Government leads evolution of business networks

Jeffrey Word is director of the Center for Business Network Transformation and vice president of product strategy at SAP. Word also is the aptly named editor of “Business Network Transformation,” a volume of essays by prominent business thinkers on the evolving nature of global business. Word recently discussed the rapidly growing connectedness of businesses with associate editor David Hubler.

WT: How do you define business network transformation?
Word: Business networks have existed forever: partners, customers, suppliers, etc. However, BNT is about how companies and the people within those companies get their jobs done. We chose the word “transformation” because it implies that it is going on as we speak. The transformation is happening in every size company in every part of the world. The ways they are working with other companies are changing pretty significantly.

WT: What is the genesis of the BNT concept?
Word: Three factors influenced BNT. In a way, it’s the smarter version of outsourcing. Doing it the smart way is giving someone else operational control but maintaining managerial visibility and clarity over what’s going on. Two, the emergence of the Internet also facilitated BNT through the spread of information and the ability to disaggregate bits and pieces of your business to others in a cost-effective way. Lastly, there is globalization, the rise of China and India. Those three things came about mostly in the last 10 years to bring us to where we are today.

WT: Is BNT valid also within the federal business community?
Word: Federal, state and local governments have actually been at the forefront of business network transformation over the past few years. Especially now, it’s more important given the need for transparency and clarity as to whom governments are doing business with, the types of agreements they make and how they are leveraging private companies to help them achieve their public missions.

WT: Are companies keeping up with the information technology necessary to effect the transformation?
Word: One of the key things we found throughout the research was that business was usually two to three years ahead of IT capabilities. Business leaders see and feel the need for these changes — they need a new engagement model for their customers or to bring in a new manufacturer quickly because of a business opportunity — but the problem is they are hamstrung to a certain degree by the lack of flexibility in their enterprise information systems. That need for flexibility is a direct result of the business’ need for rapid response and agility.

WT: What are some of the benefits BNT offers businesses?
Word: Companies spent 20 or 30 years building and implementing enterprise systems to track product and profitability within their four walls. And they got good at it. But they lost visibility and clarity the second the system went outside their walls. BNT in reality is giving away pieces of your operations for other people to do. Companies that are being successful at BNT see an opportunity to have a third party or partner do something for them because that entity can do it better, faster and cheaper, while at the same time maintaining visibility and clarity of the process through that entity’s four walls. That’s the significant shift. It’s managing a facet of your company even though someone else is actually doing it for you.

WT: Can you site a specific example of successful BNT?
Word: The best example I can cite is Apple, which was manufacturing computers in its own factories when Steve Jobs came back in 1999 and started to transform his network. Today, 50 percent of Apple’s revenues come from products that did not exist 10 years ago — iPhone, iPod, iTunes — products they don’t build or design. Take iTunes. Apple has never made a single song, movie or TV show. And all those apps that go on the iPhone, Apple doesn’t make very many of them. Then think of the tens of thousands of new companies that by design entered Apple’s network over the past 10 years. Apple never would have had the success it is having today without that transformation of their business network. That is, there would be no iTunes without the music companies, no iPhone without AT&T. And today, Apple doesn’t have one factory. It doesn’t manufacture anything on its own.

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