Whitepaper: Breeding demand driven virtual organisations from a Business Ecosystem

Dr Jay Bal, Dr Mark Swift and Dr Nikos Armoutis of the International Manufacturing Centre, University of Warwick talk about an ecosystem model that is being developed in the West Midlands, UK, Abstract: A model for an online regional business ecosystem is presented using case material from a successful example in the West Midlands, UK. This internet enabled business ecosystem focuses on, capturing what SMEs can do, providing a feed of demand driven opportunities (tenders), enabling the formation of virtual organisations to address the tender needs and providing on-line collaboration spaces to co-ordinate the design and delivery of the product or service.. This paper illustrates how SMEs can work together in order to win technical engineering contracts which require a broad range of delivery competencies and the capability to navigate intricate tendering procedures. This quick generation of virtual networked organisations from a regional business ecosystem in response tender opportunities has resulted in the generation of over 7 million of new business. A case study is presented which illustrates how a new virtual network was set-up to address a complex competitive Ministry of Defence (UK) tender call. Introduction The key European business research project, EcoLead [1], predicts: In ten years, in response to fast changing market conditions, most enterprises and specially the SMEs will be part of some sustainable collaborative networks that will 1 act as breeding environments for the formation of dynamic virtual organizations. Dynamic virtual organisations based on competence provide a basis for competitiveness, worldexcellence, and agility in turbulent market conditions. They can support SMEs to identify and exploit new business potential, boost innovation, increase their knowledge, and move from traditional product areas to new, higher profit potential products and services. Networking of the SMEs with large-scale enterprises also contributes to the success of the larger companies in the global market. This contributes to the development of a diverse, sustainable business base. Reinforcing the effectiveness of collaborative networks, mostly based on SMEs, and creating the necessary conditions for making them endogenous reality in the European industrial landscape, are key survival factors [1]. A business ecosystem where the competences of organisations are captured and from where virtual enterprise networks can breed, in response to opportunities was implemented in the West Midlands. This ecosystem is the West Midlands Collaborative Commerce Marketplace (WMCCM), a web based portal developed and operated by the authors on behalf of the University of Warwick. The dynamic Virtual Enterprise Network (VEN) approach provides three specific advantages to the SMEs: 1) They will be able to make new offers to their markets collectively which are more valuable (and more profitable) than the sum of their individual offers. 2) They will be able to have better access through the network to marketing and innovation resources (e.g. through having universities / applied research partners) which will enable them to conduct collaborative new product development / enhancement with the aim of developing higher value branded products and services. 3) They will be able to share expensive resources and infrastructure with the other network members and as a result enjoy both lower costs and better quality of service. The starting point of the research was to determine how online e-marketplaces can be utilised by manufacturing based SMEs in order to access higher value complex business opportunities through

