Building Business Relationships with the Internet
Updated: September 14, 2004
With the dot-com boom and bust behind us, we can look seriously at how the Internet can help us get more out of our business relationships. Real progress has been made on the not-so-sexy question of how it can work for business in reality. Among software vendors, analysts, and consultants, recent talk has been of a concept dubbed "e-collaboration." It sounds impressive, but with our feet firmly on the ground, what does it all mean and what can it do for business?
As with any other e-prefixed business idea, there's a lot of noise and confusion around e-collaboration. But the idea behind it is actually rather simple and—despite the hype—not revolutionary. Quite the opposite in fact, because e-collaboration is about teamwork, a concept as old as the hills. It is about trading partners using the Internet to exchange information about themselves that will cut the cost of working together and strengthen their relationship.
A Clear Incentive to Share
Both sides of a healthy trade partnership have equal motivation to strengthen the relationship. Fundamentally, the seller wants to build the loyalty of the buyer and reduce the odds of him switching to a competitor. And the buyer wants to know more about the seller because he depends on him to meet his own deadlines.
As obvious as this is, the motivation behind e-collaboration has often been misunderstood. Some commentators have painted romantic images of old foes sharing secrets in the name of some greater good. But the reality is that companies base their decisions on business fundamentals. They will share information only with those companies that can give them something in return. E-collaboration is a way to improve your market position, not jeopardize it.
Further confusion springs from the linking of e-collaboration with e-marketplaces, where companies work together in quite a different way. In e-marketplaces, they group together to secure the lowest price possible almost regardless of who supplies the product. Suppliers, therefore, find they have no way to differentiate themselves. In e-collaboration, business partners strengthen relationships by providing more information, not less.
Information Quality
Of course, companies have always shared information about themselves. Sales visits, phone calls, faxes, e-mail messages, electronic data interchange (EDI), and postal mail are some examples. After all, the supply chain is a channel for the flow of information as well as goods and services. But the Internet now makes the distribution of information cheap, fast, and easy. Accordingly, Gartner Group, the business technology analysts, says, "Enterprises must compete not only on the availability, cost, and quality of their products and services, but also on the quality of the information they can publish."
Niels Bo Theilgaard, general manager for supply chain management at Microsoft Dynamics, agrees. "The best quality information about a company is held in its database," he says. "So if companies give their partners live access to their database, they will find it extremely valuable. With Microsoft Dynamics products, you can do this."
But if a company is to provide up-to-date information on potentially any aspect of its business, its internal systems must be integrated. AMR Research, another business technology analyst, sees this as a prerequisite for success. "Internal collaboration," they say, "not only provides significant supply chain benefits but will also ensure that external-based trading partner collaborations can be properly executed within an enterprise."
Microsoft Dynamics e-collaboration products fit the bill. "They are completely integrated with the rest of the application," says Theilgaard. "They provide a seamless flow of information, which is accurate in real-time, to whichever trading partners you choose to work with."
Automation and Interaction
Information exchange can occur on two levels: between two computers and between computers and humans. The former automates processes and the latter allows for interaction. Together, they bring new efficiency to both sides and mean partners can communicate with you in real time on their own terms.
The electronic automation of standard inter-company processes, such as the sending and receiving of purchase and sale documents, saves time and money. It eliminates the manual inputting of data and all the costs, errors and delays that go with it. The hidden, but perhaps most important, benefit is that it frees employees to focus on more interesting and value-adding activities.
Of course, some companies have been doing this for years with EDI on private networks. But traditional EDI is expensive to implement and maintain and requires companies to change their systems. Businesses starting out in automated document exchange should look to the more flexible and more cost-effective Internet-based solutions, some of which are compatible with traditional EDI formats.
Information intended for human use is delivered via a browser. The user can access information not only at the office but also via a WAP phone, pocket PC or any other online device. By setting different permissions for different roles, users get a portal tailored to their needs through which they can send, as well as receive, information. They can also access the functionality they need for their job.
Developing Relationships
For many items of information, trading partners can choose between automated or interactive exchange, depending on their preferences. At first, they may prefer to receive information via portals. But as trust develops, they may favor the extra efficiency of automation. The following examples show both methods:
| • | A supplier launches a portal for taking customer orders online, and a new customer makes an online order after registering. The portal is integrated with the suppliers other systems, giving an accurate overview in real-time. An order that requires out-of-stock parts automatically triggers the system to send the relevant purchase order to a sub-suppliers system. In the meantime, the customer tracks the progress of his order online. |
| • | Once the customer and vendor have established a close relationship, the customer gives visibility into his real-time purchase order schedules. The manufacturer can then allocate his production resources more efficiently. In return, the manufacturer provides his customer with real-time inventory levels, production schedules and details on available production capacity. The customer can now see into the supplier and better plan his own processes. These exchanges could either be automated or delivered via portals. |
| • | The customer then provides information such as on-hand inventory, inventory targets and storage capacity. This gives the supplier the opportunity to assume responsibility for the replenishment of the products he supplies. The customer can choose automatic or manual acceptance of each shipment. |
Flexibility Equals Value
These examples show how e-collaboration can develop over time. AMR Research therefore warns companies, "Make sure the business processes and technologies are malleable enough to be developed as you go." Indeed, companies should ensure their software does not hold them back from pursuing profitable opportunities.
This points to one of the strengths of Microsoft Dynamics applications. "Our products are open," says Theilgaard. "That means customers can easily keep them in line with their changing business processes. What's more," he adds, "they are based on proven Microsoft technology. So as Microsoft moves forward, so do our customers. This flexibility in design and technology protects our customers' investment for the long-term and gives a low total cost of ownership."
But where to begin? First, companies should look at e-collaboration in a completely traditional way to discover where the hidden value lies. They need to make an assessment as to where they can get the best return on investment and with which partners they can share and optimize their business processes. Then, they need to start digging with their e-collaboration tools.
Don't Be Too Ambitious
"Start small," is the advice from Theilgaard. "Simple solutions are best at the beginning. There's a real danger of being too ambitious and never getting going. Once the value of the project is realized, the scope can be easily expanded."
Most companies should find this down-to-earth approach a more tempting proposition than the 'big bang' projects the largest corporations often take on. As trading partners take small steps to build more loyalty and predictability into their relationships, the benefits of further collaboration become clear. With a flexible system, information flow can gradually extend outside the organization and reduce costs, response times, and errors in all external relationships.
But, as with everything these days, the biggest advantage goes to the first mover. So the sooner companies act the better. According to AMR Research, the early adopters will achieve significant benefits and gain a competitive advantage. "The window of opportunity to reap the benefits exists only as long as every company in the industry is not doing it," they say.
Perhaps then, unlocking the competitive advantage contained in closer relationships and shared information does require more than just knowing the fundamentals. Having your feet on the ground is not quite enough. If you don't want to get stuck in the mud, you had better get moving.
