Davenport on... Nets Upon Nets

FRAMINGHAM (04/03/2000) - I am normally a little suspicious whenever I hear someone say that a technology is leading to new forms of social or corporate organization. After all, we've been hearing about the IT-enabled decline of hierarchy for a couple of decades yet I still find thicker carpeting in some parts of the headquarters building. The simplistic logic of "The decline of centralized IT leads to the decline of centralized power and control" never seemed very compelling, and there are many counter-examples. Certainly technology can change organizational cultures and structures, but it generally requires a long time-period and the alignment of several other factors.

However, I am tempted to throw my skepticism to the wind when it comes to the latest form of IT-enabled organizational change: internet-enabled business networks. The simplistic logic here goes, "Just as the internet is a network of networks, companies will be networks of networks as well." And by Jupiter, it seems to be coming true.

An e-network consists of three or more organizations that have a formal agreement to collaborate on some aspect of their business using the internet.

Whether they're called e-networks, business webs, value networks or whatever, they are exploding. They vary in terms of structure, function, size and composition. They can be used for supply chain functions, finance, marketing, R&D, HR and even IT. Some are B-to-B, some are B-to-C. Some are collections of old companies or new startups and can involve three companies or 30.

When we leave the realm of what we know, we get into supposition and extrapolation beyond what's going on today. That's where my skepticism rears its ugly head and tangles with my positive, visionary side.

THE NETWORK SKEPTIC Sure, a lot of companies are forming networks. But isn't forming them easier than actually making them work? You have to wonder whether some of these e-networks will ever get past the press release stage. There is lots of hard, slogging work involved in getting a critical mass of network partners and customers. And won't companies rebel at letting some other company get control of how their products and services are displayed and sold? The skeptic in me feels that perhaps the greatest beneficiaries from all this network activity will be the lawyers.

And what's the deal with MRO, anyway? MRO--maintenance, repair and operating--is the category of supplies for which many of these networks were created to ease procurement. But I've gone through several decades of life without getting excited about MRO, and I don't intend to start now. Sure, the world needs to buy this stuff, and it needs to do so efficiently, but even if you could procure industrial and office supplies by mental telepathy it would hardly constitute a revolution.

It's pretty clear that success in many of these networks will require integration of processes across companies. Another phrase for this is "inter-organizational reengineering." Still another phrase for this is "too hard." Remember how many companies failed at the "intra-organizational" form of reengineering? Think it gets any easier when the people who have to change their behavior don't even work for your company?

Then there's the standards thing. A lot of these networks are predicated on many companies agreeing to standard definitions of information and process.

When was the last time that happened? Probably in the EDI era. And then it took as long as a decade for companies within an industry to agree on a lot fewer information entities than we're wrestling with now. Even if companies can agree, how will they get competitive advantage? I've heard that companies in RosettaNet, the electronics industry network, are starting to ask for the ability to offer proprietary information and processes on top of the standardized ones. There goes the neighborhood if that happens. Standards are a great thing in principle, but they're hard to develop and often run counter to human nature.

And what about clashes among networks? Most networks support particular industries, and you'd think that industries would be stable. But the skeptic is thinking that networks will begin to cross industries, either because the industries converge or because the network's owners want growth. I'm wondering, for example, what the members of the Acord insurance industry network are thinking about the decision of the Open Financial Exchange network (which involves Microsoft and Intuit as organizers) to add insurance transactions.

If you're not a skeptic, you probably read the last paragraph and said, "Yeah, but XML will solve all of those problems." Right along with world hunger and global warming. XML is not going to eliminate the need for agreement on standards, and it is not going to prevent humans from having to discuss what "customer ID" means in your company versus mine.

THE VISIONARY SPEAKS The visionary can start by arguing that the XML glass is half full, not half empty. People will still need to talk, but XML is as close to a lingua franca for inter-organizational communications as we've ever had.

Anyone with vision can see that it will increase the ability of one company to receive, process and act on another's information, with much less negotiation and structure than was required in the EDI days. Soon, virtually every computer application will suck in and spit out XML as a standard feature, and perhaps someday applications themselves will just be a collection of XML scripts. Every industry and sub-industry will have its defined XML schema.

Another aspect of the e-network vision relates to flexibility. Standards take a long time, and network composition will fluctuate, but tools are emerging that allow for flexibility and rapid modification of the technologies that enable networks, so companies can react easily to change. I recently visited a company called Bowstreet, for example, in Portsmouth, New Hampshire. They produce a set of tools that allow rapid development and reconfiguration of XML-based network architectures. Bowstreet's offerings also allow companies to embed their web offerings within other companies' sites, leading to networks upon networks.

This visionary envisions a high price for Bowstreet's stock at the company's IPO and he wishes he had some.

And while the term "friction-free commerce" is a little far-fetched for even a visionary, I do think that commerce will get easier because of e-networks.

Companies will be able to assemble "e-services" from multiple providers to offer value to customers. Providers will have many different web-based channels through which to distribute their products and services. IT capabilities will be found primarily in the network, and the idea of the "application" may become quaint.

I don't know about you, but I'm feeling like the visionary wins this one.

Thomas H. Davenport is a professor of management information systems at Boston University School of Management, director of the Andersen Consulting Institute for Strategic Change and a distinguished scholar in residence at Babson College. He welcomes reader comments at davenport@cio.com.

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