cussed how the US auto industry is creating an extranet called the ..... Repair. Training (training new staff). 25,000. Parts supply. 5,600. Total cost. 2,680,000.
Extranets: a tool for cost control in a value chain framework Murugan Anandarajan Assistant Professor, Management Information Systems, St Joseph’s University, Philadelphia, Pennsylvania, USA Asokan Anandarajan Assistant Professor, Accounting and Finance, New Jersey Institute of Technology, Newark, New Jersey, USA H. Joseph Wen Assistant Professor, Management Information Systems, New Jersey Institute of Technology, Newark, New Jersey, USA
The purpose of this research is to show through a case study how the extranet has been used by one specific company to significantly reduce operating costs. The activities of the company are analyzed within the framework of the value chain concept developed by Porter. This, it is felt, will provide a greater insight into how the extranet can be used to improve profit margins. Prior research in this area has either been of a conceptual nature (explaining theoretically how the extranet should be employed) or of a survey nature (examining, by means of a survey instrument, the benefits accruing to companies that have adopted the extranet). This study is different in that it examines in detail, by means of a case study, how the extranet influences a retail company’s chain of activities and
Introduction There have been many recent articles on the application and usefulness of an extranet as a new form of technology (Dalton, 1997; Flanagan, 1997; Frost, 1998; McCarthy, 1997; Schnaidt, 1997; Strom, 1997; Tweney, 1997 among others). In general, these articles have commented on how an extranet can be used as a tool to reduce costs and gain competitive advantage. All these articles, without exception, provide theoretical frameworks to explain how an extranet will generate benefits. This article uses a case study approach to demonstrate how the concept of the extranet can be used to reduce significant costs that companies incur in their respective “value chains” and enhance competitive advantage for firms. The company is analyzed in terms of its value chain because new technology has led to reconfiguration in terms of the relationship of information to the physical components of the value chain (Evans and Wurster, 1997). Evans and Wurster observe that the Internet has caused a significant change in the structure of entire industries and in the way companies now compete. Thus, it would appear that any meaningful analysis can only be conducted in terms of the value chain framework of a company. We first explain the concept of the value chain and provide an illustration of how costs are incurred at different stages of the value chain by a selected retail company. We then discuss the concept of the extranet and show how the extranet is being used as a tool to eliminate costs, improve the flow of information and improve the profit margin generated by this company.
Prior literature Industrial Management & Data Systems 98/3 [1998] 120–128 © MCB University Press [ISSN 0263-5577]
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Most of the relevant research publications on the impact of new technologies have adopted the case study approach. Tucker (1997), for example, showed how the Internet helped
small companies use electronic data interchange (EDI) to interact with large customers and suppliers who have access to more sophisticated technologies. Strom (1997) explained how companies such as SAAB and BMW used Web sites to enhance customer service. In terms of the extranet in particular, initial studies sought to examine how companies implemented extranets. Strom (1997) used a case study to demonstrate how a company considered various options; among others, buying a turnkey system from an integrator, building a system from scratch, and finally leveraging the company’s existing infrastructure and augmenting it with key extranet components. The company adopted the final option and the benefits of such an option were discussed. Other studies examined the extent to which extranets have been adopted by companies. Schnaidt (1997) conducted a market study and found that 26 percent of surveyed companies have an extranet while a further 26 percent planned to deploy an extranet in 1998. Further studies sought to examine how extranets are being used by companies. Frost (1998) showed how a company, among other things, developed an extranet to help benefit and payroll service providers, who work with small companies, to conduct business electronically. Flanagan (1997), among other things, focused on Federal Express Inc., and showed how this company used extranet for their package tracking system. He noted that the extranet has provided Federal Express with a distinctive competitive strategy. On a macro scale, Evans and Wurster (1997) discussed how the US auto industry is creating an extranet called the Automatic Network Exchange (ANX), linking together automobile manufacturers with several thousand of their suppliers. The system is expected to save its participants around a billion dollars a year, also dramatically reducing ordering and billing errors and speeding the flow of information to second and third tier suppliers. This study is different in nature in that it is a study of one company that employed an
Murugan Anandarajan, Asokan Anandarajan and H. Joseph Wen Extranets: a tool for cost control in a value chain framework Industrial Management & Data Systems 98/3 [1998] 120–128
extranet and a specific discussion of the benefits it derived in terms of cost savings in the different components of its value chain.
