"Contributing and sharing value is the key"

Everybody knows that innovations and new companies are important for economic development, but why are networks important?

The simple answer is that business networks are everywhere and form the basis of how all economic activities and exchange happen. Relationships with suppliers, distributors and customers are everywhere and form complex structures that we call business or industrial networks: these structures are everywhere; even if you do not see them, they will have an impact on anything your company does or wants to achieve. Therefore, any manager of both large and small firms needs to understand these networks, how they work, and how she can use them, or at least survive within them. 

Yes, but what do networks have to do with innovations and starting new companies? If you have a great idea or innovation, the market will follow you and you will make money, right?

Wait a second…there are thousands of “wonderful” ideas popping up out there, almost every day. But most of them never become a product on the market, or if they reach the market they do not attract customers or bring no money to their inventors…Basically, it would have been better not even trying to develop those ideas, as they only made companies and investors loose money. 

So what is the problem with those great ideas? And again, you have not yet told us why we should care about networks…

Well, the problem is that before the idea can become an innovation, something successful on the market because customers like it, are willing to pay for it and can find it available wherever they want it, that idea needs to be connected with many other physical and immaterial resources, which are spread across many organizations, from suppliers of key components and technologies to academic laboratories with brilliant scientists, from logistic companies with the right trucks to resellers with the right shop or website…All in all, something is clear: your company, even if it is a big and powerful company like Coca-Cola,does not own or control all of these resources. That is why the network around your company and your innovation matters, you need it and it will affect you and your innovation on the way to the final customer.

OK, but if you are big and powerful, you can certainly make everybody in the network do what you want, right? Why should you care then?

Aha, I see that you believe in the classic strategic view that the strongest player not only wins against its competitors but also controls all other firms around it, from suppliers to even “owning” the customer…Well, to my knowledge there is not a firm that has that level of power: even Coca-Cola has a tough time when dealing with Wal-Mart, right? And Toyota? They seem to control their supplier networks, several tiers up. But if such a control may exist at least in Japan, where there are strong ownership ties between Toyota and its Japanese suppliers, things change dramatically for Toyota when they deal with European suppliers…many of Toyota’s global suppliers also supply Toyota’s main competitors and do for the most whatever they want, meaning that they can support or oppose innovations that Toyota would like to push to the market. So, the industrial network is surrounding your company and you cannot control it…you basically have to “live within it”, try to use it and influence some actors or parts of the network, which is not easy in itself. 

It seems indeed that business networks are important for any company and for innovation, but what can we do with networks?

Networks create both obstacles and drivers for innovation and for single companies, especially for start-ups. At the very least, you need to learn how to read the network and identify these obstacles and drivers. For instance, the obstacles come from the technical and social structure where you want to introduce your innovation and from the many administrative and logistical routines that your innovation may clash with…But luckily the network can also support innovation by providing unique resources if you can find reliable partners or it can help you generate and even test new ideas with trusted customers. But remember that you have to share the advantages of your innovation with other network players, otherwise they will oppose your innovation. In fact, contributing and sharing value is the key to successful innovation in business networks…even if you are a big and powerful company.

And what about if you are a start-up? Can the industrial network help you?

For a small and new company like a start-up, the business network is even more important, because you need resources from external partners. But there are clearly even greater challenges for a start-up: it is unknown to most other players in the network and maybe not so attractive as a partner due to its small size and lack of experience, while at the same time the start-up really needs support and resources from others…Hopefully this small entity is flexible and can adapt itself more swiftly to the network and figure out how to create value for others and with others.

What is the main mistake a startup with a brilliant idea may commit?

Of course, a start-up needs to believe fully in its idea, but it would be a great mistake to become too focused on the idea and miss how the network around it will influence the possibilities of turning it into an offer that actual customers want and are willing to pay for. Business plans to convince investors to bet on your idea are certainly important, but it would be another great mistake not to find quickly a business model that enables the start-up to create value with suppliers and customers, while at the same time generating revenues.

In addition to being a university professor, you are also project manager at the Platform for Innovation of Existing Antibiotics (PLATINEA). Can you explain what sort of work you do there?

Within PLATINEA, we focus on improving the availability and use of existing antibiotics in Sweden. This requires changing the routines, regulations and incentives behind the supplyand use of antibiotics. We do not focus on a specific product or technical innovation, but on changing the whole system: experts would call it “system innovation”…and it all starts from interactions and relationships between various public and private organizations. My role is to understand these interactions and try to develop connections and relationships that can reduce shortages of these live-saving medicines, by intervening especially on their supply chains and industrial networks.

Enrico Baraldi is Professor of Industrial Engineering and Management, Uppsala University (Sweden) and Project manager, PLATINEA – Platform for Innovation of Existing Antibiotics (Sweden). His research covers industrial networks, innovation management, business strategies, academic entrepreneurship, and industrial and research policy. His works have appeared in such journals as Academy of Management Perspectives, Technovation, Journal of Business Research, Industrial Marketing Management, and The Lancet. Enrico Baraldi also works with identifying, developing and promoting solutions to address the challenge of antibiotic resistance, including new economic models to stimulate antibiotics R&D and policy measures against antibiotics shortages.