Benefits of a networked economy

What’s a networked economy?

Many experts—including subject matter analysts at Deloitte—see the networked economy as the natural outcome of what happens when all the actors inside a business ecosystem are interconnected. Through technology, these interconnections enable customers to drive choices, select preferences, and make their predispositions known. This interconnectedness fundamentally flips the script. It takes some of the power away from producers of goods and services to drive value and puts it in the hands of consumers in the extended enterprise.

According to Brent Nickerson, a Deloitte Risk and Financial Advisory partner at Deloitte & Touche LLP, the networked economy also transforms the “enterprise” as industries have defined it for years. Historically, this term encompassed the people, processes, technology, and systems within a company. But as Nickerson describes it, a networked economy broadens the scope of everything, necessitating a new way of thinking.

Really, now it’s all about the extended enterprise—the exterprise,” he says. “All the connections that a company has with third parties, all the distribution channels—everywhere a company does business is a part.

Networked economy trends to follow

These exterprises—and a networked economy itself, for that matter—don’t happen in a vacuum. They need to capitalize on a number of trends to work. So what can you do?

• Collaborate on business models. One of the biggest trends to drive the networked economy is collaborative business models, or models that enable different types of businesses to work together to drive sales. The Internet of Things (IoT), the ultimate extended enterprise, is a good enabler of this type of collaboration. If, for instance, a consumer has a smart washing machine, the customer can instruct it to order more detergent pods online whenever the supply runs low. In this case, collaboration breeds convenience, which typically leads to happy customers.
  
  In fact, IoT in the networked economy is a win-win-win for customers, manufacturers, and goods and service providers:

1. Customers win because they have value added to their everyday products and they’re happy.
2. Manufacturers win because customers are happy—not only with functionality but also with the “it” factor.
3. The goods or services providers win because they’re taking care of their customers and can use the experience to hone their solutions.

• Be radically transparent. Another important trend driving the networked economy: The widespread movement to radical transparency. Kevin Lane, a Deloitte Risk and Financial Advisory principal at Deloitte & Touche LLP, says that when companies begin to interlink networks, it’s important that all parties be transparent about how they do business throughout their own respective extranets, so as not to alienate any potential customers. He adds that companies must ask themselves what kinds of networks they want to associate with and what sorts of belief systems they’re willing to tolerate from partners they collaborate with.
  
  “Everything out there can be seen, and the consumer sees it all and makes his or her own judgments,” says Lane, who also serves as the retail industry leader for Deloitte’s Enterprise Compliance Services practice. “No one ever fully gets his or her way, but the idea is that the networks, somewhat organically through the interconnection, develop their own consensus point and middle-ground answer.”
• Get a handle on your risks. Companies that wish to create exterprises must also have a handle on their risks. And they must perform regular risk assessments to quantify how vulnerable their networked economy is to threats.
  
  On the most basic level, risk assessment is about physical security—locking down facilities so that only authorized employees come and go. But the broader day-to-day realities of risk assessment go hand in hand with a push for more transparency: As companies learn more about the other companies in their exterprise, previously undisclosed risks emerge, creating an opportunity for remediation—or at least a backup plan. In evaluating this risk, companies must think not only of themselves but also their customers. Something could be both legal and ethical, but it may still not align to the preferences of the consumers involved.

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Leveraging connections for the networked economy approach

As the first wave of companies begins to embrace the networked economy approach, opportunities abound to leverage the ensuing connections into smart business decisions for the extended enterprise. To create value, organizations can:

• Extend and amplify connections. For starters, companies must extend and amplify connections through consortia and other industry groups. Some of these groups are more marketing-oriented in nature and enable participants to network with each other and share leading practices. Others are functional—participants meet to collaborate on devising standards, rules, and other forms of self-regulation.
• Innovate to capture new revenue streams. Looking forward, companies must also figure out how to capture new revenue streams. Subject matter experts say this likely will be driven almost entirely by the networked economy and the exterprise—by third parties that spark new products, new development, and innovation. A number of contract manufacturers around the world have already set up product innovation centers where they offer design, engineering, prototyping, and manufacturing necessary to build out new products.

In addition to changing the product catalog, these centers have sparked a sea change in strategy. Now more than ever, innovation is coming from the edges of a corporate network and working its way in. The exterprise has also indirectly expanded distribution channels, since companies are now connected to so many other companies.

Ultimately, the one-two punch of more innovation and more places to sell new products enables companies to penetrate deeper into their existing consumer bases and, at the same time, acquire new consumers.

In the context of a networked economy, both scenarios can lead to additional revenue—yet another way risk, when managed well, can create value in the business world of today.

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