competitive advantage. Bearing this in mind, a firm, when conducting its value activities to generate a profit margin, incurs two different types of costs. They are production costs and coordination costs.
Methodology The methodology in this study constituted a case study approach of a retail store (a branch of a major retail chain) that implemented and changed to an extranet as a method of doing business in 1997. The company is a retail store that buys and sells a wide variety of clothing products and durable household items. The items are sold retail (to individual shoppers) or wholesale to major supermarket outlets. We studied and analyzed the activities of the company within the framework of the value chain derived by Porter (1985). By engaging in interviews and obtaining relevant information we also generated a pre and post extranet financial performance record. We discuss how and in what manner the financial benefits were derived. (The name and further relevant background information of this company has been withheld at the request of the general manager.)
What is the value chain? Porter (1985) developed the concept of the value chain to provide a framework for companies to critically analyze their activities for the purpose of realizing competitive advantage. In essence the value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs for the purpose of control and more effective management. The concept is based on the premise that every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product. The relevant “value” activities are defined as the physically and technologically distinct activities that a firm performs to achieve its objectives. Porter also derives the concept of “margin” which is the difference between total value and the collective cost of performing the value activities. The derivation of the “margin” is shown in Figure 1. Evans and Wurster (1997) state that a value chain is not just a linear flow of physical activities. They emphasize that the value chain includes all the information that flows within a company and between a company and its suppliers, its distributors, and its existing or potential customers. They note that not only does information define and constrain the relationship among the various players in a value chain, but in many businesses it also forms the basis for
Production costs Production costs are defined by Benjamin and Wigand (1995) as those incurred during the physical or other primary processes necessary to create and distribute the goods or services being produced. Based on this definition, the primary value activities that could generate production costs can be broken down into five categories. (These are categories are based on Porter’s (1985) analysis.) The categories are: 1 Inbound logistics: activities associated with purchasing, receiving and storing. 2 Operating: activities associated with transforming inputs into the final product form. 3 Outbound logistics: activities associated with physically distributing product to the buyers. 4 Marketing and sales: activities associated with providing a means by which buyers can purchase the product and inducing them to do so. 5 Service: activities associated with providing service to enhance or maintain the value of the product.
Coordination costs Coordination costs as based on Benjamin and Wigand’s definition include the relevant costs of the information processing necessary to coordinate the work of people and machines that perform the primary processes. The value activities that generate coordination costs can be broken down into the following four categories. They are: 1 Procurement: refers to the activities surrounding the act of purchasing inputs used in the firm’s value chain. (This does not refer to the purchased inputs themselves.) 2 Selling: refers to the activities surrounding the sale of products and financing. 3 Technology development: refers to the range of activities that relate efforts to improve the product and the process. 4 Human resource management: these are activities involved in recruiting, hiring, training, and compensation of all types of personnel. This article shows how the adoption of the extranet results in significant changes in the activities in the value chain causing a reduction in operating costs. We now discuss the definition of an extranet and discuss how the new technology impacted the value chain in our case study.
