If you have ever gotten a ride in an Uber or a Lyft vehicle, chances are the trip went smoothly. You made a call and your cellphone pinned your location. The ridesharing app told you how long you would have to wait and showed you an image of the driver who was coming to pick you up. Right on time, the vehicle showed and gave you a comfortable trip to your intended destination. As the driver signaled that app that the ride was over, the app gave you an opportunity to rate the experience and even give a tip. When you step back and think about the total experience, it is amazing how many different functions must operate properly and in sync just for your ride to occur, plus the fact that simultaneously there are hundreds of thousands of riders around the world having the same experience. There is a term for outfits that have the ability to make multiple, global digital functions operate smoothly: an orchestrated network company.
Network Companies Require Technical Underpinnings
Of course, it isn’t just ridesharing that requires this sort of advanced coordination. Network companies, as mentioned below, operate in a variety of industries. Without realizing it, you patronize orchestrated networks every day: Airbnb, eBay and even Facebook. The whole idea of interfacing functions to create one smoothly flowing network originated in the 1990s when the internet was in its infancy. It quickly became apparent that four qualities were necessary for a company to achieve network orchestration: a well-integrated communication system, the ability to fulfill orders promptly, outstanding inventory control and the ability to provide personal service to customers. Achieving these goals requires the sort of significant technical help that has evolved over the past two decades.
Characteristics of an Orchestrated Network Company
Financial analysts highly praise such networked firms and note that they tend to be more highly valued by the stock market than traditional businesses in similar industries. These companies have certain commonalities:
- This may seem obvious but , unlike competitors, these companies have completely converted to a digital rather than physical operating platform.
- They have lower marginal costs while at the same time they gain a higher return on assets.
- Network companies are much more lucrative than traditional firms. In fact, their stock valuations are up to four times higher than heritage businesses.
- These organizations draw heavily from the input of their customers. Reviews, suggestions and criticisms are consistently used to improve the basic platforms as well as to nuance the end-user experience.
- Finally, the profit margins of these companies are exceptionally good.
Of All Business Models, Orchestrators Perform the Best
No less an august publication than the Harvard Business Review gave its blessing to orchestration network companies, saying outright that these firms—while relatively few in number—markedly outperform traditional companies. This is in large measure, they say, because these network companies have implemented the latest technological innovations and they know how to use them smoothly. The companies were all initially viewed as “tech” companies, but they moved into traditional market businesses, almost immediately turning their industries upside down and forcing traditional firms to try to compensate by developing new tech tools.
Watch for the Second Generation of Network Orchestrated Companies
Surprisingly, experts conclude that these industry-changing businesses are just the first generation of orchestrated network companies and, in fact, such firms only make up about 5% of the total business community. The second generation of network firms is just around the corner. In a recent article forecasting the future impact of technological advances on the global business place, Forbes noted, “These first-generation solutions are rudimentary systems, considering what technology is ultimately capable of.” The internet, according to the forecast of experts, is en route to becoming the “ordernet,” a global network of cooperative, interrelated organizations that interface to bring down customer costs and promote digital interdependency. If the experts are correct, the wonders of these networking businesses that have so changed society are nothing compared to the realities right around the corner.
Guest Article by Kevin Gardner
Kevin Gardner graduated with a BS in Computer Science and an MBA from UCLA. He works as a business consultant for InnovateBTS where he helps companies integrate technology to improve performance.