Is the Networked Economy just for consumers?
As consumers, our lives have become highly efficient. Personal networks like Facebook, Airbnb and Amazon.com let us learn, share and shop like never before. Collaboration, with vendors, with our friends and with our peers in online communities is simple, effective and usually even fun.
Yet business remains highly inefficient when it comes to collaborating with trading partners. You see it every day. Paper, phone calls, endless emails. Basex research estimates that the cost of this inefficiency is $650B annually. And that ignores the frustration, risk, damaged relationships and other qualitative effects.
The Networked Economy we now live in should address the inefficiencies for all, not just consumers. After all, business networks now exist that tout similar benefits to personal networks and have promised to drive the next great wave in productivity improvements.
Yet, something is amiss. For most companies, collaboration with their suppliers, customers and other trading partners remains highly inefficient. Globally, productivity remains stagnant, struggling to achieve 2% in developed economies and decelerating in emerging markets.
So what’s going on? If the technology is now available and as easily enabled as vendors promise, why aren’t we seeing broad-based economic benefits? Can individual companies actually reap the benefits and drive massive productivity improvements? Have vendors and experts simply overpromised?
A new study conducted by The Economist Intelligence Unit and sponsored by Ariba, entitled “No Business is an Island” provides great insight into the fundamental problem. Companies have indeed embraced collaboration. They do broadly view it as strategic, have made corresponding investments in people and are seeing benefits.
But, they are collaborating in a rigid, limited manner:
- They have not enabled broad-based collaboration across the bulk of their trading partners. It remains too focused on a handful of strategic partners.
- Collaboration is limited to a handful of processes.
- Collaboration is not being used as a strategic lever, to adjust based on market conditions to help companies adapt.
To realize the types of massive efficiency benefits in business that we have seen as consumers, companies must change their approach just as drastically as consumers have. The baby steps most companies are taking guarantee a long, painful journey.
What should companies do to realize the benefits now?
- Invest. In your people AND systems to empower them. Its not an either/or question.
- Systems: You need to be connected to your trading partners to scale collaboration. Connect your existing systems to business networks with a global community already there and that can easily onboard trading partners not yet there. Ensure the network and your solutions support broad types of collaboration – its not just about exchanging documents. Can they help you discover new suppliers / customers? Can they provide new insights to help you make better decisions?
- People: The best systems in the world are useless if not adopted and used well. Train your people on your systems and what is now possible. Motivate them to adopt and improve their way of working.
- Rethink your approach. Be brutal. And be sure to look across functions.
- Think through those processes that extend to your trading partners and how they should work. Where are the bottlenecks? What low value work is taking too much of your time? How can you automate or eliminate those now?
- Think about how new information available can help you work smarter. For example:
- Peer reviews to help you qualify suppliers.
- eCommerce analytics to help you better serve customers and maximize profits.
- How can you leverage your trading partners in new ways to drive value? For example:
- Crowdsource requirements to potential suppliers on networks, letting them bid not just prices but innovative solutions.
- Mitigate their risk by paying early and increasing returns on your cash, or maximize your Days Payable Outstanding (DPO) by connecting to a 3rd party financing option your whole supply base can leverage.
- Be flexible. Don’t establish fixed types of collaboration and stick with them through thick and thin. Keep thinking of new ways to collaborate. Expanding into a new market? Tap your local suppliers and customers for advice.
In 1987 Robert Solow, the Nobel laureate in economics, quipped that ”you can see the computer age everywhere but in the productivity statistics.’’ The massive impact on productivity growth from the PC was only felt starting in 1995. Faced with a new wave of technological advances, in particular business networks, companies are again taking far too long to adapt their processes. This is delaying broad-based gains. Fortunately, this presents a great opportunity for innovative leaders to build a huge competitive advantage over their slow moving competitors.
To learn more about the benefits of today’s Networked Economy, read the full report