand node. The diverging tree-type of networks areoften distribution type of networks. In this case the con-trolling node is more often than not the extreme left-handnode. A generalized network is a complex inter-relation-ship among several nodes. The connections between thenodes and the issues of controlling node cannot be gen-eralized and pre-de® ned and they are situation and casedependent.

4.2. Complexity of a network

In a broad sense complexity of a network, as a multi-dimensional attribute, can be characterized by the num-ber of nodes, the number and types of relationshipsbetween these nodes, the dynamic behaviour of the rela-tionships as well as the number and types of products andservices provided by the network. By its very de® nition,there is no physical limit to the technical limit on thecomplexity of the network. However the number of rela-tionships might be limited by the technology to beapplied as well as the dynamic behaviour within the net-work might limit the optimal number of nodes in a net-work. The more the number of partners, the morediæ cult it will be to manage it. Usually, in such complexco-operative networks, node downstream (customer) willinitiate or chase the node upstream (supplier) for goods/services. This request may be triggered internally fromwithin the customer’ s operations or externally by thethird partner.

Creating complex co-operative enterprise networks,bilateral relationships are used as elementary buildingblocks. Real life enterprise networks can be seen asmore or less complex combinations of various types ofbilateral relationships. In general, networks may be com-posed of equal or diå erent types of bilateral relationships(homogeneous versus heterogeneous networks). Toreduce the various types of interorganizational relation-ships known from literature according to Jagdev andThoben ® ve basic types are distinguished in the following(Jagdev and Thoben 2000). In understanding enterprisethe present networks include all types of interorganiza-tional collaborations between enterprises, except rela-tionships of type market or hierarchy. Accordinglyenterprises delivering/supplying parts or componentsbased on a market transaction will not be considered asbeing a member (or a node) of an addressed enterprisenetwork.

Figure 7 depicts the decompositions of a large hetero-geneous network (A). Network A is decomposed into aseries of subnetworks within the de® ned terminologies ofSE (a single enterprise located at two diå erent geogra-phical locations), VE (network D), EE (network C), SC(network B) and MT (network A). In this ® gure, a givennetwork always includes all the links of that relationshipas well as other links that are closer than it.

The complex dependencies within complex networksor between networks are illustrated in ® gure 8.Although there is no direct link between node A andnodes U and T, via node B both nodes might be import-ant for the success of the network A (and B) is involvedin.


Integrated SingleEnterprise (Type SE)

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Figure 7. Enterprise networks based on diå erent types of bilateral relationships.

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4.3. Level of trust between the nodes of a network

Trust between the co-operating partners is a pre-requisite for a successful partnership within an enter-prise network. Usually, when two parties start apartnership (i.e. agree to do business together), theystart with some basic level of trust as expected bythe norms of business environment. However, as thepartnership ¯ ourishes the trust builds and this formsa foundation for ever-closer and mutually dependentbusiness relationship. Apart from the basic trustexpected by the business ethos (and presumably under-stood by the parties involved), the level of trustÐ whichcan have, for all practical purposes, no limitÐ is closelylinked to the behaviour of one party towards the other.The real trust builds under extraordinary circum-stances where one partner is willing to meet the excep-tional requests, above the agreed terms of business, sothat the other partner is not let down. It is such par-ticularly testing situations that establish the real levelof trust between the partners. For example, partner Ahas agreed to supply partner B an agreed amount ofgoods per week. Because of exceptional circumstances(such as a new important customer for partner B),partner B suddenly requires way above the agreedamount of goods for the following few weeks. If partnerA is willing to go extra lengths (say, by increasing itsovertime levels) to meet partner B’ s increased require-ments, then partner B will perceive partner A to bemore reliable and hence more trustworthy.

These subtle behavioural responses of partners play anessential part in the development of trust. This is par-ticularly so in the development of perception of trust.Authors believe that often the perceived trust is moreimportant than trust itself. It is the perception oftrustÐ that is how one party perceives (never mind thereality) the trustworthiness of the other partyÐ thatdetermines the evolution of the longer-term and ever-closer business partnerships.

