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Subject: July 2001 ECMgt.com:
Business Models and Value Webs
by Mitchell Levy, Author, E-Volve-or-Die.com
Just when you thought things were settling down with business models, more changes are on the way. Improvements in efficiency of the supply chain and logistics, disintermediation, and continuing complexity are part of the future. However, the complexity of business models is simplified when we treat "business process" as simply "process", and create a fabric to support the exchange of commerce over networks. In a digital landscape, that fabric is called a value web.
Value webs describe the mesh that supports commerce on the Internet. Just like the physical dimensions of space, value webs can be understood along each axis of the process they support. The business dimensions of value webs include the supply and value chain, horizontal business applications, and static and dynamic transactions - best described as asynchronous (spot buy), and synchronous (Electronic Data Interchange).
Before discussing value webs, we need to decipher the alphabet soup of Internet business models that fit into them: B2B, B2C, A2A, C2C, peer-to-peer, the B2B2C portal model, dynamic pricing / exchange model, market-to-market / e-business networks, n-tierprise / extended enterprise models, and dynamic collaborative commerce (DCC), this is quite a lexicon! Each model has its place on the value web, and some models fit particular vertical markets better than others. Additionally, these models overlap, merge, and evolve over time. Internet business models such as direct commerce (VMI, for instance), complement sell-side and demand-chain management for partners, complementors, and enterprises alike. The merging of P2P (peer-to-peer) networks and web services is likewise enabling the evolution of 21st century "transparent commerce".
Evolution of Networked Models:
The common thread in all these business models is that the network, not the computer, is the workhorse of process. EDI grew into supply chain automation; ACH (Automated Clearing House) and ATM (Automated Teller Machines) networks found a common interface; and the Web grew from websites to extranets, exchanges, and then to e-Marketplaces. The key industries affected by these models include finance, telecommunications, distributed computing, collaborative design and discovery (science and therapeutics), and entertainment, (especially music and cinema).
Vertical market e-Business models:
Successful Internet business models have appeared in manufacturing, energy, health care, distribution and retail sectors, and all on value webs. Manufacturing has leveraged supply chain automation through exchanges, e-marketplaces, including market to market models. In energy, exchanges and automated trades help the sensitive balancing of the power grid, which would not be possible were it not for networked process. Health care has built in the use of electronic point of service, document workflow in multi-partner portals, and soon, networked medicine. Distribution and logistics, especially Fed-Ex and UPS, have reinvented a new supply / value chain. Retail has embraced Vendor Managed Inventory (VMI), and "direct commerce", leading to apparent increase in supply, and simultaneous disintermediation and reintermediation. We'll look closer into each of these markets in the examples illustrated below.
International Truck and Engine Corporation has embraced coordination of manufacturing through complex coordination of engineering and manufacturing, going beyond the supply chain, and has seen dramatic gains. Through online collaboration with suppliers during design, International Truck is avoiding costly problems later in the process. Art Data, VP of Information Technology was quoted as saying: "If you reduce the design cycle by 50%, what's the value of that?" he asks. "We think it's worth millions." (1)
Likewise, the original concept of Covisint, used by the big three automakers, included collaboration of demand generated by rapidly changing inventory needs generated from better sales information generated from dealers. While implementation has been slow, larger manufacturers in heavy industry and technology, especially General Electric and 3M, use EDI and design collaboration to swiftly bring new products to market. In 3M's case, this includes coordinated delivery and processing of fine chemicals from smaller vendors, as well as more custom designed materials for specialty end-users.
Briggs & Stratton built a collaborative extranet, BriggsNetwork.com, for partners and suppliers. Original equipment manufacturers and over 35,000 distributors worldwide use the eight-language site to check manufacturing specifications, view upcoming sales promotions, and receive information about parts and warranties. (1) This involves sharing of engineering documents, flow charts for manufacturing, and logistics for coordinated assembly of new products, coordinated with its partners, over a "value web".
Diesel-engine-maker Cummins Inc. takes a similar approach with its business customers, such as Peterbilt Motors Co. and Kenworth Truck Co., who can access Cummins' extranet to receive updates on engine orders and view design prototypes of future models. Cummins has formed a customer council to evaluate ease of use and efficiency as it integrates new networked features and significant upgrades to the site. "To the extent that we're easier to deal with, they'll design their products to use our engines," says Brad Lontz, director of the E-business office at the $7 billion Columbus, Ind., company. (1)
While the energy crisis in California may not seem the best example of complex value webs, without the efficiency of coordinated moving of power in blocks, the situation would be far worse. With demand outstripping capacity over 10% of the time, quick and efficient means of locating, negotiating, and paying for available power capacity across a broad network of providers will be essential to keep the State functioning. Electrical grids themselves are a complex network, and integrating its engineering requirements with the business process of acquiring power is a new and evolving axis on the value web.
