Conversations on the Future of Business

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Deep Dive: The Network EconomyFinding Power in Connections

Networked enterprises are 50% more likely to have increased sales and be market leaders.

Conversations on the Future of Business

Source: McKinsey

The Network EconomyChallenges

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Conversations on the Future of Business

When we think of networks today, we call to mind technology. But ultimately, networks are about people: why they connect, where they collaborate, when they achieve their goals.

As ever, it’s not what you know, but whom you know. But even more now, it’s how you connect. Welcome to the Network Economy.

From mobile platforms to the cloud, from social media to machine-to-machine (M2M), people and organizations are linked in more ways and by more nodes than ever before. Those links confer a new power to the connected—and a distinct disadvantage to those who fail to leverage all available contact points.

And the ante is continually raised. The network effect adds exponential value. But leveraging the new network density is ever more challenging. From shifting demographics to emerging mobility, from new cloud paradigms to greater interdependencies and connectedness, organizations need to grapple with new networked realities.

Networks Drive Net Worth. How Connected Are You?

Shifting Demographics

Some 80 million millennials are flooding the marketplace and the workforce. These are the first digital natives. They eat, sleep, and breathe networks. And they expect your business to do the same.

But it’s not only Gen Y. The fastest-growing social-media segment is the 45-to-64 set. Soon all your customers, and all your employees, will demand that you be mobile, social, always on, ever connected. You may not be thinking about this yet, but you can bet your competitors are.

Don Tapscott, Best-Selling Author and Business Consultant, on the Network Economy

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Conversations on the Future of Business

Emerging Mobility

There are 1.5 billion smartphones worldwide, and 6.8 billion mobile subscribers. And those subscriptions are being used. Nearly 820 million users now access the Internet from mobile devices, a 60 percent jump over the past two years, while the typical mobile user checks the phone 150 times a day.

Many organizations have struggled to keep up. They know their customers and employees are mobile. But they haven’t optimized their communications, their processes, and their offerings to compete in a mobile era. They risk being overlooked, becoming irrelevant, and losing the war for customers and talent.

New Cloud Paradigms

More and more business—and life—takes place in the cloud. Today it’s no longer just a question of onsite or off-premises. New, more complex cloud strategies introduce greater levels of cloud complexity. They also raise fundamental questions around asset management, security, privacy, organizational boundaries, and processes.

Networks of Networks

Organizations have been growing their electronic networks since the ARPANET first connected the U.S. Department of Defense to research universities. But in the Network Economy, network density and complexity is ever advancing. Today we have networks connected to networks, and networks within networks. Those networks aren’t just connectors; they’re also disruptors.

Mobile networks disrupt customer touch points. Social networks disrupt markets. Corporate networks disrupt hierarchies. Cloud networks disrupt processes. M2M networks disrupt supply chains. The more you embrace networks, the more you confront change and risk. The more you avoid networks, the faster you fall behind.

“ The imperative for business leaders is clear: Falling behind in creating internal and external networks could be a critical mistake.”

McKinsey Podcast, “Rise of the Networked Enterprise”

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Source: ZDNet

42% of leading companies say that machine-to-machine technology (M2M) is integral to their business performance.

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OpportunitiesThe Network Economy

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Conversations on the Future of Business

The Network Economy is also the Sharing Economy. The same new networks and norms that enable individuals to participate in the public narrative empower organizations to collaborate in the global sphere.

That means tremendous new opportunities to innovate and respond, serve and succeed. The same network challenges that vex processes and markets also position the forward-leaning among us to outcompete and win in the marketplace.

Shifting Demographics

At 80 million strong in the United States alone, the millennials outstrip the boomers by millions. U.S. millennials already spend more than $170 billion a year, a number that will only rise with their influence. In 2014 they’ll account for 36 per-cent of the U.S. workforce. By 2025, 75 percent.

The good news is that millennials know net-works. They’ve never seen a time that wasn’t connected. They embody the Network Economy, and you can leverage their mindset to maximize

Collaborate, Create, Compete

network efficiencies within your walls and without. You can also capitalize on their connectedness through new channels and offerings.

