Business Networking Systems: Characteristics and ... - CiteSeerX

Business Networking Systems: Characteristics and Lessons Learned

Rainer Alt, Elgar Fleisch Institute for Information Management, University of St. Gallen Mueller-Friedberg-Str. 8, CH-9000 St. Gallen, Switzerland Ph: +41 71 224 2420, Fax: +41 71 224 2777 Email: [email protected], [email protected]

Published in : International Journal of Electronic Commerce, 5(2000)2, pp. 7-27

Rainer Alt is project manager of the Competence Center Business Networking at the Institute for Information Management, University of St. Gallen. He earned a master in business administration from the University of Erlangen-Nuremberg and a Ph.D. from the University of St. Gallen. Before assuming his current position he worked for two years as Senior Consultant at Roland Berger & Partners in Germany.

Elgar Fleisch is project manager for Business Networking at the Institute for Information Management, University of St. Gallen. He holds a Ph.D. from the Vienna University of Economics and Business Administration. In 1996 he founded Philadelphia based consulting company IMG Americas. He left his CEO position in October 1997 to finish his habilitation at the University of St. Gallen.

Business Networking Systems: Characteristics and Lessons Learned

2

Business Networking Systems: Characteristics and Lessons Learned

Abstract Designing relationships among business units is of growing competitive relevance. The networking among businesses is largely enabled by interorganizational information systems (IOS) which have evolved since the 1960s. However, in many companies primary investments have been made in the area of enterprise resource planning systems (ERP) and it is only recently that these systems are complemented with networking capabilities. We refer to this specific development path towards IOS as Business Networking Systems (BNS). We will describe the major challenges for these systems, distinguish three main types of BNS and present criteria for characterizing BNS. These classifications will be used in three case studies which serve to identify techniques and lessons learned in designing BNS. We conclude that methodologies for BNS-projects should consider these lessons as integral elements which sustain adoption and business orientation.

Keywords: Business Networking (BN), Interorganizational Systems (IOS), Networkability, Enterprise Resource Planning Systems (ERP), Electronic Commerce (EC), Supply Chain Management (SCM)

Business Networking Systems: Characteristics and Lessons Learned

3

Introduction Networks among business units are gaining momentum in a broad variety of industries. Current management literature (e.g. [5], [11], [24], [45], [52]) posits that this organizational form can best meet the requirements of the ‘new economy’, such as customer-orientation, tailored solutions and minimized costs and time. Many authors have elaborated on potentials in reducing transaction and coordination costs (e.g. [6]). They conclude that this ‘strategic networking effect’ [51] compensates for the additional coordination requirements within networked environments and leads c.p. to increased networking among businesses. As described by Evans/Wurster [16], these economics of information newly define the trade-off between richness and reach. An example is AvnetMarshall, an Internet-based broker for electronic components. As El Sawy et al. [14] explain, Marshall’s advantage is built on developing sharp core competencies (i.e. brokering in the electronics industry) and on managing customer relationships. Networking with their customers and suppliers is Marshall’s critical asset in the marketplace. Shaping and managing relationships among (independent) business units, a concept we will refer to as Business Networking, is a key strategic element in the ‘new economy’. The role of information technology (IT) has been recognized early as main enabler (e.g. [26], [30], [37]) in Business Networking. However, analyzing the diffusion of IOS shows that many businesses have concentrated on implementing and integrating internal information systems from vendors, such as SAP, Baan, J.D. Edwards and the like. In fact, these so-called ERP systems (Enterprise Resource Planning) possess only restricted networking capabilities, which are limited to EDI converters and direct links among ERP-systems. Modules for Supply Chain Planning, Electronic Commerce, and the like have only recently been added. This article focuses at this development path towards IOS and presents a specific perspective to IOS research. The term Business Networking systems (BNS) will be used to denote systems which have evolved from enhancing business software or ERP systems. At the outset of the paper, we will develop the Business Networking perspective and explain in detail the forms and specifics of BNS compared to (traditional) ERP systems. For each type of BNS a case study will be undertaken in chapter three which will be used to propose major success factors and techniques

Business Networking Systems: Characteristics and Lessons Learned

4

governing the implementation of BNS. Finally, chapter five offers some conclusions concerning for companies which aim at developing or enhancing BNS.

Characterization of Business Networking Systems

Development of Business Networking Systems In the ‘new economy’ the ability to quickly and efficiently establish relationships with many business partners and to support a broad set of transactions (procurement, replenishment, sales etc.) becomes a strategic necessity which has been referred to as ‘networkability’ [1]. Since the 1960s the availability of IOS promised to improve the networkability of companies [11]. The technological potentials were recognized in certain industries which involved a frequent exchange of information (e.g. transportation, health care, financial clearing) and/or a high information intensity (e.g. tourism, financial exchanges). In the literature EDI systems, clearing centers and electronic markets have been discussed as examples of IOS (cf. [29], [42], [26]). However, for a large number of companies, networking with business partners still requires considerable effort. We recognize three factors that impeded high degrees of networkability in the past: •

Slow adoption of IOS. As the figures on electronic business-to-business transactions underline [46], IOS adoption has been slow in the past and is expected to increase rapidly only in the near future. IOS were successful in certain industries and limited to a small number of (large volume) transaction partners (e.g. [25], [36]). Many electronic markets, such as freight exchanges and online shopping systems, have encountered adoption problems (cf. [2], [10]). Kalakota/Whinston [27] identified five factors which determine the slow adoption of EDI: high costs, limited accessibility, rigid requirements, partial and closed solutions. Only recently have developments, such as open data standards (XML etc.) and the standardized Internet-infrastructure, increased the acceptance of these solutions in the business community.

Business Networking Systems: Characteristics and Lessons Learned

•

5

Corporate ERP investments. During the past decade many businesses have concentrated on implementing and integrating internal information systems. Compared to IOS which have exploited technological potentials, systems for enterprise resource planning (ERP) have been developed from the business side. Since they evolved from a internal perspective, they possess only limited capabilities for Business Networking (e.g. distribution of ERP modules, EDI converters) which usually involve significant costs for application and customizing. Standardized modules for Supply Chain Planning, Electronic Procurement, Electronic Catalogs, and Customer Relationship Management have just recently being added [35].

