By Cris Hagen
With the slowing of the economy, failed dot-coms, etc., executives might conclude that the outlook for B2B eCommerce is rather dire. Some might further assume that there is more that’s NOT working for eMarkets than WILL BE working. In my opinion, they would be wrong.
In order to provide clarity for this article, let’s define “eCommerce” as all commerce-related activities within an overall eBusiness model, including eMarkets. An “eMarket” is a digital forum for multiple companies to do business together, as opposed to a “B2B exchange,” which is a bid-ask service offering within certain types of eMarkets, particularly in the manufacturing and products industries.
To illustrate the growth still expected from eBusiness, two recent surveys (conducted by AMR and Merrill Lynch) provide evidence that while companies are reducing IT spending on hardware and software, they’re planning to increase IT spending on eBusiness initiatives. They want return on investment (ROI) for the existing infrastructure before building more.
With this in mind, if your organization is planning to enter an eMarket, you should focus on developing an eMarket participation strategy that:
• Is based on a solid business case with the potential for a measurable ROI,
• Will deliver on the “promise of the internet” (i.e., expand markets, increase revenue, decrease costs, improve processes, etc.)
• Will not require ever-increasing investments in building and adapting an IT infrastructure to accommodate changing technology standards
• Gives full consideration to the operational and organizational impacts that will result from entering an eMarket
• Fits within the overall context your company’s growth strategy.
What About the Business Case?
Don’t move forward without one. Take time to understand how an eMarket is going to improve your business and achieve your strategy for growth. Defining a business case can be accomplished fairly quickly, and will help you to move forward strategically rather than haphazardly. Pain is inevitable; suffering is optional.
Your business case should critically examine your strategic intent.
• What desired outcomes will a buy-side, or buy-sell capability achieve?
• Of the existing eMarkets, which looks best for your business model and why?
• Which will survive the shake out?
• What potential channel conflicts may arise?
• What categories, products or services should be introduced over what period of time?
• Do you have the visibility into your value chain operations in order to assess operational impacts and costs of execution?
• Have you set realistic financial and market performance goals to justify the effort?
Small issues today have a way of becoming larger when volatile demand stress is added to the equation. Once you know where you are going and why, and you understand the risks and benefits, move quickly. But, define a stair-step approach to make sure your organization is capable of addressing the changes it will experience in an eMarket.
One way to start is through a strategic sourcing project. For example, one of our clients is relying on savings from a strategic sourcing initiative to fund a future investment in an eProcurement platform, leading to even greater profit potential downstream.
Furthermore, you need to be keenly market-sensitive to buying trends for each of your product lines. You need to understand how inventory turns, throughput, and margins will be affected by participating in an industry eMarket where your products will gain increased exposure to a broader, more global customer base.
There are several challenges to choosing the right eMarket for your company, not the least of which is knowing if it’s going to be around in 6-12 months. Some estimates are that up to 80% of the eMarkets built don’t last because they fail to push product through.
Given these statistics, choose an eMarket that meets these minimum criteria:
• Founders/Backers/Partners: Do they have industry experience?
• Critical mass of participants: Do they have enough “players” to drive volume?
• Financial backing: Who are the key investors, and can they provide ‘staying power” to the marketplace?
• Financial standing: Are there signs of growing revenue and eventual profitability?
• Proven technology: Is their technology sound?
• Integration capability: Does their technology integrate with existing legacy systems?
• Value-added services: Do they offer other value-added services that will create and sustain competitive advantage?
• Vertical or horizontal: Which will offer greater potential savings and/or revenue growth?
• Private vs. Public – Which will bring lower costs and ensure higher flexibility and efficiency?
Which Technology Solution?
The reality is that eCommerce technology solutions are in their infancy. Most are focused on the supply chain side, which is a good place to start. However, most have yet to solve the most challenging problems, such as:
• Having a sound supplier adoption strategy.
• Managing dynamic catalog content.
• Integration with legacy systems and other networked partners.
• Managing true collaboration among business partners.
• Helping to form or strengthen strategic alliances and partnerships with participating companies.
Impact to the Business
Finally, although participating in an eMarket appears to be “plug and play,” it isn’t. Companies that have tried to “plug in” to an eMarket without careful consideration of the operational and organizational impacts have experienced problems, in such areas as:
• Channel conflicts
• Increased demand volatility
• Capacity planning and inventory management
• Round the clock customer service
• Open sharing of company information
Not For the Faint of Heart
Making the move into an eMarket is not for the faint of heart. However, to those companies able to assess requirements, understand strategic intent, develop a solid business case, and define a well-planned execution strategy, the benefits are tremendous. [24×7]
Who is Cris Hagen?
Cris Hagen has over 20 years experience in consulting and business operations management and has advised a number of Fortune 100 companies in a wide range of industries. www.crishagen.com