Emerging Mobility

Mobile platforms enable you to connect with information, enterprises, employees, and cus-tomers any time, anywhere. Real-time access to information enables you to analyze and respond to changing market conditions in an instant. Ongoing connections with suppliers and partners let you morph supply chains and processes as demand and other inputs ebb and flow. Constant contact with employees empowers them to collaborate and serve customers better. Continual interaction with customers positions you to understand their desires and meet their needs with a superlative brand experience.

In short, the mobile enterprise leverages people, process, and technology to run smarter, faster, and better.

“With the Networked Age, we have real-time systems that instantly analyze and evaluate what’s happening and enable us to respond infinitely more quickly.”Don Tapscott

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Conversations on the Future of Business

New Cloud Paradigms

Cloud networks free organizations from the burden of unnecessary infrastructure investment, maintenance, and risk. Instead, they can focus on serving their markets—with the ability to scale resources and deploy new capabilities as needed.

But that’s just the beginning. “The emergence and growth of cloud-based business networks has created global communities of companies just as diverse and accessible as communities of individuals,” says Alex Saric, head of marketing for Ariba, an SAP Company. “The integration of such networks into enterprise software has made leveraging these communities to crowdsource a relatively seamless and simple process.”

Cloud-based collaboration enables established enterprises such as Boeing to build better aircraft. It allows startups to access crucial partners and intellectual capital. And it equips every organization to drive greater efficiencies and reach new markets.

Tim Minahan, CMO, SAP Cloud, on the Power of a Networked Community

“Previously internal processes are now becoming increasingly externalized. Cloud computing ... has let loose the imagination of businesses to consider how to do commerce anew.

Dana Gardner, President, Interarbor Solutions

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Network of Networks

A network of one has no worth. Add nodes, and its value emerges. Network the networks, and you have the Network Economy. It’s Metcalfe’s Law on steroids.

Business networks unleash unprecedented insight, innovation, and alignment. Participants can find the tools and information they need. Solve old problems and uncover new insights. Reach new customers and markets. Automate inputs and processes for cost savings and greater agility.

Internal networks enable unrestricted information flow, without regard to organizational or geographic boundaries. They can become destinations for data, learning, tools, and knowledge. They drive collaboration and problem solving, optimize processes, and speed time to market.

Networking for Market Share and Margins Fully leveraging business networks can lead to greater market share and higher margins, suggests a McKinsey study. Lessons from the research include:

• Foster network adoption. Limited deployment means fewer advantages.

• Drive day-to-day network usage. Integrating the network into daily work activities compounds benefits.

• Remove barriers to change. Fully networked organizations have more fluid information flows, McKinsey says. They also deploy talent more flexibility and drive decision making throughout the enterprise.

“The imperative for business leaders is clear: Falling behind in creating internal and external networks could be a critical mistake,” the study concluded.

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External networks bring together partners, customers, and markets. They empower you to capture market inputs, reduce operational risk, achieve more nimble supply chains, and deliver superlative customer experience.

Machine networks link sensors, components, equipment, and activities. By automating data col-lection and operations, they enable you to manage remote processes, monitor trends, and gain new levels of competitive advantage.

Don Tapscott, on the Networked Age

“Because the Internet radically drops transaction and collaboration costs, traditional closed, vertically integrated companies can now unbundle into networks.”Don Tapscott

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By 2016, about 90% of network traffic will be driven by smartphones, laptops, and other portable devices.Source: Cisco

The Network Economy Imperatives

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Conversations on the Future of Business

Networks are powerful. Networks are innovative. Networks are practical. They can connect disparate groups of people. They can solve global problems. And they can transform your organization.

But to truly realize the promise of networks, you need to do more than simply connect. You need to invest in all their permutations, explore all their possibilities, and leverage all their capabilities.

Do It Faster

The Network Economy is a faster economy. To realize success, you need to achieve escape velocity. To that end, provide fast access to resources. Leverage cloud computing and mobile platforms to give your people the information and tools they need to do their jobs, whenever and wherever they need to do them.

Leverage real-time data. Make sure your networks are capturing information—about customers, competitors, and markets—quickly and consistently. Then rapidly feed that insight to the people who need it, those who can take action to alter your course as you steer toward business improvement.

Networks on a Mission

Accelerate the pace of processes. Automate your data feeds and connectivity wherever possible. Replace your linear supply chain with a sophisticated supply network that can respond quickly to demand inputs and position you to reduce risk.

