Category Archives: Strategy

Business Network Transformation: A Review

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Recently, Jeffrey Word, the Director of the Center for Business Network Transformation and Vice President of Product Strategy at SAP, edited and published Business Network Transformation: Strategies to Reconfigure Your Business Relationship for Competitive Advantaged through Jossey Bass, with all royalties from the book being donated to the World Food Program.

The book, which is about the evolving nature of global business and the ways that a company’s network of relationships (with suppliers, customers, and other partners) is being reconfigured to derive competitive advantage and increased profitability, includes contributions from Geoffrey Moore (TCG Advisors), David Kletter (Booz Allen Hamilton), Randall Russell (Palladium Group), Andrew McAfee (Harvard Business School), Mohanbir Sawhney (Kellogg School of Management), and Jeffrey Dyer (Brigham Young Unversity), among others, and does a great job of not only defining business network transformation (BNT), but also in providing practical advice on how to achieve it and case studies that illustrate the ideas.

It starts off with a great introductory chapter by Geoffrey Moore and Philip Lay which explains how most networks these days are either collaborative (like the ones used by Cisco, Boeing, and Goldman Sachs) or coordinated (like Nokia, Nike, or Charles Schwab) and that while each of these network types have their advantages (expertise, innovation, and market development in the case of collaborative networks and efficiency, speed, and adaptability in the case of coordinate networks), each of these network types also have their disadvantages (as collaborative networks struggle with commoditization and entrusting partners with non-core mission critical processes while coordinated networks struggle to enter new markets and achieve downstream visibility). As a result, most networks need to transform to compete in today’s economy. This is especially true if your competitors are transforming their networks and their strategies to capitalize on new opportunities. The chapter concludes with a list of seven early warning signs that indicate you will need to transform your network or risk being left behind.

The next chapter, by Marco Iansiti (of Harvard Business School) and Ross Sullivan (of Keystone Strategy) tackles business network transformation in action by diving into the five guiding principles (design for adaptability, plan for scalability, encourage participation, develop a governance framework, and create superior customer value), providing a four-phase implementation framework for you to follow, and presenting case studies on Novartis (which is using BNT to reduce new drug development cycles and cost), Hugo Boss (which is using BNT to manage multiple brand identities through smaller, nimbler sub-organizations), and NVidia (to create and capture niches in the semiconductor industry).

Chapter three, by Mohanbir Sawhney (Kellogg School of Management) and Ranjay Gulati (of Harvard Business School) tackles the all important goal of creating superior customer value in a connected world and addresses digital networks and customer collaboration. In doing so, it discusses collaborative value exchange in depth and provides a guide on how to use today’s networks and network technologies to create more value regardless of what industry you happen to be in.

The next two chapters, by Ranjay Gulati and David Kletter (Booz Allen Hamilton) and N. Venkatraman of (Boston University), respectively, tackle relational capital and product leadership, which are critical to value creation in today’s modern business networks. An organization with a well designed and well managed network has a lot of relationship capital that it can capitalize on between its suppliers, customers, and alliances; relationship capital that can mean the difference between success and failure in today’s economy. Chapter four discusses the dimension of relationship capital and how to move from transactional relationships to ownership relations which take advantage of strategic partnerships to create value that would not otherwise exist. Product leadership is becoming harder and harder, especially when today’s business landscape is shaped by the intersection of Moore’s law (the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years), Metcalfe’s law (the value of a network grows as the square of the number of users), and the Edholm’s law (bandwidth rises three times faster than computer power, implying that the speed of communication doubles every six months). Chapter five provides case studies from GM (Onstar), Apple (the iPod), and Microsoft (HealthVault) that demonstrate how companies that can create, and take advantage of, opportunities created by the intersection of these laws can change, and dominate, markets.

