Published on March 5, 2014
Conversations on the Future of Business Deep Dive: The Network Economy Finding Power in Connections futureofbusiness.sap.com
Conversations on the Future of Business The Network Economy Challenges 50% more likely to have increased sales and be market leaders. Networked enterprises are Source: McKinsey 2
Conversations on the Future of Business Networks Drive Net Worth. How Connected Are You? 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 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 socialmedia 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. shifting demographics to emerging mobility, from new cloud paradigms to greater interdependencies and connectedness, organizations need to grapple with new networked realities. 3 Don Tapscott, Best-Selling Author and Business Consultant, on the Network Economy
Conversations on the Future of Business Emerging Mobility New Cloud Paradigms Networks of Networks There are 1.5 billion smartphones worldwide, More and more business—and life—takes place Organizations have been growing their electronic and 6.8 billion mobile subscribers. And those in the cloud. Today it’s no longer just a question networks since the ARPANET first connected the subscriptions are being used. Nearly 820 million of onsite or off-premises. New, more complex U.S. Department of Defense to research universities. users now access the Internet from mobile devices, cloud strategies introduce greater levels of cloud But in the Network Economy, network density a 60 percent jump over the past two years, while the complexity. They also raise fundamental questions and complexity is ever advancing. Today we have typical mobile user checks the phone around asset management, security, privacy, networks connected to networks, and networks 150 times a day. organizational boundaries, and processes. within networks. Those networks aren’t just connectors; they’re also disruptors. Many organizations have struggled to keep up. They know their customers and employees are mobile. Mobile networks disrupt customer touch points. But they haven’t optimized their communications, Social networks disrupt markets. Corporate their processes, and their offerings to compete in a networks disrupt hierarchies. Cloud networks mobile era. They risk being overlooked, becoming disrupt processes. M2M networks disrupt supply irrelevant, and losing the war for customers chains. The more you embrace networks, the more and talent. 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” 4
Conversations on the Future of Business The Network Economy Opportunities 42% of leading companies say that machine-to-machine technology (M2M) is integral to their business performance. Source: ZDNet 5
Conversations on the Future of Business Collaborate, Create, Compete 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 network efficiencies within your walls and without. to innovate and respond, serve and succeed. You can also capitalize on their connectedness The same network challenges that vex processes through new channels and offerings. and markets also position the forward-leaning among us to outcompete and win in the marketplace. Shifting Demographics Emerging Mobility Mobile platforms enable you to connect with information, enterprises, employees, and customers any time, anywhere. Real-time access to At 80 million strong in the United States alone, information enables you to analyze and respond to the millennials outstrip the boomers by millions. changing market conditions in an instant. Ongoing U.S. millennials already spend more than $170 connections with suppliers and partners let you billion a year, a number that will only rise with morph supply chains and processes as demand their influence. In 2014 they’ll account for 36 per- and other inputs ebb and flow. Constant contact cent of the U.S. workforce. By 2025, 75 percent. with employees empowers them to collaborate The good news is that millennials know networks. They’ve never seen a time that wasn’t connected. They embody the Network Economy, and you can leverage their mindset to maximize and serve customers better. Continual interaction with customers positions you to understand their desires and meet their needs with a superlative brand experience. 6 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
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 Tim Minahan, CMO, SAP Cloud, on the Power of a Networked Community 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. “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 7
Conversations on the Future of Business 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. 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: Business networks unleash unprecedented insight, innovation, and alignment. Participants can find the tools and information • 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. they need. Solve old problems and uncover new insights. Reach new customers and markets. Automate inputs and processes for cost savings and greater agility. “The imperative for business leaders is clear: Falling behind in creating internal and external networks could be a critical mistake,” the study concluded. 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. 8
Conversations on the Future of Business 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 collection and operations, they enable you to manage remote processes, monitor trends, and gain new levels of competitive advantage. “Because the Internet radically drops transaction and collaboration costs, traditional closed, vertically integrated companies can now unbundle into networks.” Don Tapscott Don Tapscott, on the Networked Age 9
Conversations on the Future of Business The Network Economy Imperatives By 2016, about 90% of network traffic will be driven by smartphones, laptops, and other portable devices. Source: Cisco 10
Conversations on the Future of Business Networks on a Mission 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 Accelerate the pace of processes. Automate your Pulling customers into the product design process need to do more than simply connect. You need data feeds and connectivity wherever possible. can result in more targeted offerings at a much to invest in all their permutations, explore all their Replace your linear supply chain with a sophisticated lower cost to your organization. It can also empower possibilities, and leverage all their capabilities. supply network that can respond quickly to demand customer service. A simple example is Apple inputs and position you to reduce risk. Support, which provides a forum for peer-to-peer 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 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 wherever they need to do them. largely tactical function into a strategic asset.” Leverage real-time data. Make sure your networks Find the Savings are capturing information—about customers, 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. competitors, and markets—quickly and consistently. The Network Economy is a more cost-efficient Then rapidly feed that insight to the people who need economy. Automating data flow through innovations it, those who can take action to alter your course as like M2M can deliver benefits direct to the bottom you steer toward business improvement. line. Linking internal and external resources can give you cost-effective access to expertise and capacity. 11
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 Crowdsourcing Enters New Terrain Crowdsourcing has become a staple of the startup economy. Now, the concept is morphing 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 leveraging crowdsourcing to create new efficiencies and revenue streams: Plane rentals: OpenAirplane—Airplane fleets are underused and therefore lose revenues. 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. 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. 12
Conversations on the Future of Business Achieve the Advantage Ultimately, the Network Economy is about reaching new levels of success. What’s your most valuable asset? Is it your employees? 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 networth 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 13
Conversations on the Future of Business 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 © 2014 SAP AG or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. National product specifications may vary. These materials are provided by SAP AG and its affiliated companies (“SAP Group”) for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries. Please see http:/ /www.sap.com/corporate-en/legal/copyright/index.epx#trademark for additional trademark information and notices.
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Conversations on the Future of Business futureofbusiness.sap.com Deep Dive: The Network Economy Finding Power in Connections
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