Childe [1998] classi® es the trust in three headings:goodwill, contractual and competence trust. Goodwilltrust, by which a partner is trusted to take decisionswithout unfairly exploiting the other partner.Contractual trust is the keeping of promises, such asdelivering goods or making payments on time, or main-taining the con® dentiality. Competence trust dependsupon the technical and managerial competence of thecompany to perform a function, such as to deliver com-ponents within speci® cations.

Normally the development of various types of trustfollows a clearly de® ned trajectory, as depicted in ® gure9. Companies agree to do business based on some level ofgoodwill trust. As the partnership progresses, the per-formance of each partner gets validated by the otherand if acceptable to both parties, they agree to formalizetheir collaboration in the form of longer-term contracts.As the contractual agreements progress, competence ofthe partners comes into play, and the resulting evolutionof competence trust. Therefore, high level of competencetrust would need to exist where a supplier is allowed tomake deliveries straight to the assembly line with noinspection.

4.4. Distribution of risks and bene® ts

As it is applicable to ascertain the strength of a chain, anetwork is as strong as its weakest node. Therefore, tooptimize the performance of the whole enterprise net-work, one not only has to optimize individual nodesbut to optimize network as a whole. Hence, a balanceddistribution of risks as well as pro® ts within the enterprisenetwork is a prerequisite for a successful co-operation . Asan enterprise network can deliver a broad range of prod-ucts and/or services the distribution of added valueachieved within a network might vary order by order.Examples are the increasing number of networks ofSMEs, craftsmen organizations , etc. oå ering full-servicesin the area of building construction, maintenance ofenergy/water supply systems.


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Figure 9. Evolution of trust.

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The survival of a network is endangered if there is noadded value to be achieved by the overall activities of thenetwork. In general partners who cannot perceive anyadded value by co-operating with others will concentrateon their individual activities and will not put suæ cienteå ort into the network. Mutual bene® ts in terms ofshared added value become a stabilizing factor for a co-operative behaviour in a network (Kiesel and Klink,1998). Accordingly, by supporting in improvement atthe supplier, rather than trying to drive down theprice, the principal company in a supply chain assistsin reducing cost rather than reducing the pro® t at thesupplier (Childe 1998).

4.5. Dynamic behaviour of a network

Bilateral relationship as well as the network itself willoften change over time according to the maturity of aproduct, the stability of a market and the priorities ofthe partners, etc. Depending on the mutual interests,two independent companies could merge into a singleenterprise. On the other hand, market conditions maycompel a large company to sell of its non-core divisions.Between these two extremes there is almost in® nitevariety of ` getting together ’ and ` going apart’ scenariospossible. A network need not be stable over time, indeedit rarely is. The functions of a node may evolve over timethat may in¯ uence its place/role in the network. Eventhough the scope collaboration between the nodes of anetwork may be very large, the relationship can be cate-gorized within well-de® ned paradigms, such as supplychain, extended enterprise and virtual enterprise.Accompanying paper in this issue (Anatomy of enterprisecollaborations) elaborates further on these categories.

4.6. Life-cycle of an enterprise network

As a product has to pass through the various stages ofits life-cycle (from idea to recycling) the lifetime of anenterprise network depends on the success of the oå eredgood or service and can be described by at least 4 sig-ni® cant life-cycle phases (® gure 10):

(1) Preparation of a network (Sourcing of partners)(2) Setting up of a network (Legal issues, contracts,

etc.)(3) Operation of a network (Day-to-day management

of the network)(4) Decomposition of a network

A prerequisite for a frictionless operation is an eæ cientinterorganizational product data- and process manage-ment (Reinhart and Radnov 2000). The duration of theoperational phase of an enterprise network can be classi-® ed based on the premise and understanding underwhich the nodes of the network co-operate.

4.6.1. Formal duration

The formal duration of a co-operation describes thecontractually ® xed duration of that co-operation. It canbe classi® ed as unique if the intention is to realize just oneproduct/oå ering based on a speci® c customer request.The co-operation can be classi® ed as limited if the inten-tion is to realize a ® xed series of products or a product-line or it can be unlimited. Accordingly groups of enter-prises might co-operate in a network environment aimingto oå er an additional product or service on the market.An enterprise network can be seen as a problem orientedcon® guration of competencies according to market/cus-


Operational DecompositionSetting UpPreparation Operational DecompositionSetting UpPreparation Operational DecompositionSetting UpPreparation

Figure 10. Signi® cant life-cycle phases of an enterprise network.

