The Network Economy

The NetworkEconomy Hugo Velthuijsen, professor New Business & ICT

Contents • Network economy • Sourcing • KPN & India • SMEs & Offshoring • Market chains • Health care • Energy • Domotica New Business & ICT

The Network Economy Evolution of supporting tools

The Network Economy Changing the relationship of businesses with their customers • Customers: • are betterinformedaboutyou • are betterinformedaboutcompetitors • are betterinformedabouttheirownpreferences • are global • have more choice • expectbetter service • are easier to communicatewith

China, India, fomer Soviet Union 3bn 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 The Network Economy Extreme competition New Business & ICT

N = 1 R = G The Network Economy The power shifts to the customer New Business & ICT

The Network Economy Social networks organising citizen participation into a 7th power? • Trias Politica • Legislative • Executive • Judiciary • Threeadditionalpowers • Civil service • Media • Externalconsultants

The Network Economy Traditional way of doing business is changing The IT industry is leading

The Network Economy Some ways to exploit different forms Xxxxx(Out)sourcing Professional networks Shared innovation Xxxxxxxxx Crowd sourcing New Business & ICT

The Network Economy Transaction costs have changed 18.02 • Mid-30s: Big organisationsexist to minimizetransactioncosts (Ronald Coarse) • Now: transactioncosts are muchlower • Cost of overhead and bureaucracymuchless offset In the Next Industrial Revo-lution, Atoms Are the New Bits

The Network Economy Definition We define “The Network Economy” to encompass business activities achieved through temporary collaborations between independent individuals and/or businesses

The Network Economy Scope of this presentation Understanding the art of doing business with loosely dependent partners and to exploit the benefits

KPN & India Site visits October 2009

KPN & India Visited organisations

New Business & ICT

KPN & India Most important learnings • Amount of students educated is staggering (400,000 engineers / yr) • Level is high (top students go to world wide top universities) • The question is not can they do it, but can we do it • High end IT & BPO companies conform to international standards • CMM-I level 5 • Native speakers in English • Used to multi-cultural collaboration • Need to invest in knowledge transfer and relationships • For foreign employees to understand the needs and to build better solutions • For own employees to exploit capabilities better • For manageing employee turnover * See also J. Rottman, Successful knowledge transfer within offshore supplier networks: a case study exploring social capital in strategic alliances, Journal of Information Technology, 23, 31-43, 2008 New Business & ICT

KPN & India Further activities Kraljic model veel uitdaging and € Toegevoegde waarde II applicatiebeheer I werkplekbeheer datacenters communicatie weinig standaard specifiek mate van standaardisatie Bron: Lecture Outsourcing, Frank Willems, Twijnstra Gudde

KPN & India Efficiency & effectivity Company Outsourcing Offshoring Business department IT department Business owner IT demand IT supply IT proc Acc mgmt IT proc Acc mgmt IT ops New Business & ICT

Sourcing & SMEs Need for looking abroad • Expected shortages of IT specialists • Estimates between 8800 and 16,000 in the Netherlands once the financial crisis is over* • Shortage equals approx 5-10% of available jobs requiring higher IT education • Small & Medium Enterprises (SMEs) typically do not score top of the list of employers of choice • IT specialist shortages will hit SMEs hardest • SMEs need to look abroad for fulfilling IT need • Bring the work abroad (offshoring), or • Bring foreign IT specialists to the Netherlands • And: cost, quality & know how! New Business & ICT

Sourcing & SMEs Finding the way Corporate Large SME SOHO

Strategy What?, core business?, partners?, … Operations Tooling, interfacing, … Finance Reporting, risk management, ... Organisation and human resource management Functions, competences, … Legal Intellectual property, Open Source, shaping collaboration, … Governance Sourcing & SMEs The challenge Seminar SME & Offshoring planned for June 9, 2010

Market chains • Healthy ageing and Energy transition are focus points for Hanze University and RUG and City and Province of Groningen • Health care and Energy each form complex market chains • Inerests of different roles often not aligned • Need for win-win-win business cases • Dominant incumbents – limited innovation track record • Need for big macro-economic transitions (ageing, contraction, CO2 reduction, fossil fuel depletion) • Strong governmental interference on a macro-economic level • Difficult markets for innovation and entrepreneurship (micro-economic activity) New Business & ICT

Health care example The Intelligent monitoring of mentally handicapped persons IT Health Care studies Hanze Institute of Technology Human technology, Law New Business & ICT

