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Business Network Transformation: Rethinking Relationships in a Global Economy
Business Network Transformation is also known as :
Business Network Transformation Strategies,
BNT,
Business Networks,
Business Networking,
Network Transformation,
Network Transformation Plan,
Coordinated Business Networks,
Collaborative Business Networks ,
Business Theory ,
Strategic Management,
Enterprise Network ,
IT Transformation Services,
Network Transformation Services,
Collaborative Business Items,
Business Collaboration,
Collaborative Business Planning,
Collaborative Business Process Networks ,
Business Network Transformation,
Network Engineering
The global economy is reshaping relationships among
companies in new and not always comfortable ways.
Leveraging unprecedented opportunities in communication
and collaboration, companies are gaining competitive
advantage through networked business models, tapping
into talent across the globe to defend themselves against
commoditization and disruptive innovation. Such rapidly
changing market dynamics are stressing established
companies' investment in rigid "built-to-last" systems
and processes.The new era instead calls for fluid,"builtto-
adapt" networks in which each company focuses on
its differentiation and relies increasingly on its partners,
suppliers, and customers to supply the rest.
Such business networks have come to the fore in
the past decade or so as the power of customers and
consumers has increased relative to the manufacturers
and retailers that serve them.These networks enable
these companies to deliver faster innovation to customers
at lower costs by sharing investment, assets, and ideas.
New market opportunities are unlocked by combining
the products and services of the business network participants
in creative ways and leveraging each other's
market access and infrastructure on a global basis.Table
1 shows the nature of transformation that businesses are
undergoing today.
Under the pressure of this ongoing transformation,
business leaders are being forced to reexamine long-held
assumptions about strategy, structure, systems, and style.
Among the questions raised are the following:
- What is the right context in which to view this
change in business climate? Is it a cyclical change or
a secular one? Is it fad or fate?
- Do business network dynamics evolve as markets
emerge, scale, mature, and decline, or does one size
fit all?
- What core principles or practices can be used as
guideposts as we foray out into this new territory?
- What implications do these networked business
models have for managing investment in information
and communication technologies (ICT)
systems?
In our view, the forces at play here are tectonic. For
the most part, they will move businesses slowly but
inexorably out of their comfort zones.That suggests
there is time to plan and make considered moves. But
occasionally the business landscape is shaken by quakes
of great magnitude, out of which new power structures
emerge in remarkably short order as we have seen in
the current century in financial services, telecommunications,
and media. Overall, we believe a planned
approach is best for most businesses, but we do not
think it wise to use planning as an excuse for stalling.
The great disaggregation: A secular change
In the past 30 years or so, sector after sector of the
global economy has migrated away from the vertically
integrated enterprise toward an increasingly disaggregated
model of specialized enterprises interoperating to create
end-to-end deliverables.The clearest example of this has
been in the computer industry, where in the 1960s and
1970s all the great computer companies IBM, Hitachi,
Fujitsu, ICL, and Siemens, as well as the "BUNCH"
(Burroughs, Univac, NCR, Control Data, and Honeywell)
supplied a complete array of hardware, software, and
services built atop proprietary and closely held technology.
The model was carried over into the first generation of
minicomputers Wang, Digital Equipment Corporation,
Data General, Prime, and the like all proprietary
systems, albeit ones increasingly struggling to shoulder
the enormous research and development (R&D)
expense of going it alone.
Two technologies radically changed this landscape:
the relational database and the personal computer.They
led a disaggregation of enterprise computing into a host
of specialized companies in microprocessors, operating
systems, databases, storage, networks, computers, and
application software, all linked by a set of standardized
interfaces.This, in turn, allowed innovation to evolve
independently at each layer, the sum of which vastly
exceeded the progress that any one company could have
made.The net outcome of all this process is the massive
amounts of wealth creation that has taken place across
the globe, not to mention the fact that the mobile
phone you carry with you outperforms the most
expensive supercomputer available a scant two decades
prior. Clearly this is a fundamental change.
