Doing business in the network economy Hugo Velthuijsen

Doing business in the network economy Hugo Velthuijsen, Professor New Business & ICT

Internet destroys businesses The internet lowers barriers to entry Example: Music industry • • • Production Marketing & Credibility Sales Distribution Business Model: from selling records to selling tickets Other businesses impacted: • Travel • Photography • Postal services • Banking • And many, many more. . . Source: David Byrne (Talking Heads) in Wired 3 -10 -2020 New Business & ICT 2

Niches are getting more important • Thanks to the internet: – Smaller markets become addressable – Lower marketing & distribution costs – More choice • Results in: – – 3 -10 -2020 New Business & ICT Decline in “best sellers” More items Higher total volume Market growth 3

The internet is still developing Evolution of supporting tools 3 -10 -2020 New Business & ICT 4

Social media and your business Marketing & communication are getting out of your control • Your business is being discussed on the internet right now • You might as well listen to what is being said • You might as well try to change opinions • You might as well try to change your performance accordingly 3 -10 -2020 New Business & ICT 5

Power shifts to the consumer N=1 R=G 3 -10 -2020 New Business & ICT 6

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Extreme competition • China, India, former Soviet Union • 3 bn new capitalists • India: 400. 000 new IT bachelors graduate every year • Better educated, more eager • Seamless collaboration thanks to New IT / Web 2. 0 / Broadband 3 -10 -2020 New Business & ICT 10

Crowdsourcing • • The wisdom of crowds Business communities Social networking Integrating in business practices • Solving SMEs problems? – Good employees – State of the art knowledge – Innovative power • Global sourcing 3 -10 -2020 New Business & ICT 11

Crowdsourcing Making good use of other’s insights and creativity • Large groups of people are smarter than an elite few • Solving problems • Creating new ideas • Achieving innovation • Making decisions 3 -10 -2020 New Business & ICT 12

The whole world can help you Open innovation Caveats • There are more ideas outside the company than inside • Profit from the ideas of others • Being smarter more important than being first But be prepared to reap what you sow! 3 -10 -2020 New Business & ICT 13

Making a difference Know your own worth • Know what your own added value is • Translates also to companies • Concentrate on your own specialty • Collaborate to add the rest • Rise of the network economy 3 -10 -2020 New Business & ICT 14

Collaborating in a network economy Some examples Xxxxx (Out)sourcing 3 -10 -2020 New Business & ICT Professional networks Shared innovation Xxxxx Crowd sourcing 15

The network economy is about A definition select, persistent, and structured sets of autonomous entities (individuals or companies, as well as non-profit agencies) engaged in creating products or services based on implicit and open-ended contracts to adapt to environmental contingencies and to coordinate and safeguard exchanges” Source: Jones et al. , 1997, A general theory of network governance, exchange conditions and social mechanisms, Academy of Management Review, Vol 22 (4), 911 -945 3 -10 -2020 New Business & ICT 16

Governance in the network economy What is governance? Governance provides mechanisms for promoting: • that results are achieved, and • that information gets there and only there where it is needed Question: How “to guarantee” results in a networked collaboration with implicit and open ended contracts? 3 -10 -2020 New Business & ICT 17

Governance in the network economy Comparison with traditional governance Market-based (traditional) • Market orientation • Short-term relations • Competition • Capitalist • Shareholder value • Low stakeholder loyalty • Contract / Control • Radical innovation • Stakeholder conflicts Network-based • Internal orientation • Long-term relations • Cooperation • Collective • Stakeholder value • High stakeholder loyalty • Trust • Incremental innovation • Stakeholder balancing 18

Governance in the network economy When and how to organise networked collaboration Tasks • Persistent/recurrent • Frequent interactions • Clear purpose • Uncertain results • Goal oriented, but no clear prescription • Solutions to be built incrementally • Sufficient resources • Clear roles Participants • Relevance • Expected gain • Cost of contributing • Strength of front runners Social mechanisms • Currency or “reputation” • Values & norms • Cost of non-compliance • Damage to “reputation” • Exclusion • Permeability Based on analysis of (Jones et al. , 1997) and experience with success and failure of internetbased social communities 19

Conclusions • The impact of the internet on (international) business is huge • Threat and opportunity are close neighbours on the internet • Social media is not the end; Linkedin and Twitter not the answer • Collaboration in the network economy will only succeed if the task is right, the community is right, and the right social mechanisms are in place 3 -10 -2020 New Business & ICT 20