22.10 Networking arrangements

Networks are spreading globally as an effective tool and structure for fundamental transformation of organizations. Companies can significantly improve productivity by focusing on the things they do best. Networks usually focus on a combination of cost reduction and customer service orientation, as the foundation for improved competitiveness. At the centre of the network should be a flagship firm, which can contribute unique capabilities. These might include competence in managing the network as a whole, developing core technologies, improving distribution and supply chains, and many others.

Networks help companies adopt agile business practices, tune in to the changing and diverse needs of their customers, and rapidly transform their supply and distribution systems as well as their own production systems. By cooperating with other firms, even competitors, companies can improve their productivity and competitiveness through better access to innovations and new technology, venture capital and new markets at lower costs, while sharing risks and liabilities with network partners. They can have more efficient specialization around their core activities while learning about new management practices.

What has made networking so popular is the fact that today’s corporate partners are more and more interested in long-term strategic alliances where gains are made over many years. The formation of strategic networks means that power often resides in a group of companies acting together as partners. Information technology increases the opportunity to use cooperative strategies to reduce costs, enter new markets, and improve competitiveness. The most common types of cooperation range from exchange of information and experience to more complex and formal relationships such as consortia. In between there are supply/value-chain partnerships, licensing, strategic alliances and others.

An excellent illustration of developments in networking is the rapid spread of contract manufacturing among electronics firms. Contract manufacturers such as Flextronic, Solectron, Celestica, Jabil and hundreds of other small firms have taken about 11 per cent of the market for electronics hardware. The amount of contract manufacturing is growing by more than 20 per cent a year, which is more than twice as fast as the electronics industry as a whole. Another form of networking, dealing with knowledge management between firms, is network intelligence, which can enable executives and entrepreneurs to grasp many phenomena shaping the future of technology companies. As network