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Murugan Anandarajan, Asokan Anandarajan and H. Joseph Wen Extranets: a tool for cost control in a value chain framework
Figure 1 The generic value chain FIRM INFRASTRUCTURE MARGIN PROCUREMENT
Industrial Management & Data Systems 98/3 [1998] 120–128
SELLING TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT
INBOUND
OPERATIONS
LOGISTICS
INBOUND LOGISTICS
MARKETING AND SALES
SERVICE
MARGIN
What is an extranet? An extranet is the electronic computer-tocomputer exchange of business information in a structured format that can occur between business trading partners and between various units within an organization. An extranet facilitates the exchange and processing of high volumes of business data from one computer to another. Flanagan (1997) notes that extranets have been used by companies to communicate with customers, suppliers, trading partners, and numerous other audiences who contribute to the operating efficiency or to the bottom line. The application of extranet involves the conversion of written documents into structured, machine-readable formats that facilitates the transfer of data by computer from one company to another. In essence, an extranet represents the bridge between the public Internet and the private corporate intranets. McCarthy (1997) states that while the Internet belongs to everyone, intranets belong to individual organizations who build private, ideally secure networks using Internet protocols. Extranets are a slice of an intranet that provides a public window into company services or collected data. Jim Barksdale, president and Chief Executive Officer of Netscape Communications Inc., has stated that extranets are an important part of the business strategy, product delivery system, and customer support apparatus. In essence, therefore, extranets can be considered to be a distributed computer processing environment that links the business with its suppliers and customers. Frost noted that conceptually, an extranet is a “tunnel” or a virtual network within the Internet which
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has sealed walls to prevent it being infiltrated. The implementation of an extranet will and should have ramifications on how companies conduct their business and will drastically change the cost structure of the different activities in the value chain.
Benefits of using an extranet Based on our discussion, the benefits from implementing an extranet can be classified into three areas, namely, strategic, tactical, and operational. (These benefits will vary across different organizations contingent on the reasons for implementing extranets.) Extranet applications improve corporate efficiency by improving data flow and error reduction. It eliminates the need to reenter data from paper documents and thus prevents clerical errors. It also reduces the need for personnel involved in orders and accounts processing. The major cost savings resulting from extranet adoption as experienced by this company are listed in Table I. Based on our discussion with relevant personnel, the strategic benefits as experienced by this company included: • faster trading cycle; • ability to win new business or retain existing customers leading to improvements in business efficiency; • ability to respond to highly competitive new market entrants. The operational benefits included: • reduced costs: paper and postage bills cut, reduction in money tied up in stock, manual processing costs ( e.g. associated with verification, keying and re-keying of documents and the cost of manual filing systems); • improved cash flow.
Murugan Anandarajan, Asokan Anandarajan and H. Joseph Wen Extranets: a tool for cost control in a value chain framework Industrial Management & Data Systems 98/3 [1998] 120–128
Table I Major cost savings resulting from extranets Type of cost savings
Examples
Reasons for cost reduction
Data entry costs
Reduction in duplicate keying of product information in purchase requisitions and purchased orders
This information is automatically transferred from one document to another
Cost of office supplies
Reduced usage of paper, reduced postage costs and other relative office supplies
Due to creation and transfer of electronic documents
Cost of financing accounts receivable
Reduction in average time for payment of invoices by 10 days
Due to: (a) faster preparation and transfer of invoices(if done electronically) (b) faster processing of invoices by the customer and faster transfer of payment (if done electronically)
Personnel costs
Reduction in person-hours required for activities such as (a) preparation, storage, and retrieval of documents (b) comparison of documents (e.g., item price on purchase order and supplier invoice)
Documents are prepared, stored and retrieved electronically at a much faster rate. Also, comparison of documents can be automated
Communication costs
Telephones, faxes
Reduced communications by phones and faxes
The marketing benefits included: • enhanced image; • competitive edge; • improved corporate trading relationships.
Impact of the extranet on the value chain of the company This will be examined in two categories, namely: 1 activities relating to purchasing; and 2 activities relating to coordination.
Activities relating to purchasing Inbound logistics The extranet resulted in electronic data integration and established intimate linkages between the company, its suppliers and its wholesale buyers. Such data integration produced inventory and coordination savings for the company especially when it purchases in bulk. Cost savings arose because electronic integration resulted in more consolidation and the use of a smaller number of suppliers. This implied less time and paper work associated with coordinating and dealing with suppliers. In addition the adoption of the extranet significantly impacted the order cycle time between the company and its customers. A reduction in purchasing lead times allowed
for smaller orders to be placed more often resulting in lower inventory holding costs.