At various times, the disaggregation model has
played out in many other industries as well, albeit not
always quite so dramatically.The vertically integrated
film studios of the 1930s and 1940s have long since
disaggregated into a collaborative network of producers,
directors, writers, actors, artisans, distributors, and agents,
all bound by a raft of lawyers (and a market with an
insatiable appetite for digital fantasies).The semiconductor
industry went "fabless" 20 years ago, separating chip
designers from chip producers, while at the same time
spinning out specialized roles for wafer suppliers, mask
makers, equipment providers, and CAD software vendors.
The automotive industry has migrated to a tiered system
of suppliers, out-tasking virtually every subsystem that
makes up a car except for the engine (and that will be
next, given the enormous R&D expenses entailed by
hybrid and all-electric drive systems).The aerospace
industry is following in similar fashion, and even pharmaceuticals
one of the last bastions of the closely held
end-to-end enterprise has been driven to disaggregate
the roles of upstream R&D, now increasingly outsourced,
from downstream sales and marketing, still closely held.
Four forces have driven all these acts of disaggregation:
- ICT proliferation, which enables work to be
rapidly transferred back and forth at scale between
geographically separated specialists;
- deregulation, which leads to the opening up of previously
protected markets;
- globalization, which leads to the entry of
low-cost competitors into these markets; and
- commoditization, which leads to market
expansion and increased consumption but at the
same time to heavily challenged profit margins.
We can summarize the impact of these forces in the
following single observation: specialization to create
sustainable competitive advantage is the force driving
business network transformation in the current era.
Such specialization, in turn, raises new challenges
and critical questions for companies engaged in these
business network transformations:
- How to orchestrate one's business network partners
as "one company" to deliver reliably on business
commitments?
- How to manage risk and compliance exposure
across the entire business network?
- Who will own the customer relationship, and how
to capture value in a distributed ownership?
These are the questions we seek to address in this article.
Business network transformation: An evolutionary
model
Business networks arise at two stages in the evolution of
a market or a product. In the emergent stage, collaborative
business networks enable companies to explore and develop
an emerging opportunity. Such a challenge is highly
complex and largely undefined, so the emphasis is on
communication, interaction, iteration, fast failure, and
faster recovery, all trending toward delivering a complete
solution to an end customer. In these networks there is
typically a ringleader who has a vision for what is possible
and rallies the other parties to pursue it.We call such
entities the orchestrators because they must lead through
influence rather than enforce their will through power.
The other members of the network are included not
only for their specialized expertise but also for their
ability to team well with others in relationships that are
not explicitly defined.This in turn implies relationships
of trust built on a spirit of joint venturing to create new
products and markets, the unifying principle being that
the new market will reward all in reasonable terms.
Examples of collaborative business networks in
emergent markets abound in the high-tech sector,
because each new technology requires communal support
if it is to proliferate.Whether it be the developer
ecosystem needed to support a software platform, the
co-design efforts that unite handset manufacturers with
mobile operators, the chip design efforts that go into a
new game machine, or the standards efforts that lead to
a new network protocol, the requirement is always the
same: potential rivals must overcome their natural defensiveness
to collaborate toward creating a future market
in which they will subsequently compete with one
another.
In other sectors, where technologies come and go
at a more steadied pace, the driver for next-generation
collaborations can be the desire to adapt global products
to developing economies, the opportunity to introduce
new financial mechanisms such as mobile banking or
micro-loans, or the political intent to develop a new
industry.Whatever the driver, success depends on an
orchestrator with a vision being able to recruit an
ecosystem of once-and-future competitors to lay down
their arms and work together for a common good.
Those arms will be taken up once more as the
market's evolutionary state transitions from emergent to
scaling. In order for any process or offer to scale, it must
be transformed from custom creation to repeatable
production.This is true whether the end product be a
consumer packaged good or a transcontinental airliner,
although the higher the volume of the output, the more
important standardization becomes. Now the network
must operate under a new social contract, one which
puts a high value on efficiency.
