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To survive in the demand-driven, collaborative 21st century environment, companiesshould strive to achieve a balance between market adaptability and stable businessprocesses.

Business strategy has reached a turning point in which two opposing forces must be reconciled. At one end of the spectrum is the need for stable, efficient processes in a company. At the opposite end is the need for instant adaptation to rapidly changing business conditions. Efficiency without adaptability means solving yesterday’s business challenges at the lowest possible cost, and adaptability without efficiency allows for quick reactions, but inflates cost structure. Companies in today’s competitive environment, especially in the pressure cooker known as the manufacturing industry, want a clear path forward that will increase both efficiency and adaptability, and result in a larger share of wallet for their business.

Using the adaptive business network as a strategy, your company can accomplish a number of goals:

• Lock in a stream of future business by improving your ability to develop and introduce new products that meet the needs of your customers;
• Respond faster and more effectively to changing demand and supply chain signals through increased visibility into your suppliers’ processes;
• Understand how and when to shape customer demand through a better understanding of your capacity and that of suppliers;
• Optimize profit during order fulfillment by carefully distributing products across the most attractive channels; and
• Create new streams of revenue through services that extend the customer relationship after the sale.

The adaptive business network is neither an existing nor a new software product. It cannot be purchased.

The adaptive business network cannot be implemented by just one company. It is not a program for the internal change of one business. Instead, it is a program for the reorganization and synchronization of many businesses through real-time collaborative processes, executed in concert to drive value for each and every participant.

What Is an Adaptive Business Network?

Examples of early forms of the adaptive business network are easy to find at innovative companies. Hewlett-Packard uses the structure to orchestrate production of PCs and printers in a broad network, but then acts as a partner and supplier in networks organized by other companies to distribute those products. Companies like Molex build components for other companies, but do so by coordinating the actions of a huge network of suppliers that participate in design, planning and order management. Companies like Freescale are able to implement an available-to-promise system that allows sales staff to instantly provide definitive responses to customer inquiries and capture more business.

The ideal of the adaptive business network is a seamless integration of the planning and execution needed for efficient, stable processes and the ability to adaptively sense and respond. Information flows back and forth as the entire network of companies responds in real time to customer demand. The structure of the adaptive business network is defined by the following characteristics:

The adaptive business network is demand-driven – Customer signals flow to every company in the network, triggering responses, sometimes manual, sometimes automatic, that keep products flowing at the right rate and minimize the trauma of disruptions.

The adaptive business network works in real time – Data from real-world-awareness techniques like RFID, combined with well-crafted metrics and models of performance, keep the lights on in the network and make for better decisions.

The adaptive business network is collaborative – Pervasive collaboration across all boundaries allows companies to focus on their strengths and find partners to do the rest. Processes for design, order management, sourcing and service delivery that used to exist inside the boundaries of a single company are now executed across many companies that are fed by information and insight gathered from every corner of the network.

The adaptive business network leverages standards – Widespread use both of industry and technology standards are vital to establishing flexible communication across systems, divisional silos and company boundaries at the lowest possible cost.

The adaptive business network is built for change – Business relationships, processes and supporting technology are all constructed to evolve rapidly to meet market needs and increase a company’s share of wallet.

The adaptive business network is friendly to innovation – Companies that use the adaptive business network strategy become experts at creating and optimizing business relationships and processes, and supporting IT infrastructure. This unleashes the floodgates of creativity by making many more ideas possible.

Origins

The concept of the adaptive business network developed over several years as the effect of the Internet on the structure of the manufacturing industry came into focus. The concept, which boils down the patterns of change in distribution, supply chain, design, sales and marketing and other areas, was first formally identified by Claus Heinrich in his book, Adapt or Die: Transforming Your Supply Chain into an Adaptive Business Network (John Wiley & Sons, Inc., 2003). Defined simply, an adaptive business network is an integrated, flexible network of companies focused on a customer need that responds in real time to changes in the state of the network.

The adaptive business network involves a three-phase process that is executed repeatedly at all levels of every business including planning and execution, which are the foundations of efficiency; sensing and responding, which enable adaptability; and learning.

The first phase is the planning and execution cycle in which companies use the best information available to create a game plan for putting the network to work to serve customer needs. The planning and execution phase focuses on what are known, stable processes and recurring calendar cycles.

But no plan survives unchanged after contact with the marketplace. In the second phase, companies in an adaptive business network then employ methods of sensing and responding to provide the adaptability to optimize performance and to quickly react to unexpected challenges. The result is a network that is both efficient and adaptable.

In the third phase, companies use what they have learned about how the network operates and adjust the network to run better and faster. Figure 1 shows the relationship of these concepts.