•

Alignment of IT and business issues. The history of electronic market systems indicates that cost structures, functionality and connectivity to other partners failed to match the business requirements ([2], [8]). Based on a horizontal study from the Gartner Group ([19], [20]), Schnedl/Schweizer [44] elaborated the main challenges for European CIOs from a historical (1995-1997) and a future (19982002) perspective. They found that although technological trends have varied, aligning IT and business strategy has always been attributed the highest relevance.

Figure 1 shows the development of BNS and classical IOS. We consider BNS as a specific form of IOS, which has not been received broad attention in the literature. In enhancing the understanding of the development and the forms of BNS we aim at complementing established IOS research and at recognizing that the forecasted growth of business-to-business transactions (e.g. [18]) will only occur if it complies with the transactional business systems. New strategies of ERP vendors (e.g. mySAP.com from SAP) show that classical IOS and BNS are in the process of converging. They will eventually, through a fundamental redesign of business, lead to ‘business portals‘, i.e. n:m connectivity platforms for a specific business segment (see Figure 1). Business portals embody what many term the ‘networked economy’ and enable high degrees of networkability by establishing standards for business communities. They combine classical IOS, such as electronic markets with BNS functionality, such as master data distribution and supply chain management.

Figure 1 about here

Business Networking Systems: Characteristics and Lessons Learned

6

The difference between classical IOS and BNS may seem vague. Yet looking at the real world, we clearly see two different development paths to business networking that companies follow. These paths sooner or later converge, but they generate different types of information systems. Both differ concerning the development path and the complexity of the supported transactions (see Table 1): •

Classical IOS, such as electronic markets, clearing centers or EDI systems, provide business functions which are complementary to the functions of internal ERP systems. These systems are typically developed by strong focal companies or neutral third parties (e.g. telcos like IBM or GE or an industry association) [50] and their development started within external business networks. They are low in transaction complexity, since they implement isolated market mechanisms or messages for business transactions.

•

BNS for supply chain management or electronic commerce on the other hand are “backpack” information systems with the potential to substitute some ERP functionality. They are usually closely linked to ERP systems, owned and managed by a focal company and perform more complex transactions than classical IOS (e.g. the available-to-promise function). The development path of BNS starts with internal integration via ERP systems and focuses on internal and stable business networks.

Table 1 about here

Types of Transaction-oriented Business Networking Systems In the following, we will analyze the forms and characteristics of BNS. In general, transaction- and knowledge-oriented BNS can be distinguished. The former concern the execution of individual business transactions, such as purchasing of material, and include the selection of a product, order entry, delivery, and payment. The latter focus on less structured and more subjective information and knowledge. Examples are customer preferences or FAQs (cf. [32]). Although we are aware that systems which monitor the customer process (cf. [21], [35]), such as infomediaries, include a strong knowledge component, this paper will concentrate on the first category, transaction-oriented BNS. BNS invariably involve more than one organizational unit and often integrate business partners (customers, suppliers, etc.) with a company’s information infrastructure. As Figure 1 shows, we can distinguish

Business Networking Systems: Characteristics and Lessons Learned

7

two evolutions paths, an interorganizational one which encompasses EDI, electronic markets, and an intraorganizational one which describes internal systems, also referred to as enterprise resource planning (ERP) systems, that are enhanced with Business Networking capabilities. ERP-systems aim at providing efficient transaction processing by using integrated applications and data. However, implementing connections to other businesses in the same system offers only little flexibility and is bound to quickly reach capacity limitations. This is the starting point for the three different types of transactional BNS that we propose (see Figure 2): •

Data sharing systems have been the first step of BNS and have typically been implemented in distributed ERP environments. They support the consistency of data by linking individual applications within large companies. For example, the Robert Bosch Group has over 30 SAP R/3 systems implemented for different organizational units, such as manufacturing facilities, sales offices, financial departments as well as for different geographical regions (e.g. Germany, USA, and Asia) [35]. Technologies for (master) data sharing are EDI-systems and proprietary systems, such as SAP’s application link enabling (ALE), and intermediate documents (IDOCs) [23].

•

Supply chain management systems or advanced planning systems (APS) offer functionalities for supply network planning, demand planning and the like. They complement the planning functionalities of ERP systems, i.e. material requirements planning (MRP) and manufacturing resource planning (MRP II), by supporting sophisticated calculations and simulations based on the constraints of an entire supply chain. SCM systems periodically pull transactional and resource information from the ERP and perform planning operations offline from the ERP. Examples for SCM systems are SAP’s APO, Manugistics6 from Manugistics and Rythm from i2 Technologies [35].

•

Electronic commerce systems are applications which support the execution of transactions from information, contracting to settlement activities (cf. [43]). During the information phase, customers make their choice among a variety of goods and vendors. This is followed by negotiation and decision-making concerning a specific product in the contracting phase. Finally, in the settlement phase, the selected goods are delivered to the customer who, in turn, pays a consideration for them. For EC to take place, it is necessary that at least one of these phases and order entry should rely on electronic means. EC systems closely interact with SCM-systems, especially for delivery and payment pur-

Business Networking Systems: Characteristics and Lessons Learned

8

poses. Although ERP systems are now extended with EC functionalities, specific applications (e.g. Open Market, Intershop, Broadvision) have emerged which have to be integrated with internal (ERP) systems.

