© 2010 IBM Corporation1 Service Orchestration of SMEs in Emerging Economies N Viswanadham Indian...

© 2010 IBM Corporation 1

Service Orchestration of SMEs in Emerging Economies

N ViswanadhamIndian School of Business

S KameshwaranIBM Research - India

International Conference on Services in Emerging Markets

23 - 24 September 2010


Small and Medium Enterprises

SME: Small and Medium Enterprises

– EU, World Bank, UN, WTO

SMB: Small and Medium Businesses

– US

MSE: Micro and Small Enterprises

– India

SMME: Small, Medium, and Micro Enterprises

– South Africa

Parameters

Employment

Turnover

Asset size

Investments in machinery

…


SME Contribution

India

– 45% of the manufacturing output

– 40% of the total export (in terms of value)

– Employs 59.7 million personnel across 26.1 million enterprises

EU

– 99% of all firms

– Employs 65 million people

Globally

– 40 to 50% of the GDP

Poverty alleviation

Employment

Affordable products and services

Drive innovation and competition


Strengths of SMEs

Less manpower

Low capital investment

Fast decision making

Adaptable to change

Simple organizational structures

Flexible processes


Challenges faced by SMEs

Limited capital and finances

Limited IT resources and technical manpower

Lack of R&D

Limited exposure to regulations, import-export policies, government incentives

Inefficient supply relationships: Shortage of supply, labor, and inputs

Marketing problems: Identifying potential customers

Conventional business models, not competitive for global markets

Dependent on large corporations for business

Myopic exposure to business processes in the entire supply chain


SMEs in Emerging Economies

Fragmented

Localized

Information asymmetry wrt global demand and requirements

Workshops

Trade conventions

Orchestration


Innovation Business Models

Integrator Do-it-all: Perform all the activities in the value chain and retain maximum control over

every aspect of execution process.

Intel (microprocessor), Zara (fashion), Seagate (disk-drive)

Licensor Achieves payback on the ideas and intellectual assets without having to make an

investment in commercialization or realization.

Pierre Cardin, Rambus, Dolby, P&G.

Orchestrator Organizes and manages a set of activities in a network, by ensuring value creation

opportunities in the system and value appropriation mechanisms for each player.


Orchestrator

Organizes and manages a set of activities in a network

Ensures value creation opportunities

Handles value appropriation mechanisms

Allows some or all of the activities to be performed by other players

Microsoft orchestrated different lines of Tablet PCs in partnership with hardware companies:

– IBM, HP, Toshiba, Acer, Fujitsu

Bath & Body Works partnered with suppliers of specialty goods:

– C. O. Bigelow, L’Occitane, Goldie, American Girl


Orchestrate for others

Flextronics Electronics contract manufacturer.

Service include design, test, component solutions, manufacturing, and assembly.

Partners with clients in any phase of the innovation process – from idea generation to realization.

Medion AG (Germany) Orchestrates the entire value chain from the initial product to after-sales services of

computers and peripherals for its retail customers.

Li & Fung (Hong Kong) Extreme form of orchestration – Owns no hard capacities


Li & Fung (Hong Kong)

US RetailerUS RetailerKoreaKorea

Li & FungLi & Fung

Yarn Yarn

BangladeshBangladesh

Weaving & DyeingWeaving & Dyeing

TaiwanTaiwan

IndonesiaIndonesia

ZippersZippers ManufacturingManufacturing

JapanJapanChinaChina

ThailandThailandPhilippinesPhilippines



US RetailerUS RetailerKoreaKorea

Li & FungLi & Fung

ChinaChina

ThailandThailand

IndonesiaIndonesia

Yarn Yarn Weaving & DyeingWeaving & Dyeing ZippersZippers ManufacturingManufacturing



Apparel industry

Access to a large global network of service providers

– Yarn suppliers

– Accessories (zippers, buttons) suppliers

– Mills and Dyers

– Apparel manufacturers

– Logistics providers

For a given customer order, Li & Fung designs a global supply chain to manufacture and deliver the goods.

It does not own any factory floor or manufacturing capacity – it merely acts as a trader.

Least cost is achieved by global sourcing and international division of labor.



International division of labor

– Labor costs, Manufacturing capabilities, Duties, tariffs, and taxes, Import/export quotas

Build-to-order

– Customer order initiates design, procurement, and production

Value chain disaggregation/Service Unbundling

– Modular processes (with well defined interfaces)

Service, not product

– Product is manufactured for others

Zero Inventory

Project-based Activity

Coordination costs


Assets

Relationships

– With service providers and customers

Knowledge

– Manufacturing capabilities

– Special skills

– Business practices

– Regulations

• Tariff, taxes, trade laws

• Customs clearances

• Security requirements

• Interfacing with government authorities


Orchestrator and the SMEs

Service Requests Service Providers

SME Network

Loosely Coupled Network


SME Orchestration


Economics of Orchestration for SMEs

• Needs a complex service• Buy from a single service provider• Unbundle and outsource

• Specialized atomic/basic services• Limited/no knowledge and control over other players in the network

Coordination problems with small multiple service providers Search costs Information asymmetry Quality issues Cultural differences Regulations, regulations, & regulations


Strategic Roles of Orchestrator

Recruit and develop participants into the SME network

– Network of SMEs needs to be restructured - expanded, pruned, repositioned - in response to the market conditions

Structure appropriate incentives for participants and increasing specialization over time

– Market feedbacks

– Technology enhancements

– New roles and business processes

Cultivate a deep understanding of processes and practices to continually improve the quality

– in response to the ever changing customer needs, technologies, and business processes


Tactical Roles of Orchestrator

Define standards for communication and coordination

– The business processes are loosely coupled

– Well defined standards for communication and message passing are required for coordination

Develop and manage performance feedback loops to facilitate learning

– Each customer order is a project-based activity

– Performance evaluation (lead time, coordination costs, quality)

– Monitor and improve individual SME capabilities

– Composing better team of SMEs for a given project


Operational Roles of Orchestrator

(Planning) For a customer demand, dynamically compose tailored business processes, involving multiple service providers

Yarn Procureme

nt

Weaving & Dyeing

Leather Procureme

nt

Trimming & Lining

Zippers & Buttons

Manufacturing

Customer

Service Unbundling



(Planning) For a customer demand, dynamically compose tailored business processes, involving multiple service providers

Service Composition



(Execution) Execute the composed business processes, assuming ultimate responsibility for the end product

– Identify check points, targets, deadlines, and interfaces for each of the activities in the service chain

– Continually monitor the checkpoints at higher level

– Risk identification and business continuity planning

– Exception handling


Assets and Requirements

Relationships

Knowledge of underlying business process

– Service unbundling

Knowledge of various players in the ecosystem

– SME

– Government

– Global clients and their demands

Analytics and Optimization

– Performance evaluation

– Business analytics

– Service composition

IT Infrastructure: SOA


Questions, Comments, & Suggestions

[email protected]

[email protected]

© 2010 IBM Corporation1 Service Orchestration of SMEs in Emerging Economies N Viswanadham Indian...

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