Operating Since this is a retail company, issues relating to this activity are not as applicable here compared to a manufacturing entity.
Outbound logistics In the case of producers of “intangible” output such as information the output can be maintained in digital form and transmitted over the Internet on demand with little or no physical inventory movement. (Examples include books and computer software.) However, even in the case of this company which dealt with “tangible” output, the extranet made a significant impact. The extranet enabled physical distribution networks to be simplified to move the product from the supplier to the company directly eliminating some of the “middle parties”. The company felt that significant cost savings were generated for them due to the elimination of many middle parties that they no longer had to deal with. From the company’s point of view, however, the actual activity of physical delivery did not change. Cost savings were also generated because the company made a strategic decision to reduce its fleet of vehicles causing reduction in the attendant costs thereon. In the cases of both inbound and outbound logistics described above we were told that
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the electronic processing of transactions eliminated paperwork as typical paper transactions became electronic documents with electronically stored signatures. Decreased costs were directly attributed to elimination (reduction) of activities related to manual sorting, matching, filing and reconciliation of mailed documents.
Marketing and sales The use of the extranet helped in two ways. First, it resulted in what the company referred to as single source sales channels. Single source implies shared databases between companies who can use this common database for tracking customers. (Even though this company was successful in this respect due to the willingness of some of other retail stores to participate this may not be possible in all instances.) Shared databases between other retail stores (whom they referred to as partners) reduced relevant costs of market research and even, to a certain extent, advertising expenditures. Second, the use of the extranet significantly reduced publication costs such as those incurred by catalogs. Under the extranet, the main suppliers and buyers of this company (who had the technology and were willing to participate) access and contact each other directly. This eliminated some of the marketing cost and other related costs necessitated earlier by such transactions.
Service Customer service has been improved through improved access to information and decreased lead times. Through the extranet, orders can be processed quickly and shipments scheduled accurately. The extranet allows for the incorporation of more timely and accurate data into the company’s planning and control system. Even though this has not been implemented yet it is felt that customer support in all its forms can be greatly facilitated with an extranet solution. For example, at relatively low cost (conservatively estimated at $30 per month) customers can be provided with their own private and personal workstations. (Customers currently considered for this service comprise wholesale buyers rather than individual shoppers.) These workstations are used to provide information on promotional campaigns and other pertinent customer oriented matters. In the future it is hoped that this information can be distributed electronically to a broad customer base (including individual shoppers as well as wholesale buyers). Another future objective is to tailor information by individual or customer group (i.e. different information delivered based on
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clothing type, customer preferences, or customer histories). Feedback mechanisms to report problems or complaints about purchased clothing or any related questions should be automatically forwardable to a corresponding Web-based conference and these requests can then be managed throughout the extranet to a point of resolution. The company hopes to implement this in 1998. It is felt that the activities noted above could significantly reduce administrative salaries since the services of many people performing these functions may not be required.
Activities relating to coordination costs Procurement Extranets allow for the effective management of multiple vendors, contractors and other contributors to the production process. The main advantage of the extranet in the case of this company was that it facilitated the reduction of suppliers. This generated cost savings arising from less time on making queries and soliciting bids. In addition to reducing the number of suppliers, the extranet reduced the costs of coordinating with suppliers. For example the company’s extranet system connects their point of sale terminals to the main supplier’s delivery system thus decreasing the likelihood of them going out of stock on popular goods.
Selling The adoption of the extranet allowed for faster preparation and transfer of invoices that were now sent electronically. It also facilitated faster processing of invoices and payment. The company generated further benefits in terms of savings due to the reduction in average time for payment by approximately ten days.
