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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

marketing and delivery. where people employed in manufacturing has dropped from 35% to 14% over the last 30 years [3].3 million enterprises employing a 22 million people [5]. automotive. making it easier for customers to pitch one supplier against another. West Midlands UK research showed that for SMEs supplying the automotive sector.e-trade. SME’s suffer from wider skill and resource issues. Another problem is that such industry marketplaces also serve to intensify competition in their sector because they aggregate capability. Within military systems projects this is particularly true. often more e-marketplaces catering to the need to source and collaborate in that market. The West Midlands region is situated in the geographic centre of the UK and has a population of some 5. 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. procedures. 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 industry specific online marketplaces that emerged during the late 1990’s to support the product development and sourcing process did little to respond or cater for the specific needs of SMEs. The sharpest decline has been in the UK. 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]. 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. 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. The region is the UK’s manufacturing and agricultural heartland and the hub of the national transportation network. 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. aerospace and retail. In addition to this pressure of manufacturing decline. 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 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. It would therefore be impractical for a small business to sign up to three vertical online e-marketplaces. practices and costs. each with its own unique protocols. The SME skill shortage compounded with the decline in manufacturing has made this a UK and in particular a West Midlands challenge. However. Based on their experience in the West Midlands region in the UK. In particular. Most industrial sectors have at least one. 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].3 million people representing 9. 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.5% of the country’s workforce [2]. where technical depth and breath of contracts can result in procurement cycles stretching to several decades. Overall SMEs make up the majority of businesses with a total of 4. ‘Covisint’ and ‘SupplyOn’ in the automotive industry. This trend has been partly driven by increasing globalisation. the region generates over £60billion in GDP for the UK economy. are prime examples of the many industrial sector marketplaces that were formed during the speculative Internet boom of the late 1990’s. . Manufacturing output however in developed economies has seen a significant decline since 1970. on average just under 50% of their turnover is derived from that sector [7] and generally they operated in three main sectors. Overall.

and many regional authorities have helped fund broadband rollout to business. WMCCM Technical Overview . Case studies were used as the primary method of research. 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. €5. 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. WMCCM is a five-year. airports and motorway junctions A regional marketplace acts as the junction onto the eCommerce superhighway. Observations of changes and reactions were then fed back into the original CCM model. However regions need junctions to connect them to these transport networks: harbours. The system was designed to leverage regional loyalties. broadband is like a road or railway network that helps connect the business and social world. 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.2 million regional ICT initiative. Finally. Sometimes broadband is considered to be this access tool. 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. Methodology The approach to the research has been primarily action based. 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. focusing on understanding the specific dynamics present within West Midlands (UK) SMEs and their experience. In our opinion.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. encouraging rigour and thus developing it further. but to be able to connect with other instances of the marketplace (in other regions) to exchange opportunities and share capabilities. where up to date and relevant information and observations are fed back. This enables the CCM model to undergo an improvement process. part financed by the European Regional Development Fund to support the economic and social conversion of industrial areas that face structural difficulties. in the same way that junctions four to ten allow Birmingham to access the trade on the M6 motorway. impact and value gained from their WMCCM membership.

For example. This classification process identifies the processes.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. The classification of tender requirements and SME capability using a common ontology. . Members of the e-marketplace can also generate tenders for their own needs. 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. when tender requirements and SME capability match. quality standard and geographical requirements for the tender. as opposed to websites or brochures. Tenders are automatically analysed and classified against a business ontology developed for the system. the SME can be automatically alerted by regular email giving detail of the tender opportunity. The profit margins are much higher and they judge the work as more interesting. the focus of the questionnaire is to discover what the firm can do. skills. they are located in the same geographical area and have had experience working with the same customer. rather than what they are doing currently. skills. A product that also requires the skills and capability to “bend and join” wire precisely. quality standard and geographical requirements for the tender. For example. This classification process identifies the processes. One illustration of this is a company in our region who manufactured car seat frames for the automotive industry. from automotive to military or in different applications. Furthermore. 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. Competence Profiling of SMEs. To enable this. Key skills and process included the ability to “bend and join” wire precisely. 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.WMCCM is designed to support SMEs to find and to win new business opportunities through the following key workflow processes illustrated in figure 2. They have now become the World’s leading provider of body piercing jewellery. Thus. SME profiles are also classified using the same set of keywords. A key advantage of the profiles is that they are easily comparable. 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 . where skills and technology process can be used in different sectors. Tenders are automatically analysed and classified against a business ontology developed for the system.