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tomers needs (Goldman et al. 1994). Based on an actualrequest some nodes of the network are going to ful® l theorder along on order speci® c value chain.

Traditionally the duration of a co-operation betweencompanies is linked to the execution of a customer spe-ci® c order and the delivery of the related product. Asespecially in the capital goods domain problem-solutionsinstead of ` pure’ products tend to be requested, productrelated responsibilities would be extended to the opera-tional phase and the disassembly of the product as well.Relationships of co-operating enterprises and the relatedco-operation may change over time. They might improveor deteriorate. In other cases, a co-operation might be thepreliminary stage for an integrated organization (e.g.take-over of a co-operating partner). Nevertheless, onecan expect that the variety of cases will still increasewhereas the formal stability and the formal durationwill decrease. However, if the formal duration of a co-operation is going to be ® nished the dissolution of theenterprise network should be clean, amicable and witha minimum of damage to either partner.

4.6.2. Informal duration

The informal duration of a co-operation is character-ized by the mutual con® dence enterprises put into a co-operation. Whereas a formal co-operation is actuallyrestricted to the delivery of one product, the informalagreed co-operation might be unlimited. In this contextit should be mentioned that, from the theory of gamingpoint of view the repetition of an interaction or even theexpectation of a repetition is essential for someone’ s co-operative behaviour. People act in a co-operative mannerif they expect an additional interaction, if not, a non-co-operative behaviour might be more eå ective and moresuccessful (Wurche 1994). Taking learning eå ects intoaccount both the ® rst co-operation and the second,even it’ s a ` second unique’ one, will make a pro® t froma co-operation based on mutual con® dence. The informalduration of a co-operation might be supported by con-tractual agreements like co-operation agreements, lettersof intent, etc.

4.7. Geographic dispersion of a network

The market is where the customer is. Accordingly net-worksÐ or at least a node of the networkÐ have to activewhere the customer is. However to avoid tolls, networkstend to invite regional or local nodes to participate in anorder speci® c network. In general, the geographic disper-sion of a network is more important where tangible goods(see section 6.1) need to be transported or nontangibles in

terms of services have to be provided directly to thecustomer. For nontangibles such as information/data,the resulting product can be electronically transferred,via the web, around the globe almost instantly.

4.8. Boundaries of a network

The issue of de® ning the boundaries of a network issubjective, because it depends on the view and the per-spective from which one is looking at the network.Authors believe that it is not possible to explicitly de® nea single generalized de® nition. However, followingaspects could form the point from where the boundariesof a network could be studied:

Closeness of relationships between the nodes: The four-wallsof a factory is one basic boundary. This boundary couldbe extended to include other plants and distribution cen-tres belonging to the same parent company. Furtherextension to the boundary could include all other enter-prises with which it has co-operations based on virtualenterprise, followed by the extended enterprise based co-operations through to supply chain based agreements.The superset of network based on this de® nition willinclude all partners and systems up to the point whereone-oå transactions occur (see also section 4.2 and ® gure7).Product to be provided by the network: Without consideringthe type of relationship or the type of contract one couldde® ne the boundary based on the complete productionprocess, from raw materials and their suppliers to theselling of ® nished product to the customers. It mightalso include the enterprises involved in the recycling ofthe products at the end of their useful life.Information and communication technology (ICT): ICT canextend the boundaries of an enterprise (Konsynski1993). ICT allows closer linkages among the key partnersof an enterprise network. Thus allowing outside processesto be seen as extensions of internal processes, resulting inthe eå ective extension of the boundary of the enterprise(see Figure 11). Accordingly an enterprise network mightbe seen as an individual enterprise that is able to control


Traditional Boundary

Extended Boundary

Traditional BoundaryTraditional Boundary

Extended BoundaryExtended Boundary

Figure 11. ICT initiated extension of enterprise boundaries.

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all (outside and inside) processes in the same way,through having developed control and co-ordinationsystems and through the appropriate deployment of com-puter and communication technologies.

