Intelligent business

The industry value network (IVN) is an emerging business model that some experts believe can offer the next step in cost reduction and improvement.

IVNs are collaborative business intelligence-style environments in which suppliers and customers benefit from sharing the knowledge, products, processes and services of all members.

It is envisaged that organisations will move from being internally focused and tightly integrated towards becoming a loosely coupled network sharing common processes and operational activities in one or more of these collaborative networks.

A value network will aim to extract and standardise the services and processes shared across the different businesses, while still allowing each company to retain its own core competencies and competitive advantage.

‘This is a business model that people need to get their heads around,’ says Ian Charlesworth, senior analyst at Ovum.

‘We are talking about new ways of operating the business and interacting with partners. It is the most exciting thing to happen to business in the past 10 years, since outsourcing.’

Charlesworth believes that the formation of an IVN will be based on pure economics, in that companies will always look to follow the path of lowest transaction costs. IVNs can change the process by allowing organisations in a particular industry to standardise on non-differentiating processes, and in so doing initiate powerful network effects that reduce transaction costs for all participants.

The concept of a value network takes reuse and standardisation to the next level. ‘IVNs are a logical step in the business management revolution,’ says Susan Mann, counsel at law firm Reed Smith.

‘We are moving to an era of total globalisation and collaboration in the business and public sectors. IVNs provide integrated solutions that help to identify issues in business processes, and offer a base of collaboration from which innovation will emerge.’

Non-differentiating activities in a business often represent a significant cost, which is why organisations are constantly seeking ways to reduce the costs associated with standard processes, such as the almost mandatory use of customer relationship management and enterprise resource planning suites in the past 10 years.

Charlesworth says the development and adoption of the service-oriented architecture (SOA) model, which promotes the use and reuse of service modules, has given organisations the ability to decouple business processes from the underlying applications.

‘Without SOA, this level of service-oriented business would not be cost-effective or indeed feasible,’ he says.

Recognising that most industries share common processes, applications and problems, and that many of these can be solved using a common technology platform, software provider SAP is tackling the model from the technology angle.

Establishing a number of vertical networks that bring together integrators, customers and independent software vendors, SAP now has 10 vertical IVN initiatives, ranging from public sector to retail and technology.

And with regulation on the increase, sharing standard processes in a business intelligence approach might help to take away the burden of compliance on multiple platforms and systems.

The benefits of co-operation and knowledge sharing are being talked about from the perspective of the technology vendors. Systems integrators will take advantage of the various software applications integrated into the network for customised solutions, while independent software vendors envisage taking their offerings into new markets.

But the real beneficiaries should be the customers. With software and technology companies that usually compete against each other coming together to talk about customer needs, the results could lead to harmonisation and automation of common processes and systems.

Mann says there has often been reluctance for companies to work together.

‘However, if these networks can be synergised through an opening of communication and a willingness to collaborate, then we may start to use integrated solutions to address identified issues,’ she says.

‘I believe a lot of companies are starting to do this naturally, but they have yet to put a name to it.’

But Mann does issue some words of caution, while also pleading the case for corporate lawyers. ‘Where certain vendors come together and market their products jointly, they could run up against competition laws, especially in the US,’ she says.

‘But with a good legal adviser on the team, most of these considerations could be taken care of.’

It will be at least three to four years before the first credible deployment of an IVN emerges, according to Charlesworth – and five to 10 years until we see major installations. He believes that the drivers will be either an overwhelming cost analysis benefit or that a dominant leader will emerge and force the model through.

‘A large organisation, with several mergers and acquisitions that carry a huge burden of cost, may choose the IVN model to standardise process across its portfolio. Once it starts reaping the benefits, others will follow,’ he says.

‘Either that, or a dominant leader will emerge. The result is that companies will either be pushed or pulled into IVNs.’

But industries and companies are already adopting the building blocks that will lead to the formation of IVNs. Major supermarket chains, for example, have a wealth of partners – everything from financial services and insurance underwriting to car hire and holidays – already in place, and it does not take a huge leap to imagine how they could form themselves into an IVN.

Many retailers are already sharing common processes and services in the supply of goods, especially those outside their traditional areas of retailing. Ordering a washing machine on the internet from Boots or Sainsbury’s – rep utable brands not usually associated with the supply of white goods – the customer is offered the same web front- and back-end services.

For the customer the choice to make is based on loyalty and brand, the only differentiator being whether to collect Boots or Nectar points.

It is conceivable that rather than taking an industry or technology focus for the network, an IVN could address lifestyle or work to deepening common customer knowledge, relationships and customer loyalty within a group of retailers targeting the same market.

Further reading:

Case study: airlines share services

Business intelligence system for Umbro