Smart Business Networks: the future?


I am always very interested in new business strategies and last year I came across the term: a smart business network. I have decided to dedicate a blog post to this, as I think that we, as information management student, can really benefit from understanding this strategy.

The term of a business network has been presented in our IS lectures. An example was given of the airline industry, wherein airline companies work together, e.g. star alliance, and interconnect their operations and customers.

Companies like SAP and ARM, I believe, are examples of the network strategy that are easier to understand. Using their IT-enabled platforms on which network partners must interact these companies build their competitive advantage. ARM for example builds mobile phone chips, used as core systems that mobile phone companies customise to their own liking/requirements. Nowadays, approximately 60% of all smartphone use this ‘platform’. The same can be seen with SAP systems. SAP builds a community around itself, making the company the platform on which SAP users and developers interact. This allows both companies to truly focus on and understand customers needs because they gain access to all the information of customers, developers, communities and other users that flows into them as the core network player, hence, the network platform.

The benefits of this type of strategy is for a large part due to the information that flows on the platform, that the companies (in my example SAP and ARM) that own the platform control. The more network partners they have, the better access they have to all sorts of information, making them able to anticipate market changes and direction.

In my opinion, these kinds of IT-enabled strategies show great promise for many industries in the future. When engaging in a network strategy, the one most profitable will be the one in possession of the platform other network players use or when the company is the focal company through which all the information flows. These positions will provide the greatest ‘visibility’ within the network due to all its linkages, thereby gaining more access to information of market trends, technologies, customer requirements and other useful information.

An interesting read by van Heck and Vervest (2007) is about how the network wins. They argue companies must be ‘smart’ in their network by rapidly changing and expanding their networks that span multiple industries and parts of the value chain. A true smart network enabled companies to quickly connect and disconnect (Koppius & van de Laak, 2009), meaning that companies can quickly perform transactions/goals with partners, but can also quickly respond to new requirements and disconnect from these transactions. Another key feature is that companies on the network must be able to interoperate; meaning that they must be able to be ‘plugged’. Elements and companies can then be mixed and matched in the network in a modular fashion. It is then the capabilities of different companies that are matched in the network in response to market needs/demand.

A good example of modularity in a value chain is Li and Fung. This company has been mentioned in our lectures before. To refresh your mind: Li and Fung is a Hong Kong based company that splits up its entire value chain. Each part is then optimized in relation to other parts of the value chain to build the most efficient chain for the product they are making. In other words, Li and Fung are utilizing their entire network to make sure they can deliver the best products at the best price. The reason why they can do this is because they have great network visibility (Liere & Koppius, 2007; included in van Heck & Vervest, 2007). With great network visibility they ensure they have a large amount of information on how to organize these value chains, while also actually being able to connect to the companies involved. After the process is finished, Li and Fung disconnects from these partners.

As I was working on the technology of the week assignment, I noticed we again talked about two companies that make use of this strategy: Blendle and Flipboard. Both present themselves as IT-enbaled platforms and make full use of communication systems and the information provided by its users/network partners. It can be stated that every company nowadays is somehow involved in a network. Yet most articles tend to focus on the focal company that receives all the information as they force information to flow through them. This would be the ideal position in that sense in any network.

Would you agree with me that this type of IT-enabled strategies is growing? I definitely do. I see the company responding too late to this development as being left behind as they will increasingly take a less favourable network position. Feel free to discuss your ideas and applications of network below!

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References:

Heck, E. V., & Vervest, P. (2007). Smart business networks: how the network wins. Communications of the ACM50(6), 28-37.

Koppius, O. R., & van de Laak, A. J. (2009). The quick-connect capability and its antecedents. In The Network Experience (pp. 267-284). Springer Berlin Heidelberg.

Vervest, P., Van Heck, E., Preiss, K., & Pau, L. F. (2005). Smart business networks. Berlin.

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About maxhilt

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One response to “Smart Business Networks: the future?”

  1. 418375nl says :

    I do agree on your notions that this type of strategy will be seen more in the coming years, and that early-movers may have certain advantages over late-movers. However, I also think that operating in such a network requires very specific skills and capabilities that are very different from those that are required in the current, or at least the past environment. For ”young” firms, it may be relatively easy to adapt to such new industry dynamics. For incumbent firms, however, I see much larger difficulties to gain a beneficial ‘spot’ in a network.

    Thus, I don’t think that taking a central spot in a network would be possible for any organisation. Instead, those organisation that change their organisation, their culture, basically their way of doing business in a way that that their configuration is congenial to being central in a network will most likely be the ones that succeed. Like the example you mentioned of Li and Fung, their whole business model is adapted to operate effectively in the network environment.

    Liked your post, good example of how IT changes industry dynamics!

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