Figure 2 about here

Specifics of Business Networking Systems To describe the characteristics of classical IOS an organizational and a technological perspective has been used [24]. Following this distinction we will use the three dimensions of Business Engineering for describing BNS. Business Engineering represents an approach geared to the business-oriented conceptualization of information systems. It combines various theoretical disciplines and “structures the organization, data and function dimensions at the business strategy, process and information systems levels” [34]. As to the organizational dimension, BNS by definition support relationships between multiple organizational units. From a juridical standpoint, these may be internal, e.g. within a large conglomerate, or external, e.g. related to customers and suppliers. However, the blurring of organizational boundaries makes it difficult to clearly distinguish between the qualities of internal and external business networks. We therefore concentrate on the major organizational difference of BNS and (traditional) ERP systems (see Table 2). As interorganizational theory posits (e.g. [15]), governance structures with authority, autonomy and dependency patterns (cf. [48], [29]) are different in that interorganizational relationships permit less direct influence and inherit higher conflict potentials than traditional hierarchical relationships. In addition, there is usually only a lower level of knowledge about the business partner’s processes which is also a result of the more frequent change in partners (lower stability).

Table 2 about here In the data and function dimension, BNS – just like any other business information system – transform business data (or objects) using some business functions (or methods). However, there are some specific requirements in both dimensions (see Figure 3).

Business Networking Systems: Characteristics and Lessons Learned

9

Concerning the data dimension, Business Networking processes, such as collaborative forecasting, require single and homogeneous signals since multiple parties base their actions on them. This is well known from the financial sector where time lags in updating stock prices heavily influence investment decisions. An effect from the production field is the bullwhip effect.1 Since business partners make their decisions upon the data they receive, e.g. an automotive supplier schedules his production depending on the planning data he receives from the manufacturer, accountability is a second requirement. Finally, information systems not only have to make sure that single, accountable data are available but also that they are visible to all relevant actors, i.e. they must be accessible to partners without any major additional effort. In the functional dimension, we observe that BNS are built for real time execution since business partners require immediate responses to keep their processes running without interruption and to maintain consistent data (cf. [9], [28]). Real time execution requires the integration of BNS and ERP-systems among internal (e.g. APS or master data servers) as well as among external (e.g. electronic markets) systems. This n:m connectivity requires data and method standards that are accepted throughout a business network. They also represent an important basis for the coordination processes and techniques [35] that clearly have to be more sophisticated than in internal environments. Research on intelligent optimization algorithms, which, for example, support the simultaneous coordination of multiple actors and given the computational capacity, will continue to be an important issue for BNS (e.g. [40]). The degree of fulfillment of these requirements of BNS, in terms of logic and capacity, is referred to as the performance.

Figure 3 about here

1

First described by Lee et al. [31], Fine [17] explains the bullwhip effect as a law of supply chain dynamics. It describes a phenomenon whereby the volatility of demand and inventories in the supply chain tend to be amplified as one looks further upstream.

Business Networking Systems: Characteristics and Lessons Learned

10

Designing Business Networking Systems in Three Cases To analyze the various types and the specifics of BNS three cases studies will be presented which have been undertaken at companies which implemented BNS. Each case has a different focus as it aims to highlight each BNS type in a specific context, i.e. in interaction with internal and/or external business partners (see Table 3). The description of each case will follow the same structure, i.e. company profile, goals, benefits and challenges.

Table 3 about here

Shared Data Services at Commtech Commtech (name has been changed) is a worldwide operating company in the communication industry. Out of its North American Headquarters, it manages an internal network which consists of 4 business units and 200 individual companies in 45 countries worldwide. Its 130'000 employees generate a revenue of 23 billion USD. The main products are enterprise communication solutions, microelectronics for producers of communication devices and consumer products. As a new spin-off, Commtech was in the process of reshaping its internal business network. Top management opted for independent business units to increase the flexibility in the processes ‘time to market’ and ‘customer fulfillment’, as well as for central shared service centers for some common functions in order to leverage economies of scale. The business units took responsibility for the business processes sales, logistics, distribution, controlling, material management, quality management, production planning and service management. Headquarters took responsibility for overhead processes such as financing, treasury, real estate, taxing and purchasing. The goal of Commtech was to define and standardize its internal process and IS network in order to implement the shared services and thus reduce overhead costs significantly. Commtech based its IS network on a cluster of distributed ERP (R/3) systems and linked them via data sharing systems which were built upon standards for customer, vendor, material and accounting data. After implementing the BNS, significant benefits were reported:

Business Networking Systems: Characteristics and Lessons Learned

•

11

By implementing finance as a shared service center, the cost of finance dropped from 2% to 1% of Commtech's revenue. Even greater savings were made due to the improved functionality in uncollected receivables, internal hedging and netting.

•

The redesign of real estate led to a better space utilization and a reduction of operating expenses from 6% down to 3.5% of revenue.

•

Improved accountability, visibility and real-time drill-down-transactions save taxes which amounted to 0.6% of Commtech's revenue. For example, the drill-down functionality permits to see all relevant detailed entries stored in the systems of the business units in real time.

•

Global purchasing cut 7.5% of the purchasing costs on a third of all purchased goods, or 0.6% of Commtech's revenue.

The benefits which amounted to a total of 3.9% of Commtech's annual revenues, were used in win-win scenarios to get the critical buy-in of the stakeholders, i.e. headquarters and all business units and regions. For example, transfer payments and project budged changes were made. The main challenge at Commtech was the design of a BNS which corresponded to the new organization which consisted of implementing shared service centers. Homogenized master data, process standards and integration scenarios were defined to ensure coordination among the participating units. The case shows an internal business network with goals and challenges similar to external networks. The main differences to external networks are: internal networks typically don’t have too many different classes of partners and the integration within the network is rather deep, e.g. covers several functions (e.g. credit limit checks, global contracts, drill-down in taxes) and data (e.g. master data on materials, vendors, customers). The data sharing which have been established in pilot projects with some subsidiaries, have been rolled out to all companies and are now the basis in projects for supply chain management and electronic commerce.

Supply Chain Management at Riverwood International Riverwood International (RIW) is an integrated cardboard and packaging supplier located in Atlanta, USA. With its three business units paperboard, packaging and packaging machinery RIW generated more than 1 billion USD in 1998. RIW has approx. 5’000 employees and approx. 2’000 main customers.