The reach to which an enterprise can directly in¯ uencethe operations of another enterprise could de® ne whetherthey are within the same boundary. Based on the ® nancecriteria, the boundary could be de® ned including thoseenterprises that meet certain ® nancial agreements withsuppliers and customers.

It is worth noting that with all these de® nitions, atleast the boundary depends upon the criteria one sets.The looser the criteria, more enterprises will fall withinthe boundary of the network.

5. Node related attributes

Node related attributes characterize the role, thepower and the behaviour of an individual node withinan enterprise network. The key attributes than can in¯ u-ence the Node’ s behaviour within a network are depictedin ® gure 12.

5.1. Strategy of a node

The strength or weaknesses of a node within an enter-prise network, will argment or retard respectively, theperformance of the enterprise network as a whole.Therefore, the operating strategy of each node shouldbe to ful® l satisfactorily its assigned and expected respon-sibilities for the success of the enterprise network. If thestrategy of a node deviates from that of the networkstrategy, it will retard the performance of the whole net-work. It follows that there is no point in inviting world-class partners into a network if they are not fullycommitted towards their expected responsibilities in thenetwork.

The increased global distribution of industrial produc-tion leads to a new, less stabilized balancing of power. Ina dynamic, heterogeneous, ever-changing environmentthe value of a company will depend more and more onits core-competencies, its in¯ uence on market demand aswell as on its ability to co-operate in industrial networks.Accordingly each enterprise (node) tends to stabilise orstrengthen its position within the network.

Direction of expansion of the in¯ uence, and the result-ing improvement of its strategic position, will be dictatedby the Node’ s current position within the Network. Forexample, a ` Jobber’ Node could enhance its position byexpanding its core competencies, as illustrated in ® gure13.

5.2. Anticipated bene® ts for a node

Companies co-operate for one purpose and one pur-pose alone: self-interest. Co-operation does not end initself. Accordingly the added value of a co-operationmust be measurable for each of the co-operating com-panies. However, within a given enterprise network thestrategic value of the co-operation as well as the value ofeach bilateral link depends on the individual situation ofthe node and could be diå erent for the various nodesinvolved in the network. The contribution of a singleco-operation may encompass as high as greater than


Node

Enterprise Functions Affected

Strategy of the Node

Anticipated Benefits for the Node

Position in the Value Chain

Influence of the Node in Network

Number of Cooperative Arrangements

NodeNodeNode

Enterprise Functions Affected

Strategy of the Node

Anticipated Benefits for the Node

Position in the Value Chain

Influence of the Node in Network

Number of Cooperative Arrangements

Enterprise Functions AffectedEnterprise Functions Affected

Strategy of the NodeStrategy of the Node

Anticipated Benefits for the NodeAnticipated Benefits for the Node

Position in the Value ChainPosition in the Value Chain

Influence of the Node in NetworkInfluence of the Node in Network

Number of Cooperative ArrangementsNumber of Cooperative Arrangements

Figure 12. Node related boundaries.

Range of Supplier Performance

Predefined Products andProcesses

System and ProblemSolution Capabilities

Sup

plie

r’sC

ompe

tenc

e Product andProductionKnow-How

ProductionKnow-How

Production Specialist(Single or Multiple Sourcing)

Value Adding Partner

Parts Manufacturer“ Jobber”

Development Partner(Co-Design to Assembly)









Sup

plie

r’sC

ompe

tenc


ProductionKnow-How

Sup

plie

r’sC

ompe

tenc


ProductionKnow-How

Product andProductionKnow-How

ProductionKnow-How











Value Adding PartnerValue Adding Partner





Figure 13. Types of suppliers strategies (after Wildemann 1993).

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50% to as low as less than 10% of the turnover of thecompany. Therefore the overall strategic and economicrelevance of the co-operation may diå er for the variousnodes of a network. Consequently, the behaviour of eachnode of the network as well as the decisions to be taken bythe node will take into account this subjective and enter-prise speci® c view.

A Node’ s membership in an enterprise network couldalso in¯ uence its chances outside the network. For ex-ample, the competitive eå ects of the node may beenhanced by virtue of it being a member of a certainenterprise network. On similar lines the eå ect could beadverse and limiting.

In general, one can state that powerful but indepen-dently acting enterprises are the most reliable partnersand a prerequisite for a stable, successful and long lastingco-operation.

