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March 1, 2003

Collaborative Commerce: Not Dead Yet

E-business collaboration is still an imperative — and thanks to new standards, it's also easier and more affordable

by Michael Brown and Derek Sappenfield

E-business collaboration, a trendy topic during the e-business boom of the past several years, is making a comeback. Why? Because, despite widespread disillusionment with everything e-, many business and technical leaders are beginning to understand and achieve the value associated with e-business collaboration — whether it be improving revenue and operational capabilities or fundamentally transforming their businesses. This understanding and experience coupled with pressure to improve financial results, is bringing e-business collaboration to the top of mind.

However, for reasons we'll explain, most businesses still miss the mark for enabling and exploiting e-business collaboration. In this article, we'll discuss the drivers for this renewed focus on collaboration, highlight critical opportunities to exploit it, and describe an IT framework that enables more efficient and effective collaboration within firms and across trading partners. (The term e-business collaboration means different things to different people. For our purposes here, we will define e-business collaboration as the Internet-based exchange of information, materials, or cash among entities. Those entities can be within the same organization or across two or more different organizations.)

Opportunities Abound

First, let's look at the intricate challenges management faces today. Leaders are required to have and tell a "good story" regarding current and future financial performance, demonstrate year-over-year improvement with strategies that grow new opportunities, sustain cash-cow customers and products, improve margins, and maintain or reduce the overall asset base. Beyond mergers, acquisitions, divestitures, and macroeconomic factors, the critical differentiator for any firm is fundamental execution: The enterprise with improved service levels that can offer value-added services and provide product differentiation with better speed-to-market, lower inventory, and operating costs wins.

Given the fact that operational execution is going to play a significant role in your firm's success, in what areas can e-business collaboration have the biggest positive impact? The answer is best determined by closely scrutinizing your business processes. The importance of various processes will depend on your organization's role in the channel: supplier (tier 1, tier 2, and so on), manufacturer, distributor, or retailer. Depending on that role, as well as specific characteristics of your industry, certain business processes will be less or more important areas for e-business collaboration.

In general, these processes fall into four major categories:

Product life cycle management (PLM) is the management of products from inception (concept) through design, introduction of a salable item, and eventual product retirement. In this case, e-business collaboration involves the use of workflow and collaboration tools to proactively manage and share critical information among all key stakeholders; this resulting visibility across all stage "gates" of the product development process mitigates bottlenecks. According to IDC, three major trends — the outsourcing by manufacturers of design and manufacturing functions, the increased global nature of supply chains, and the increased customer demand for mass-customizable products are driving widespread electronic collaboration over the Internet. IBM, Motorola, 3M, Compaq, Unilever, and Johnson & Johnson are a few examples of companies that use PLM to drive benefits in new product design by using workflow to model process design, ensure "manufacturability" and distribution of related products and services, maintain regulatory compliance, and rationalize component materials during design.
Supplier relationship management (SRM) is the comprehensive process of managing suppliers from quote through payment, including vendor monitoring, performance measurement, feedback, and compliance. E-business collaboration in this area implies the use of workflow and collaboration tools to proactively source products, select vendors, execute procurement transactions, and monitor supplier performance and adherence. General Electric, Cisco Systems, Pfizer, Ford Motor Co., and Merck are a few of many firms that have embraced collaborative e-business tools to rationalize their supplier bases, source products more effectively with key qualified suppliers, and execute procurement transactions more efficiently.
Supply chain management (SCM) includes demand-and-supply planning, manufacturing, and distribution and fulfillment. Demand-and-supply planning includes common functions such as forecasting, inventory planning, distribution requirements planning, and master production scheduling. Manufacturing includes plant and line scheduling, inbound and outbound operations, and manufacturing execution; whereas distribution and fulfillment includes inventory management, inbound and outbound planning and execution, and typical pick, pack, and ship operations. Companies such as EMC, Lowes, Motorola, and Dell Computer have made significant investments in SCM technology to leverage Web-based collaborative planning and forecasting, provide real-time or near real-time inventory and demand updates, and integrate with key channel partners for real-time status and tracking.
Customer relationship management (CRM) is the process of managing the customer life cycle, from capture (contract) through the order cycle (quote to payment) with appropriate customer service. These days, it's hard to find a Fortune 500 firm that hasn't incorporated these capabilities in some way (for example, for real-time product configuration and pricing, real-time order confirmation, status, and tracking, electronic invoicing and payment, and customer account management and self-service).

Regardless of the processes involved, e-business collaboration applies both internally and externally. (For a more detailed explanation of how e-business collaboration adds value to specific business processes, see the Table Part 1 and Part 2.) Figure 1 depicts generic interactions and complexities that apply to these core business processes; any organization building e-business collaboration capabilities must be aware of these dependencies.

One other well-documented challenge is to create a flexible, scalable, cost-effective IT architecture. Successful organizations have a well-articulated IT vision that addresses this need; without one, development costs, both upfront and ongoing, will be significantly larger. The key to minimizing your IT investment is to have a comprehensive framework in place — an application framework — that addresses all key dimensions for the enabling technology.

The Application Network

The processes and systems of most organizations are highly complex, presenting serious operational challenges. Processes must be flexible enough to allow the addition or removal of a stakeholder or modifications or improvements to the existing workflow; they must also be able to interact with other processes. There's a strong need to simplify, automate, and integrate these systems and processes to reduce total cost of ownership, enhance operational efficiency, and improve the stakeholder experience and service levels.

The typical IT infrastructure reflects little understanding of the inherent dynamics of business processes. Rather, it tends to focus on static representations of processes through packaged applications for ERP, SCM, and CRM. A shift from this data-centric approach to process-centric approaches and systems will allow IT systems to more accurately reflect the dynamic nature of business. Forward-thinking IT companies are beginning to take a fresh, holistic approach to managing their processes and systems environment.

To put it simply, in order to enable collaborative business processes, you must increase electronic interaction among all IT systems within your organization and those relevant systems at other organizations. This interaction includes exchange of data among systems and the leveraging of common data, sharing of common services, application-level connections among disparate systems, and visibility of end-to-end processes.

Many enterprises have implemented electronic data interchange (EDI) and related technologies to that end, but these approaches fall short in meeting the needs of collaboration. Well-documented disadvantages of EDI include huge startup costs, high transaction costs, high skills and maintenance costs, batch processing, and the inability to embed business rules. These costs make it unlikely that an enterprise will invest in collaboration with nonstrategic partners.

The emergence of standards such as Internet Protocol, XML, Simple Object Access Protocol, Universal Description, Discovery, and Integration, and Business Process Execution Language for Web services has had, and will continue to have, an exponential effect on the implementation and maintenance costs of collaborative processes and systems. Efficient and effective nonstrategic partner collaboration can now be achieved through what we call the Application Network Reference Model. This approach also provides a flexible, scalable foundation for strategic partner collaboration in the future.