Business Networking Systems: Characteristics and Lessons Learned

12

In 1996 management decided to improve the information on customer processes and customer feedback on RIW’s products and services. Old service processes were largely manual and reactive and thus costly and slow. Information on production processes was very scant. RIW’s service personnel received no support in achieving sustainable customer loyalty and consequently morale sank. RIW management aimed to create a new level of customer service within the industry by improving the flow of information to and from the customers. The main focus was improved management of internal and extended supply chain processes. The internal supply chain covers the collaboration between RIW’s business units packaging and paperboard, and the extended supply chain RIW’s customer, such brewers and bottlers, and vendors, such as graphic designers. To build unique flows of information to each customer, RIW has developed capabilities that enable small customers to process orders, inquire order status and monitor the global inventory position with direct access to its ERP via an Internet solution. For large customers new global material management strategies, negotiated delivery and production schedules were conceived in addition to sales and purchasing forecasts [35]. The strategy to be implemented first was Vendor Managed Inventory (VMI) [22]. In order to obtain an accurate demand signal, RIW is willing to insource some stock management tasks that have traditionally been in the hands of the customer. The customer’s warehouses in plants and distribution centers are automatically replenished by RIW. This means that product replenishment and purchase order creation will become the responsibility of RIW and will be based on actual and forecasted demand. Therefore, RIW has to be able to consider the customer’s inventory levels and demand forecasts during their planning process. For this purpose the application landscape was redesigned. This involved the migration from existing ERP legacy applications to an integrated SAP R/3 system and the implementation of SAP’s supply chain management tool advanced planner and optimizer (APO). RIW set up a VMI pilot project with its customer Universal Packaging. The pilot project includes some five RIW plants and distribution centers, plus ten Universal locations in New England [35]. The sustainable goals for the entire supply chain optimization are [35]: •

Reduced order to cash cycle by 60 days and order fulfillment cycle times from 14 days to 2 hours,

Business Networking Systems: Characteristics and Lessons Learned

•

Reduced stock levels from 8 weeks of finished inventory to 2.5 weeks,

•

Reduced cost to serve by 50%,

•

Increased accuracy of invoices sent out, and

•

A minimum customer service rate of 95%.

13

Some of the key challenges RIW found itself confronted with during this BNS project were how to approach customers and how to arrive at a true win-win scenario with their customers. For this purpose RIW offered price reductions for goods planned and purchased via the new BNS as well as free hard- and software for small customers, such as microbreweries.

Electronic Commerce at ETA SA ETA SA Fabriques d’Ebauches is a member of ‘The Swatch Group’, a globally operating producer of watches such as Blancpain, Omega, Rado, Longines, Tissot, Certina and the Swatch watches. The group consists of a number of individual companies, which among others focus on finished watch movements and component production and research and development. ETA SA supplies the movements for watches to all Swatch brands that organize production and distribution. As the world’s third largest manufacturer of movements, ETA SA has over 15 production sites in Switzerland, Germany, France, Thailand, Malaysia and China. In 1997, ETA’s revenues exceeded CHF 1 billion with more than 10.000 employees. The main goal of the project (cf. [3], [7]) was improving information management from ETA SA to its customers, i.e. the individual brands. At the outset of the project neither standardized product data nor standardized order processes were in place. Finding out what parts were ordered was a cumbersome and labor-intensive matching process. Therefore, ETA SA conceived an Internet-based EC solution (http://products.eta.ch) that encompasses an electronic catalogue which enables customers to get specific information about (new) products, prices, discounts, etc. After the desired components are put into the shopping basket the EC solution will calculate taxes, discounts, etc. After the completion of the order the customer chooses a payment method and the order is sent. The EC solution enables customers to obtain all relevant information on existing and new products (prices, technical descriptions, sales conditions, interchangeability) via one channel. Since the site is

Business Networking Systems: Characteristics and Lessons Learned

14

maintained centrally, ETA-CS can easily assure that information is up-to-date and benefits from cost savings in producing and distributing catalogues, price lists and technical documents. Finally, the EC solution introduced new functionalities, such as a individualized shopping basket, credit card payment, technical document download, and electronic order tracking into the buying process. Additional functionalities are currently conceived and will include customer profiling, individual customer homepages, customer communities, frequently-asked-questions databases (FAQ), online complaint management as well as auctions for old parts. Although not all of the identified potentials have already been reached, ETA-CS profits from the following results: •

Once orders are entered via the ETA Online Shop, matching efforts and misunderstandings decreased by more than 90% which allows ETA-CS to cope with an increased order volume and enables the personnel to intensify customer relationships (e.g. acquisition of new customers, answering individual questions).

•

The combination of the new order and warehouse processes lead to a significant reduction of order cycle time. ETA SA is now close to the above mentioned guaranteed delivery times of three days for electronic orders. There will also be a significant decrease in wrong article deliveries. When all articles master data are homogenized and available via the Web, ETA will even perform beyond three days deliveries.

The ETA case brought out several insights for implementing an EC solution. First, achieving master data harmonization was a critical prerequisite for the electronic catalog and enabled an efficient order entry process. Second, pilot partners were involved from the beginning in designing the business network and the order process. A series of so-called change requests ensured to obtain a ‘buy in’ from future customers. The pilot involved customers in Switzerland and focused on a selection of spare parts. Starting with global availability on December 6th, 1999, the EC solution was offered to all customers worldwide and included all spare parts products. Third, creating a win-win scenario with it’s customers was key in convincing the individual brands to participate in the EC-system. Instead of offering price reductions, customers using the EC solution enjoy shorter and guaranteed delivery times. ETA SA expects that 30-40% of all orders will be using the electronic channel in the next three years.

Business Networking Systems: Characteristics and Lessons Learned

15

Lessons Learned for Designing Business Networking Systems From the project work in the three BNS cases several lessons for designing these BNS emerged. We will group these lessons along the steps which have been undertaken in the individual projects (see Table 4). At the start of each project, the main problems were identified and the project goal was formulated. This input helped to derive the type of BNS that appeared to be a most likely solution to start with. This initial system design was verified and elaborated in more detail with partner profiling. Based on the partner profile a reciprocity scenario was developed since convincing partners is more prevalent in relationships with independent partners (see Table 2). As a next step, standardization of data, processes and functions was discussed among the partners. The specifics, which have been developed above, provided an important structuring for this activity.