BlueCross Blue Shield uses a complex network of digital processes for its preferred hospitals and clinics, physicians, and end user consumers. Integrating patient records, payments to physician networks, and contracts with large hospitals is a complex task made easier by value webs. Fitting the classic model of supply and value chain integration, patient information and payments move countercurrent to each other. Other processes, such as monitoring efficacy of treatment, coordination of benefits, and using EDI for both patient documents and requests for payments are more horizontal applications. As HMOs begin to embrace monitoring of patient progress, in both clinical and laboratory settings, value webs will be necessary to both balance the benefit of treatments with availability of new and more effective health management options.
Distribution and Logistics:
Among the companies leveraging networked business process to trigger expansion and efficiency is Atlanta-based United Parcel Service of America Inc., which receives 85% of shipment information electronically. UPS picks up 13 million packages daily, and has 4,000 IT professionals, and is expanding its e- commerce services to include warehousing, phone center operations, billing and financial applications. The company's strategy is to become more involved in its customers' supply chains and to enable international commerce. (1) From the value web perspective, the dimensions of supply chain, package pickup, routing, tracking, accounting, and call center, must be integrated to create one seamless, efficient, and intelligently responsive e-business. Using value webs is the best way to intelligently wire a business for growth and profit.
St. Helena, Calif., Franciscan Estates, the winemaking division of Constellation Brands Inc. can more effectively tune sales efforts since gaining access to more precise sales data from distributors. Using a software application from E.piphany Inc., data-mining specialists at the company now dig more deeply into the raw data. Franciscan can track not only which products are selling well through distributors, but also the details of sales at individual stores. "All of a sudden, our universe expands to 600,000 retailers," says Paul Stern, a company official in this project at the Gartner Conference (1) in Denver, April 2001."The distributor network has become so big that it's almost mandatory that we have access around them," he adds. "Our goal is to double sales volume in five years. We couldn't possibly do that without having access to the data".
Value webs are being used in wireless networks, especially with integrated e-commerce and locator ability based on combined GPS and cell positioning technology. Now services are being designed around providing directories of information, available through a small web browser, that allow views based on the nearest provider of services, wherever that may be. Coupled with transaction profiles, and electronic calendars, wireless networks are positioning themselves as the enabler of transparent commerce. The location of a user at any time will be compared with transaction profiles consistent with the user to facilitate "predictive merchandising".
Perhaps the best examples of growing value webs are the peer-to-peer networks rapidly growing on websites such as Napster, Aimster, and other music swapping sites. While free music may appear to be the business model, in reality it is a complex network of discovery and coordination for distributed FTP nodes, including the ability to pay for purchased material. The peer-to-peer business model is a perfect example of a value web: there is a supply and value chain (music) discovery and transfer, and third-party payment, certificate, and encryption services. The key to value webs in this model is the vertical value chain which supplies the licensed content, the horizontal applications that coordinate file discovery and transfer, and the payment and encryption services which bind the value web together with commerce services.
Corporate Web Services:
Flowing through evolving value Webs- are the new ASPs - "Atomic Service Providers" and eBusinesses of one. Builders of these webs include Microsoft, Sun, IBM and Hewlett-Packard. Interlinked marketplaces and services, described by Forresterís exT e-business network model, use discovery services provide by UDDI, (Universal Definition and Discovery Interface). Micro applications can be used by business and IT users who require very specific functionality. The network has becomes the enterprise, with outsourcing of small IT processes. HP has announce "apps on tap", describing a new model where Global 2000 firms access applications through small service windows, paying for granular e-business function on a "per event" basis.
Summary: Evolution of e-business models requires a fabric that supports the various dimensions of business process. That fabric is the networked value web. Digital business models, in particular, require the dimensions of a value Web to support the orthogonal but integrated dimensions of supply and value chain, horizontal business applications, and the axis of synchronous and asynchronous transactions. Value webs are found in vertical markets including manufacturing, healthcare, energy, retail and distribution, and telecommunications. An internetworked economy requires a web where the network is the enterprise, and the competitive strategy of a business model determines its success and value in the ecosystem.
Excerpts of interviews were quoted in sections on manufacturing and retail from:
Collaborative Commerce: Competing
in the Connected Economy
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