Business Networks Help Smooth Out The Volatility
Now let us look at another example, in a highly volatile industry. Global bulk shipping industry is one of the most volatile industries, with the shipping rates falling as much as 94% with a period of 4 weeks, or rising up to 400% with a period of few months.
In such a volatile business environment, budgeting and planning can become a nerve-racking exercise for all the companies except those which use their business networks to cushion the lean periods with long term contracts and find scarce capacity during the boom periods.
In fact if we examine the key success indicators through the economic cycles a clearer picture emerges as shown in the figure 1.3
Figure : Basis of Competitive Advantage
We see these examples, and many others, in a lot more detail throughout the pages of the book The 5-STAR Business Network.
Suffice it to say here that the business networks quoted in the above examples, also called the supply chain in many instances, are unique to every company and industry, formulated over a number of decades in many cases, and are worth several trillions of dollars in value.
In one industry alone, in retailing, the entire business network is worth more than $1.5 trillion as per one estimate. Now contrast that with the much heralded valuation of Facebook, currently pegged at more than $80 Billion, to put things into perspective.
Obviously, social networks are not the same as the business networks. We will compare and contrast these two in Chapter 6 to understand what these two can learn from each other.