Then we encounter the chapter on driving collaborative success in global partnership networks by John Hagel III, John Seely Brown, and Gautam Kasthurirangan (of the Deloitte Center for Edge Innovation) which is one of the crown jewels of the book. Truly successful business networks are business process networks (BPNs) which orchestrate many best-of-breed suppliers and partners together in a distributed, collaborative approach that uses the respective strengths of each partner to create new, valuable, products and offerings that no individual organization can create on its own. An organization that moves from a physical network approach to a process network approach can grow from a niche provider to a global multi-billion dollar enterprise, like the Li & Fung group which went from a small exporter of traditional Chinese items made from porcelain and bamboo, clothes, and toys in the 1970’s to a multi-national group of companies with offices in 40 countries and $14 Billion US in annual revenues. Besides presenting a number of impressive case studies, this chapter also discusses the key elements of global process networks (which include product and process modularity, loosely coupled processes, trust in collaboration, and productive friction), common misconceptions (and how to combat them), and a pragmatic path to orchestrating a BPN. This chapter alone is worth the price of the book, but if you stopped reading here, you’d miss the insight on managing innovation by Henry Chesbrough (of the University of California at Berkeley), the discussion on the role of IT in business network transformation by Andrew McAfee (of Harvard Business School), and the full road map to business network transformation presented by

Geoffrey Moore and Philip Lay (of TCG Advisors), which I’m not going to cover because I have to leave you with some surprises so you’ll buy the book and support the World Food Program. It does a very nice job of building on the innovative concepts I’ve been covering since I started this blog (including my posts on the innovation revolution on e-Sourcing Forum) and presenting them all in one nice, neat package. It’s worth your time.

Characteristics of a Well Organized Supply Chain

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A recent article on the Supply Chain Brain site by Enporion did a great job of outlining the necessary requirements for organizational success in your supply chain. Even though a center-led model is usually optimal, as it lets you take advantage of the best aspects of the centralized and decentralized organizational models, it’s only truly optimal if:

  • The Organizational Model Fits the Corporate Strategy
    Successful supply chain organizations are designed to specifically address where strategic decision are made and the knowledge that is needed to make those decisions.
  • The Organizational Model Fits the Corporate Culture
    Successful supply chain organizations match the actual corporate culture, not an imagined one, and feel natural to the people who bring the model to life.
  • The Organization Model Accounts for Staff Skills and Expertise
    The model is designed to make sure that the right people are in the right job in the right numbers at the right place at the right time.
  • The Governance Structure Elevates the Supply Chain Function
    Leaders of successful supply chain organizations sit at the table with the rest of the C-level executives.
  • There are Mechanisms that Enable Collaboration and Communication
    Supply chain staff are close to the operations and business units and communicate regularly with cross-functional teams, category teams, supply councils, executive committees, and other stakeholders.
  • The Information Systems Support the Function
    The technology meets the need of the organization.

The McKinsey Quarterly’s Top Three Strategic Planning Tips for 2009

A recent article in The McKinsey Quarterly elucidated their three “top strategic planning tips” for 2009. In brief, they were:

  • Be realistic about scenario planning
    Recognize that several different futures are equally plausible, develop plans accordingly, and try to focus on the underlying drivers of the uncertainty.
  • Intensify Monitoring
    That’s the only way you’ll be able to detect which way the marketing is shifting and bring the appropriate plan to bear. And be sure to carefully monitor suppliers and competitors as well as customers. A single supplier bankruptcy could derail all of your plans.
  • Look Beyond the Crisis
    Regardless of how devastating the downturn may be, it cannot hold back fundamental market trends forever — such as the aging customer base in Europe and North America and the fact that every downturn must eventually stabilize and give way to an upturn on the market sine wave.
    Besides, if you can’t see beyond the crisis, how can you possibly expect to get out of it? So identify your post-downturn market, start marketing to it, and ramp up R&D to make sure you have the products ready that your market wants when it’s ready to buy them.

The Market Dilemma IV: Buyers Win the Battles

Vendors and Consultants are but a small portion of the industry, and the economy … as Buyers, you work for organizations that compose the majority. The only way we’re truly going to get back to business-as-usual is if you use the vision provided by the vendors to identify what clarity you need, bring in consultants to help you realize it (and the significant ROI that accompanies it), and then use your newfound “savings” to procure the best-of-breed sourcing, procurement, and supply chain visibility technology offered by the visionary vendors, as this is the technology that will help you increase productivity and significantly reduce your costs across the board.

Although it might be a long road to recovery that requires much effort and initiative on your part (depending on the size, complexity, and focus of your organization), the starting point is clear. So here’s a simple step-by-step guide to get you on the right path.

  1. Do a real spend analysis.
  2. Bring in category experts to get you real savings on your most profitable tier-1 categories.
  3. Implement e-Procurement systems to realize the savings.
  4. Adopt e-Sourcing to streamline and maximize the savings potential on your tier-2 categories.