5.3. Enterprise functions aå ected by co-operation

Enterprise co-operations can cover just a single phaseof a product life cycle or multiple phases. Enterprisefunctions with a high potential for an inter-organiza-tional co-operation cover both operational and strategiclevels and can range from R&D through to After SalesService, as shown in ® gure 14. This ® gure also shows fourdiå erent scenarios of co-operation (lower four bars).

5.4. Direction of a co-operation within the value chain

Considering the various stages of the value chain a co-operation between two nodes can be de® ned as vertical,horizontal or diagonal (® gure 15).

A so termed Vertical co-operation is a co-operationbetween companies of the same branch along the value-chain (e.g. suppliers, outsourcing of special after sales-services). Supply chain types of co-operation areexamples for vertical co-operations . From a single com-pany’ s point of view a vertical co-operation might beforward (upstream) or backward oriented (downstream)within the value chain.

A co-operation of direct competitors such as to poolresources in research, co-development, co-production,etc., can be classi® ed as a form of Horizontal co-opera-tion. For example: two automobile manufacturers selec-tively co-operating in the development of a new engine.Other than this co-operation, they may very well becompetitors in the same marketplace.

Co-operations of noncompeting companies from diå er-ent branches with similar needs and interests in certainareas (e.g. basic research, marketing) can be de® ned asDiagonal co-operations. By noncompeting companiesis meant two companies operating in completely diå erentProduct/Market sectors. For example an automobilemanufacturer and an aerospace ® rm decide to collabo-rate (and fund) the basic research on the application ofnew materials such as carbon ® bre. The results of thisresearch will be available to both partners.

5.5. In¯ uence of the node within network

Based on an increasing competition in a buyers marketit has become more and more obvious that the one whohas the direct contact with the ® nal customer (end-user)has also the power within the network. However, con-sidering ongoing developments in the market a formaland an informal distance between a node of the networkand the end-user of the product/service to be provided bythe network has to be diå erentiated.

5.5.1. ` Formal’ distance of a node to the end-user

In general it can be stated. The lower the tier of thesupplier or subcontractor the larger the formal distance tothe end-user (see ® gure 16).


Research and Deve

lopment

Design

Sourcing

Procurement

Manufacturin

g

Assembly

Distributio

n

After S

ales Servi

ce

Research and Deve

lopment

Design

Sourcing

Procurement

Manufacturin

g

Assembly

Distributio

n

After S

ales Servi

ce

Research and Deve

lopment

Research and Deve

lopment

Design

Design

Sourcing

Sourcing

Procurement

Procurement

Manufacturin

g

Manufacturin

g

Assembly

Assembly

Distributio

n

Distributio

n

After S

ales Servi

ce

After S

ales Servi

ce

Figure 14. A sample range of enterprise functions aå ected byco-operation.

HorizontalSales

…

Marketing…

Production…

Design

Diagonal

Vertical

Companies operating in SimilarProduct/Market Sector

Companies operating in DissimilarProduct/Market Sector

HorizontalHorizontalSales

…

Marketing…

Production…

Design

DiagonalDiagonal

VerticalVertical







Figure 15. Position in the value chain.

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In recent years, main manufacturers have tried to con-centrate on few core competencies including system inte-gration and to outsource the remaining activities, bearingin mind that the most critical asset is the closeness withthe customer. Downstream of the supply chain the directcontact is limited to higher-level suppliers, which areresponsible for ever-increasing complex modules. Hightier suppliers are fully responsible for the modules andhave to look in their turn for subsuppliers and so on.At least this situation is characterized by a stepwise distri-bution or cascading of risks by shifting risks and respon-sibilities to lower levels of the pyramid. Accordinglyformer suppliers of components have been forced eitherto become high level suppliers, by taking over additionalresponsibilities and to oå er complex, integrated modulesto the main manufacturer or to become low-level suppli-ers including the related disadvantages of acting in thelower levels of the manufacturing pyramid. As an invisi-ble company for the end-user low-level sub-suppliers andsubcontractors totally depend on the decisions beingtaken on the next higher level and on the economicalsuccess of their (multilevel) customers.

