In KIBS (‘knowledge intensive business services’ which used to be called “professional services”), newcomers are more and more often building ad-hoc networks with complementing service providers, may they be established companies or freelancers.
These ad-hoc networks remain dormant most of the time, but the links (“nodes”) are activated upon need. They enable the coverage of a large selection of complex customer needs, and therefore are a form of organization that competes with large enterprises bidding on the same projects.
The idea of ad-hoc networks is compatible with the theoretical constructs of resource integration (wiz. service-dominant logic) and solution-based selling. The professional agent taking the role of a resource integrator can increase his chances of providing a solution for a wide range of needs by widening his network. By so doing he acts as a type of entrepreneur: he takes external resources (know-how) and combines them in a novel way to “create value” (or, as economists would say, utility). As such, the idea is very much compatible with the notion of value creation in marketing theory.
These type of resource-integrating agents can also be seen as match-makers and indeed they are critical in mitigating transaction costs (searching, vetting, and contracting service providers) between market actors — as such, they in fact realize the classic match-making purpose of marketing which is to connect supply and demand as efficiently as possible. Whereas in the theory of the firm, it is classically seen that an enterprise can expand via horizontal or vertical integration, the formation of ad-hoc networks is an alternative approach.
The idea is also compatible with the theory of network effects: the more (potentially) useful connections you have, the more valuable professional you are — indeed, given that the contacts can be activated in due course when needed to realize that potential of value creation. In a similar vein, complementarity of the network in terms of skills is a requisite – say, Skill A and Skill B need to complement one another so that more such combinations can be built that correspond to modular customer needs in solution selling. If there are gaps in the resource integrator’s network, it is more likely that another provider that can provide the complete solution wins the case.
Many of the ventures compatible with what I’m talking about here focus on building a network of “tough names” whose expertise they can sell (for example, esteemed university professors, skilled freelancers, reputed marketing agencies). Tough names bring credibility and legitimacy to the offering (so as to avoid the liability of newness) and enable the provision of such services that otherwise would either be impossible or unfeasible for the resource integration to provide. The flexible nature of this arrangement is fundamentally important, as the resource integrator cannot perfectly anticipate or predict to complex customer needs – all he can do is to prepare the necessary “ingredients” for covering many types of complex needs. As a side note, the importance of productization may be negligible in such a case, as the product offering defined by the resource integrator cannot match the complex need of the client.
An additional benefit of flexibility is cost-efficiency. As the links are dormant most of the time, they do not incur a fixed cost and are thus a financially flexible and smart way of “acquiring” expertise, especially compared to recruiting. Economically, therefore, ad-hoc networks are a more efficient way of organizing labor resources than “idle” workforce: assuming that a portion of each worker’s time also in the professional job markets is at idle use. This may not always be the case.
By giving their pledge to provide a service when needed, the professionals are also not losing anything – typically in these arrangements if they are not interested or are busy elsewhere they can refuse to take a particular case. So joining the network includes only an upside for them — in a way, the agent provides a distribution channel for the professional’s expertise, or acts as a voluntary “sales force”.
Managing multi-layered networks
For the resource integrator’s part, he needs to first of all ensure that incentives are set at an adequate level for the professionals to participate in service provision come need, and secondly ensure a plan B in case they won’t (e.g., Professional A –> Professional B). This is an example of building a multi-layered professional network with “backups”.
The resource integrators may also build multiple layers for different type of clients and service scenarios, say separate the partners possessing the same skills into different customer segments or “buckets“; this strategy keeps the professionals with the same skill-set separate and enables the integrator to build flexible solutions for different customer profiles, say small and large companies.
- Enterprise client – Needed skill: Website development –> use Service provider A
- Small client – Needed skill: Website development –> use Service provider B
The interesting questions relate to exclusivity and management of such multi-layer network arrangements.
First of all, it needs to be clearly communicated to the network participants that they are given a certain limited exclusivity for them not to compete against one another and therefore eradicate the benefits of joining (a phenomenon that took place related to the first wave of e-marketplaces in the early 2000s) — but this can be done as explained above. Bucketing the network into multiple service level layers prevents intra-network competition and maximizes the utility of individual members.
Second, the separation tactic must only take place between potential rivals; complementing parties need to cooperate for the network to be able to provide the offered solution.
Network as a competitive advantage in fast-paced markets
The more complex the customer need landscape is, the better equipped a network is in responding to it in comparison to individual actors. Thus, in theory even a large corporation may lose against an agile resource integrator because he has the scope and scale of the network behind him.
Traditionally, companies are seeking for horizontal and/or vertical integration to produce scope and scale benefits in professional services, but there are downsides to this approach — it is expensive, slow and rigid. Even if the corporation would seek for “dynamic competence” (as per Teece) by hiring or acquiring know-how, the updating needs creates a pertaining conundrum: the company must constantly either grow or become outdated and irrelevant.
In practice, the existent skills and workforce are protected by organizational inertia which prohibits strategic renewal (as described by Christensen), and so the large corporation cannot renew itself as fast as a network. The speedier the shift in customer demands, the larger the competitive advantage for an ad-hoc network in this respect.
Practical tips for network builders
So what are the skills needed for this type of professionals?
- First, the ability to spot opportunities.
- Second, inter-personal skills, or “emotional intelligence”.
- Third, intellect to understand complex technologies at an adequate level so that he is able to see their core value and apply them in practical business cases.
- Fourth, he of course needs to be customer-driven and understand customer needs as per the logic of solution selling.
Finally, tenacity and persistence are needed to deal with multiple vendors throughout complex projects; in other words, real skills in project management.
I like to refer to the “virtual suitcase” of modern salespeople. Do you recall seeing the real suitcases (ones like the one in the cover of this post) of door-to-door salesmen? They always had a scarce offering of merchandise because it was limited by how much was possible to fit into the suitcase. In a virtual world, no such constraints exist – in professional business services, scaling the ad-hoc network is only limited by your ability to network and comprehend the business value of new technologies, service providers and phenomena.
These are not minor restrictions though, and the modern salesmen cannot expect to win with the same logic as their predecessors. The sales process is more holistic nowadays – but it is also more flexible – for the talented ones the rewards are bigger, too.
Complex needs whose fulfillment needs modular solutions are not feasibly provided by one vendor, but rather by a network. The most effective form of network is the ad-hoc network.
In a way, this argument is not purely novel since in we have always done business by asking “Hey, I have this thing I need to be taken care of – do you know anyone for the job?“. Now shift this logic to complex professionals services — it is not enough to name one person or company, but you have to name three, four, ten, or even fifteen. The novelty comes from the coordination of a network. Shipping, construction, digital transformation, nuclear power plants… It is a collage of providers that participate in the service provision, and a network is the ideal solution for service provision.
Therefore, the multi-layered ad-hoc network strategy is a flexible way to compete with larger players. It has the potential to overcome legitimacy issues relating to new and small organizations by making newness and smallness irrelevant. It is also in line with the momentum-gaining idea of “freelancer economy” as the economy moves into the direction of short-term episodic interactions.
However, episodic does not make relationship marketing any less relevant – quite the opposite, in that era relationships are more valuable than ever, as they enable the quick discovery and activation of particular specialized skills that would otherwise be difficult and time-consuming to obtain.
The author currently works as a researcher at the Turku School of Economics. His interests include startup companies and digital marketing.