e-trade. In particular, the complex requirement of modern engineered products and systems has made it virtually impossible for a single company to be able to undertake all aspects of product design, marketing and delivery. Within military systems projects this is particularly true, where technical depth and breath of contracts can result in procurement cycles stretching to several decades. This work has been focused within the West Midlands region of the United Kingdom (UK) as it represents the industrial heartland comprising of a strong historical broad industrial base of both large and small manufacturing based firms. The West Midlands region is situated in the geographic centre of the UK and has a population of some 5.3 million people representing 9.5% of the countrys workforce [2]. The region is the UKs manufacturing and agricultural heartland and the hub of the national transportation network. Overall, the region generates over 60billion in GDP for the UK economy. Manufacturing output however in developed economies has seen a significant decline since 1970. The sharpest decline has been in the UK, where people employed in manufacturing has dropped from 35% to 14% over the last 30 years [3]. Overall SMEs make up the majority of businesses with a total of 4.3 million enterprises employing a 22 million people [5]. In addition to this pressure of manufacturing decline, SMEs suffer from wider skill and resource issues. Their inherent size means that many operate within limited financial resources, skills and competences resulting in limited economies of scale and scope and an inability to react quickly to higher value opportunities and demands [6]. The SME skill shortage compounded with the decline in manufacturing has made this a UK and in particular a West Midlands challenge. The West Midlands is thus recognised by the EU to have relatively high levels of poverty due to a decline in the traditional economic activities [4]. This trend has been partly driven by increasing globalisation. Long term supply contracts are increasingly being replaced by shorter project based engineering activities that rely on the knowledge and skills embedded in the region. The industry specific online marketplaces that emerged during the late 1990s to support the product development and sourcing process did little to respond or cater for the specific needs of SMEs. Covisint and SupplyOn in the automotive industry, are prime examples of the many industrial sector marketplaces that were formed during the speculative Internet boom of the late 1990s. Most industrial sectors have at least one, often more e-marketplaces catering to the need to source and collaborate in that market. However, West Midlands UK research showed that for SMEs supplying the automotive sector, on average just under 50% of their turnover is derived from that sector [7] and generally they operated in three main sectors, automotive, aerospace and retail. It would therefore be impractical for a small business to sign up to three vertical online e-marketplaces, each with its own unique protocols, procedures, practices and costs. To participate in e-commerce via the many electronic marketplaces that exist is generally not practical for SMEs with their limited funds and technical capability. Another problem is that such industry marketplaces also serve to intensify competition in their sector because they aggregate capability, making it easier for customers to pitch one supplier against another. The CCM model architecture differs in that it aims for very broad capability to cover the whole scope of business processes with perhaps only a few companies in each capability niche. The challenge for UK manufacturers is to buck the trend of manufacturing decline through development of innovative products and services and to introduce new efficient ways of securing work and its delivery. Based on their experience in the West Midlands region in the UK, the authors see a clear need for regional e-marketplaces business model to support the specific needs of the SME and gain access to potentially highly lucrative e-trade. The goal of these ecosystems is to assist the quick and reliable formation of new organisations in response to new opportunities based upon capability and cultural fit.

No of members with a particular competence

Industry Marketplaces

CCM Type marketplaces

Range of Engineering Competences Figure 1 : Marketplace structural differences Objectives A key objective of the paper is to describe a new type of online platform that can assist SMEs to gain the benefits of demand driven virtual network creation. These ecosystems allow members to gain access to a wider range of complementary competencies in order to be able to pursue and share in joint market opportunities. Another objective of this article is to demonstrate how the SMEs can form dynamic demand driven virtual networks in response to complex higher value tender opportunities that few organisations can address on their own. A specific case study from the West Midlands Collaborative Commerce Marketplace (WMCCM) business ecosystem is described to show the concept of the regional business ecosystem can be implemented using ebusiness capability. WMCCM is a five-year, 5.2 million regional ICT initiative, part financed by the European Regional Development Fund to support the economic and social conversion of industrial areas that face structural difficulties. Finally, a key objective is to demonstrate to regional policy makers how the provision of a regional online business model to help SMEs access and exploit e-commerce is essential to regional economic success. Sometimes broadband is considered to be this access tool, and many regional authorities have helped fund broadband rollout to business. In our opinion, broadband is like a road or railway network that helps connect the business and social world. However regions need junctions to connect them to these transport networks: harbours, airports and motorway junctions A regional marketplace acts as the junction onto the eCommerce superhighway, in the same way that junctions four to ten allow Birmingham to access the trade on the M6 motorway. Methodology The approach to the research has been primarily action based. It has been focussed on building a internet business ecosystem for the West Midlands and observing the behaviour of enterprises in response to the business opportunities presented to them. Case studies were used as the primary method of research, focusing on understanding the specific dynamics present within West Midlands (UK) SMEs and their experience, impact and value gained from their WMCCM membership. Observations of changes and reactions were then fed back into the original CCM model. This enables the CCM model to undergo an improvement process, where up to date and relevant information and observations are fed back, encouraging rigour and thus developing it further. The system was designed to leverage regional loyalties, but to be able to connect with other instances of the marketplace (in other regions) to exchange opportunities and share capabilities. WMCCM Technical Overview

WMCCM is designed to support SMEs to find and to win new business opportunities through the following key workflow processes illustrated in figure 2.
Source & import e-Tenders Classify tenders into sub-tasks