Most companies have deployed some combination of IT solutions to handle enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM), product life cycle management (PLM), supplier relationship management (SRM) and more, to provide a foundation for planning and efficient execution of stable processes. But a new area of automation has emerged – an arena of fluid and rapidly changing processes for design collaboration; managing of partners, assets and services; tracking behavior; and serving the needs of customers. These adaptive business processes and many others draw on the services and capabilities of transactional applications, as well as the services and processes from external partners or legacy systems.

Most current responses to the strategic challenges of the manufacturing industry focus on efficiency or adaptability, but not both. Lean manufacturing and Six Sigma help companies squeeze waste and variability out of their processes. Concepts like the on-demand enterprise, the demand-driven supply network and the real-time enterprise stress increasing adaptability without explaining how efficiency will be maintained. In supporting the adaptive business network strategy, the next generation of IT solutions must achieve adaptability without sacrificing efficiency.

Roles

There are two modes of participation in an adaptive business network: coordinator and partner. While most companies will be partners, many firms will find themselves playing both roles. Companies that prepare to participate in an adaptive business network will be able to say yes to new opportunities and new revenue, while less prepared companies will have to say no.

In the partner role, businesses frequently face companies larger than themselves that seek to integrate operations more tightly than ever before. These large customers ask for – and sometimes demand – investments in IT to comply with standards, increase automation and collaboration as well as other concessions. To succeed, a company must be able to participate in the networked processes that large partners are encouraging. If the coordinator of the network wants tighter collaboration in design, asks to include a partner’s warehouses and work in process in an order management system or wants to support a very high-touch outsourcing configuration, the partner must be able to support the new relationship.

A company can gain share of wallet by being the easiest partner to work with. Such a company will have the lowest integration costs and the tightest collaboration, provide the most information, respond with the greatest accuracy and reconfigure fastest when processes change or emergency conditions arise. With these capabilities, a partner company can support relationships with more networks than its less-skilled competitors can.

From the coordinator point of view, having increased power to support relationships with partners means being able to support more partners and to extend automation, collaboration and visibility to the deepest extent possible. The power to support many relationships means that the coordinator can choose the right partner for the right task and also have a claim on the largest possible capacity.

Benefits

The adaptive business network is an ideal model that shows how to improve every aspect of modern business relationships. Not only can the concept improve the efficiency and adaptability of hundreds of companies working together, but it can also improve one relationship between two companies. A company that has methodically prepared to participate in an adaptive business network is able to use its power to create win-win relationships with partners and suppliers that provide better products and services to customers and reap huge rewards. The benefits include the ability to do the following:

• Become a truly demand-driven organization that responds quickly to customer signals;
• Say yes to the high-visibility, process integration and adaptability required by business partners;
• Gain efficiency and reduce waste from increased visibility into the processes and operational state both of partners and suppliers;
• Create and support new relationships faster than ever before;
• Accelerate product design;
• Reduce the time to market, time to volume and time to value for new products;
• Detect and exploit new revenue opportunities;
• Paint a much more accurate picture of customers and more adeptly respond to their needs;
• Leverage service as a value-added benefit and a profitable competitive differentiator;
• Maximize return on production assets by minimizing downtime, improving equipment reliability and throughput and extending the life of assets;
• Increase the capital allocated to core value-creating activities, while outsourcing other processes; and
• Improve overall productivity.

The adaptive business network provides the foundation for increasing performance in product leadership, customer intimacy and operational efficiency – the elements for success in the manufacturing industry.

Adaptive Business Processes

The processes for sensing, responding, learning and supporting crosscompany relationships bring a new form of IT to most companies. Transactional solutions for ERP, CRM, SCM, PLM and SRM are the foundation. That’s because stable business processes are executed in these solutions, which contain the operational and financial state of the company.

What are these processes? They are the adaptive business processes, shown in Figure 2, that reach out from the center of the company toward partners, suppliers and customers, providing visibility, sending and receiving important information, coordinating activity, providing early warnings and enabling the adaptive business network to actually reconcile the need for maintaining efficiency while increasing adaptability.

From Vision to Reality: Seizing the Day

The power of technology is a tide that has lifted all boats. The key to survival may no longer be the size of a boat, or how fast it can move, but the pace at which a boat can transform itself during a race. Successful companies will leverage their current investment and combine solutions from many vendors into an adaptable infrastructure.

To achieve this transformation requires a comprehensive vision and detailed plan stretching over several years. Companies will succeed or fail not based primarily on their own strengths and weaknesses, but based instead on how effectively they coordinate and synchronize the activities of large groups of partners of all sorts to achieve their goals.

If your business is an island unto itself, a self-contained unit that deals directly with customers and uses only abundant commodity supplies, an adaptive business network may not apply. For everyone else, those whose fortunes will rise or fall based on how well they work as a partner, supplier or coordinator of a network, taking steps toward an adaptive business network is a vital concern.