Sr. Director, Product Research, Epicor Software

Software Architecture

This blog is not associated with my employer.

Wednesday, September 19, 2007


In the Financial Times on 13 July 2007 (European Edition, special insert), Linda Gratten asserts that collaboration is poised to upstage competition as a primary business strategy – that partnerships can create value more efficiently than pure competition. The X and Y generations were born wired to the Web, have been raised in an “everyone wins” mentality, and are averse to organizational hierarchies. So, once that new generation rises to corporate power, partnerships will form the dominant agent of business value creation. That last bit smacks me as unsubstantiated age discrimination – but creating value via joint ventures obviously works.

Since the focus of the piece was collaboration, describing Second Life as a vehicle for collaboration couldn’t be helped. Gratten mentions the “experiments” at IBM (“very successful”) to use Second Life for team interaction. Given that the GenY mastery of social networks is so entrenched, something akin to Second Life could become the wheel grease of tomorrow’s joint ventures. After all, any mass proclivity toward partnerships requires a place where participants can sniff each other out – an online speed-dating environment for stakeholders.

A gold rush has started to converge social networking and business strategy. The idea has moved beyond making money by connecting people together – that’s so last month. People need to make money for themselves by easily forming ad-hoc commercial partnerships. That kind of value creation can reap a huge economic benefit, especially if small businesses become enfranchised. So, the European Commission is trying to act on this vision.

The EU25 is home to 23 million individual businesses where more than 90% are “micro-enterprises”. In the EU15, only 10% of businesses have any computer integration with either side (supply and demand) of their supply chain*. Connecting these 23 million companies, so they can inexpensively form partnerships and new supply chains, is in the EC’s economic thinking. It also ties back to Gratten’s point about next-generation entrepreneurs choosing joint venture strategies over brute competition.

Micro-enterprises – like your corner laundry – are not generally capable enough to build inter-enterprise orchestrations. But there is one IT skill that the entire population has in-hand: Web browsing. So, the EU is smitten with the notion that Web 2.0, the Social Web, Second Life-ish solutions, SOA, and SaaS can all come together to form a solution – and so the European Commission is funding efforts [] toward that goal. It’s a Grand Unification where businesses find each other and collaborate like Second Life players while the business transactions are easily, properly, and legally pumped across business entity boundaries.

It’s certainly my nature to drool over the software architecture challenges in building this dream. But my biggest worry, if I was picked to do the software estimate**, is determining when you’ve done enough to displace existing business practices.

Supply chain commerce, commodity purchasing, service industries, and consumer businesses all have buyers and sellers. But the operational characteristics of how buyers find sellers, how trust chains are established, how contracts are executed, and how payments are managed are highly evolved and optimized within each sector. Can a solution that undermines the efficiencies in business growth developed during the last century be successful?

Here’s an example: A few decades ago, businesses (especially manufacturers) kept many active suppliers on file. It was believed that having many suppliers for a widget meant more competition for your business kept purchase prices low. But it was later realized that reducing the number of widgets kept on-hand inventory improved profits much more than buying your widgets at rock-bottom price.

Just-in-time (JIT) manufacturing was invented for this reason. Material arrived at the precise moment and location where it would be consumed – which meant daily, weekly, or ad hoc replenishments. Perfection meant having zero widgets sitting in your warehouse. Purchasing strategies were simplified –you only have 1 or 2 suppliers on long-term contracts rather having to manage bidding cycles with multiple suppliers. But there were also the matters of trust and reliability. If a supplier failed to deliver, production would likely shutdown and employees would be furloughed.

The supply chain partnerships in JIT operations created more value than traditional brute competition. Manufacturers eschewed continuously fighting to get the best deal from a transient supplier to create strategic arrangements with a single supplier. Boeing and Airbus have gone even farther by having their suppliers share risk in major programs. Suppliers absorb some up-front costs in exchange for revenue to come later if the airplane sells well in the marketplace.

But doesn’t that fly in the face of the model the EU is envisioning? The goal is to foster easy, ad-hoc partnerships with extremely low cost of entry. However, manufacturers revolutionized their businesses by getting away from a scattered roster of transient. Is the EU is looking for technology to bring enterprises together despite entrenched, non-technical aspects?

The answer involves, as usual, a tipping point. Some sort of foundation technology – the goo in the Petri dish that feeds life – needs to be developed (no small task). Then, an entire population has to learn that partnering is feasible, online or not, and they have to know how to do it legally. Finally, participants have to know how to measure the quality of a trust chain.

From a business-to-business perspective, this is the final frontier of the Internet. It’s achievable and inevitable if the IT industry can get non-technical stakeholders into the game.

* These figures are from Eurostat via a keynote presentation by Christina Martinez of the European Commission at the 2007 WS-I Spring Plenary in Brussels.

** My estimating practices were pretty much codified here in 2005.

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