LEVERAGING THE POWER OF NETWORKS FOR SMALL ENTERPRISES

In last week’s Sunday Times Business Supplement, there was an interesting article titled ‘Small firms unite in co-operatives to save costs’ which touches upon a theme I began to develop in a previous blog post Reinventing the co-op for the Twenty-First Century.

The article mentions that there are now almost 1,000 co-operative consortia in the UK in all sectors – from manufacturing to website design and from farmers to consultants. The idea is simple: join forces to gain more clout, and use this to help the bottom line. One example suffices to show the potential: in North York Moors National Park, seven hill farmers have joined together to form a co-op, naturally called, Seven Hill Farmers (and without the help of branding consultants!). The co-op has been used to negotiate better terms for selling their traditionally reared lamb to Asda. Last month they began selling 300 lambs a week to Asda.

This is a simple but effective example of how collective power can be leveraged to benefit from scale. But it is only embryonic.

There is a more ambitious point to make about this phenomenon: so there are 1,000 co-operative consortia in the UK across all sectors, perhaps leveraging their collective strength within their niche markets to the same or lesser degree as the Seven Hill Farmers. This might result in reducing costs on office space, like Open Space in Manchester, for example but this is only leveraging part of their potential. Without knowing what areas the 1,000 co-operative consortia cover in the UK, collectively they must all have similar requirements: they will spend money on office supplies and space, communications, transport and delivery costs etc etc.

The real potential for the disparate 1,000 co-ops is to become one virtual co-operative which will gain the leverage of a large corporation and thus not only enable more negotiating power, but change the rules of the game altogether.

THE VIRTUAL ‘UBER-CO-OPERATIVE’ – AN ENTERPRISE SERVICE PLATFORM

What is really needed is the development and management of a corporate network environment to provide the software and IT solutions and services environment required by an Enterprise. This would be achieved by constructing an extensible platform of service components and developing services that leverage the power of the collective. To be even more effective, the platform would be opened up for third parties to use as a component base for building services for the virtual co-op. This platform would function like an  Enterprise Services Platform (ESP) where third parties could provide specific applications to ensure a greater range of services and applications to be made available to the virtual co-op and which leverage the collective power of the co-op.

The platform stack would have to be extensible, while the ability to add new components and associated API sets over time with the minimum of effort, should be built into its architecture. The goal would be to build a platform that leverage the power of the collective. The virtual co-op ESP would thus act as an IT and services  platform for its members as well as third party service providers. Leveraging the power of the collective will provide cost-effective services and revenue opportunities for all concerned (saving money or generating paid for services).

Two examples suffice to illustrate how the ESP could function to realise the network effect of the virtual co-op.

LOGISTICS

This is an area of immense challenge for both transport suppliers and SMEs. Transport suppliers want to ensure that their trucks are as full as possible in order to maximise profits. Unfortunately waiting for delivery contracts often means that the vehicles are far from optimised for certain distance runs.

Many SMEs have sporadic requirements for courier deliveries, maybe because they rarely need them, or maybe because the niche nature of products they supply means there is little or no pattern in the delivery addresses.

So how would the ESP work in this instance?

A third party could, for example, work with a number of Logistics providers to build a service which allows them to aggregate the shipping requirements of co-op members. They can then contract the courier with the most available space for any given geographic transport run. The logistics firms are able to offer a better rate to the third party as they contract in bulk; the third party passes on some of this saving to the co-op members while taking a cut as an arrangement fee. The third party builds a system which interfaces with the parcel tracking systems of the various carriers in order to present a single interface for co-op members to track their current shipments, even though they may actually be travelling to different geographic locations with different couriers.

PURCHASE GROUPS

Group purchasing is a great way for small buyers to gain the bulk buying discounts normally open only to larger buyers. Maintaining buying groups can however be time consuming.

How does the ESP do this?

A third party develops an ESP-based system which allows co-op members to maintain a list of items they intend to purchase and a maximum price they are prepared to pay. This purchase list is aggregated and published, with the buyers remaining anonymous to encourage other members to register their interest in any of the items. The third party system utilises an agent platform to negotiate with potential suppliers reporting back a price. When a price mutually acceptable to the co-op members is achieved, the items are ordered and the co-op members billed automatically. Linked to the logistics platform, the optimal delivery date and carriage can be secured as well.

Taking this one step further it is conceivable that such a platform could be opened to non-co-op members thus increasing its network effect even more.

It is clear that the idea of co-operatives joining forces to gain more clout represents only the embryonic power of the network effect. To realise its full potential will need the co-operatives to follow through the logic of what their actions potentially mean. What is needed is more collective pooling – the coming together of these co-operatives to create a vision that can realise their common interests. Today, this potential could be combined with software and network technologies that can leverage the network effect. This is a great opportunity to change the rules of the game.

If anyone is interested in organising an event to try to bring the co-operative consortia together to realise this vision,  please get in touch.

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