Accordingly, the situation of a low level supplier isin¯ uenced by the fact, that the lower the level in thepyramid the lower the chance to actively in uence thepurchasing decision of the end-user and the weaker therelevance of the company for the outcome of a network.As a consequence there is a high risk (or even potential)for an enterprise to be replaced by another enterprise.

The degree of criticality of the supplied components tothe end product becomes an important factor. Thestrength of a node in a network depends on how criticalthe product/service supplied by the node is to the mainmanufacturer ’ s product line. However, as an extremecase the potential strength of subsuppliers, even of sup-pliers of small parts, became evident in the car manu-

facturing industry: Disagreements between the KiekertAGÐ a major manufacturer of car door-locks inEuropeÐ and Ford regarding the price of door-lockscaused a production shortage of approximately 5200cars (all for the want of door locks) at Ford plants inCologne and Dagenham. Based on a imposed cost-reduc-tion by Ford, Kiekert decided to stop production becauseof unacceptable pro® t margins. Eventually this disputereduced the Ford’ s turnover by 50 million Euro (BerlinerMorgenpost, 1998).

5.5.2. Informal distance of a node to the end-user

Considering actual market developments, main man-ufacturers as system integrators have learned that thepower does not only depend on the formal distance tothe ® nal product. Based on the intended ultimate satis-faction of customers needs the power within a supplychain is not limited to the main manufacturer but canshift to suppliers or subsuppliers as well. A main manu-facturer might be forced directly by the customer toconsider special suppliers or to integrate special modulesor components. Most relevant is the realization of theproduct required (® gure 17).

Other typical trump cards suppliers can play are theawareness of special resources or equipment, or evenreputation (including brand names, know-how, contacts,etc.). For the consolidation of a supplier’ s position withinan ongoing or a potential enterprise network, the identityof a special supply part might be brought into the centreof the customer’ s inquiry. Especially suppliers of criticalcomponents have to stimulate potential customers andmake them ask for special supply-parts while orderingthe superior product. Therefore, suppliers have to comeup with appropriate and independent marketing strate-


Figure 16. Distance of nodes to the ® nal customer: ` supply pyramid’ versus ` customer added values pyramid’ .

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gies aiming at the creation of a speci® c need with respectto their oå erings. Well-known examples are Intel (` Intelinside’ ), RECARO (manufacturer of high quality carseats), Bosch (car industry supply components), andJohnson Controls (car industry supply components).Like the main manufacturer suppliers have to ® nd theirown answers to central questions like ` How to get closerto the customer’ and ` How to make the customer comeback again’ .

In addition to these approaches to improve thestrength of a node, new (extended) product and/or ser-vice related added values can be oå ered to get close to thecustomer, even closer than the main manufacturer, asshown in the car manufacturing industry.

Today, car-hire/leasing agencies have become one ofthe most powerful customers of the car-manufacturingindustry. For example, SIXT is one of the largest custo-mers of Mercedes Benz. In 1998 they purchased over16 000 cars and 3000 vans. Such independent companieshave suæ cient purchasing clout to bargain favourableprices and develop new hiring/leasing mechanisms thatguarantees their customers mobility. Within so called` Car availability programmes’ , car-hire agencies oå ermobility in terms of number of days and kilometres peryear to the customer instead of supplying a car within acertain time frame.

Car sharing networks oå er European-wide mobility totheir clients. Clients have to pay a basic fee to becomemember as one of the nodes of the network. Based on thetype of membership they have access to the heteroge-neous vehicle pool not only of the node but also of thewhole network. Clients are no longer owners of cars butthey have access to mobility. As clients don’ t have toguarantee a ® xed turnover, additional costs are onlybased on consumption of mobility. This concept hasbeen successfully applied by StadtAuto Bremen(StadtAuto 1999). Similarly many photocopier dealerstend to provide the availability of the requested copyingcapacity and functionality instead of selling photocopiers.In these and many other cases, service providers havetaken over the direct contact with the customer.

5.6. Number of co-operative engagements of a node

In general, enterprises are not restricted in the numberof engagements in diå erent collaborations. Companiesmay be involved at the same time within several diå erentnetworks, playing diå erent roles. Future activities of theirengagement are solely limited to the contractual commit-ments agreed in ongoing collaborations. Consequently,they can make similar agreements with other enterprisesor networks even with competing networks.

