In 2019, most of us took for granted that we could get any product we wanted at any given time. And if it wasn’t available then and there, we could shop online and have it delivered to our door within hours. The backend efforts to make this happen – gathering raw materials, manufacturing components, assembling final products, securing shipping containers to move them and the ships to transport them, the trucks to get them to the store, or the last-mile delivery to our front door – never crossed our minds. It just worked.

Then the pandemic hit, interrupting the complex systems and networks that have operated seamlessly for years and pushing them to their limits. Many stopped working completely. We still feel the ripples of this change today in the cost and availability of everything from food to cars. In August 2021, Toyota announced that it would reduce its production by 40% for the year – not because of a lack of demand but because it couldn’t source enough semiconductors, metal parts, plastics, and other raw materials needed to build the cars. Today, new cars are still on backorder or are shipping incomplete with a guarantee to add missing features at a later date. Meanwhile, the squeeze on brand-new cars has created a boom in the used car market in the United States, with the price of a used vehicle leaping up 30%.

The pandemic has changed our general awareness of complex systems and the connected nature of our business world.

Three years ago, the chain of events causing these absences would have been a mystery. Now, supply chain disruption is part of the common parlance. And as a result, we have gained a far better communal knowledge of the systems and networks inherent to the businesses that we rely on.

And it’s not just the general public that has learned from this. Business leaders had their share of learning, too. The immense pressure the pandemic applied to systems flushed out weaknesses, like a barrel being tested for leaks. Most notably, businesses became aware that they could not rely too much on a single node in the network, such as having the bulk of manufacturing and assembly in a single country. Companies like Samsung, Apple, and Google are responding by diversifying their supply chains for greater agility and resilience. And in a 2021 study, almost 90% of respondents said they expect to pursue some degree of regionalization during the next three years.

A new era of system thinking

Rather than erode our confidence, the disruption strengthened our collective belief in our ability to flex existing systems when needed. It brought about a realization that we can resolve and adapt to shocks inflicted on the system and that these complex networks, previously seen as too daunting to imagine changing, can be revised wholesale. We have become aware that, with a common goal and an emphasis on collaboration, we are able to redesign the intent for these systems.

And this is what we have needed.

Fixing systemic challenges is the calling of our time, one in which sustainability, operating with purpose, and delivering on goals that are not merely financial have leaped to the top of CEOs' priorities.

Regulation is further pushing businesses in this direction. For example, the EU plans to pass supply chain transparency rules that require large firms to identify and manage social and environmental impacts along their entire value chain, covering their own operations, products, and services, as well as direct and indirect suppliers. Germany is reacting even faster and plans to bring these requirements in 2023 and 2024.

Whether it's corporate strategy and a quest to deliver on purpose goals, or the pressure of regulation, the result is the same: companies need to shift their focus from solving problems within corporate boundaries to tackling more systemic challenges. But rather than just addressing processes, they need to think about entire systems and work together across value chains, forming business networks that span industries.

One prominent example of such a business network in the automotive industry is Catena-X, a consortium with 28 members focused on creating a complete view of the supply chain. Through a shared data environment, the business network aims to create transparency on the sustainability of cars, from sourcing to production, use, and recycling.

Food for thought

A shift toward the circular economy cannot be achieved within one’s own business boundaries but through a collaborative approach across the entire economy. Read about Catena-X – a frontrunner for the automotive industry network collaboration.

Business networks aren’t a new idea. The concept has been around since the early 2000s with the ideas of Roger Camrass and Martin Farncombe, who coined the term atomic corporation in their book of the same name. However, there have been some important technical leaps in the past 20 years that allow different companies to work better together, manage common processes, and interconnect, even if they operate in unrelated industries.

Notably, these technological shifts include:

Technology platforms

Technology as a platform, rather than as a series of bounded applications, really only rose to prominence in the late 2000s, with companies like Airbnb, Uber, and eBay. This gave rise to the platform economy and established the idea that software can act as an orchestrator and connector.

Automation

Increased automation allows processes to be run autonomously, lowering the overall effort to manage complex processes but also freeing time to refocus efforts on new challenges.