Table 4 about here

Focus Project: Create Business and Adoption Perspective At the outset of each project customers workshops were organized with senior management to identify the main problems in their relationship with customers. With this information the goal of the business networking project was formulated and several scenarios for attaining this goal were discussed. Using a scoring model which included the expected degree of goal attainment, the investments necessary, and the estimated time-to-market, the appropriate BNS was selected. Once the BNS decision has been made, the project focus was elaborated. An important aspect in the workshops was developing a business perspective on BNS which recognizes that BNS enable new business processes and business strategies. In order to use them correctly, the business must understand the essence of technical networking and, conversely, information management must understand the business. From an organizational point of view, the strategies and processes of a BNS are closely linked with other processes and strategies. At RIW, a project for reorganizing the sales process affected the processes of distribution, inventory management, production planning, production, maintenance, procurement, controlling and accounts payable. The integration of these processes and the associ-

Business Networking Systems: Characteristics and Lessons Learned

16

ated strategies, organizational structures, such as departments and above all human resources, took up significant management time. Examples are the definition of new processes (procurement or sales) and/or strategic business areas (product/market mix), the coordination of marketing, sales, production and inventory strategies or communication of the solution to the partners affected. While information management can encourage networking projects and make major contributions to their success, the most effective dimensions of a network must, however, be evolved by the business for the business. Following Shapiro/Varian [45], securing a fast growth in the number of users was regarded as a critical objective. Examples of how to achieve rapid diffusion are provided by Netscape, Hotmail or Compaq. In the initial phase they would make their software, services or hardware available free of charge and thus generate a fast growing customer base [28]. In order to accelerate growth, they would design services that operate according to the rules of increasing economies of scale [4], i.e. marginal return and customer benefits tend to grow as the customer base expands.2 All projects were sized following the nucleus approach which addresses the design of ‘nuclei’ that are conducive to rapid growth.3 Among the critical success factors for sizing were to start with: •

a small pilot project which yields specific information on benefits early on, and

•

a distinct focus regarding product, customer, and regional segmentation.

Profile Partners: Establish partner perspective Once a specific type of BNS had been identified as a starting solution, the partner setting was analyzed. To ensure networkability among a large number of partners and to limit the complexities of establishing

2

Further hints on the rapid diffusion of EC solutions are provided by Kelly [28]. The most important of these are ‘touch as many nets as you can’, ‘maximize the opportunities of others’, ‘don't pamper with commodities; let them flow’ and ‘avoid proprietary systems’.

3

‘Grow by Chunking’ is one of the nine principles for managing complex adaptive systems (see [28], [47]).

Business Networking Systems: Characteristics and Lessons Learned

17

and managing relationships, detailed partner profiles were designed at ETA and RIW for partner classification. For a small number of partners (as in the Commtech case) a qualitative description proved more efficient. Since business processes only communicate via business process outputs [34], partner profiles aim at defining standardized outputs for coordination processes. These standard patterns are then tailored to specific partner requirements. Each individual profile contains the expected requirements in the organizational, functional and data dimensions. They can be represented as tables (see Figure 4) containing four components: 1.

Business relationship drivers are generic factors influencing the design of business relationships. In terms of business engineering, a distinction is made between strategic, business process and information system drivers [34]. Figure 4 shows a customer profile as used in the RIW case. Detailed drivers were formulated which customers or sales reps were asked to simply mark them ‘applicable’ or ‘not applicable’.

Figure 4 about here 2.

A catalog of standardized coordination outputs shows the possible components of a business relationship on the strategy, business process and information system level. Examples of coordination outputs are ‘advance shipment notice’ or ‘order acknowledgement’. As Figure 4 shows for the three cases, outputs vary in scope and content. In addition, the catalog may also list some technical integration forms [38], such as a partner accessing internal ERP data via the Internet.

3.

Partner-specific business relationship requirements are the outcome, if partner profiles are used as structured questionnaires. They reflect the specific needs of specific partners in respect of their relationship, support active partner management, and serve as the basis for individualized coordination. In the ETA and RIW cases, modular and standardized types of customer relationships were defined for different customer segments.

4.

Once business relationship drivers and standardized coordination outputs have been defined, the partner-specific requirements can be translated into a partner-specific set of coordination outputs. Both partners would implement the processes and systems needed to obtain the partner-specific set of coordination outputs. The processes and systems implemented by RIW and ETA were designed to

Business Networking Systems: Characteristics and Lessons Learned

18

produce such outputs as advance shipment notice, vendor replenishment, vendor managed inventory, ordering and order tracking via the Internet.

Create Reciprocity (Win-Win Scenarios) In all three cases, it took a great persuasion effort to achieve adoption among the partners. Creating a balance of costs and/or benefits was an important change management effort in these cases. A crucial element in creating win-win scenario was to establish reciprocity and trust which are known to be essential enablers in implementing business networks [29]. As a first step, the impact on setup and running costs and the benefits was explored for the networking partners. Following the concept of life cycle costs [41], we distinguished between setup and ongoing costs and benefits. A partner’s setup costs encompassed his total project costs and the costs due to integration effects with other projects: •

Project costs were divided into costs for designing new processes, change management, training of employees, data standardization and costs for implementing IT based relationships.

•

Integration costs incurred by integration effects reflect the networking character of networking projects. Interdependencies between networking projects and other internal projects were closely monitored since they tended to be a source of delays.

•

New process costs, especially costs for designing and implementing the new coordination tasks, were part of the running costs (for detailed process cost drivers cf. [49]).

Win-win scenarios can be designed for any individual partner or any type of partner. The partner profile provided the basis of a win-win scenario by specifying the partner-specific requirements and included further specifics, such as feasible coordination scenarios or investment power. In the cases success was owed to two facts: •

Partner-specific profiles kept transaction and investment costs low and generated networking benefits which it was possible to quantify.

