Often-mentioned features of a business network are a strong inter-organizational design and an interactive and dynamic set of relationships acting in concert with one another for a common goal, bringing together core capabilities of different organizations to accomplish business improvements. One of the benefits of a business network is the increased flexibility of linking actors together. This provides a more agile arrangement for the network to produce from actual customer requirements as a starting point, and not on the basis of assumed or forecasted customer needs. However, organizations are facing difficulties in assessing the value of investments in their business network. There is no valid method to execute an assessment of margin. In this article an assessment method and tool are developed to assess margin in business networks. A method is required that can give a more detailed assessment on a variety of criteria, or key performance indicators: (1) cost reduction, (2) revenue generation, and (3) increased flexibility. Therefore, a 14-step research method was developed, together with a related decision support system (DSS), named the Business Network Navigator. The research method was tested in a real-life situation i.e. redesigning the business network of the European Patent Office (EPO). The results of the analysis and lessons learned are presented. Conclusions with regard to the usability and validity of the assessment method and tool are formulated.
The main theme of this article deals with the development of a formal method and tool to assess the reengineering of a business network. Reengineering is a topic that has been widely addressed in the literature. It helps define strategies for bringing manufacturers, suppliers, and customers closer together (Liker et al., 1995). Reengineering means taking steps to redesign and simplify business systems and processes, to search out best practices ( Prasad, 1999), to develop a more competitive and core-competent workforce ( Prahalad and Hamel, 1994), to explore new business methods ( Kearney, 1997), or to radically transform business ( Venkatraman, 1994). It fosters thinking outside the comfort zone ( Luther, 1997), relies on value-added benefits to both the customer and the business ( Vervest and Dunn, 2000), relies on strategic technology insertions ( Shillito, 1994) during the product life cycle, and focuses heavily on the seven T’s (talents, tasks, teams, techniques, technology, time, tools) ( Prasad, 1999).
However, is there a structured method for assessing the reengineering of a business network — in particular, prior to performing the actual change in the business network? Such a method would be increasingly more important as so many industries face the demands for customization. This customization challenges them to tailor products and services to the specific requirements of every individual customer, while at the same time maintaining their current levels of economies of scale (Pine, 1993). It forces organizations to be more flexible (defined in terms of their ability to produce different and customized products) towards the market without losing profitability, i.e. margin.
One questions the suitability of the current organizational design, which originated from the traditional supply chain (Porter, 1985), to respond quickly to a changing environment. The common view on organizational design is that of a streamlined pipe that processes raw material into finished goods and delivers them to customers. But this is rather simplistic; the reality is much more complex: a network of vendors supplies an organization, which in turn, supports a network of customers, with third-party service providers (e.g. transportation companies) helping to link the entire network of actors together. Organizations are increasingly more aware of the benefits of a different approach to organizational design: ICT-enabled business networks. Examples of these new adaptive organizational designs include Sun Microsystems’ virtual corporation, Dell Computers’ dynamic network, Olivetti’s platform organization ( Ciborra, 1996) and Ikea’s value constellation network ( Normann and Ramirez, 1993). Organizations struggle with how they should accomplish this, and to what extent it will influence their current level of flexibility and profitability. They need methods and managerial techniques. Modular Network Design ( Hoogeweegen, 1997 and Delporte-Vermeiren, 2003) is one of the methods that supports the design and assessment of costs and throughput time of ICT-enabled business networks.
This article puts emphasis on the questions: Is it possible to develop a method for assessing the reengineering of an ICT-enabled business network with respect to margin? And what impact will such a method have in real-life situations?
We will present a method to assess margin in business networks and demonstrate the value of the method by presenting a detailed case study of the European Patent Office.
The research reported here originated from the desire
to make ex ante assessments of margin related to ICT
adoption in business networks, along with its distribution
among the actors involved. Our first research
objective was to develop a reliable, formal method
for the ex ante assessment of the effect of ICT adoption
on business network margin.
Based on the research findings, one may conclude
that yes, it is indeed possible to develop a method
for ex ante assessment of margin to be applied in ICTenabled
redesign of business networks — specifically,
a method that can assess the relative changes
in margin for the business actors involved. How did
we proceed to develop such a method?
First, the literature on business networks and on ICTenabled
BN redesign methods and tools was
reviewed. This review revealed that Porter’s (1985)
traditional view of the value chain is inadequate for
such an assessment. A method is required that can
give a more detailed assessment on a variety of criteria,
or key performance indicators: (1) cost
reduction, (2) revenue generation, and (3) increased
flexibility. The modular redesign method (MND),
originally developed by Hoogeweegen (1997) provided
a sound basis for assessing BN rearrangements
made possible through the use of ICT. Therefore, this
method was taken as a starting point. It does not,
however, address the concept of ‘margin’ as an
assessment criterion, so this needed to be developed
and tested. Therefore, a research model was
developed with three basic constructs: (1) ICTenabled
modularity, (2) margin-improved flexibility,
and (3) redistribution. The MND method does not
provide a methodology to apply the method in reallife
situations, either; therefore, a 14-step research protocol was developed in chapter 4, together with
a related decision support system (DSS), named the
Business Network Navigator. The research protocol,
and DSS were then tested in a real-life situation.
These research tools allowed the development of a
method for BN redesign and assessment that can be
used in real-time situations. Its strength lies in the
combination of strategic analysis of the business network
with a very detailed operational assessment,
thereby avoiding confusion and lack of definition
about the precise objectives of the redesign and the
range of applications of the method. The more the
method is used within a specific business network,
the more operational (process) information can
eventually be made available to the actors on a daily
basis. Its weakness, however, lies in its dependence
on reliable costing and revenue data and the fact that
the method is cumbersome to use.
The second research objective was to analyse the
ability of the method to support decision-making in
regard to the adoption of ICT in a business network.
The use of the assessment method impacts decisionmaking
in the way that:
❖ it quantifies the contribution to business performance
improvement of new ICT applications in the
business network;
❖ it allows the classification of different redesign
scenarios in terms of the estimated marginflexibility
improvement at the business network
level and its redistribution among actors.
However, the case study findings demonstrate that
the use of the method as such will not automatically
lead to actual ICT implementation of a specific redesign.
One dominant precondition to the acceptance
of the results seems to be that the use of structured
methods as such has to be inhibited in the characteristics
of the different actors. Moreover is there a difference
in use of the method as an instrument for
analysis or for implementation?
Although the results obtained may be useful to scientific
researchers and redesign managers, the research
is nevertheless subject to a number of limitations. The
research followed an inductive – deductive research
cycle in which literature review and multiple embedded
case studies were used to test the preliminary
theory building. According to Yin (1994) such case
studies can be generalized for theoretical propositions
but not for populations or universes. We
realize that since only one case study in the service
industry was investigated, one may speak only of a
first validation of the research method. For a larger
validation, a multi-client research comparison would
be required.