However, it should be noted that, each committed co-operation potentially restricts the freedom of an enter-prise and will impact on future engagements. Also, thegreater the number of co-operative arrangements anenterprise makes, the more diæ cult it will be for it tomanage them. Tight and detailed contractually ® xedrelationships limit spontaneous and opportune engage-ments of an enterprise. Furthermore, technology avail-able to an enterprise might also limit the number of itsformal co-operative engagements (see also section 4.8).

6. Product related attributes

As the goal of an industrial co-operation is to come upwith a certain type of product/service, within this cate-gory major aspects which are relevant from a product ormarket point of view and aå ect the formation, the opera-tion etc. of an enterprise network will be embraced.

In general each type of product which might be pro-duced by a single enterprise can also be produced by anenterprise network. However there are product relatedattributes (® gure 18) where the formation of an enter-prise network might be bene® cial compared to a singleenterprise.

As a rule, modularity of the product is a prerequisitefor the formation of the enterprise networks and for thedelineation of the responsibilities. As node of a network asingle enterprise only provides a certain part of the ® nalproduct. Consequently a single enterprise feels responsi-ble only for this part of the product. However the enter-prise network is responsible for the con® guration and


Node (Sun-contractor /Jobber) is unknown

to the End-User

Node is known to theEnd-User, but does not

influence the Purchasing Decisions

Customer is asking forSpecial Parts, or even fora Special Supplier (Node)

High

Low

Node’s Increasing Influence on Purchasing Decisions


to the End-User





to the End-User




High

Low

High

Low

Node’s Increasing Influence on Purchasing Decisions

Figure 17. In uence of a node on purchasing decisions of customer.

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integration of product parts, provided by the variousnodes. Problems may arise while integrating the variouscontributions or in case of customer complaints.

6.1. Tangibility of product

From a systems point of view, products as the output ofa manufacturing system can consist of material, informa-tion and/or service. As a physical element, material ispart of the so-called tangible product, whereas serviceby nature is nontangible (® gure 19). Information couldbe part of the tangible (e.g. software is a tangible prod-uct) as well as nontangible (e.g. market survey) product.

Tangible products can be extended by nontangiblecomponents. In extreme cases the value-share coveredby the tangible and nontangible components of the prod-uct might change dramatically (see ® gure 19).Accordingly, a tangible product can change its natureinto nontangible: e.g. a car (as a physical product) canbe transformed into mobilityÐ which is nontangible.Instead of being owner of a car (including responsibilityfor maintenance, repair, etc.), customers simply own andpay for mobility (see section 5.5). In general, adding non-tangible components to a product leads to an increasedcomplexity of the overall product (see section 6.3).

6.2. Complexity of product

In general, the complexity of a product can be char-acterized by the number of constituting elements, theheterogeneity of these elements, the number and typesof dependencies/relationships between these elements,the functionality (range of functionalities) provided bythe product, etc.

The complexity might vary between low (e.g. singleparts, simple components) and high (e.g. complex tech-nical systems, integrated problem solutions) (® gure 20).Whereas the contribution of a node might be a less com-plex element the ultimate outcome of an enterprise net-work i.e. the combination of the contributions of thevarious nodes, tends to be complex. In ® gure 20, in-feasible combinations have been crossed-out.

However the more complex a customer demand themore competencies have to be provided to come upwith a suitable solution. As no single enterprise is ableto provide all kinds of production resources and/or ser-vices, enterprises have to co-operate in networks combin-ing a suitable mix of competencies. Accordingly it can besaid: the more complex and technically sophisticated aproblem the more nodes are needed in an enterprise net-work to solve this problem.

For example, in former times local authorities feltthemselves directly responsible in providing and main-taining all kinds of public services, including energyand water supply and waste disposal, etc. Today, theyno longer want to control (or even organize the construc-tion), operate or maintain puri® cation plants for cleaningwastewater, nor to operate power stations to produceenergy, etc. Instead, local authorities want to havetheir wastewater to be cleaned and energy supplied.Accordingly they ask for one competent partner tosolve their entire problem, including planning, ® nancing,operating, etc. By co-operating, enterprise networks cantake over the role of such competent partner.

