Relationship in High-Technology Business to Business Context - J.T. Bergqvist - June 3, 2003, 10:00 a.m.

Symposium: "A New Base for Corporate Relations: From Strategic Deceit to Trustworthy Action", Nokia House, Espoo Finland, Tuesday, June 3, 2003.

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the IBM Advanced Business Institute ( http://www.ibm.com/abi ).

[J. T. Bergqvist]

In high-tech, much different from other businesses

• Have though very linearly:  either a customer or a supplier
• Everyone has a customer
• Most everyone has a supplier
• This is simplistic, but it's how it has been.

In relationships, the customer has been important, and the supplier has been unimportant, in cultivation

• This is because of value chain thinking
• Useful in thinking of value chain, but destroys thinking about value in the industry.
• The supplier is then a lower species in the industry, as compared to the customer.

This has been thoroughly reflected in organizations, including the position of ranking of people taking care of suppliers.

• Suppliers have been making things to order, not involved in what the company does
• Lemma:  value chain thinking, although valuable in understanding how the business operates, has led to a negative twist in relationships between persons

Next boom:

• Companies understood that they're performing too many tasks.
• Rush for outsourcing started: services of products
• English teacher:  his mother never said that should be outsource the bread.
• • She would buy the bread
  • Outsourcing is not more than buying
• Outsourcing causes a different type of relationship
• • Infiltration of supplier's employees into organization
  • In addition to the value chain concept:  not just more linear

In product development (already talked about Volkswagen Brazil)

• This manifested in increase in contractors and subcontractors
• Sub-contractors - individual people who then work under larger contractors
• Intimate:  not only a business relationship
• • As contractor, business relationships at an individual level impact how they work.
  • E.g. product research, with product development
  • Changed way of working
• From being a supplier, have become business collaborators
• People responsible for outsourcing were more than supplier managers, but taken care of by business line management - one rank higher
• Caveat to outsourcing:  not a generic solution for bringing down costs
• Outsourcing may even increase unit cost and reduce output
• Where it works sufficiently, it has offered a buffer against frustrations in demand volumes
• Not black and white
• Have to seek right balance between what you buy from outside, and what you do yourself
• No optimum point

Next step:  Networked product creation partners

• Outsourcing using contractors and subcontractors is okay, but even though they're working together and getting incentivized, they are not taking risk:  they don't have a downside.
• They only have an upside.
• It has become evident that no single player is able to create enough value added to support market demand cost-effectively.
• Outsourcing is not a solution:  it may maintain or increase cost
• You can't mitigate risk by outsourcing
• Think about this:  Outsourcing is not a solution to diminish the risk - at least in cost.
• Then have to go to the next step:  business partnering, risk sharing between companies operating in the same industry branch
• E.g. company has R&D, products bought by the next step in the value chain.
• But usually not in the same industry branch, e.g. not standard components
• Risk-sharing partners split the development work
• Collapses the value chain
• Parallel streams with contractors in the companies
• Not partnerships in the legal form, necessarily, but create a value network instead of a value chain
• Call this Network Product Creation at Nokia
• New world of collaboration
• Software (mostly) and some hardware
• Vertical suppliers, such as Nokia, who do full products, may buy components or modules from each other
• When moving from supplier relationship through contractors and subcontractors, risk sharing, the responsible people come from top management
• Clear escalation of people responsible for the relationship, as they move towards partnerships.

Summarization: Hope will add attributes relevant

• Supplier
• Operational supplier management
• Short notice - on demand
• Value chain with buyer-seller relationship taken care of supplier
• Contractor
• Tactical, used as a buffer, impacting output and input, cost and results.
• Through yearly or half-year volume estimates
• Business value system is an orchestrated value chain, not a natural one (which would have been one with suppliers and customers, self-organizing)
• Risk-sharing partners
• Strategic, top management
• Multi-year roadmap planning
• E.g. Nokia 1999, base station architecture targeting 2005
• 6 years to make the roadmap so that the different players can agree, and produce modules that will share the same interfaces and are interconnectable.
• Have to have visibility of at least 3 years
• A business system with co-opetition:  competition and collaboration at the same time.