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: Creating Value Through Networks

Perhaps one of the most significant breakthroughs in management thinking in recent years has been the realisation that individual businesses no longer compete as stand alone entities, but rather as collaborative networks. We are now entering the era of `network competition' where the prizes will go to those organisations who can better structure, co ordinate and manage relationships with their partners in a network committed to creating customer and consumer value through collaboration.

In the past it was more often the case that organisations were structured and managed on the basis of optimising their own operations with little regard for the way in which they interfaced with suppliers or, indeed, customers. The business model was essentially transactional', meaning that products and services were bought and sold on an arms length basis and that there was little enthusiasm for the concept of longer term, mutually dependant relationships.

The emerging competitive paradigm is in stark contrast to the conventional model. It suggests that in today's challenging global markets, the route to sustainable advantage lies in managing the complex web of relationships that link highly focused providers of specific elements of the final offer in a cost effective, value creating network.

The key to success in this new competitive framework, it can be argued, is the way in which this network of alliances, suppliers, intermediaries and sometimes competitors are welded together in partnership to achieve mutually beneficial goals.

In the past business organisations tended to perform most activities in house. In the era of vertical integration, companies would seek to control through ownership of their entire value chain. Henry Ford I typified this concept. At one time Ford owned a power plant, a steel mill, a glass factory and a rubber factory as well as mahogany forests. Today, our thinking has undergone a 180 degree change as corporations seek to focus on core competencies and outsource everything else. By definition, the more companies focus on those activities they believe to have a differential advantage in, the more they need to rely on others. As these external dependencies increase it becomes vital that the nature of the relationship switches from arms length, transactional mode to a collaborative, partnership mode.

It is this realisation that the organisation no longer stands alone that is prompting a new search for collaborative partnering. These partnerships may be with suppliers, distributors, retailers, specialist service providers, technology sharing alliances and, increasingly, with competitors. Sometimes, the lines between suppliers, customers and competitors become increasingly blurred.

In competing as a network it becomes apparent that the aim should be to maximise 'collaborative advantage rather than competitive advantage in its traditional, single firm meaning. To release this collaborative advantage and to leverage the collective competitiveness and skills across the network means that knowledge must be shared and harnessed.

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