Technology development By eliminating the use of regular mail and by decreasing the time needed to process an order transaction, the products can be shipped to wholesale buyers sooner. Delays in shipment are minimized thus ensuring a higher probability of meeting promised due dates. Surveys conducted by the company revealed that the wholesale buyers were satisfied with the timeliness of the service and were less likely to search for other suppliers.
Human resource management Under the extranet, a distributed team-based approach is gaining favor by this company as the preferred method of doing business in the future. Though not implemented yet, in many instances, it is envisaged that “pet” projects of the management (for example, a project examining the impact of expansion of the retail business into other parts of the USA) can be staffed with “virtual teams” of
Murugan Anandarajan, Asokan Anandarajan and H. Joseph Wen Extranets: a tool for cost control in a value chain framework Industrial Management & Data Systems 98/3 [1998] 120–128
managers, consultants and administrative assistants. (These teams can come together for an assignment based on their expertise and may never work together again. So the ability to get up to speed quickly on each other’s specific areas of expertise is key.) However, the envisaged distinct advantage in the future is that there is a reduced need to employ skilled personnel on a permanent basis. This provides savings in salaries and other employee-related benefit expenditure. Table II shows the costs incurred in the value chain as estimated by the management accountant prior to implementation of the new technology, and Table III shows the estimated benefits using the extranet technology. These costs were obtained after discussion with the management accountant rather than from the financial accounting records. (The organization of the financial accounting records did not facilitate analysis of specific costs related to the value chain. This is because most costs are accumulated and subsequently allocated to different categories of overheads. Most costs related to the value chain are averaged out and hence camouflaged.) The costs in Tables II and III relate to a period of four working weeks. The costs in Tables II and III are costs estimated by the management accountant to be incurred after adoption of the extranet for similar activities within the same value chain. As can be evidenced there is a significant reduction in costs related to purchasing and warehousing, material handling, order processing, scheduling, and sales promotion.
How much investment is required? The costs and return on investment (ROI) associated with building, launching, and maintaining an extranet presence are remarkably low and can be easily justified with immediate efficiencies and cost savings for the organization. The main costs, as experienced by the retail company in our example can be summarized as follows: • Hardware costs – This comprises the costs of the microcomputer, minicomputer, or mainframe. • Software costs – This comprises the extranet software and any other application development required to integrate extranet with other applications such as order processing or invoicing. • Telecommunication costs – The costs of accessing and using a value-added network. • Training costs – The costs related to training employees to change their existing work practices.
• Maintenance costs – The costs relating to salaries of appropriately skilled technology people to maintain the network on a regular basis. The total costs of the above amounted to approximately $2,215,000 for this company. Preliminary results from an International Data Corporation (IDC) return on investment study of intranets (of which extranets are a natural extension) found that payback periods ranged from six to 12 weeks. IDC concluded that individual companies experienced returns on investment that exceeded 1,700 percent within the first year of implementation. In this study the cost savings for a selected period amounted to $2,810,000 approximately for a selected four week period. On an annualized basis this approximates to an estimated $33,720,000, a return of 1,522 percent approximately. It has to be mentioned that these numbers have to be treated with caution for the following reasons: • The numbers were not directly available. Traditional costing systems do not attribute costs by steps in the value chain but rather on a functional basis. Many of the numbers had to be estimated. In particular the costs related to the coordination function are traditionally absorbed as administrative overhead and totally camouflaged. Further, costs resulting from money tied down in accounts receivable are not even estimated at all. All these were individually estimated after discussions. • Even though the company has implemented an extranet, any improvement in profit cannot be directly attributed to the implementation of the extranet technology. It could be attributed to a wide variety of market factors. The benefits were estimated separately after discussions with the management accountant. However, the reduction in estimated cost is significant enough to warrant the claim that the extranet technology is a sound investment.