WMCCM Broker

Online secure collaboration

Common WMCCM Ontology

Partner search matching tenders to SMEs

Form VO

Respond to tender business need

Win & manage new business

Competence profile & add firms

Classify firms by competence

External integrator

Supply Chain Visibility System

Figure 2 - WMCCM e-trade workflow In more detail the processes (as illustrated from left to right in Figure 2) are: Source and import new business enquires from varied e-tender online sources including both public and private sector contracts. Members of the e-marketplace can also generate tenders for their own needs. Tenders are automatically analysed and classified against a business ontology developed for the system. This classification process identifies the processes, skills, quality standard and geographical requirements for the tender. Competence Profiling of SMEs. This is a structured process that neutrally measures capability within firms using a standardised formal questionnaire with the objective of generating trust and giving easily comparable information. To enable this, experts within the Warwick Manufacturing Group (WMG) at the University of Warwick (UK) capture competence profiles. A third party independent evaluation is important for possible partnership trust building. Furthermore, the focus of the questionnaire is to discover what the firm can do, rather than what they are doing currently. For example, where skills and technology process can be used in different sectors, from automotive to military or in different applications. One illustration of this is a company in our region who manufactured car seat frames for the automotive industry. Key skills and process included the ability to bend and join wire precisely. They have now become the Worlds leading provider of body piercing jewellery. A product that also requires the skills and capability to bend and join wire precisely. The profit margins are much higher and they judge the work as more interesting. The competence profile captures a range of hard and soft factors so that firms with similar cultures can be matched together when forming effective collaborations and virtual networks. For example, they are located in the same geographical area and have had experience working with the same customer. A key advantage of the profiles is that they are easily comparable, as opposed to websites or brochures. The classification of tender requirements and SME capability using a common ontology. Tenders are automatically analysed and classified against a business ontology developed for the system. This classification process identifies the processes, skills, quality standard and geographical requirements for the tender. SME profiles are also classified using the same set of keywords. Thus, when tender requirements and SME capability match, the SME can be automatically alerted by regular email giving detail of the tender opportunity.

Match tender to individual or group of SMEs using WMCCM online Partner Search System. The Partnership Search System is used when a tender requires competences, which the interested SME cannot provide independently. It is a two-stage search process. The first stage matches against an absolute need or hard factors. For example, competence/capability in laser cutting. The second stage is a preference or soft factor scoring process. For example, the preference to work with a partner with experience in the military sector, within a particular geographic area or with a specific quality standard. The system scores matching marks for each eligible company and then suggests a best fit partnership based on the highest matched scores. This process can be driven by the SMEs or by a specialist business ecosystem broker. The results of the partner search suggest an initial best fit grouping of SMEs who collectively have the potential capability to bid for the tender contract. At this stage the virtual network starts to take shape as members undergo a stage of team forming through a number of initial face to face meetings. It is important that best practice virtual teaming principles are followed in order to ensure that good team performance is achieved. A number of virtual teaming methodologies can assist in this [8, 9]. The WMCCM broker may appoint an external Integrator who is typically a procurement specialist and can act as bid manager and eventual prime contractor. Respond to tender (business need) and collaborate online in secure project spaces. These can be generated within the portal by SMEs to support low cost and speedy collaboration. The core functionality includes document storage, simple project and task allocation management and discussion forums with associated knowledge management tools. SSL encryption is also available.

If the bid is successful and the contract won, further collaboration tools can be utilised such as the integrated supply chain visibility facility, that allows the composite organisation to monitor the flow of materials and information between members of the consortium and the customer. . In summary, rather than just measuring current operational capability, Competence Profiling seeks to determine capability that can be applied in different applications. SME who are Competence Profiled are matched against a dynamic ontology which allows its capability to be matched against the tasks of any online tender. This is the matching of needs (tender requests) with resources (the SMEs capability) with the purpose of stimulating innovation. As of June 2007, this four year old project had over 4,000 registered SME organisations, covering a broad range of industrial competence. Over 270 of WMCCM SME members have been Competence Profiled. The site has on average over 1000 visitors per day, most searching for capability. The overall WMCCM architecture can be seen in Figure 3.