We call these efficiency-focused networks coordinated
business networks, and they are driven not by personal
relationships of trust but rather by transactions specified
by contract. As such networks ramp to maturity, their
operations become increasingly driven by a concentrator,
a member of the network who has gained greater
bargaining power than the others and who drives the
performance of the whole to its own greater benefit.
In a sector that is supply-constrained, this will be the
resource owner or the manufacturer. In a sector that is
demand-constrained, it will be the end customers or
consumers, or the sales channel that controls access to
them. In either case, the network as a whole has become
highly transactional in its relationships and becomes
increasingly dependent on information technologies
(IT) to manage and monitor its end-to-end operations.
As product and service categories pass through their
life cycles, the relative role of the business network
oscillates between collaboration and coordination, the
former focused on enabling new and emerging markets,
the latter on scaling mature ones. At the same time,
however, the more complex the offering, the greater
the affinity will be to extend the collaborative model
indefinitely, and the need to master complexity trumping
the need for transactional efficiency. Conversely, the
more mass-market the offering, the greater the attraction
will be toward the profit-generating coordinated
model, and the greater the impatience to exit the
money-losing
collaborative phase that must precede it.
Note that the values of coordinated business networks
are essentially identical to those of a traditional vertically
integrated enterprise operating in a mature market. In
today's outsourcing-oriented economy, however, the
lowest transaction costs are many times found outside the
firm.The goal of participating in a coordinated network
is to avail oneself of these economies while meeting or
exceeding the reliability of a single end-to-end provider.
We are taking a familiar model and simply disaggregating
it, letting each company leave behind non-core tasks to
focus on its own core, the goal being for all to generate
greater differentiation and therefore higher returns on
invested capital.
By contrast, collaborative business networks are
driven by a different imperative.They seek to bring
about something never before accomplished: either the
completion of a program or project that transcends the
capabilities of established offerings, or the incubation of
a market that requires orchestrating the involvement of
many different participants. In both cases, the goal is to
tap into sources of funds that are not available to coordinated
networks.The prize is gross margins that are
much higher, since there are as yet no more efficient
alternatives in the market. Over time, however, if the
need is sufficiently broad and perennial, the transactional
model will find its way into the market, and the balance
of power will shift back to the coordinated network.
In light of these interactions, it behooves us all to
understand how each network operates, what practices
will enable companies to be most successful, and, in
particular, what investment in IT and communications
systems will yield the most benefit.That is the focus of
the rest of this chapter.
Coordinated business networks: Competing in a
commoditizing world
Coordinated networks are the norm for virtually all of
the consumer sector and much of the enterprise sector
as well.The rise of contract manufacturing be it in
retail, consumer electronics, home furnishings, industrial
components, or the like has disaggregated the value
chain in industry after industry, creating separate vendor
roles for design, sourcing and assembly, transportation
and logistics, marketing, retail distribution, and post-sales
customer support.The extraordinary success of this
model, in turn, has given rise to a second follow-on
wave of outsourcing to offload non-core service processes,
including in-house business processes such as accounts
payable, claims processing, benefits administration, and
compliance reporting.
The net impact of these changes has been the radical
commoditization of an enormous number of work
processes.This in turn has destabilized long-standing
business models by eliminating the market inefficiencies
upon which their traditional value-creating roles
depended.The resulting social turmoil has been great.
While public policy can, and in our view should,
modulate the onset of this onslaught of commoditization,
no one believes it can stop it. And indeed, in the long
term its benefits outweigh its pains, for it enables greater
and greater value creation from a given level of asset
deployment. But what about right now? What can leaders
of businesses in higher-cost developed economies do to
sustain the margins needed for life in their societies?
The response most ready to hand is to consolidate a
large number of competing enterprises into a few major
ones in order to gain bargaining power over the other
members in a commoditizing value chain.This leads to
a business network structure driven largely by a handful
of concentrators who do their best to dictate terms to the
other participants.The market shares of these companies
give them the power to drive pricing discounts and
special terms that add extra points of margin to their
bottom line. Everyone else in the chain must hustle to
keep their place in line, continuously innovating to meet
the next "unreasonable" demand from the concentrator,
the alternative being to lose out on so much volume
they cannot sustain the total overhead of their operation.