The system scores matching marks for each eligible company and then suggests a best fit partnership based on the highest matched scores. A number of virtual teaming methodologies can assist in this [8. further collaboration tools can be utilised such as the integrated supply chain visibility facility. simple project and task allocation management and discussion forums with associated knowledge management tools. If the bid is successful and the contract won. This is the matching of needs (tender requests) with resources (the SME’s capability) with the purpose of stimulating innovation. this four year old project had over 4. 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. rather than just measuring current operational capability. covering a broad range of industrial competence. It is a two-stage search process. . most searching for capability. The second stage is a preference or soft factor scoring process. The first stage matches against an absolute need or hard factors. In summary. within a particular geographic area or with a specific quality standard. Over 270 of WMCCM SME members have been Competence Profiled. SSL encryption is also available. As of June 2007. 9]. which the interested SME cannot provide independently. This process can be driven by the SMEs or by a specialist business ecosystem broker. 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. Respond to tender (business need) and collaborate online in secure project spaces. The Partnership Search System is used when a tender requires competences. the preference to work with a partner with experience in the military sector. that allows the composite organisation to monitor the flow of materials and information between members of the consortium and the customer. For example. competence/capability in laser cutting. It is important that best practice virtual teaming principles are followed in order to ensure that good team performance is achieved. The WMCCM broker may appoint an external Integrator who is typically a procurement specialist and can act as bid manager and eventual prime contractor. .000 registered SME organisations. The core functionality includes document storage.Match tender to individual or group of SMEs using WMCCM online Partner Search System. The site has on average over 1000 visitors per day. Competence Profiling seeks to determine capability that can be applied in different applications. 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. The overall WMCCM architecture can be seen in Figure 3. These can be generated within the portal by SMEs to support low cost and speedy collaboration. For example.

2) Light and medium electrical engineering services. When the MoD tender was received by WMCCM. a specific case is described. the WMCCM ontology classified the tender into six primary engineering support and delivery areas: 1) Light and medium mechanical engineering services. For example. . it was automatically processed against the in-built ontology which splits the tender into a number of sub-tasks including industrial market. 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. to facilitate the long intricate MoD procurement process and in the future to act as a potential prime contractor. The technical requirements of the MoD Invitation To Tender (ITT) was thus classified and a list of the relevant skills. In April 2006. a subset of WMCCM comprising SMEs who collectively could meet the future MoD engineering requirement. was selected to act as a conduit between the automotive and military industry sectors. The MoD tender was an opportunity to bring together automotive industry best practice and to form a virtual network.g. Tenders SME’s 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 . MoD Case Study To illustrate how WMCCM can form a virtual network in response to a dynamic need or business requirement. a competitive tender procurement invitation was issued by the UK MoD to supply complex and varied engineering services for ten years. technical skill and geographic location.. Thus WMCCM online tools were deployed to identify and establish a virtual network to address the specific needs and requirements of the MoD contract. Aspîre Consulting. 3) Heavy mechanical engineering services. a Defence based SME and WMCCM Member. A further advantage of being bespoke is that there are low licensing and operating costs.Net Framework and core IBuySpy Portal [10] components and was custom built in order to focus on needs of the regional ecosystem business processes.SEO Inward Facing Content External World Facing Content Business lead sourcing e. industrial markets and location produced automatically.

Against this list the online partner search selection tool was run by Aspîre on behalf of WMCCM. 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. can gain competitive advantage over their competitors. These things can be done automatically within the WMCCM ecosystem. The outline structure of the virtual network established for the MoD contract proposal can be seen in Figure 4.4) Heavy electrical engineering services. identifying a short list of potential consortium members covering each area of technical expertise. . 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. Each company was then contacted and invited to form part of the collaborative consortia. This matching of capability is a key part of grouping potential members. attending a number of face to face briefing and planning sessions. in order to build dynamic virtual networks. 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. but in this example were done manually because of the contact value and type of customer. 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. 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. 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 Aspîre and the WMCCM team proposed solution would meet MoD’s requirements in a low risk and affordable way. 6) Munitions and weapons engineering capability. 5) General electronic engineering services.

on average.000+ SMEs. The virtual network consortia encompasses specialist engineering SMEs and will provide MoD with a comprehensive and high quality service. Contracting through one focal point (Aspîre). These can generate a few high profile wins. Collaborative working is a key tool to meet the challenge of building rich capability based relationships within industries such as manufacturing or ICT. 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. using different processes and protocols. 3) There are over 100 collaborative workspaces being utilised by companies to help design products and co-ordinate collaborative projects. Electronic trade using collaborative e-marketplaces or hubs will dominate the future with significant revenues expected. a doubling of the number of enquiries they receive.The virtual network has the ability to address all of MoD’s needs both from a capability and capacity perspective without any additional investment in tooling. the resultant WMCCM-Aspîre 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]. WMCCM is one of the first empirical examples of a Virtual Breeding Environment for SMEs. 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. 2) Categorization and automatic direction of tenders to relevant SMEs has forced these SME’s to consider alternative work prospects and take action. However. machinery and software and from a single source. the UK MoD was due to announce the outcome of the bid process and award the contract. largely driven by them. If successful. During June 2007. National and International visibility of WHAT our SMEs can do has increased. A regional e-marketplace business model can provide a mechanism to link into e-trade and support the e-business needs of SMEs. reach and lower costs. but are too resource intensive to make a significant economic difference to their region. Manufacturing based SMEs do not have the skills and resources to cope working within multi industry e-marketplace hubs. It is in stark contrast to other assistance models which provide manual intervention to form SME partnerships. The regional portal concept has demonstrated some real benefits from the results achieved so far: 1) Local. 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. 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. will ensure efficient and controlled contracts. This has resulted in. 4) The system provides processes and proof that public tenders have been allocated in a rigorous and neutral manner. 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. Collaboration with complementary partners is increasingly essential to allow businesses to offer products that meet the needs of demanding customers. This approach overturns conventional e-adoption models to speeds the process and reduces resource needs In future geographic regions where their SMEs fail to . each with a brief business or detailed competence profile. empowering and encouraging SMEs to dynamically form capability based networks driven by the opportunity to win new work from online tender requests. The WMCCM business ecosystem is a free market model.

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