Business Networking Systems: Characteristics and Lessons Learned

•

19

Compensation for investment costs, costs due to interdependencies with other projects and protection against opportunism was achieved in the cases under review by providing transfer payments. Examples include price reductions for the new services, hardware and software offered for free, or shorter and guaranteed delivery times. In networks with hierarchical elements, such as Commtech, extra budgets and schedule concessions granted for other projects proved effective in maintaining the priority of networking projects.

Win-win scenarios are easy to communicate when real-life examples can be cited to illustrate them. For each BNS project, the case study companies defined a project nucleus permitting the benefits of the networking project to be assessed by the project partners within a limited time and cost effort.

Standardize Exchange Processes And Data By providing external access to what were previously internal functions and information, BNS ultimately go a long way towards achieving the vision of the extended enterprise (cf. [5], [52]). Examples of such information are inventory levels, delivery dates, special terms of sale or order status which can be called up by external partners. Typically, internal ERP/legacy-systems are responsible for this information and BNS can be regarded as a new front end to existing systems. BNS process the information provided by other information systems and pass it on to partners without any human intervention. This leads to important requirements on the standardization of data and functions (see Table 5). All the information which a business unit wants to make available to its partners must be known to the business unit. This is contingent on a properly functioning internal organization and/or the internal integration of the information systems. The integration of new applications with internal and external information systems represents the greatest challenge for networking projects.

Table 5 about here BNS place a greater emphasis on interorganizational process standards. Networking calls for the various processes of various independent business units to be synchronized. Today, business units operate indi-

Business Networking Systems: Characteristics and Lessons Learned

20

vidual processes with a wide range of information systems and data models with different business semantics. A purchasing process, for instance, has to be synchronized with the supplier’s sales process, the credit card institution’s payment transaction process, the authentication process of the trusted third party and various processes within the business unit itself (authorization, accounts, etc.). For many companies, the emphasis is on harmonizing and homogenizing master data, e.g. reorganizing the master data for products, customers and outline agreements. Table 5 summarizes the main standardization aspects: •

Scope of standardized data specifies what data is being exchanged among the partners. In the cases master, material and planning data were relevant.

•

Standardization tool specifies how the standardization was achieved. In the cases harmonization and mapping mechanisms were used. Obviously, the former reflects closer coupling among partners.

•

Degree of data standardization reflects the standardization tool and is higher for harmonized data with identical syntactical and semantical structures.

•

Standardization of processes specifies the extend of standardized processes. The cases differed from globally standardized processes to standardization of selected processes.

Summary and Conclusions This paper aimed at describing the role and nature of Business Networking systems, BNS. These systems are critical for establishing networkability, which is a necessity for achieving and sustaining competitive advantage. We have shown that classical IOS were faced with adoption problems, and that aligning business and IT strategies is of foremost importance in practice. In addition it was observed that many companies made investments in enhancing their internal information infrastructure. These ERP systems are now being enhanced with interorganizational modules which we referred to as BNS. Three types of BNS were presented that encompass supply chain management as well as electronic commerce systems. In doing so, the isolated perspective on one specific concept which is widespread in literature and practice can be overcome. All three BNS types were illustrated in three case studies. Based on the project work in these cases four lessons were formulated.

Business Networking Systems: Characteristics and Lessons Learned

21

First, during the definition of the project focus, establishing a business and adoption perspective was important. This takes into account that BNS are not primarily technological but business projects which rely on the participation of users. Second, BNS have to be configured and tailored to the relationships. Partner profiling was presented as a successful technique to reach these goals. Profiles provide a transparent view of the current partner situation and form the basis for broad and systematic partner integration. As customer profiles, they are valuable marketing and customer retention tools. Especially, the modular design of coordination outputs and standard relationships reduced the time for setting up new relationships. In providing a technique for collecting information on partners, processes and systems, partner profiling supported the alignment of business and IT issues. Third, all cases dealt with creating win-win scenarios to attain a buy-in from the stakeholders. Costs and benefits were calculated on the basis of quick wins that were derived from a first pilot implementation. As the Commtech case suggests, this is a major success factor for data sharing systems, such as EDI, and an important element in explaining the adoption lag of IOS. Finally, when designing a BNS, the objects exchanged as well as the exchange processes need to be clearly specified. This research has focused on transaction-oriented BNS and excluded knowledge-oriented BNS as well as the most recent developments towards enterprise or industry portals. These areas as well as the convergence of BNS and classical IOS towards what we called business portals are important areas for future research.

Business Networking Systems: Characteristics and Lessons Learned

22

References

1. Alt, R., Fleisch, E., and Werle, O. The Concept of Networkability – How to Make Companies Successful in Business Networks. Proceedings European Conference on Information Systems, Vienna, 2000. 2. Alt, R., and Klein, S. Lessons in Electronic Commerce: The Case of Electronic Transportation Markets. Failure & Lessons Learned in Information Technology Management, 3, 1999. 3. Alt, R., Österle, H., Reichmayr, C., and Zurmühlen, R. Business Networking in The Swatch Group. EM-Electronic Markets, 9, 3, 1999, 169-173. 4. Arthur, W.B. Positive Feedback in the Economy. Scientific American, February 1990, 92-99. 5. Ashkenas, R., Ulrich, D., Jick, T., and Kerr, S. The Boundaryless Organization: Breaking the Chains of Organizational Structure. San Francisco (CA): Jossey-Bass Publishers, 1995. 6. Benjamin, R.I., and Wigand, R. Electronic Markets and the Virtual Value Chains on the Information Superhighway. Sloan Management Review, 36, 1, 1996, 29-40. 7. Benz, R., Fleisch, E., Grünauer, K.M., Österle, H., and Zurmühlen, R. Shaping Business Process Networks at ETA SA. Österle, H., Fleisch, E., and Alt, R. Business Networking: Shaping Enterprise Relationships on the Internet, Berlin etc.: Springer, 2000, 277-292. 8. Bjørn-Andersen, N., and Krcmar, H. Looking Back – A Cross-analysis of 14 EDI Cases. Krcmar, H., Bjørn-Andersen, N., and O’Callaghan, R. (Eds.). EDI in Europe: How it Works in Practice. Chichester etc.: Wiley, 1995, 299-325. 9. Bradley, S.P., and Nolan, R.L. Sense and Respond. Boston (MA): Harvard Business School Press, 1998. 10. Christiaanse, E., Been, J., and Van Diepen, T. Factors Determining the Failure of Global Systems in the Air Cargo Community. Proceedings of the 29th Annual Hawaii International Conference on System Sciences. Los Alamitos (CA): IEEE, 1996. 11. Cunningham, C., and Tynan, C. Electronic Trading, Interorganizational Systems and the Nature of Buyer-Seller Relationships – The Need for a Network Perspective. International Journal for Information Management, 13, 1993, 3-38.