6.3. Variability of product

There are two aspects regarding the issue of variabilityof the product per transaction, within the enterprise net-works. These variability issues are based on whether thesupplied product by a node is the ` ® nal’ product as deliv-ered to the end customer or it will form a part of the ® nalproduct.Variability of the ` ® nal’ product per transaction: Order-speci® cinstantiations of an enterprise network will be con® guredaccording to the requested product speci® cations.Accordingly, order-by-order the con® guration of nodesinvolved in order processing might diå er. The more


Product

Variability of the Product

Tangibility of the Product

Complexity of the Product

Customisation of the Product

ProductProductProduct

Variability of the Product

Tangibility of the Product

Complexity of the Product

Customisation of the Product

Variability of the ProductVariability of the Product

Tangibility of the ProductTangibility of the Product

Complexity of the ProductComplexity of the Product

Customisation of the ProductCustomisation of the Product

Figure 18. Product related attributes.

Tangible value-share

Non-tangible value-share

Trend in Tangible and Non-tangible value-share

0 %

100 %

Core Product

Non-tangible Product

Tangible Product



Trend in Tangible and Non-tangible value-share

0 %

100 %





Trend in Tangible and Non-tangible value-shareTrend in Tangible and Non-tangible value-share

0 %

100 %

Core Product


Tangible Product

Core Product


Tangible Product

Core Product


Tangible Product

Figure 19. Tangible and non-tangible value share of products.

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stable or standardised the product the more stable thenetwork (® gure 21).

Depending on the type of product, in general it can besaid, the less complex a product the higher the probabil-ity that the product ® ts to the needs of another customer.However, in increasingly unstable, highly competitivemarkets, product- and process-speci ® cations are becom-ing unstable or dynamic as well.Variability of the (supply) product per transaction: Aiming toconcentrate on its core-competencies, nodes in generalshould try to minimize the extent to which the varietyand speci® cations of the supplied products vary.Accordingly, the variability of the ® nal product shouldbe achieved by con® guring ` standard ’ contributions pro-vided by the individual nodes.

6.4. Customization of product

Customization issue, though similar to variabilityissues discussed above, has some diå erent features. Fortangible products, customization is adding or manu-facturing components according to customer speci® c

requirements. This would result in a product that meetsthe customer’ s requirements. In general, the ability tooå er customization will make a node attractive. In adynamic environment, the nature and scope of customi-zation will keep on evolving.

Delivering customized products could therefore implythe continuous adjustment of the product to ever-chang-ing customer requirements, which in turn impliesconstantly interacting with the customer. The manufac-turer could then constitute himself as a partner with theexpertise regarding the required functionality. Fromthere, it is only a small step to taking up the role of aservice provider. The service being delivered is the guar-anteed functionality.

The customization can then be achieved through cus-tomized services around the tangible product. A systema-tic distinction between customization through tangiblecomponents and customization through services is pro-posed by Kornelius (1999).

7. Conclusions

Industrial co-operations have become a fact of modernlife. Today, by co-operating in enterprise networks, singleenterprises can concentrate on their core-competenciesand increase their competitiveness. However, the rele-vance as well as the variety of industrial co-operationswill increase due to evolving globalization of marketsand evolving availability of ICT. ICT will play an im-portant role in achieving bene® ts and developments inthe ® eld of E-commerce will lead to a further reduction oftransaction- as well as co-ordination-costs .

From a single enterprise’ point of view, a clear over-view of the options as well as restrictions or pitfalls forsetting up or contributing to an enterprise network isrequired to select the appropriate partners or networks.Typological issues of enterprise networks discussed in thispaper may be helpful to support enterprises in developing


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Figure 20. Complexity of a product versus lot size of production process.

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Figure 21. Stability of product- and process-speci® cation (afterPulkkinen et al. 1999).

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such a view. Future work is suggested to support enter-prises to co-operate in ever-changing environmentsincluding an increasing level of uncertainty by evaluatingthe pros and cons of their engagement in enterprise net-works.

Acknowledgements

During the writing of this paper the authors had sev-eral discussions with Hans Wortmann and LuukKornelius (TU Eindhoven/BaaN). These discussionswere extremely helpful in developing the concepts andarguments contained within this paper. We would liketo record our appreciation for their contribution.

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