They have, in effect, become commoditized.
To get out from under this burden of commoditization
one must reengineer one's role in the business
network, or, if necessary, reengineer the network itself,
in order to get access to more lucrative opportunities.
This has been exemplified by the evolution of both
the contract manufacturing industry in China and the
contract services industry in India. Both began by taking
whatever work the developed economies wanted to
shed typically low-margin, highly standardized laborintensive
tasks where the wage rate arbitrage made for a
good deal on both ends. Under the pressure of success,
both nations' economies then began to migrate upstream
in the value chain, to seek to perform more complex
higher-value work, taking non-core but resourceconsuming
tasks off their outsourcing customers' plates.
There is still considerable more headroom to exploit on
this journey, and thus the economies of Asia are booming.
Where does that leave those living and working in
Europe, Japan, and the United States? These regions
enjoy high-wealth populations with strong traditions of
domestic consumption, and developed economy enterprises
have a natural customer-intimacy advantage when
marketing into their home base. Moreover, many of the
latter's established brands are highly attractive to emerging
markets in Asia, Central Europe, Latin America, and
Africa.The global supply chain can flow in both directions,
in other words, provided developed-economy
enterprises are able to clear the productivity hurdles
necessary to operate at very different price points.
Toward this end, one of the traditional competitive
advantages many developed economy enterprises
continue to enjoy by comparison with their developingeconomy
counterparts is experience and sophistication
in the use and deployment of IT systems.To date,
developed-economy enterprises' investment in IT has
focused primarily on improving internal productivity,
but as the consumer becomes more empowered, and
suppliers become more distributed, future returns are
increasingly going to come from getting better visibility,
control, and process productivity across the business network.
To compete going forward they must radically improve
their ability to manage processes end to end, orchestrating
not just the upstream supply chains, where considerable
progress has been made in the past decade, but also the
downstream demand chains, which even to this day
typically operate largely in the dark.
In an era where brand was king and supply was
scarce, such downstream opacity mattered little. Customers
would wait for what enterprises had. But that is hardly
the case in today's consumer-driven world. Fashion and
other trend-driven businesses, in particular, demand
faster and faster response times to hits, ensuring that
stock-outs do not truncate the ability to capitalize on
big winners when they come. Detecting these hits
transmitting accurate demand signals with shorter forecasting
time frames requires more extensive use of IT
analytics fed by more up-to-date information and integration
of processes across a business network. Moreover,
to achieve the necessary productivity gains in inventory
turns and reduced returns, execution-oriented transaction-
processing systems must be reconfigured to act
directly upon the insights of these analytics, adjusting
commitments in near real time.
Key to the success of this model is the ability to
have a lingua franca for the business network, an open
but common vocabulary that all business network participants
share on process and data definitions. Companies
operating in coordinated business networks must deploy
an end-to-end business process platform and a layer of
next-generation applications designed from the ground
up as inter-enterprise applications on top of that platform.
These "composite applications," as they are sometimes
called, provide visibility, control, and productivity
improvements at key junctures in the business network.
They focus on the edge, keeping things from falling
through the cracks, just as the underlying internal enterprise
resource planning (ERP) systems focus on the
core, keeping mainstream operations moving.
Investments such as these are incremental to the
massive IT upgrades driven by the Year 2000 effect.They
tap directly into these existing systems of record no
rip and replace, no rewriting of that which is already
written to extract and re-contextualize the data those
systems already hold.They are not disruptive.
Nonetheless, two things are still holding back this
much-needed transition to next-generation capability:
- At the line-of-business level, leaders are taking the
limitations of their current IT systems for granted.
Instead of driving for next-generation investment to
address inter-enterprise issues at the wellhead, they
consume their budgets using people and spreadsheets
to firefight the downstream problems.
- At the IT level, architects and systems owners continue
to take the enterprise boundary for granted.
