Networked Economy forges innovation for collaboration in business and commerce, says author

Listen to the podcast. Find it on iTunes. Read a full transcript or download a copy. Sponsor: Ariba.

 

New levels of collaboration have emerged from an increasingly networked world, and business leaders and academic researchers alike are now sorting out what the new capabilities mean for both commerce and society at large.

 

To learn more about how rapid trends in collaboration and business networking are driving new innovation and social interactions, BriefingsDirect invited a Harvard Kennedy School researcher and a chief strategist at global business network provider Ariba to a panel discussion.

 

We joined up Zach Tumin, Senior Researcher at the Science, Technology, and Public Policy Program at the Harvard Kennedy School, and Tim Minahan, Senior Vice-President of Global Network Strategy and Chief Marketing Officer at Ariba, an SAP company.

 

Tumin isco-author with William Bratton of 2012’s Collaborate or Perish: Reaching Across Boundaries in a Networked World, published by Random House. Minahan, at Ariba, is exploring how digital communities are redefining and extending new types of business and collaboration for advanced commerce. 

 

The chat is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions. [Disclosure: Ariba is a sponsor of BriefingsDirect podcasts.]

 

Here are some excerpts:

 

Gardner: Zach, in your book "Collaborate or Perish," you're exploring collaboration and you show what it can do when it's fully leveraged. And, Tim, at Ariba you've been showing how a more networked economy is producing efficiencies for business and even extending the balance of what we would consider commerce to be. I’d like to start with looking at how these come together.

 

Tumin: The opportunities for collaboration are expanding even as we speak. The networks around the world are volatile. They're moving fast. The speed of change is coming at managers and executives at a terrific pace. There is an incredible variety of choice, and people are empowered with these great digital devices that we all have in our pockets.

 

Tumin

That creates a new world, where the possibilities are tremendous for joining forces, whether politically, economically, or socially. Yet it's also a difficult world, where we don't have authority, if we have to go outside of our organizations -- but where we don't have all the power that we need, if we stay within the boundaries of our charters.

 

So, we're always reaching across boundaries to find people who we can partner with. The key is how we do that. How do we move people to act with us, where we don't have the authority over them? How do we make it pay for people to collaborate?

 

 

A lot of change

 

Minahan: Collaboration certainly is the new business imperative. Companies have leaned out their operations over the past couple of years and they spent the previous 30 years focusing on their internal operations and efficiencies and driving greater performance, and getting greater insights.

 

Minahan

When they look outside their enterprise today, it's still a mess. Most of the transactions still occur offline or through semi-automated processes. They lack transparency into those processes and efficiency in executing them. As a result, that means lots of paper and lots of people and lots of missed opportunities, whether it's in capitalizing on getting a new product to market or achieving new sales with new potential customers.

 

What business networks and this new level of collaboration bring is four things. It brings the transparency that’s currently lacking into the process. So you know where your opportunities are. You know where your orders are. You know where your invoices are and what your exposure to payables are.

 

It brings new levels of efficiencies executing against those processes, much faster than you ever could before through mostly automated process.

 

It brings new levels of efficiencies executing against those processes, much faster than you ever could before through mostly automated process. It brings new types of collaboration which I am sure we will get into later in this segment.

 

 

The last part, which I think is most intriguing, is that it brings new levels of insights. We're no longer making decisions blindly. We no longer need to double order, because we don’t know if that shipment is coming in and we need to stockpile, because we can't let the refinery go down. So it brings new levels of insight to make more informed decisions in real time.

 

Gardner: Zach, in your book you're basically describing a new workforce, and some companies and organizations are recognizing that and embracing it. What’s driving this? What has happened that is basically redefining the workforce?

 

It's the demographics

 

Tumin: It’s in the demographics, Dana. Young people are accustomed to doing things today that were not possible 10 years ago. The digital power in everyone’s pocket or pocket book, the digital wallet in markets, are ready, willing, and able to deal with them and to welcome them. That means that there’s pressure on organizations to integrate and take advantage of the power that individuals have in the marketplace and that come in to their workforce.