And bring innovation to your interconnections. “A networked supply chain enables trading partners to collaborate in real time,” says Christopher Rauen, solution marketing manager for Ariba. One area of opportunity, for example, lies in accounts payable. Says Rauen: “Incorporating the accounts payable function into a networked supply chain transforms a largely tactical function into a strategic asset.”

Find the Savings

The Network Economy is a more cost-efficient economy. Automating data flow through innovations like M2M can deliver benefits direct to the bottom line. Linking internal and external resources can give you cost-effective access to expertise and capacity.

Pulling customers into the product design process can result in more targeted offerings at a much lower cost to your organization. It can also empower customer service. A simple example is Apple Support, which provides a forum for peer-to-peer user help—and enables the company to provide service faster and cheaper.

Set Innovation to Stun

The Network Economy is an innovative economy. Connect employees so they can uncover hidden expertise and collaborate on solving your most vexing problems. Fold in external knowledge you can scale up or down as needed to develop new products or respond to market changes.

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Conversations on the Future of Business

Take advantage of data feeds to both understand buyer behavior and monitor supply-chain processes. Complementing your networks with Big Data and predictive analytics can equip you to innovate at both the front and back ends, better serving customers and better running your operations.

And once again, leverage your customer nodes by transforming consumers into producers. Such “prosumers” are an invaluable part of your extended ecosystem. One case in point is My Starbucks Idea, a private social platform that allows the ubiquitous beverage purveyor to collaborate with customers.

Leverage the Latest

The Network Economy depends on wise technology investment. “If we look at this emerging industry of peer-to-peer networks, there is so much value is that locked and unused,” says Ramesh Ramakrishnan, founder of RR Marketing Advisory. “Technology helps extend the reach of this value beyond one’s own immediate connections.”

Cloud computing lets you access resources, link stakeholders, and deliver insights in real time. Mobile platforms connect employees, partners, and customers wherever they happen to be, whenever they need to be connected.

Collaborative tools extend knowledge to all your people, and bring in value from outside your walls. In-memory computing and sophisticated analytics complement the data your networks pull in, yielding new insights and innovations.

Crowdsourcing Enters New TerrainCrowdsourcing has become a staple of the startup economy. Now, the concept is morph-ing into new models.

Crowdsourcing practices range from crowd funding to the sharing economy. Kickstarter, a peer-to-peer funding platform, has raised $900 million across 51,000 projects. Airbnb, a marketplace for room rentals, is on pace to become a billion-dollar company.

These efforts bring together financial, intellectual, or other resources from large groups of people. The practices are new but the implications vast. Various industries are leverag-ing crowdsourcing to create new efficiencies and revenue streams:

Plane rentals: OpenAirplane—Airplane fleets are underused and therefore lose reve-nues. Hobbyist pilots want to fly more but can’t afford to. OpenAirplane addresses both problems by using mobile technology to connect pilots and fleets.

Facility rentals: Hire Space—Conference space often sits idle. Yet the price tag to access a venue can be large. Hire Space bridges the gap by allowing businesses, schools, and charitable organizations to put up unused facilities for hire.

Gift giving: Giftovus—Finding that perfect gift can be daunting. A referral from a friend can help. Giftovus takes the concept to scale. It leverages social media to make available relevant gift-giving ideas. Users can quickly identify that special something—while saving up to one-third on related spending.

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Achieve the Advantage

Ultimately, the Network Economy is about reach-ing new levels of success.

What’s your most valuable asset? Is it your employ-ees? Your equipment? Is it your supply chain? Your processes? Could it be your intellectual property? Your customers?

Today, all those mission-critical elements can join the network. All your differentiators can be linked and cross-linked. The network effect is truly a net-worth effect. Each time you add a node, you amplify the value.

The Network Economy is not without risk and challenge. But there’s power in connectivity. And there’s profit in getting connected.

“Shaking up the status quo is enabling massive efficiencies, with more active market benefits, shared by more participants, as they cooperate and collaborate in entirely new ways.”Dana Gardner, President, Interarbor Solutions

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Learn More • Conversations on the Future of Business • Conversations on the Networked Economy• SAP Center for Business Insight • SAP Business Innovation Blog: Future of Networks

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Conversations on the Future of Business