Business Networking Systems: Characteristics and Lessons Learned

23

12. Davis, S., and Meyer, C. Blur: The Speed of Change in the Connected Economy. New York: Perseus Books, 1998. 13. DeCovny, S. Electronic Commerce Comes of Age. Journal of Business Strategy, 19, 6, 1998, 38-44. 14. El Sawy, O.A., Malhotra, A., Gosain, S., and Young, K.M. IT-Intensive Innovation in the Electronic Economy: Insights from Marshall Industries. MIS Quarterly, 1999. 15. Evan, W.M.E. Interorganizational Relations. Harmondsworth, 1976. 16. Evans, P., and Wurster, T.S. Blown to Bits: How the New Economics of Information Transforms Strategy. Boston (MA): Harvard Business School Press, 2000. 17. Fine, C.H. Clockspeed, Winning Industry Control in the Age of Temporary Advantage. New York: Perseus Books, 1998. 18. Forrester Research. U.S. On-line Business Trade Will Soar To $1.3 Trillion By 2003. , December 1998. 19. Gartner Group. The Industry Trends Scenario: Delivering Business Value Through IT. Gartner Group, April 1998. 20. Gartner Group. Transition Challenges: The CIO's Perspective. Gartner Group, April 1998. 21. Hagel, J., and Singer, M.. Net Worth: Shaping Markets When Customers Make the Rules. Boston (MA): Harvard Business School Press, 1998. 22. Handfield, R.B, and Nichols, E.L. Introduction to Supply Chain Management. Upper Saddle River (NJ): Prentice Hall, 1998. 23. Hofmann, M., and Killer, B. Interoperability Between and Within Enterprises. Whitepaper, Walldorf: SAP, 1995. 24. Jarillo, J.C. Strategic Networks: Creating the Borderless Organization. Butterworth-Heinemann, Oxford, 1993. 25. Jimenez-Martinez, J., and Polo-Redondo, Y. International Diffusion of a New Tool: The Case of Electronic Data Interchange (EDI) in the Retailing Sector. Research Policy, 26, 1998, 811-827. 26. Johnston, H.R. and Vitale, M.R. Creating Competitive Advantage With Interorganizational Information Systems. MIS Quarterly, 12, 2, 1988, 153-166.

Business Networking Systems: Characteristics and Lessons Learned

24

27. Kalakota, R., and Whinston, A.B. Electronic Commerce: a Manager's Guide. Reading etc.: AddisonWesley, 1997. 28. Kelly, K. New Rules for the New Economy, 10 Radical Strategies for a Connected World. New York: Viking Penguin, 1998. 29. Klein, S. Interorganisationssysteme und Unternehmensnetzwerke, Wechselwirkung zwischen organisatorischer und informationstechnischer Entwicklung. Wiesbaden: Deutscher Universitäts-Verlag, 1996. 30. Konsynski, B.R. and McFarlan, W.F. Information Partnerships - Shared Data, Shared Scale. Harvard Business Review, September-October 1990, 114-120. 31. Lee, H., Padmanabhan, V., and Whang, S. The Bullwhip Effect in Supply Chains. Sloan Management Review, 38, 3, 1997. 32. Malhotra, Y. (Ed.). Knowledge Management and Virtual Organizations. Harrisburg: Idea Group Publishing, 2000. 33. Malone, T.W., and Crowston, K. The Interdisciplinary Study of Coordination. ACM Computing Surveys, 26, 1, 1994, 87-119. 34. Österle, H. Business in the Information Age – Heading for New Processes. Berlin etc.: Springer, 1995. 35. Österle, H., Fleisch, E., and Alt, R. Business Networking – Shaping Enterprise Relationships on the Internet. Berlin etc.: Springer, 2000. 36. Pfeiffer, H.K.C. The Diffusion of Electronic Data Interchange. Heidelberg: Physica, 1992. 37. Porter, M.E., and Millar, V.E. How Information Gives You Competitive Advantage. Harvard Business Review, 4, 1985, 149-160. 38. Riehm, R. Integration von heterogenen Applikationen. Bamberg: Difo-Druck, 1997. 39. Rodin, R., and Hartmann, C. Free, Perfect, and Now – Connecting to the Three Insatiable Customer Demands: A CEO’s True Story. New York: Simon&Schuster, 1999. 40. SAP. Advance Planner & Optimizer. Walldorf: SAP, 1998. 41. Schelle, H. Kostenplanung und -kontrolle: ein Uberblick. Reschke, H., Schelle, H., and Schnopp, R. (Eds.) Handbuch Projektmanagement. Köln: TÜV Rheinland, 1989. 42. Schmid, B. Elektronische Märkte. Wirtschaftsinformatik, 35, 5, 1993, 465-480.

