Business Network Transformation

Article issues
unreferenced = August 2008
importance = August 2008
orphan = August 2008
wikify = August 2008

Business Network Transformation (BNT) is a market phenomenon where companies go beyond their traditional business boundaries to drive profitable growth. As the the global economy becomes increasingly inter-dependent, the businesses need to foster their business relationships as their competitive advantage. By transforming their business network, companies can drive top line growth through superior customer value and faster product innovation while providing bottom line savings through operational excellence and responsive supply chains.

Factors driving Business Network Transformation

The rising power of consumers as evidenced by the rise of Social networks, access to new markets via rapid Globalization in the past decade and rapid commoditization are pressuring companies to rethink their traditional value chain. Connectivity of people, processes and information beyond corporate and country boundaries has further helped the ease of formation and management of business networks.

Leading companies are transforming their rigid value chain into a dynamic business network of customers, partners, and suppliers to stay ahead. In a business network companies collaborate closely to gain deeper insights on the end customers and respond quickly to changing customer needs. Companies that harness the power of the business network will develop innovations faster, build a responsive and efficient supply chain, and deliver superior value to the end customer. Through Business Network Transformation, companies can achieve profitable growth and a new source of competitive advantage on the global stage.

BNT enables competitive differentiation through innovation across the business network. Traditionally, innovation has occurred within an organization, where ideas and resources are tightly controlled. Today’s world in contrast has businesses taking advantage of the global economy, low-cost information, and mature technology to collaborate with their business partners to improve processes and offer enhanced solutions.

Type of Business Networks

Research from Geoffrey Moore and Philip Lay shows the emergence of two types of business networks at different stages of evolution of a market or a product. [ Global Information Technology Report 2007-2008, Published by the World Economic Forum Pg. 101 ] .

1. "Collaborative Business Networks" - In the emergent stage, collaborative business networks enable companies to explore and develop an emerging opportunity. Such a challenge is highly complex and largely undefined, so the emphasis is on communication, interaction, iteration, fast failure, and faster recovery, all trending toward delivering a complete solution to an end customer. In these networks there is typically a ringleader (called an Orchestrator) who has a vision for what is possible and rallies the other parties to pursue it. The other members of the network are included not only for their specialized expertise but also for their ability to team well with others in relationships that are not explicitly defined. This in turn implies relationships of trust built on a spirit of joint venturing to create new products and markets, the unifying principle being that the new market will reward all in reasonable terms. Examples include linux development initiative, chip design efforts that go into a new game machine or developer ecosystem supporting a software platform.

2. "Coordinated Business Networks" - As a process or product produced by a business network matures, it must now provide scale through coordination and standardization. Now the network must operate under a new social contract, one which puts a high value on efficiency. This type of network is usually dominated by a single organization which acts as a “Concentrator’. As such networks ramp to maturity, their operations become increasingly driven by a concentrator, a member of the network who has gained greater bargaining power than the others and who drives the performance of the whole to its own greater benefit. In a sector that is supply-constrained, this will be the resource owner or the manufacturer. In a sector that is demand-constrained, it will be the end customers or consumers, or the sales channel that controls access to them. In either case, the network as a whole has become highly transactional in its relationships and becomes increasingly dependent on information technologies (IT) to manage and monitor its end-to-end operations.

How To Do Business Network Transformation

C.K. Prahalad and M.S. Krishnan in their new book, The New Age of Innovation: Driving Co-Created Value Global Networks argue that firms need a new operating model for global networked economy. This Business Week article [http://www.businessweek.com/innovate/content/may2008/id20080519_851847] captures their insights very well. This book revolves around two ideas - N=1 and R=G. N=1 states that companies can create value through unique and personalized consumer experience. While, R=G, argues that since no company has resources to satisfy demanding and varied expectations of so many consumers, it must orchestrate resources from its business network partners. Instead of owning assets, companies can seek relationships that provides these assets.

Strategic Role of IT

Business network transformation requires change that runs through a company, its partner companies, and the underlying IT landscape that connects the two. Not surprisingly, businesses are turning to IT to address this phenomenon. Orchestrating these business networks requires a new IT architecture and strategy. It begins by establishing an open, service-enabled business process platform. This allows companies to reuse capabilities and rapidly compose new processes to integrate with partners and drive cross-enterprise business performance. Analytical apabilities then provide closed-loop performance execution, making visibility, decision making, and collaboration possible across the business network.

Notes

References

1) Business Week Research Services: Getting Serious About Collaboration: How Companies Are Transforming Their Business Networks [http://mediakit.businessweek.com/pdf/research/Serious_About_Collaboration.pdf]

2) How Mass Collaboration Changes Everything.Exploring the cutting edge of mass collaboration with Don Tapscott, Anthony Williams, and the rest of the team. [http://www.wikinomics.com/blog/]

3) Business Week: Nike's New Public Design Studio -- Where Consumers Become Designers [http://www.businessweek.com/innovate/next/archives/2007/10/nikes_new_publi.html]

4)Orchestrating Loosely Coupled Business Processes: The Secret to Successful Collaboration By John Hagel III, Scott Durchslag, and John Seely Brown [http://www.johnhagel.com/paper_orchestratingcollaboration.pdf]

5) Geoffrey Moore: Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution (Hardcover)

6) Henry Chesbrough: Open Innovation: The New Imperative for Creating and Profiting from Technology (HBS Press, 2003)