Welcome to the Networked Economy

Throughout history, businesses have attempted to capitalise on advances in technology to drive changes in their performance. In the 1980s, the advent of client-server technology and desktop applications simplified routine tasks such as producing documents and calculating spreadsheets to make individual employees more productive, and share information more efficiently with their peers. In the 1990s and early 2000s, the world-wide web spawned a slew of applications that automated function-specific information flows and streamlined processes such as finance, human resources (HR) and purchasing, as well as, to some limited degree, enabled collaboration across the enterprise.

Today, we are experiencing another change in IT-generated productivity. Thanks to mega-shifts in how technology is delivered, accessed and used, we are now more connected. We are now more enabled to share. We are now more enabled to shop. We are now more enabled to make more informed decisions than ever before.

Think about what’s happening in your personal lives. The magic of Facebook is not in its clean interface or its news feed feature. The magic of Facebook is that it has created the world’s largest network of personal connections. The beauty of Amazon is not that it offers the best prices on books, but that it offers the world’s largest and most convenient network for personal shopping.

This is not just a consumer phenomenon – it’s an enterprise one. More businesses are looking beyond the four walls of the enterprise to extend their processes and systems to connect and collaborate more efficiently with customers, suppliers, and other trading partners across the street and around the globe.

Figure 1: The Next Wave of Productivity

Source: Ariba

 

When you get right down to it, we live in a networked world – one that connects us to communities that help us learn, share and consume better.

Welcome to the ‘networked economy’ – a brave new world where businesses and their systems are connected to digital communities of existing and potential partners. A world where:

  • Sellers can quickly find new business opportunities with a network of prospective customers that have a buying need.
  • Buyers can efficiently discover and qualify new sources of supply and track and co-ordinate orders across their supply chain – all in real-time.
  • Any company can have transparency into payables and receivables status to make informed working capital decisions.

The move to this new, connected, inter-enterprise operating model is being enabled and accelerated by trends like cloud computing, mobility and the convergence of enterprise applications and social media, or collaboration through communities.

Figure 2: The World is Being Shaped by Macro-trends

Source: Ariba

 

You can already see the impact of this convergence in our daily lives. Whether searching on Google, shopping on Amazon, downloading music from iTunes, or engaging on Facebook or Twitter, the networks we use to run our personal lives share three components:

  • They are all built on a shared cloud-based technology infrastructure. There’s no need to download software or worry about upgrades. You simply need a web-enabled device to access a shared experience from anywhere in the world.
  • They all have a powerful community of peers, merchants, financial institutions, and experts with whom you can efficiently discover, connect and engage. You don’t need to worry about connecting to individual merchants or banks. All the integration work is done for you in a single integrated community.
  • They all offer unique capabilities in the form of best practices (such as Amazon’s one-click shopping), expert advice (such as Apple’s Genius recommendation service), and community intelligence (such as peer reviews on any of these services).
Figure 3: Networks Have Changed Your Personal Life

Source: Ariba

 

These same network dynamics are now being embraced by the business world. Why? For one thing, businesses realise that they can no longer be competitive on their own. They have leaned out inventories, reduced costly infrastructure, outsourced processes, and stretched their supply chains around the globe. These factors make businesses today more dependent upon their external partners. It also makes sharing information and co-ordinating processes with these partners more critical than ever before.

A business cannot achieve its cost, revenue and cash flow goals without being able to efficiently engage with customers and collaborate with their supply chain. Many companies are also beginning to recognise that they can gain new insights and enable new processes by being connected to a community of their partners and peers – benefits that were unattainable with isolated on-premise applications and low-scale point-to-point integration models.

Yet, the key reason companies are speeding to embrace the networked economy is simple and pragmatic: it is good business. Evidence is mounting that participating in the networked economy will be vital to future growth, profitability and differentiation:

  • In a recent study, management consulting firm McKinsey & Co found that companies using collaborative technologies like business networks to align with their partners were outperforming their peers in every category of business performance by a wide margin.
  • A CFO Magazine study of 200 global finance executives found that they viewed using technologies – like the cloud and business networks – to better discover, connect, and collaborate with their customers, suppliers, banks, and other trading partners as a top priority for agility and growth.
  • A CIO Magazine study found that IT executives are also prioritising investments to improve external collaboration.
  • A research series from Harvard Business School points to inter-enterprise collaboration as a key competitive competence going forward.

A decade ago, there was serious debate about the viability of the internet as a channel for business – or even a tool to power it. Today, it is clearly a driving force of productivity and profitability.

At its core, the networked economy is all about relevant connections and efficient collaboration. It’s the glue that links and coordinates a virtual ‘extraprise’ of partners into a shared community executing improved and co-ordinated processes in a more informed way than in the past.

Traditional operating models, old-school enterprise applications, and proprietary point-to-point or hub-and-spoke integration strategies are too rigid to enable such transparency and efficiency across the value chain. These outdated approaches carry high costs and require heavy lifting to enable and support, excluding many partners from participating. In short, these traditional models prevent companies from gaining the transparency and capability they need to execute processes across the value chain – from finding and serving new customers to organising and managing supply to optimising cash flow – in the most efficient and cost-effective way possible.

Open business networks do. And they are paving the way for companies to drive a new wave of productivity.

Much like their social counterparts, business networks provide:

  • Cloud-based applications that allow organisations that share a business process to share the underlying technology infrastructure that enables that process. This shared cloud infrastructure ensures that all parties are collaborating around the same information and co-ordinating process execution on a common platform. And, because there’s no hardware or software to install or maintain, parties can engage in the process from any device, whenever and wherever required.
  • A community or network of partners through which companies can quickly discover, qualify, connect, and collaborate with trading partners to share and execute a process. The most advanced business networks are truly open, enabling businesses to extend any of their existing systems to their community of partners.
  • Capabilities in the form of best practices, community-derived intelligence and other unique features or services, which are only available to members of the community, such as unique analytics, preferred financing, or group discounts.

Companies today are moving beyond their traditionally inside out view of the world and IT infrastructure and are no longer focused on features and functionality when it comes to technology. What they want is access to the people, processes and tools they need to make their businesses go. They want to be able to buy, sell, and manage their cash as easily in their business lives as they do on the homefront. They want business networks.

Yes, business has officially become networked. And there’s no turning back.

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