Conclusions Extranets have been defined as “one of the hottest technologies” in 1997. The published studies and articles on extranets can be summarized into three categories, namely 1 studies that show how companies have implemented extranets; 2 studies that conduct surveys of how many companies have implemented or are in the process of implementing extranets;
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Murugan Anandarajan, Asokan Anandarajan and H. Joseph Wen Extranets: a tool for cost control in a value chain framework Industrial Management & Data Systems 98/3 [1998] 120–128
Table II Costs related to the company’s value chain under traditional system Activities Inbound logistics (activities associated with receiving and storing) Receiving (Purchase cost) Warehousing (Interest cost) (Pilferage) (Insurance) (Rent (opportunity cost if owned)) (Natural spoilage) (Material handling (time of personnel)) Logistics (Vehicle scheduling (time of personnel)) Returns to suppliers Operating (activities associated with transferring inputs into the final product form) Machining Packaging (10 cts per $1 value) Assembly Equipment maintenance Testing Printing Outbound logistics (activities associated with physically distributing product to the buyers) Finished goods Warehousing (rent or opportunity cost if owned) Material handling (time of personnel) Delivery vehicle operating (fuel) (depreciation (20 trucks @ $1,000)) Order processing (time of personnel) Scheduling (time of personnel) Marketing and sales (activities associated with providing a means by which buyers can purchase the product and inducing them to do so) Advertising Promotion (printing, mailing brochures) Sales force (time of salespeople) Channel selection Pricing Service Repair Training (training new staff) Parts supply Total cost
Cost ($) 1,200,000 84,000 12,000 10,000 60,000 (20,000 per month for 3 months) 18,000 55,500 (3,000 hours @ $18.5 per hour) 45,000 (1,500 hours @ $30 per hour) 1,100
0 12,000 0 0 0 0
60,000 40,000 1,800 20,000 360,000 (20,000 hours @ 18) 420,000 (30,000hours @ 14)
100,000 70,000 80,000 0 0
25,000 5,600 2,680,000
Procurement (relates to the function of purchasing inputs used in the firm’s value chain) Purchasing managers (purchasing materials) Office managers (acquiring temporary help) CEO (purchasing strategic consulting) Selling (activities associated with selling and collecting cash from customers) Interest cost (of money tied down in accounts) receivable Technology development (range of activities that relate to efforts to improve the product and the process) Telecommunication technology for order entry system Office automation for accounting department Servicing procedures (costs of routine servicing) Human resource management (activities involved in recruiting, hiring, training, and compensation of all types of personnel) Recruiting and training due to turnover Total Final total expenditure [ 126 ]
60,000 (time taken 20,000 hours @ $30) 30,000 (600 hours @ $50) 300,000 (3,000 hours @ $100)
660,000
20,000
34,000 1,104,000 3,784,000
Murugan Anandarajan, Asokan Anandarajan and H. Joseph Wen Extranets: a tool for cost control in a value chain framework Industrial Management & Data Systems 98/3 [1998] 120–128
Table III Costs of value chain after adoption of extranet Activity
Inbound logistics (activities associated with receiving and storing) Receiving (Purchase cost) Warehousing (Interest cost) (Pilferage) (Insurance) (Rent (opportunity cost if owned)) (Natural spoilage) (Material handling (time of personnel)) Logistics (Vehicle scheduling (time of personnel)) Returns to suppliers Operating (activities associated with transferring inputs into the final product form) Machining Packaging (10 cts per $1 value) Assembly Equipment maintenance Testing Printing Outbound logistics (activities associated with physically distributing product to the buyers) Finished goods warehousing (rent or opportunity cost if owned) Material handling (time of personnel) Delivery vehicle operating (fuel) (depreciation 20 trucks @ $1,000) Order processing (time of personnel) Scheduling (time of personnel) Marketing and sales (activities associated with providing a means by which buyers can purchase the product and inducing them to do so) Advertising Promotion (printing, mailing brochures) Salesforce (time of salespeople) Channel selection Pricing
Cost($) 84,000 58,800 8,400 7,000 60,000 (20,000 per month for 3 months) 12,600 38,500 (2,100 hours @ $18.5 per hour) 45,000 (1,500 hours @ $30 per hour) 1,100
0 12,000 0 0 0 0
60,000 28,000 1,800 20,000 180,000 (10,000 hours @ 18) 270,000 (15,000)
20,000 30,000 40,000 0 0
Service Repair Training (training new staff) Parts supply Total cost Procurement (relates to the function of purchasing inputs used in the firm’s value chain)