Instead of embracing the challenges of operating
across a global business network, they continue to
push internal productivity projects whose return on
investment is demonstrable but, sadly, increasingly
irrelevant.
To move forward in this area of coordinated
business networks, both the line-of-business leaders and
the IT function must carve out a new space for interenterprise
space collaboration and populate it with a
new generation of composite applications. But unlike
previous times, they must do so in collaboration with
the other major players in their network. Collaboration
does not come naturally to these networks, and progress
is easily stalled. But stalling equates to continued deterioration
of profit margins the advance of commoditization
is inexorable, there are no time-outs. So it behooves
all such leaders to brush up their understanding of how
best to operate in a collaborative business network.
Collaborative business networks: Tapping into new
sources of wealth
In contrast to the high-volume orientation of coordinated
business networks and their corresponding investment in
transaction management, collaborative networks focus
on high-complexity challenges that require investing in
relationship management.Their focus is wide ranging,
from the making of a movie to the development of a
next-generation airliner, the initial private offering
(IPO) of a new company, the commercialization of a
novel therapy, or the industrialization of an entire country.
Whether it be the capital markets, the public works
sector, industrial manufacturing, the energy industry,
enterprise software, or consulting services, the focus is
on leveraging a wide range of technologies and expertise
to tackle a novel set of challenges, collaboratively
creating not only new products or services but also
whole new systems and categories that simply did not
exist before.
The range of these projects the risks they entail,
the capital they require, and the talent they must access
cannot be encompassed by the efforts of any single
enterprise. In effect, the need to operate as a collaborative
business network is built into the very structure of
the problems these companies must address. And such
collaborative networks have been in existence for centuries,
typically brokered by a handful of highly respected
enterprises and a remarkably small number of wellconnected,
highly effective individuals.The personal
relationships these individuals develop and maintain are
the backbone of the collaborative network, creating a
fabric of mutual understanding, respect, and trust that
enables extraordinary risks to be assessed and absorbed.
The challenge is how this model can be reengineered to
operate more effectively and efficiently at a global scale.
As we have already noted, the forcing function that
drives enterprises to reframe their established practices is
the deregulation, globalization, and commoditization of
the world economy. As these forces continue to put
pressure on the price margins of developed economies,
enterprises are forced more and more to push beyond the
boundaries of existing categories to develop new venues
for wealth creation.
Consider three areas that are the focus of much
reengineering at present:
- Research and development: Traditionally treated as a
closely held function, today more and more corporations
are sharing R&D efforts across enterprise
boundaries, be it the collaborative "connect and
develop" R&D practices of a Procter & Gamble
and BASF, the shared R&D ecosystem of biotech
and the pharmaceutical industry, the joint ventures
in the automotive industry to develop hybrid
engine technology, or the next-generation military
systems development in the defense arena.
- New market development: Inherent in the capitalist
economic model is the perennial need and expectation
to develop new markets.Whether it is
redesigning an existing product to go into a new
market (as many consumer packaged goods firms are
doing today to tap into the "bottom of the pyramid"
opportunities in developing economies), or
creating a new customer base for an unprecedented
technology (as Apple and others are doing for digital
music and media), or spawning an ecosystem of
partners to expand demand for an existing platform
(as SAP AG and others seek to do in enterprise
software), the need everywhere is to collaborate in
order to succeed. In the world of complex systems,
what markets need is never what any single company
can supply.
- Business model innovation: As industries, sectors, and
economies continue to mutate and evolve,
legacy business models eventually lose ground in
the competition to create value. At the same time,
new market inefficiencies create opportunities for
alternative business models to capitalize on latent
demand.Whether it be the trading ecosystem of
eBay, the rise of micro-credit in developing
economies, the innovative use of mobile phones as
pay-per-use business terminals in these same
economies, enterprises are continually discovering
and deploying novel mechanisms to capitalize on
next-generation opportunities.
Given these examples of efforts already under way,
what is the real challenge here? Simply put, we need
more much more of this kind of collaborative innovation
to fend off the commoditizing forces of globalization.
