Platt Perspective on Business and Technology

Interoperability, third party provider support and first mover advantage – 7

Posted in business and convergent technologies, outsourcing and globalization by Timothy Platt on March 23, 2012

This is my seventh installment in a series on unique value propositions and sources of unique value in individual businesses, with a focus on businesses as they function in supply chains and larger value chains, and in complex business and economic ecosystems (see Outsourcing and Globalization, postings 15-20 for parts 1-6.)

In Part 6 I began tying the terms of the title of this series into the ongoing narrative that I have been discussing, with a focus there on interoperability and operational connectivity. I continue from there in this installment, turning next to the issues of third party provider support, and also those of support between member businesses within the supply chain. And I begin with a simple observation.

• One way that a business can create market and organizational strength for itself is in its ability to bring value and at both individual business and at overall supply chain levels, to its dealings with its business partners.

A business that differentially brings greater value to the supply chains it functions within, and to its business partners in those systems, will find it easier to build relationships with the most productive and efficient potential partners in their business and economic ecosystems. They will get to participate in the supply chains that through member company participation, start out poised to be the most efficient and successful. Here, I repeat from Part 4 that:

• When businesses function in supply chain systems and compete in their marketplaces from within them, a measure and even a very significant measure of their competitive strength can usually be found in the supply chain systems that support and sustain them, as individual businesses.

So this can represent a considerable proportion of the unique value proposition that a business brings to its markets. That certainly applies when focusing on business operations and their differential effectiveness in comparison to those of their competition, as sources of value and market strength. These sources of difference can significantly drive their market share and their fiscal strength and their overall capabilities to grow and to respond to change. And with that I turn to the specifics to this posting.

Support between member businesses within the supply chain: Supply chain level sources of unique value, not found in directly competing supply chains might only express themselves at the supply chain level, and as sources of mutual value between partner businesses working together in those systems. But individual businesses in those supply chain systems can bring these sources of value to the table, provide best practices experience and expertise in implementing them, can help monitor and manage them, and can help distribute the value derived across the supply chain and its member businesses as a group.

Third party provider support: At least in principle, and with some working proof of principle examples to turn to, a third party supply chain facilitator business could also be brought into a supply chain system, specifically to help organize and optimize the supply chain and make it more competitive. I have cited Li and Fung several times already in this context and simply note that while they primarily seek to provide supply chain level value to such systems as they would be active members of anyway, in the usual work flow that the supply chain seeks to fulfill, they could also leverage their expertise as a strictly third party expert and as a consulting business not directly involved in the transaction flows of the supply chain itself. In this case, their fees would probably be scaled from a minimum amount due, assessed to the supply chain member businesses and with increases from that basic fee set contingent on overall performance and success of the client supply chain venture.

Criteria for setting fees for this type of third party participation could be developed in a variety of ways starting with a base fee that in most cases would be determined at least in part on the reputation of the third party consulting firm – and both in its own supply chain activities and successes, and in its success working in this capacity as a third party provider consulting firm. Any contingency or bonus increases in fees due beyond that could be set on a strictly return on investment basis for the supply chain member businesses hiring its services. I set aside with that, the issue of compensation for operating and other expenses incurred by the consulting firm while performing their services but these costs might be explicitly covered in these contractual agreements too. But bottom line, total aggregate fee would in most cases be expected to be proportional to the success that the supply chain client achieves and where possible to calculate, to its differential success for having hired this type of expert support.

With this brief discussion I open a door for possible negotiations as to compensation for the provision of supply chain value and unique value in general, and whether that derives from strictly within a supply chain and its member businesses or from outside of it as from a third party consulting firm as touched upon above.

I am going to turn in my next series installment to consider the issues of first mover advantage, and the durability of unique value propositions as sources of unique value. As a foretaste of that I note here that specificity of fit between source of unique value and working context are one of several important factors in that. Meanwhile, you can find this posting and series at Ubiquitous Computing and Communications – everywhere all the time and at Outsourcing and Globalization as the supply chain and value chain business ecosystems that are discussed here are increasingly global in reach and participation. You can also find related postings at Business Strategy and Operations and its continuation page, Business Strategy and Operations – 2.

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