SEO
Inward Facing Content External World Facing Content Business lead sourcing

e.g. Tenders

SMEs

Back Office MIS

Virtual team working collaborative spaces

Collaborative Commerce Marketplace

Other CCMs

Catalogue creation & maintenance

Competence profiles database

VBE: Partner search & tender matching

VO

3rd party catalogues

Figure 3 WMCCM architecture The system architecture for WMCCM is based around the Microsoft .Net Framework and core IBuySpy Portal [10] components and was custom built in order to focus on needs of the regional ecosystem business processes. A further advantage of being bespoke is that there are low licensing and operating costs. MoD Case Study To illustrate how WMCCM can form a virtual network in response to a dynamic need or business requirement, a specific case is described.. In April 2006, a competitive tender procurement invitation was issued by the UK MoD to supply complex and varied engineering services for ten years. The MoD tender was an opportunity to bring together automotive industry best practice and to form a virtual network, a subset of WMCCM comprising SMEs who collectively could meet the future MoD engineering requirement. Due to the contract value at over 15m and complex nature of the MoD technical requirements it was obvious that a typical engineering SME could not realistically expect to either navigate the intricate tendering procedures or supply complex engineering services independently. Thus WMCCM online tools were deployed to identify and establish a virtual network to address the specific needs and requirements of the MoD contract. Aspre Consulting, a Defence based SME and WMCCM Member, was selected to act as a conduit between the automotive and military industry sectors, to facilitate the long intricate MoD procurement process and in the future to act as a potential prime contractor. When the MoD tender was received by WMCCM, it was automatically processed against the in-built ontology which splits the tender into a number of sub-tasks including industrial market, technical skill and geographic location. The technical requirements of the MoD Invitation To Tender (ITT) was thus classified and a list of the relevant skills, industrial markets and location produced automatically. For example, the WMCCM ontology classified the tender into six primary engineering support and delivery areas: 1) Light and medium mechanical engineering services. 2) Light and medium electrical engineering services. 3) Heavy mechanical engineering services.

4) Heavy electrical engineering services. 5) General electronic engineering services. 6) Munitions and weapons engineering capability. Against this list the online partner search selection tool was run by Aspre on behalf of WMCCM, identifying a short list of potential consortium members covering each area of technical expertise. This matching of capability is a key part of grouping potential members, in order to build dynamic virtual networks. Each company was then contacted and invited to form part of the collaborative consortia, attending a number of face to face briefing and planning sessions. These things can be done automatically within the WMCCM ecosystem, but in this example were done manually because of the contact value and type of customer. The outline structure of the virtual network established for the MoD contract proposal can be seen in Figure 4.
DSTL

WMG University of Warwick WMCCM 3 Tier Suppliers (*)

rd

Aspire Consulting Ltd Project Management

General Light / Medium Mechanical & Electrical Engineering

General Heavy Mechanical & Electrical Engineering

Electronics

Munitions / Weapons Mechanical & Electrical Engineering

6 firms Light / Medium Mechanical Engineering 3 firms Heavy Mechanical Engineering 5 firms

3 firms

Electronics

Munitions

Lt/ Med Mech

Light / Medium Electrical Engineering Heavy Mech 3 firms

Heavy Electrical Engineering

3 firms

Lt / Med Elec

Heavy Elec

(*) = Access to Members database to select alternative suppliers. Firms can fill multi functions

Figure 4 Proposed MoD tender response VO structure Technical and Commercial proposals were produced to describe the method by which the Aspre and the WMCCM team proposed solution would meet MoDs requirements in a low risk and affordable way. Most of the information gathering and preparation of technical quotations was subsequently undertaken in a secure WMCCM collaboration space especially set up for the bid. This included an online forum which allowed issues and tasks to be quickly and transparently discussed and a record of the decision making process stored. Business Benefits The collaborative bid aims to provide MoD with a one-stop-shop for all of the engineering service disciplines detailed in its competitive tender call. In addition to the membership of WMCCM the tender response approach seeks to give a number of additional business benefits: SMEs which are able to collaborate across the supply chain through cost effective means and produce sophisticated engineered systems rather than simple component parts for their customers, can gain competitive advantage over their competitors.