 

Everyone can see what's going on around the world. We're moving to a situation where young people are feeling pretty powerful. They're able to search, find, discover, and become experts all on their own through the use of technologies that 10 years ago weren’t available.

 

So a lot of the traditional ways of thinking about power, status, and prestige in the workforce are changing as a result, and the organizations that can adapt and adopt these kinds of technologies and turn them to their advantage are the ones that are going to prevail.

 

Gardner: Tim, with that said, there's this demographic shift, the shift in the mentality of self-started discovery of recognizing that the information you want is out there, and it’s simply a matter of applying your need to the right data and then executing on some action as a result. Your network seems ready-made for that.

 

The reality of the community is that it is organic. It takes time to grow.

Minahan: The reality of the community is that it is organic. It takes time to grow. At Ariba we have more than 15 years of transactional history, relationship history, and community generated content that we've amassed. In fact, over the past 12 months those, nearly a million connected companies have executed more than $400 billion in purchase, sales, invoice, and payment transactions over the Ariba network.

 

Aggregate that over 15 years, and you have some great insights beyond just trading efficiencies for those companies participating there. You can deliver insights to them so that they can make more informed decisions, whether that’s in selecting a new trading partner or determining when or how to pay.

 

Should I take an early-payment discount in order to accelerate or reduce my cost basis? From a sales standpoint, or seller’s standpoint, should I offer an early payment discount in order to accelerate my cash flow? There are actually a host of examples where companies are taking advantage of this today and it’s not just for the large companies. Let me give you two examples.

 

From the buyer side, there was a company called Plaid Enterprises. Plaid is a company that, if you have daughters like I do who are interested in hobbies and creating crafts, you are very familiar with. They're one of the leading providers for the do-it-yourself crafts that you would get at your craft store.

 

Like many other manufacturers, they were a mid sized company, but they decided a couple of years ago to offshore their supplies. So they went to the low cost region of China. A few years into it, they realized that labor wages were rising, their quality was declining, and worse than that, it was sometimes taking them five months to get their shipment.

 

New sources of supply

 

So they went to the Ariba Network to find new sources of supply. Like many other manufacturers, they thought, "Let’s look in other low cost regions like Vietnam." They certainly found suppliers there, but what they also found were suppliers here in North America.

 

They went through a bidding process with the suppliers they found there, with the qualifying information on who was doing business with whom and how they performed in the past, and they wound up selecting a supplier that was 30 miles down the road. They wound up getting a 40 percent cost reduction from what they had previously paid in China and their lead times were cut from more than 120 days down to 30.

 

That’s from the buy side. From the sell side, the inverse is true. I'll use an example of a company called Mediafly. It's a fast growing company that provides mobile marketing services to some of the largest companies in the world, large entertainment companies, large consumer products companies.

 

They were asked to join the Ariba Network to automate their invoicing and they have gotten some great efficiencies from that. They've gotten transparencies to know when their invoice is paid, but one other thing was really interesting.

Once they were in the networked environment and once they had automated those processes, they were now able to do what we call dynamic discounting. That meant when they want their cash, they can make offers to their customers that they're connected to on the Ariba Network and be able to accelerate their cash.

 

You have extraordinary volatility on your network and that can rumble all the way through.

So they were able not only to shrink their quote-to-settle cycle by 84 percent, but they gained access to new financing and capital through the Ariba network. So they could go out and hire that new developer to take on that new project and they were even able to defer a next round of funding, because they have greater control over their cash flow.

 

Gardner: Zach, in listening to Tim, particularly that discovery process, we're really going back to some principles that define being human -- collaboration, word of mouth, sharing information about what you know. It just seems that we have a much greater scale that we can deploy this. How is that fundamentally changing how people are relating in business and society?

 

Tumin: The scaling means that things can get big in a hurry and they can get fast in a hurry. So you get a lot of volume, things go viral, and you have a velocity of change here. New technologies are introducing themselves to the market. You have extraordinary volatility on your network and that can rumble all the way through, so that you feel it seconds after something halfway around the world has put a glitch in your supply chain. You have enormous variability. You're dealing with many different languages, both computer languages and human languages.

