The New Cloud-Enabled Business Network

Firms are evolving from monoliths to networked supply-chain ecosystems enabled by a business network cloud. 2020 mandated not just optimizing their cost, but flexibility and resilience.

InformationWeek Staff, Contributor

December 9, 2020

7 Min Read

The strategy, scope, and structure of a firm -- the primary concern of the CEO -- must align with its software, systems, and services -- the focus of the CIO. As businesses refine their strategies and focus on their core differentiators, organizational structures are disaggregating from vertically integrated monoliths to networked supply-chain ecosystems. Therefore, IT must expand from internal operational support to become an external strategic enabler. Moreover, as the pandemic has shown, it’s not enough to focus on cost optimization of these supply-chain networks; flexibility and resilience can help businesses and people survive.

A century ago, Ford’s River Rouge Complex exemplified vertical integration. It was the largest manufacturing plant in the world with its own steel mill, power plant, and railroad. Iron ore and other raw materials entered at one end, and cars exited at the other. Today, Ford has thousands of business partners such as parts suppliers, dealers, and insurance companies. Also a century ago, the Hollywood studio system -- “dream factories,” rather than auto factories -- aggregated and integrated all needed assets, such as financing, screenwriters, actors, directors, costumes, sets, and theater distribution to pump out product at scale. Now, the “Hollywood organization model” fosters agility by dynamically combining these assets only for the duration of a production. Even Apple famously relies on FoxConn for manufacturing, developer partners for App Store apps, outside creative artists for the music and video it sells, and indirect outlets such as phone companies and electronics retailers for a substantial fraction of its distribution.

Whether cars, entertainment, or phones, successful, tightly integrated, well-designed products and services are being built using networked partner ecosystems.  The rationale for this approach is that companies should generally focus their energy and finances on developing competitive advantage in their core differentiators, and should outsource “context” activities to partners that can be excellent at a complementary core -- say, manufacturing or music -- while achieving economies of scale and learning curve effects.

To do this cost-effectively, with quality, at scale, requires a business network. The largest such system is OpenText’s Business Network Cloud, which has over one million trading partners that engage in 26 billion transactions totaling 9 trillion US dollars annually. To put this in perspective, it would be the third largest economy in the world by GDP, behind the US and China but well ahead of Japan, and is 100 times the size of eBay in terms of “gross merchandise value,” i.e., transaction value.

It solves what might be viewed as the dark side of Metcalfe’s Law: The value of a network may (or may not) grow in proportion to the square of the number of participants, but the cost certainly can. Rather than laboriously building a manually constructed custom interface to each business partner, smart companies use just one interface to a B2B network. And, just like telephony evolved from numerous point-to-point wired connections in the 1890s to a single connection to a telephony cloud, a business network connecting partners at scale also naturally belongs in the cloud.

2020 has shown that flexibility and resilience must complement scale and cost effectiveness. For the past few decades, perhaps beginning with the Toyota Production System in the 1980s, the supply chains crisscrossing business ecosystems have been continuously optimized for minimal cost, using principles such as lean production and just-in-time inventory. 

However, this approach is succumbing to what OpenText CEO & CTO Mark J. Barrenechea calls the “Great Rethink” of the economy, society, technology, the environment, geopolitics, people, and industry. In particular, the COVID-19 pandemic exposed the fundamental flaw with stable ecosystems and finely tuned supply chains: a lack of resilience.

A vertically integrated plant like River Rouge or even an optimized supply chain network like Toyota’s is built for cost, stability, and scale: building millions of the exact same car at the lowest possible cost. This focus worked fine, until it fell apart in 2020 due to disruptions in global logistics and raw material availability, closure of localized pandemic hotspots in manufacturing/processing facilities, or dramatic shifts in customer demand, either up or down. For example, most regions saw over a 90% drop in airline passengers, whereas demand for baking supplies grew 3,400%. Other items that have had dramatic demand shifts include N95 masks, toilet paper, paper towels, and cleaning supplies, as everyone knows, but include some surprises, such as bike parts, exercise equipment, and furniture.

The COVID-19 pandemic will eventually fade, but not the realization that supply chains and connected business ecosystems must be able to navigate bankruptcies, raw material shortages, trade wars, natural disasters, terrorist attacks, and the next pandemic. The solution is not just to increase work-in-process inventories -- that won’t overcome the issues with overly rigid processes and organization structure and inflexible automation. There is a need to balance cost and cycle time with flexibility, agility, resilience, visibility, and control, whether on an everyday basis to exploit opportunities inherent in a shifting market, or to proactively rebound from global disruptions. 

To accomplish this, John Radko, Senior Vice President of Software Engineering at OpenText, crisply observed in his recent keynote at OpenText World 2020 that “the world has reached a point where the ability of partners to exchange information and collaborate in real time is the deciding factor in whether we succeed or fail.” After all, addressing a component shortage or logistics problem from a supplier requires the realization of an impending shortage, discovering an alternate supplier, assessing their financial status and perhaps other characteristics such as business ethics, compliance, environmental, and sustainability, onboarding them, placing purchase orders, tracking performance and maintaining visibility into the new supply chain. These are all fundamentally about information exchange and collaboration, which in turn implies integration, requiring a platform.

In fact, 93% of respondents to a recent IDG Research MarketPulse survey rated such digital supply chain integration critical or very important. As General Robert Barrow, the Commandant of the Marine Corps, said 40 years ago about the conduct of war: “Amateurs talk about tactics; but professionals study logistics.” The benefits of B2B integration are real and range from strategic to financial. One firm reduced partner onboarding by 5 weeks, fines by 12%, and EDI (Electronic Data Interchange) support costs by a quarter. Another was able to “stay focused on core business” objectives by automating partner relationships. Yet another gained efficiency and improved visibility through better monitoring.

Most leaders know that they must address people, process, and technology, an insight originally formulated in the 1960s. For a B2B network, the implication is that it must support human users across a variety of devices, logistics workflows, and also APIs (Application Programming Interfaces) and data interchange with partner systems in the supply chain. It now also increasingly means not just connecting to partner information systems, but additionally, connecting to things. In other words, rather than getting a report from a supplier about shipment status, you’ll be able to directly interrogate the smart, connected shipment itself, say for track-and-trace of pallets or individual items.

In the old world of monolithic enterprises, internal systems could arguably work just fine. But in today’s world of growing, global, interconnected ecosystems, the benefits and required features of a cloud-based business network are clear: link ecosystem participants securely; maintain a global presence across a large, existing network of partners; enable growth and agility through easy onboarding; automate process management; integrate the emerging Internet of Things; provide it as a service through a cloud platform; and provide end-to-end visibility.

Sun Microsystems’ John Gage famously said that “the network is the computer.” Now one could argue that the computer is the business network.

Joe Weinman is a global keynote speaker, board member, advisor, and author of Cloudonomics: The Business Value of Cloud Computing, Digital Disciplines, and Fog and Fogonomics.  He has contributed to InformationWeek for over a decade, as well as to IEEE Cloud Computing, Harvard Business Review, etc. He has held a variety of executive positions at AT&T Bell Labs, AT&T Business, HP, most recently as Senior VP, Telx (now Digital Realty). His education includes Cornell, UW-Madison, IMD Lausanne, MIT Sloan, and Harvard Business School. He has been awarded 26 US patents.

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