The virtual network has the ability to address all of MoDs needs both from a capability and capacity perspective without any additional investment in tooling, machinery and software and from a single source. If the combined capability and capacity of the companies identified in the proposal are unable to meet the task requirements set by MoD then within a short time period an alternative supplier can be identified from the wider WMCCM membership to join the team. WMCCM has a total membership of 4,000+ SMEs, each with a brief business or detailed competence profile. The virtual network consortia encompasses specialist engineering SMEs and will provide MoD with a comprehensive and high quality service. Contracting through one focal point (Aspre), will ensure efficient and controlled contracts. During June 2007, the UK MoD was due to announce the outcome of the bid process and award the contract. However, this approach can already be judged to be a partially successful as the bid was able to pass from the initial Pre Qualification Questionnaire to the full Invitation To Tender stage whereas bids from larger UK OEMs failed. If successful, the resultant WMCCM-Aspre virtual consortia for the provision of engineering services to MoD will contribute to the Government policy of increasing SME procurement spend from the current around 5-6% [11]. Conclusions The WMCCM project is an example of a regional business ecosystem established to enable Small to Medium Enterprise (SMEs) to respond to opportunities by forming opportunity based partnerships supported by ebusiness tools to increase response speed, reach and lower costs. The regional portal concept has demonstrated some real benefits from the results achieved so far: 1) Local, National and International visibility of WHAT our SMEs can do has increased. This has resulted in, on average, a doubling of the number of enquiries they receive. 2) Categorization and automatic direction of tenders to relevant SMEs has forced these SMEs to consider alternative work prospects and take action. 3) There are over 100 collaborative workspaces being utilised by companies to help design products and co-ordinate collaborative projects. 4) The system provides processes and proof that public tenders have been allocated in a rigorous and neutral manner. Finding competent partners and building trusting relationships is key in terms of driving the requirement to move from providing simple components to providing complex engineered systems. Collaborative working is a key tool to meet the challenge of building rich capability based relationships within industries such as manufacturing or ICT. Collaboration with complementary partners is increasingly essential to allow businesses to offer products that meet the needs of demanding customers. The WMCCM business ecosystem is a free market model, empowering and encouraging SMEs to dynamically form capability based networks driven by the opportunity to win new work from online tender requests. This approach in response to tender opportunities made available has contributed to the generation of over 7 million in new business for WMCCM members during 2006, largely driven by them. WMCCM is one of the first empirical examples of a Virtual Breeding Environment for SMEs. It is in stark contrast to other assistance models which provide manual intervention to form SME partnerships. These can generate a few high profile wins, but are too resource intensive to make a significant economic difference to their region. Electronic trade using collaborative e-marketplaces or hubs will dominate the future with significant revenues expected. Manufacturing based SMEs do not have the skills and resources to cope working within multi industry e-marketplace hubs, using different processes and protocols. A regional e-marketplace business model can provide a mechanism to link into e-trade and support the e-business needs of SMEs. This approach overturns conventional e-adoption models to speeds the process and reduces resource needs In future geographic regions where their SMEs fail to

connect to the e-business highway will suffer economic disadvantage in the same way that regions without airports, harbours or motorways do. References [1] http://www.ve-forum.org/default.asp?P=284 [2] StatBase, West Midlands Economic Characteristics, National Statistics Office, UK, 2 May 2002. Sunday Times, Skills shortage holding back e-business innovation says SMEs, Sunday Times, 1 February 2000. [3] Economist, Industrial metamorphosis: manufacturing employment. Economist Newspaper, 29 September 2005, pp. 55-57. [4] European Commission, ERDF Objective 2: map of eligible areas, http://ec.europa.eu/regional_policy/objective2/map_en.htm, accessed 7.2.2007. [5] National Statistics, Press release, Small Business Service website, cited at ww.sbs.gov.uk/SBS_Gov_files/researchandstats/SMEstats2005pr.pdf, accessed 7.2.2007. [6] Sunday Times Enterprise Network, Skills shortage holding back ebusiness Innovation, Focus on ebusiness, Sunday Times, Number 6, 2000. [7] Szczygiel, M., AutoLean II - Project Summary Report, Accelerate Partnership, November 2000. [8] Bal, J., Teo, P., Implementing virtual teamworking: Part 3 a methodology for introducing virtual teamworking, Logistics Information Management, Volume 14, Number 4, 2001, pp. 276-292. [9] Lipnack, J. and Stamps, J. (1997), Virtual Teams: Reaching Across Space, Time and Organizations with Technology, John Wiley & Sons, New York, USA. [10] Microsoft, IBuySpy Portal MSDN website, cited at http://msdn2.microsoft.com/enus/library/ms978480.aspx, accessed 7.2.2007. [11] Drayson, UK Minister for Defence Procurement, Defence Forum, MoD UK Website, cited at www.mod.uk/DefenceInternet/AboutDefence/People/Speeches/MinDP/CityForum07February2006.h tm, accessed 7.2.2007.