Extract from the book “The 5-Star Business Network”, written by Vivek Sood
Why Business Networks Are Important?
There was a time, not more than a few decades ago, if you were General Motors you would attempt to own every part of your business. The assembly lines, the parts manufacturing plants, the stamping units, the ancillary units and even the software that runs the business, the dealerships that sold the cars, the steel mills, even the mines that produce iron ore for the mills. This was for good reason – you either could not trust others to be savvy enough to produce and send you the material you wanted when you wanted it, or the margins in each of those businesses were big enough for you to try and own all those operations.
There was only one thing wrong with this structure. Your business became an insular behemoth – far removed from the customers and moving slowly in a marketplace going through a rapid transformation. Your more nimble competitors, with loose networks of aligned companies, could easily run rings around you in no time – both in terms of developing and launching new products, and producing and selling high quality products at lower prices.
Business Networks are more important than your business infrastructure
Eventually, realizing the truism inherent in the folk wisdom of farmers when they say that you do not have to own the cow if all you want is the milk, you would investigate ways of carving out parts of your business into independent entities that could be run as loosely aligned network of businesses, similar to what your competitors had evolved into. This is not a book extolling the virtues of Keiretsu, chaebols or similarly exotic-sounding Japanese and other Asian business structures. It is, however, useful to take some lessons from the evolution and success of these business networks.
Over the past several decades, both the global economy, as well as business structures have evolved dramatically to such an extent most businesses have no recourse but to create business networks akin to those mentioned above (notify on the book). So what is the magic of these business networks? Why are they so important? What makes one business network better than another? Is there a way to systematically assess, measure, report upon, improve and monitor the quality of your business network? What outcomes should you expect out of a well-tuned business network? These are some of the questions we will answer in this book.
Business Networks make your business more resilient and responsive
When the Tsunami flooded the eastern coastal stretch of Japan in March 2011, the ensuing nuclear disaster combined with the devastation caused by the ocean to disrupt businesses around the world. The Japanese economy sits right in the middle of the global business network and it was natural for businesses as diverse as auto manufacturing, electronics, chemicals, petroleum products, computers and metals to experience the disruptive shock. For example, the price of the Toyota Prius went up by nearly $2,400 after rumours of shortages. While it is natural for a variety of businesses to experience the disruption, it was remarkable to note that those, which had the most responsive and resilient business networks, were the ones to recover from this catastrophe the quickest. Later on in this book, we will see how to recognize the quality of business networks and make them more resilient and responsive at the same time.
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