Key issues User acceptance Impact & business case Health care example Key issues New Business & ICT

Health care example Building metaphor • Dialogue on main issues • Technical details for the professional • Incremental requirements • Weighing of costs vs needs

Health care exampel Agile for user acceptance • Interactive • Iterative • Explorative • Cost based New Business & ICT

Health care example Claims • An agile development approach achieves user acceptance • Stakeholder analysis and scientific approach allows correct identification of business case requirements • IT approach supports self reliance of mentally handicapped • IT allows care to become more proactive • IT contributes to resolving shortage of man power • IT allows employees in health care organisations to a more tactical and strategical approach to care • IT prevents escalating undesirable behaviour New Business & ICT

Energy example Energy transition

Energy example Local Energy Cooperative • Energy production that exceeds own consumption is a marketable product • Product can be stored, traded, or sold • Business question: Is there value in local cooperation? • Operational question: How to manage energy and money transfer

Domotica Domotica = electronics in the home + = Domotica New Business & ICT

Explanations for lack of success: Too much technology driven Not sustainable after pilot phase Too much “island thinking” Not user friendly enough Not extensible enough Too expensive Domotica After 20 year of projects and pilots market reach is limited Source: Statements by Domotica Plaform Nederland New Business & ICT

Different sectors are convergeing in the home… … but they are not CONVERGEING! Gaming Audio Video Health care • Different players in different sectors see the home as theirfuturemarket of growth • Some of these players are worldplayers (Sony, Philips, Microsoft, Google, etc.) • Most largerplayersaimfor dominant marketshares (of theirperceivedmarket) • Few playersaim at transsectoralinnovation Commu-nication Security Energy & Sustain-ability Lighting Comfort It is better to have a reasonable market share in a very large market than market dominance in a very small market! New Business & ICT

Domotica “Island thinking”: vertical integration Koala Zorg op Afstand Google Powermeter PConTV Essent Oxxio Sony company Etc. application specific equipment na TV various na na Camera/ TV PC TV Thermo- staat PC PC TV display PS2 PConTV modem HR-e ketel Smart meter Smart meter Box hub WiFI PLC WiFi GPRS ? Cat5 Infrastructuur RG RG RG GPRS netwerk ? RG Gateway New Business & ICT

Vertical integration Advantageous for one-offs; disadvantageous for multiple solutions Advantages Integratedsolutions Easy to install No overhead forpotentialfutureadditions; lowerone-offcosts Optimized design for single application Disadvantages Difficult to integratewith different solutions Higher overall costsdue to duplication of a single functionby different solutions Potential design drawbacks foradditionalsolutions New Business & ICT

Example of a family lifecycle Triple play (phone, TV, Internet) Babyfoon Energy conservation Audio & video to multiple rooms Gaming Security system Upgraded energy conservation system Remote health care Home assistance People will make stand alone decisions on buying domotica-style products and services at different times Each decision stands at its own at that time, but is influenced by the installed base At different times, people may have different decision criteria (cost, quality, reliability, ease of use, comfort) and fall within different market segments Each time one solution competes with numerous other solutions Low incremental costs as well as ease of use will usually be deciding factors if a new product is bought and which new product is bought Domotica Advancement of domotica in the home as a sequence of life time decisions The Domotica market is a composite of different markets New Business & ICT

Domotica Platform view: Horizontal integration application specific equipment other PC display TV Generic contolling device hub Generic infrastructure Infrastructuur Generic gateway Gateway New Business & ICT

Typically, closed, dedicated solutions are cheaper and therefore more attractive to potential buyers Generic infrastructures have low perceived consumer added value Different possible solutions: Someone with deep pockets (the government?) invests in a common infrastructure (without applications; thus no real business case) Someone develops an open platform and application(s) with sufficiently high volume and economies of scale to create a ‘de facto’ standard (like the Iphone example), Someone develops a truely incremental model Others? Business model consequences Cost comparisons New Business & ICT

Domotica Open innovation like Apple Iphone? • Iphone is a great product with good basic applications • An open applications programming interface (API) for adding numerous other applications • 1 distribution platform • > 150,000 applications, developed by ‘everybody’ • Caveat: there is always more creativity outside the company than inside! Can this model work for Domotica? New Business & ICT

Thank you • Any questions? New Business & ICT

The Network Economy