The bottleneck is that the collaborative business
networks needed to discover and capitalize on emerging
market opportunities take too long to form, are too hard
to scale, and are too susceptible to atrophy and decay.
The choke point lies at the very heart of the model: its
inherent reliance on personal relationships and close
communication to iterate through cycle after cycle of
approximation until a viable solution is found.Who has
not experienced the joys of this process in a conference
room at a whiteboard with a small group of engaged
colleagues? Who has not experienced the frustrations of
trying to operate that same process on a global scale?
Once again it behooves enterprises in developed
economies to better leverage their existing investments
in IT infrastructure. In this instance, however, the focus
should not be on computing but rather communications
systems.The rise of the Internet has led to a global
restructuring of communications infrastructure such that
all forms of communication voice, video, data, or
mobile now run (or will do so shortly) over the
Internet Protocol.This may be the single greatest technologically
led transformation in human history. Not
surprisingly, it is taking us all a bit of time to get our
heads around it. But the sooner we reorient our thinking,
the sooner we can leverage the new media to dramatically
rescale our collaborative business networks.
The opportunities to supplement the current infrastructure
of telephony and email are manifold.They
include Unified Communications, telepresence,Web
conferencing, instant messaging, chat, webcams, wikis,
portals, dashboards, online workspaces, and social networking.
All these technologies extend the reach of
collaborative business networks, putting a company's
best and brightest in touch with their peers in other
companies and on other continents. Kids are using most
of these tools already. Employees have them at home as
well.Why do companies persist in making them less
productive when they come to work?
Simply put, investing in upgrading communications
infrastructure is thus the number one opportunity to
improve and scale collaborative business networks in the
current era.That said, we must heed the thinking of the
American philosopher, Henry David Thoreau, who once
observed the following about a communications revolution
in his century:
Our inventions are wont to be . . . improved means to
an unimproved end. . . . We are in great haste to construct
a magnetic telegraph from Maine to Texas; but
Maine and Texas, it may be, have nothing important
to communicate.
To yield attractive returns, collaborations must be
focused on the critical opportunities that truly matter.
That does require some help from computing. Human
beings are good at recognizing patterns once they are
brought into view, but seeing them in the first place,
particularly across a vast range of data, can be an enormous
challenge.We are all familiar with the data overload
of modern life, but that pales when compared with
the data overload of modern businesses or governments,
particularly when those data span multiple enterprises
within a global network.
At such scale, only IT systems can operate with
sufficient scope and precision to address the patterndetection
problem.The good news is that the cost of
the required supercomputing has plummeted so fast and
so far that now data mining across literally trillions of
data records is a practical undertaking for any major
enterprise. And the data warehouses and analytic software
necessary to ferret out the signals amidst all this noise
are also ready to hand.The need now is simply to invest.
But what are we investing in? The answer is metadata.
And that is something that we are going to have to get a
lot smarter about.
The rise of metadata and what it means
Metadata are data about data.They are the material of
pattern detection, whether that be in the operations of a
supply chain, the management of a data network, the
movement of a ticker tape, or the behavior of a set of
consumers. In coordinated networks, metadata are critical
to maintain the visibility and control needed for
process management and optimization.They are fundamentally
an operational tool focused on productivity
improvement. In collaborative networks, metadata are
more of a discovery tool that helps direct future investment,
whether that be in R&D, marketing, or mergers
and acquisitions. In both cases metadata represent a
powerful lens through which businesses can reevaluate
their current resource deployment and reengineer their
future asset allocation.
However, it is this very power that also makes
metadata problematic.The risk of constructing or publishing
metadata is that it exposes inefficiencies that can
be exploited by others, especially in absence of proper
security or relationships of trust. Often in such cases, the
party exploited is the one that helped supply the data in
the first place.Thus there is widespread fear that sharing
metadata is likely to have unintended consequences, as
the following examples will illustrate:
- patient sensitivity about insurers getting their
personal health data,
- retailers not wanting to report out point-of-sale
purchase data to product vendors,
- mobile operators wanting to control access to user
location data,
- intelligence agencies classifying their metadata as
"Top Secret,"
- algorithmic traders seeking to disguise their
operations to evade metadata detection,
- consumers wanting to control access to their
purchase histories, and
- Internet users' desire to periodically delete their
browsing histories.