Low code/no code

The ability to apply technology is becoming increasingly democratized, allowing more people to get involved across the network rather than keeping it tied to a smaller number of highly specialized tech experts.

Data standards and APIs

Decoupling data from specific applications and platforms means that data can be leveraged in new ways, both technologically and commercially (such as data monetization).

The shifts don’t end with more effective collaboration, either. We are already seeing a shift in how business networks are brought to life: from formerly static, ad hoc, cross-company process integrations to dynamic systems in which companies, institutions, consortia, coalitions, micro-businesses, and startups fluidly form business ecosystems with multisided business models and digitally managed value flows to address systemic challenges or seize strategic opportunities.

And the shifts will continue. We see the business networks of tomorrow being distinguished through new capabilities that include:

Open standards

Network partners will be empowered to represent and broadly expose their business capabilities through open standards.

Searchability

As open standards mature, they will enable companies to look for relevant network partners to address specific business challenges or seize given market opportunities.

Modularization

This will also facilitate marketplaces of composable business capabilities that can be seamlessly plugged into business networks to enhance their value.

Hybrid networks

Digital, potentially autonomous entities that can operate across the physical world and multiple shared, connected, and interoperable virtual worlds, will become nodes of business networks, resulting in physical–virtual networks with hybrid processes.

AI

Technologies will autonomously recognize schema and patterns of different network business models. By reconfiguring processes, data flows, and business rules based on the recognized models, it will make business networks more autonomous and self-optimizing.

The road ahead: more intelligent, autonomous, and adaptive ecosystems

We will see endless possibilities for future business networks. Think of one assembled for a complex project with the potential to autonomously match required and available capabilities. Or companies that develop smart products and have the power to launch and grow a dynamic, self-organizing partnership of complementors around it. Think of multisided businesses that are self-detected and self-established. Think of micro-brokers based on smart contracts, operating autonomously on a business network.

The ultimate result of this evolution is going to be a world with a set of interconnected adaptive ecosystems.

If this sounds complicated, that’s because it is: creating business networks and tackling multisided problems like climate change or social equality require deep expertise in systems thinking and long-term commitment. But getting started can be surprisingly easy. Designing business networks can begin with three simple steps.

Step 1: Define your goal

The first question you need to ask yourself: what will your business network ultimately solve for? Consider different types of stakeholders – thinking of who you’ll involve and how you’ll build momentum is the foundation. Map out the potential participants and their interrelation to break down the complexity. Flip questions like “Who can work together today?” to “Who might work together in the future?”

Step 2: Find the network pioneers

Before considering network effects and scaling the network to multiple stakeholders, define who the key and foundational participants need to be in order to generate a minimum viable network.” Think big, start small” applies more than ever to business networks. Knowing which participants can quickly begin to tackle foundational elements has the additional benefit of generating initial value, which, in turn, will attract others to the cause.

Food for thought

As we enter further into the third connected age, we see 5G as an essential driver of enterprise evolution. Explore the benefits 5G brings into business networks and how early adopters are privately embracing 5G.

Step 3: Treat data and intellectual property as a gift

When considering business networks, we tend to immediately jump to the thorny topics of ownership and IP. However, during the design phase, it’s better to consider these as opportunities instead of challenges. Data and access to IP are at the heart of most value exchanges in business networks. Don’t slow your process in the beginning by getting into the weeds of monetization and licensing questions for each network partner. Instead, focus only on the upside and value creation opportunities that will emerge when capabilities and knowledge across the entire business network are brought together. Most of the time, the value gain will be so significant that it will put all initial concerns into perspective.

We are at a unique moment in history. Our collective understanding of business networks and systems has never been more extensive. Our confidence in our ability to adapt them to our reality is bolstered. Technology is enabling us like never before. It’s incumbent on all of us to grasp this opportunity, not only to drive the next wave of growth for businesses but also to address some of the most pressing challenges humanity faces today.

Food for thought

Digital twins offer enormous potential to address sustainability challenges and foster the needed green transition. Read about the untapped potential of digital twins in business networks.

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