July 02, 2016

Ecosystems Are the New Black

by Digitalization, Buyer-Supplier Ecosystem, Point-of-View, Source-to-Pay, Business Network

Originally published in OpusCapita Journal.

We all know about ecosystems. Most of us, or the women at least, also know about the little black dress that was introduced by Coco Chanel in the late 1920s and that has been reinvented every decade ever since. Connecting these two is not as far-fetched as you might first think. Chanel’s ‘Petite robe noir’ is the icon of Chanel’s disruptive clothing philosophy, which totally revolutionized women’s fashion and clothing industries. What the little black dress did for women’s clothing, the digital ecosystem will do for all of us: it will provide new business models and assist our daily lives.

The emerging of digital ecosystems is changing the world by blurring traditional business models and pushing businesses from their business-as-usual mode into new and uncharted roads. You just need to look at sectors such as computing, telecommuni­cation, and media. In the pressure of the evolving market, these once separate industries adapted the new co-operational philosophy, developed technical interoperability, and composed the ecosystem that we enjoy today when we watch the TV news on a smartphone, for example.

“Modern industries are highly complex networks and each component is depen­dent on other components. Collectively they behave like a natural ecosystem of interdependent species. Their success and survi­val is highly dependent on how effectively they play their role within their supply chain, their industry, and their wider economy – in other words, the B2B ecosystem,” says Pete Loughlin, Managing Director, Purchasing Insight.

Living the real-time economy

The world is changing faster than ever before, whether we like it or not. Digital business ecosystems form the operational and evolving model that allows businesses to adapt to the digital age and the global business environment.

The long-term trends that are transforming the business landscape have been deployed by digital technology infrastructures and the global public policy trend to remove trade restrictions. SEPA, the Single Euro Payments Area, is a concrete result of both, and a huge payments ecosystem itself, too.

Thanks to the recent developments, the one prerequisite of trade, the infrastructure for monetary transactions, is functioning and the invoicing and the management of receivables are now highly digital and automated. Companies who use these opportunities benefit in full from the fruits of automation, such as efficiency, security, control, and visibility of all transactions in the order-to-cash process. These companies don’t confine themselves to sitting in the audience – they are, actually, living in the real-time economy already.

But when it comes to supplier-vendor relationships, we see a different landscape.

Sticky vs. smooth

Procurement and purchasing professionals have made good progress in their domain and enhanced operational performance when they developed the supply chains and networks. Yet, even if the procurement is well organized and the supply chains work well, a company seldom has a sufficient financial control over purchasing to enable it to forecast its impact on cash flow and liquidity.

“There are two main reasons for sticky B2B purchasing and payments processes,” says Petri Karjalainen, Senior Vice President, OpusCapita.

“Firstly, the silo effect. The various functions have separate issues and objectives instead of having a shared interest in ensuring a smooth process and achieving the best poss­ible numbers on the bottom line.”

“Secondly, in procurement, many phases of the process are manual. And where systems exist, they deal with one separate part of the supply chain, such as workflow or ordering. There is no solution to carry the process end-to-end, system-to-system, from procurement to the finance function and its processes.”

OpusCapita has 30 years of experience helping companies to digitalize their information flows and optimize the way they do business transactions, including payments. As the expert in finance process automation, OpusCapita knows the finance and accounting processes inside and out. Thus, Karjalainen’s cure for sticky purchasing processes is not surprising: digitalization and automation by using advanced technologies like machine learning and artificial intelligence.

“We say that the B2B purchasing and payment process should and could be as smooth as the automated O2C process already is. To realize our vision of a full end-to-end financial supply chain, we will provide a unique buyer-supplier ecosystem for companies to buy and pay, and, naturally, to automate related transactions.”

For companies, it is not only about getting rid of the silos and the broken purchasing processes. It is also about being ready for the new B2B purchasing market, where heterogeneous digital supply chains and dynamic ecosystems set the rules.

“Today, to operate successfully with the B2B ecosystem, it is critical that businesses engage effectively with the new digital infrastructure, that they are able to trade electronically, that their business processes are optimized and automated and that their view of the wider ecosystem is crystal clear so that they can better predict the effects of their business decisions,” Pete Loughlin states.

Risks ahead

In many companies, the prolonged recession has squeezed out the economic leeway, and CFOs and CPOs have increased collaboration to gain better control over the cash flow. In CFO surveys, CFOs identified several global and regional risks that will darken the skies in 2016. And for a good reason:

“The world has been highly dynamic and volatile over the last decade. Recently it seems as though crisis mode has gone from one country to the next almost overnight – just remember the financial crisis in Greece, the Ukraine-Russia conflict and the resulting sanctions, and the slowing growth in China to name just a few of the topics of 2015,” says Daniel Weise, Procurement Expert and Partner at BCG, Boston Consulting Group.

This means that the CFO must be on top of things and have an overall understanding of everything that could have a serious impact on the business.

“The two most important themes that emerged from the global economic crisis in 2008/2009 and the more recent turbulences, e.g. the slowing growth in China and the oil price decline, were increasing the need for more supplier collaboration and a stronger focus on cash and liquidity,” Weise says.

“Communication, information exchange, and fast decision making are crucial in crisis mode. This is enabled by those trusting relationships that evolve over time through intensive supplier collaboration programs.”

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