4,700 5,600 660,100
Purchasing managers (purchasing materials) Office managers (acquiring temporary help) CEO (purchasing strategic consulting)
30,000 (time taken 10,000 hours @ $30) 5,000 (100 hours @ $50) 100,000 (1,000 hours @ $100)
Selling (activities associated with selling and collecting cash from customers) Interest cost (of money tied down in accounts receivable) Technology development (range of activities that relate to efforts to improve the product and the process) Telecommunication technology for order entry system Office automation for accounting department Servicing procedures (costs of routine servicing) Human resource management (activities involved in recruiting, hiring, training, and compensation of all types of personnel) Recruiting and training due to turnover Total Final total expenditure
125,000
20,000
34,000 314,000 3,784,000 [ 127 ]
Murugan Anandarajan, Asokan Anandarajan and H. Joseph Wen Extranets: a tool for cost control in a value chain framework Industrial Management & Data Systems 98/3 [1998] 120–128
3 studies that identify how companies have benefited from implementing extranets. None of the published studies has, however, shown how a company generates cost savings at each stage of the value chain. This study attempts to remedy this deficiency. The company selected is a branch of a large retail chain. While none of the numbers could be extracted from the company’s financial statements for reasons cited in the article, interviews were conducted with managers and the management accountant who provided estimates of anticipated numbers before and after implementation of the extranet. We find that significant cost reductions can be anticipated due to streamlining and automation of functions. However, we note that extranets require coordination and commitment. Managing a system across multiple organizations is a complex endeavor and should not be understated or overlooked. Management must commit to and adopt standards, methodologies, and practices throughout their organization to support the utilization of the extranet environment. Though this may sound intimidating, advanced extranet solutions such as Application Server by OneSoft are available. These are specifically designed to make it easy to deploy, manage, and maintain.
Limitations on implementing an extranet Early adopters of extranets viewed implementation as a method to gain competitive advantage over other firms. However, as more competitors adopt extranets, and as this company now finds, the system has now become less effective as a strategic tool and more a “way of doing business” to remain competitive. Unfortunately, an extranet can be complicated by differing work methodologies, company priorities, and individual agendas. However these complications can be mitigated by eliciting the support of senior officers on a company wide basis. It is also essential to ensure that all the different business entities are involved in the project right from the outset to help establish a sense of commitment. Establishing channels of communication and incorporating committees for group decision making can go a long way in alleviating potential complications. Another problem that has to be considered is the tangible and intangible costs relating to training of existing personnel. Training people for proficiency in an extranet usually comprises a dual challenge. The first challenge arises from training people to use a different system and coping with the “resistance” that is generally applicable to such
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situations. The first of these two challenges is easy to address. Context sensitive online help and online user support mechanisms make it easy for users to find the answers they need quickly and effectively. The second challenge is more daunting because it involves forcing many companies to “share” a common database. Corporate culture often presents challenges to such forms of knowledge sharing. The participating organizations need to keep the goal of the extranet at the forefront and build a collaborative and team-oriented culture to support it. Frequently, a certain degree of business reengineering is required. These short-term liabilities, however, are usually offset by the increased long-term profitability and efficiency that results from effective implementation and use of the extranet. Finally, the conversion to extranet may cause disruption to the business. With the cost-per-day of senior management, consultants or a large staff, even a week of downtime could send a ripple effect that could impact the bottom line of multiple organizations. However, the resultant benefits in our view far exceed the costs.
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