Now no one denies that metadata are needed to
create next-generation innovations.The issue is, under
what rules of engagement? This is a work in progress, to
be sure, but there are some provisional rules emerging
from successful collaborations, of which the following
are a sample:
- Governance of metadata needs to be explicit and
transparent to all parties involved.
- Private use of companies' own metadata for the
purposes of improving their own performance, or
those of their partners, has always been and continues
to be acceptable. (Arguably that is what the
proponents of Sarbanes Oxley the US federal law
of 2002 intended to ensure access to appropriate
financial and accounting disclosure information
thought they were about.)
- Public-service uses of metadata are provisionally
acceptable provided they are monitored and
controlled.This includes fraud detection, traffic
management, epidemic disease control, antiterrorist
surveillance, and the like.
- Patented metadata are legal but socially concerning,
particularly around information on the human
genome and comparable global information
sources. One can expect legislative controls in this
arena at some point in the future.
- Consumer privacy is a deep-seated right, and
metadata must not be collected without permission.
The gray line here is between opt-in and opt-out
methods of securing that permission, with the latter
clearly being the high ground.
- Institutionalized sources of metadata are highly
valued.This includes financial metadata providers
such as Reuters, retail metadata providers such as
Nielsens and IRI, and World Wide Web metadata
providers such as Google. Positioning as a metadata
hub is highly desirable but also jealously guarded
against, as it confers enormous economic power to
the enterprise in question.
One of the most difficult aspects of metadata is that it
exposes inefficiencies, a situation in which someone's
ox is all too likely to get gored.This challenge can be
overcome to some extent through collaboration toward
a common goal as opposed to exploiting the information
on a win-lose basis. In coordinated business networks
with strong concentrators, however, it is far more common
to use metadata to exploit weaker members in the
ecosystem to extract greater and greater concessions
from them.This results in dysfunctional dynamics that
undermine the effectiveness, efficiency, and ultimately
the security and reliability of these networks.
In collaborative networks, a similar selfish behavior
also generates a backlash.This was a lesson first learned
by innumerable dot-coms whose business plans had
them setting up digital fronts to reengineer any number
of inefficient supply chains.They were shocked to learn
that the members of the current community did not
want to collaborate in their own demise. Similarly, pharmaceutical
companies resist the deployment of diagnostics
that may limit the prescription of their drugs,
health-care providers resist being measured by patient
outcomes, and school systems resist publicized test
results.Why would we think they would not?
Metadata, nonetheless, are far too valuable to neglect
simply because their politics and governance are so
hard to navigate.We need instead to develop a set of
ethics and norms to guide their collection and deployment
so that we can use them to continue to drive
global economic expansion.We believe that task is best
left to industry, but we have no doubt that if industry
fails to step up, governments will fill the vacuum.
Unfortunately, legislation in areas such as this has typically
proven inflexible, obstructive, and riddled with
unintended consequences. It would be far better if
industry were to take this matter in hand itself, and now.
Conclusion
The ability to operate effectively in business networks,
be they coordinated or collaborative, is critical to
sustaining competitive advantage in a commoditizing
global economy. By focusing on their unique core
capabilities, business network participants spend less on
duplication and more on innovation, resulting in higher
degrees of differentiation, greater customer willingness
to pay a premium, and thus higher returns on invested
capital. Next-generation ICT systems allow these business
networks to operate at global scale, but investment
in them has been allowed to lag. As a result, enterprises
in the developed economies are falling behind the
curve, especially in comparison with their Asian counterparts.
By focusing on the specifics of the type of
network that is most important to their companies, and
in particular on the type of metadata that will most
greatly enhance their competitive advantage, business
and IT leaders can radically improve these outcomes by
making measured incremental investment that augments
their existing infrastructure.