 

That means that the potential for collaboration really requires coming together in ways that helps people see very quickly why it is that they should work together, rather than go it alone. They may not have a choice, but people are still status quo animals. We're comfortable in the way that we have always done business, and it takes a lot to move us out.

 

It comes down to people

 

When crisis hits, it’s not exactly a great time to build those relationships. Speaker of the House Tip O'Neill here in United States once said "Make friends before you need them." That’s a good advice. We have great technology and we have great networks, but at the end of day, it’s people that make them work.

People rely on trust, and trust relies on relationships. Technology here is a great enabler but it’s no super bullet. It takes leadership to get people together across these networks and to then be able to scale and take advantage of what all these networks have to offer.

 

Gardner: Tim, another big trend today of course, is the ability to use all of this data that Zach has been describing, and you are alluding to, about what’s going on within these networks. Now, of course, with this explosive scale, the amount of that data has likewise exploded.

 

Minahan: We've only begun to scratch surface on this. When you look at the data that goes on in a business commerce network, it’s really three levels. One is the transactional data, the actual transactions that are going on, knowing what commodities are being purchased and so on. Then, there's relationship data, knowing the relationship between a given buyer and seller.

 

Finally, there's what I would call community data, or community generated data, and that can take the form of performance ratings, so buyers rating suppliers and suppliers rating buyers. Others in the community can use that to help determine who to do business with or to help to detect some risk in their supply chain.

There are also community generated content, like request for proposal (RFP) templates. A lot of our communities members use a "give a template, take a template" type approach in which they are offering RFP templates to other members of the community that work well for them. These can be templates on how to source temp labor or how to source corrugated packaging.

 

We have dozens and dozens of those. When you aggregate all of this, the last part of the community data is the benchmarking data. It's understanding not just process benchmarking but also spend benchmarking.

One of the reasons we're so excited about getting access to SAP HANA is the ability to offer this information up in real time, at the point of either purchase or sale decision, so that folks can make more informed decisions about who to engage with or what terms to take or how to approach a particular category. That is particularly powerful and something you can’t get in a non-networked model.

 

Gardner: Zach, last word to you. What do we get? What's the payoff, if we can balance this correctly? If we can allow these new wheels of innovation to spin, to scale up, but also apply the right balance, as Tim was describing, for audit trails and access and privilege controls? If we do this right, what's in the offing?

 

Tumin: I think you can expect four things, Dana. First is that you can expect innovations faster with ideas that work right away for partners. The partners who collaborate deeply and right from the start get their products right without too much error built-in and they can get them to market faster.

 

Second is that you're going to rinse out the cost of rework, whether it's from carrying needless inventory or handling paper that you don’t have to touch where there is cost involved. You're going to be able to rinse that out.

 

Third is that you're going to be able to build revenues by dealing with risk. You're going to take advantage of customer insight. You're going to make life better and that's going to be good news for you and the marketplace.

 

Constant learning

 

The fourth is that you have an opportunity for constant learning, so that insight moves to practice faster. That’s really important, because the world is changing so fast, you have the volatility, a velocity, a volume, variability, being able to learn and adapt is critical. That means embracing change, setting out the values that you want to lead by, helping people understand them.

 

Great leaders are great teachers. The opportunity of the networked world is to share that insight and loop it across the network, so that people understand how to improve every day and every way the core business processes that they're responsible for.

 

Gardner: Allow me to extend a big thanks to our guests, Zach Tumin, Senior Researcher at the Science, Technology, and Public Policy Program at Harvard Kennedy School, and the co-author with William Bratton of Collaborate or Perish: Reaching Across Boundaries in a Networked World, and Tim Minahan, Senior Vice-President of Global Network Strategy and Chief Marketing Officer at Ariba.

 

Listen to the podcast. Find it on iTunes. Read a full transcript or download a copy. Sponsor: Ariba.


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About the Author
Dana Gardner is president and principal analyst at Interarbor Solutions, an enterprise IT analysis, market research, and consulting firm. Ga...
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