WHO'S IN CHARGE? A vertical network like that led by Toyota or Dell is based on efficient manufacturing and the growing demand for cars and computers. They are complemented by horizontal networks, alliances built on greater market power and broader customer services. "Airline alliances such as oneworld are perfect examples of cooperation whereby former competitors have joined forces and succeeded in creating a new, more varied range of services for their customers," Möller says. Members of the oneworld alliance cooperate in areas such as timetables, ticket sales and reservations and frequent-flier programs. Möller notes that a similar kind of cooperation is now being sought in a growing number of sectors. "The global markets have accelerated this phenomenon," he says. "Many local competitors don't have sufficient resources for major investments alone, but through cooperation they can accomplish more and expand their markets." An airline alliance such as oneworld can partially combine its strengths in areas such as aircraft, material and fuel investments. "The crucial thing about leading a network is how to harmonise the interests of the alliance and all of the independent airline members. For the customer, the alliance means more flexible service. A wide variety of complementary air routes make it easier to plan trips," Möller says. Firms join alliances in search of cooperation that benefits all parties. However this benefit cannot always be measured in monetary terms, nor is it necessarily clear who actually leads such an alliance. Networks that become complicated and involve many players are difficult to administer. "In a traditional vertical network, the roles are clear. There's a main customer or brand such as Nike around which the network has been built. In a horizontal network, the partners are more equal. These kinds of partnerships are like successful marriages: they survive the ups and downs because of the advantages of being together," Möller says. Horizontal networks have the best chance of success when the member companies have similar corporate cultures and operational histories. Each member of a network has a clear role and know-how which complemented the others' operations. "When all the participants are strongly dependent on each other, they can achieve a common goal simply through cooperation. This type of operational model requires a leadership culture based on open discussion and mutual confidence," Möller says. BENEFITS AND RISKS Möller points out that the recent history of the electronics industry aptly illustrates the strengths and risks of networks. "Take for instance the mobile handset manufacturer Nokia. In the '90s, its success was based on a diverse, increasingly international network which initially supplied the company with the components it needed. As its business expanded, specialised electronics manufacturers such as Elcoteq began to take greater responsibility for mobile phone assembly on behalf of Nokia. Nokia developed, reinvented and expanded its own core Airline alliances such as oneworld are perfect examples of cooperative networks. know-how while at the same time the partners in the network built up around it became more and more tightly dependent on the network," Möller observes. When demand for mobile phones began to slow in the early part of this decade, mobile phone brands sought better profitability by forcing component manufacturers to outbid each other. This also allowed them to significantly lower the cost of basic mobile phones, which sped up market development in China and India. Many Finnish partners could not keep up with the explosion of growth in Asian demand and so lost out to suppliers from Taiwan and mainland China. "Networks are governed by the same tough economic laws as business in general. If you are not competitive in the long run, you will drop out of the network. The more you can offer the network special know-how or parts or services that are difficult to copy, the stronger your position in the network," Möller says. SEAWEED AND SOCIAL NETWORKS In a rapidly changing competitive environment, a company's success is increasingly dependent on its ability to continuously revise the core of its own business operations. "In order to minimise network risks, a firm must be able to develop both as part of a network and as an independent operator. Risks grow if firms just stick to a subcontractor role within a network," says professor Henrikki Tikkanen, head of the department of marketing and management at the Helsinki School of Economics. According to Tikkanen, nowadays firms build networks in order to develop new inventions for which they can then jointly seek commercial opportunities. "They are increasingly looking for new partners from scientific and expert communities, but also from other sectors as well. In the information economy, various areas of knowhow link up in surprising ways which can even spawn new industries," Tikkanen says. No wonder that firms are hustling to enter new fields of research. Biodiesel manufacturers are interested in seaweed researchers. The pharmaceutical industry keenly tracks the latest developments in biotechnology. "Firms are investing in their own research centres or in various kinds of research funding programs. University researchers are working more closely with corporate product development units," says Tikkanen. The experts at the centre of this kind of network play a key role in speaking about the future of an industry. OCTOBER 2008 BLUE WINGS 61
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