1. Do a real spend analysis.

I’m not talking about loading your AP data in a UNSPSC cube and running out-of-the-box reports on your top ten 10 vendors, top 10 categories, and top 10 departments. Even if you don’t know the exact amounts, a simple internal survey will tell you those with uncanny accuracy. I’m talking about loading all of your spend-related data — AP, Invoice, Contract, Third-Party Price Indices, etc. — in a real spend analysis product that will let you slice and dice it any way you can think of so that you can identify (a) where you have made overpayments and extract refunds and (b) identify the top ten categories with with the most savings potential. If you haven’t done this before, you’ll want to bring in an expert. There a few providers in this space that typically find tens of thousands, and sometimes hundreds of thousands, of dollars in overpayments within a week. The ROI is well worth the investment.

2. Bring in category experts.

This is especially important in categories, like energy and telecommunications, that require significant expertise that you might not have. While you might be able to negotiate a 15% cost decrease in a buyer’s market if you’re well informed, a seasoned veteran who has been negotiating these deals day in and day out for a decade (or two) will find a way to save you 30%. And when many of the firms will work on contingency, i.e. you don’t pay until the new contract is cut for an amount less than what you’re paying now, the ROI will be significant.

3. Implement e-Procurement.

Up to 60% of negotiated savings never materialize at many companies. If you don’t implement state-of-the-art e-procurement systems with price control capabilities (contract integration, punch-out price verification, authorizations for off-contract spend), you too could lose 60% of the savings you negotiated.

4. Adopt e-Sourcing.

While you’ll want to bring in the big-guns for the big savings opportunities, as the ROI will be many times what the big-guns cost you, there will be a large number of tier-2 categories where the savings opportunities, though substantial, won’t be as significant if you have to pay high-powered consultants. These are the categories where you get your best returns if you can run the events quickly, and efficiently, in house. And this is what e-Sourcing allows you to do … especially on categories where you need to go back to market regularly because the volatility is too high to risk long term contracts.

It literally is this simple … because once you’re on the right track, you’ll have no trouble staying on the rails.

The Market Dilemma III: Consultants Provide the Clarity

Just like vendors need to stand up and provide a vision, consultants need to sit down (with executives) and provide the execution clarity that will get buyers on the fast-track to procurement, organizational, industrial, and economic success. More specifically, at this time, they need to:

  • Focus on a Niche
  • Establish Thought Leadership
  • Create Brand Awareness
  • Outline an Organizational Path for Long Term Success

Focus on a Niche

In this market, failure is not an option and no wants an old-school consultant who says “yes” first and figures it out later. Identify what you’re good at, how you can deliver significant value, and, more importantly, how you can identify significant value now. In this type of market, sound long-term planning tends to fall by the wayside, so even though it’s the most important thing a company can do, chances are, they’re only going to spend on short-term initiatives until you prove that you can deliver the goods.

Establish Thought Leadership

There are hundreds of other consulting providers out there. If you don’t believe me, check my Company Listing on the resource site. Why should they use you? How do they know that you know your stuff? How do they know that you’re on a path of continual improvement? How do they know that you’re focussed on being the best? If you don’t establish thought leadership, they don’t … which means that your only chance of success is if the other firms the customer is considering also don’t have any thought leadership and you want to compete on price, not on value.

Create Brand Awareness

This means that, contrary to popular belief, you have to market, market, market. You need permanent brand visibility so that when people have a problem in your niche, they call you. This doesn’t mean expensive print ads in magazines no one looks at (despite impressive sounding circulation numbers), this doesn’t mean sponsoring expensive analyst reports year after year (especially considering that many of the A-level analysts have departed the big firms in the last few years), and it doesn’t mean hiring a VP of Marketing who’ll come in, use up a lot of your budget, and recommend the same-old same-old that didn’t work at the last company he was at. What it does mean is that you need to tap into the channels where your customer base already is. Speaking engagements at key events, sponsored educational webinars for appropriate professional societies, and, most importantly, the blogs … where educated, innovative, progressive buyers go for information and illumination on a daily basis.

Outline an Organizational Path for Long-Term Success

Although you need a quick-hit ROI niche to get that initial engagement, you don’t want to be seen as a one-trick pony. It’s important to have a plan that will allow you to guide your customers down a recovery path that will take them to long term success.