Business Networking Systems: Characteristics and Lessons Learned

25

43. Schmid, B., and Lindemann, M. Elements of a Reference Model for Electronic Markets. Blanning, R.W., and King, D.R. (Eds.). Proceedings of the 31st HICSS, Vol. IV. Los Alamitos (CA): IEEE-Press, 1998, 193-201. 44. Schnedl, W., and Schweizer, M. Dynamische IT-Organisationen im nächsten Millenium. Master Thesis, NDU: St. Gallen, 1999. 45. Shapiro, C., and Varian, H.R. Information Rules: A Strategic Guide to the Network Economy. Boston (MA): Harvard Business School Press, 1999. 46. Sood, R., Friedman, J., Parekh, M., Sherlund, R.G., Bahramipour, L., and Berquist, T. B2B: 2B or Not 2B?. Goldman Sachs Investment Research, September 14, 1999. 47. Stüttgen, M. Strategien der Komplexitätsbewältigung in Unternehmen: Ein transdisziplinärer Bezugsrahmen. Berne: Haupt, 1999. 48. Suomi, R. On the Concept of Inter-organizational Information Systems. Journal of Strategic Information Systems, 1, 2, 1992, 93-100. 49. Trischler, W.E. Understanding and Applying Value-Added Assessment: Eliminating Business Process Waste. Amer Society for Quality, 1995. 50. Westland, J.C., and Clark, T.H.K. Global Electronic Commerce: Theory and Case Studies. Cambridge (MA): MIT Press, 1999. 51. Wigand, R.T. Electronic Commerce: Definition, Theory, and Context. The Information Society, 13, 1997, 1-16. 52. Wigand, R.T., Picot, A., and Reichwald, R. Information, Organization and Management. Chichester: Wiley & Sons, 1997.

Business Networking Systems: Characteristics and Lessons Learned

26

“Classical” IOS development path Interbusiness

Scope of Business Networking

Intrabusiness

Electronic Markets

EDI

Portals

Supply Chain Management and Electronic Commerce Modules

Distributed ERP-Systems

80s

BN

90s

pm elo v e Sd

th pa t en

00s

Figure 1: Evolution of Business Networking Systems

Time

Business Networking Systems: Characteristics and Lessons Learned

27

Business Networking systems 1

Internal system (ERP-system)

2 3

Electronic Commerce systems Supply Chain Management systems

Internal system (ERP-system)

Data Sharing systems

Figure 2: Types of Transaction-oriented Business Networking Systems

Business Networking Systems: Characteristics and Lessons Learned

Single Signal

28

Accountability

Real time

Data

Function

Visibility

n:m connectivity

Performance

Figure 3: Business Networking Requirements for Data and Functions

Business Networking Systems: Characteristics and Lessons Learned

Profile of partner X

Business Relationship Drivers partner X Strategy

1. Business relationship drivers

2. Standardized coordination outputs

3. Partner specific business relationship requirements

4. Partner specific set of coordination outputs

Importance of customer Small Customer Cluster Customer Tiers Structure of customer internal business network Dependency of entity Market Segment Opportunities and Threats for customer in partnership Opportunities and Threats for Supplier in partnership Guess for WinWin Situation for further partnering Partnering Cooperation Strategy Products

Process Relevant Customer Processes New allocation of tasks Process outputs

Information Systems (IS) Relevant Customer IS Architecture IS Integration with Supplier

Figure 4: Partner Profile Components and Example for Relationship Drivers

29

Business Networking Systems: Characteristics and Lessons Learned

System types

Development path

Transaction complexity

30

Classical Interorganizational Systems (IOS)

Business Networking Systems (BNS)

Electronic Data Interchange

Data Sharing (Distributed ERP) Systems

Clearing Centers

Supply Chain Management Systems

Electronic Markets

Electronic Commerce Systems

Starting within external business networks, implementation of market mechanisms, low integration

Starting with internal integration, expands within intern and stable business networks, high integration

Low

High

Table 1: Interorganizational and Business Networking Systems

Business Networking Systems: Characteristics and Lessons Learned

31

Internal Business Systems (e.g. traditional ERP)

Business Networking Systems

Stability

High

Medium to low

Authority and control

High

Medium to low

Autonomy of partners

Low

Medium to high

Dependence

High

Medium

Conflict potential

Low to medium

Medium to high

Process knowledge

High

Medium to low

Table 2: Specifics of Business Networking Systems

Business Networking Systems: Characteristics and Lessons Learned

Partners

Internal

Type of System

Electronic Commerce

Mixed (internal and external)

External

ETA SA

Supply Chain Management Data Sharing / Distributed ERP

32

Riverwood International Commtech

Table 3: Positioning of BNS Cases

Business Networking Systems: Characteristics and Lessons Learned

Commtech

ETA SA

33

Riverwood International

Step 1: Focus Project Goal: Improvement of

Availability of internal process information

Information management in order process

Information on customer processes and customer service

Type of BNS

Data Sharing

Electronic commerce

Supply chain management

External / many partners (approx. 2000)

Step 2: Profile Partners Partner setting

Internal / few partners (5)

Mixed / few partners (15 represent majority of revenues); many small partners (approx. 1500)

Type of partner profile

Not used

Used in the form of customer Used for all small customers, workshops for large customers in the form of customer workshops

Step 3: Create Reciprocity (Win-Win Scenarios) Transfer payments

New project due dates, new project budgets

Shorter and guaranteed delivery times

Price reductions, free hardware and software

Scope of standardized Broad data (multiple master data)

Low (material data only)

Medium (material, forecasting and planning data)

Standardization tool

Harmonization

Mapping

Mixed (harmonization of material and mapping of forecasting and planning data)

Degree of data standardization

High (same syntax, same semantics)

Low (different syntax, same semantics)

Medium (high for material, low for forecasts and plans)

Standardization of processes

High (global processes)

Low (ordering processes only)

Medium (supply chain processes only)

Step 4: Standardize Exchange Processes and Data

Table 4: Design Issues in BNS Cases

Business Networking Systems: Characteristics and Lessons Learned

Commtech

ETA SA

34

Riverwood International

Data Accountability

Material, vendor, customer, … Material

Material, forecasts, plans

Visibility

Credit limits, head counts, costs, taxes, …

Inventory, order status

Production plans, sales forecasts, inventories

Single signal

Master data

Inventory

Demand signals

Real Time

Credit limit check, One bill to customer, Global contracts, drill-down in taxes

Delivery dates, order status

ATP, vendor managed inventories

N:m connectivity

Master data management

Delivery dates

ATP

Performance

Performance of distributed transactions

Interfaces to ERP systems

Performance of ATP server

Functions

Table 5: Specification of Data and Function in BNS Cases