This week we return to our theme on the factors underlying outsourcing in regulated industries. Just to recap, the combination of outsourcing and regulation requires suppliers and sponsors to enter into a relationship that results in formation of a Business Ecosystem. Contrasted to less regulated industries, regulated industries run higher risks when outsourcing, and have manual processes such as inspections to mitigate them.
Technically, a Business Ecosystem is defined as a network of organisations – suppliers, distributors, customers, competitors, government agencies, etc. – involved in the delivery of a specific product or service through competition and cooperation.
Business Ecosystem is a network of organisations involved in the delivery of a specific product or service through competition and cooperation.
Today we review how a business ecosystem differentiates from a single organisation, and key attributes that make a business ecosystem successful.
Let us look up a somewhat simplified business scenario to understand this concept of Business Ecosystems, and contrast it with a single organisation. In Life Sciences, medicines are manufactured in batches. A batch is scheduled based on the Sales and Marketing Plan, and executed in a manufacturing facility. Quality checks are performed either in an in-house lab, or at certified public testing labs. Finished product is shipped to the distribution center.
This swimlane diagram demonstrates the process. All activities are performed by team members inside the organisation. They probably have a single ERP system that provides full visibility into planning, inventory, and production activity. The team appreciates a single organisation culture, and understands each other effectively. And of course, they can just pick up the phone and call anyone to communicate and follow-up. With a single enterprise system and ease of communication, execution is likely to be characterised by transparency, control, and high levels of compliance adherence.
The “single organisation” operation has superior execution transparency, control, and compliance adherence, but such organisations are now unviable for economic reasons.
Now contrast this scenario with one depicted below:
Planning is performed by the sponsor organisation, and purchase order is issued to a contract manufacturer organisation (CMO). The CMO manufactures the product, and sends the quality sample to a FDA certified public quality testing lab. On receiving results, the batch is “released”, and shipped to the customer by a Third Party Logistics (TPL) service provider.
Notice that even in this simplistic scenario, 4 different organisations are interacting with each other. They are all independent legal entities, with differing internal systems (may or may not be ERP), variety of cultures, geographies, languages, and they may not be able to just pick up the phone and speak with each other. This is the way business processes are being executed today – they are cross-enterprise processes. In a real scenario, many more organisations will collaborate. The sponsor is exposed to an operation that is opaque, likely out-of-control, and potentially non-compliant.
Our assessment of a Cell & Gene Therapy business ecosystem indicates at least 7 distinct organisations collaborating to create patient outcomes.
How can a business ecosystem, which today would operate with significant manual processes and inefficiencies, be envisioned to operate as efficiently as a “single vertical organisation”?
This new paradigm of business ecosystems for outsourcing in regulated industries needs a different approach to execution. In the most ideal scenario, the business ecosystem should perform as seamlessly as a single integrated organisation. This will mean, for the sponsor, having the same experience with outsourced manufacturing as with internal manufacturing.
In an ideal scenario, the sponsor should experience outsourced manufacturing with the same ease, transparency, and control as internal manufacturing. They should have the same information, ability to influence operations as necessary as they do inside their own organisation.
We consider these 4 as the key attributes for business ecosystems:
- Trust: I acknowledge that this is a clichéd term. However, note that the switching costs of partners in regulated industries are high because there are only a few suppliers who would have the necessary capacity, skills, people, technology and regulatory approvals to execute a sponsor’s external manufacturing task. Secondly, the cost of deviation is high, typically life itself. And so a trusted relationship between partners makes business sense.
- Governance: Members of an ecosystem may follow certain broad norms of engagement, akin to internal policies of an organisation. However, governance is less stringent given that the members are independent entities, with no single management. One example of such governance is ensuring integrity of the data/information produced by the member, and shared with others.
- Collaboration: How do members collaborate with each other, particularly when even text messages could have legal importance?
- Cross-enterprise Workflows: Business transactions should flow smoothly between enterprises that are part of the ecosystem. For example, there are 4 parties that contribute to the manufacturing business flow in our example above.
- Dominant Partner: Each business ecosystem needs a dominant partner, at least to get started. The ecosystem coalesces around the dominant partner and grows. This doesn’t necessarily mean other enterprises need to start establishing their own ecosystems. However, these are early days, and we are yet to understand how ecosystems will evolve over time.
One may envisage a system that satisfies these characteristics to become the “Operating System of Business Ecosystems”. Such a system will work with the ERPs of member systems, and can be considered an “ERP of ERPs”.
Schrocken has built the software infrastructure to establish business ecosystems, and is working with customers to evolve them gradually. Talk to us at hello@schrocken.com to know more.