Today's businesses operate within an intricate network of suppliers, partners and customers that requires leaders to manage their processes with integrity inside and outside the corporate walls.
by Mike Prokopeak
October 27, 2009
<p>Today’s businesses operate within an intricate network of suppliers, partners and customers that requires leaders to manage their processes with integrity inside and outside the corporate walls.<br /><br />“The ability to build and manage a relationship that produces and maintains trust is the core HR skill that everyone in the company has to develop,” said Jeffrey Word, editor of <em>Business Network Transformation</em>, a book featuring articles from 16 academics and researchers that provides advice for how people can understand and use the growth of business networks to their advantage.<br /><br />While it has been happening for some time, in recent years the transformation to a networked model has accelerated. In a traditional business process, a company buys material from a supplier, makes a product and sells it to a customer. Word said that model no longer dominates in today’s business.<br /><br />“There are all sorts of new entrants into your network getting placed in between and filling in cracks and taking over pieces of a process that your company might have done in the past,” he said.<br /><br />Word, vice president of product strategy for global business process software maker SAP, said the idea for the book developed from a series of meetings with global SAP customers to identify future needs. In these meetings, executives identified business networks as one of the top trends impacting their businesses.<br /><br />“What they were saying was, I need to roll out a new way to collaborate with this type of supplier or design partner, or I need to do some co-innovation with a customer, and I need some capabilities to help me do that effectively,” Word said. “These new interactions — these new types of collaboration that were going on between our customers and their business networks — started to revolve around this concept that the way people used to do business in the traditional value chain is disintegrating rapidly.”<br /><br />Outsourcing, where companies give a piece of their business operation to someone else to manage, was a precursor to this networked model. But while outsourcing took a problem off the company’s plate and gave it to someone else, the process often remained broken.<br /><br />“The challenge became how do you partner, how do you collaborate, how do you outsource the smart way — giving away the operational control of a certain piece of your process while still maintaining visibility,” Word said.<br /><br />Apple is a prime example of a company that has transformed itself to thrive in a networked environment, Word said. Ten years ago, Apple was a computer manufacturer that built its own products through a traditional value chain. Today, it builds next to nothing and derives a significant portion of its revenue from distribution rights for products it neither builds nor owns. iTunes is a prime example.<br /><br />“What Apple considers their competitive advantage is their ability to design an engaging user experience,” Word said. “But they have a second competitive advantage they didn’t really know about that drives their profits — their ability to orchestrate this network of thousands and thousands of partners that didn’t exist 10 years ago in order to ensure that that design is faithful throughout this entire process.”<br /><br />That ability to orchestrate a business network is now one of the company’s key competitive advantages and the core of its transformation from a computer manufacturer to a designer. It began with outsourcing production, but rapidly moved from a cost-cutting measure to a value-based design process that developed products cheaper, but also better and faster.<br /><br />Word said the business network trend is inescapable and the consequences of failing to adjust are significant. While technology is key to thriving in a networked environment, Word said the real driver of the trend came as a surprise to him. <br /><br />“As much as IT can help, the real thing that will determine success is the human resources angle — the ability to build trust between your company and the new partners in your network,” he said. “That really shocked us. We didn’t know it was the No. 1 thing.”<br /><br />The learning organization can play a key role in preparing leaders to thrive in a networked environment where organizational boundaries are disappearing and external partners delve deeper and deeper into an organization.<br /><br />“Building the capabilities to sow and harvest trust in relationships is the most important thing that the learning organization can do,” Word said. While it’s a soft skill and one that can’t be taught in a single training session, focusing on trust in the long term can pay off.<br /><br />Word points to Toyota as a prime example of a company that has profited from building trust within its network of suppliers. The company spends on average about 21 percent of its time negotiating contracts and prices with partners. In comparison, General Motors spends 47 percent of its time on transaction-oriented activities, meaning that GM and its suppliers need to invest nearly 50 percent more time in order to get the same amount of productivity. In Toyota’s case, trust drives lower transaction costs that push the company further ahead.<br /><br />“The ability of the employees to actually think like that and to really see the value of trust as the result of their dealings with companies and the people inside the company is a pretty fundamental shift that the learning organization needs to enable,” Word said.</p>