Q: Why did portals and private exchanges fail?
A: Cost, no incentives to participate, lack of incremental value
It is a classic example of the whole being greater than the sum of its parts. When you can not motivate the entire community of business partners, you certainly can't create sustainable value. When portals and private exchanges made their debut in the late '90s, the expectations were high. However, the reality outweighed the promise. Without incentives to participate, the technical and administrative costs burdened participants. On top of that, the business relationships were missing the critical element of strategic and operational value. For many companies, these attempts at collaborative community platforms only served to shift profits away from suppliers.
According to Tony Baer, senior analyst with Ovum, "These so-called B2B online trading hubs were formed with more of an eBay type mentality of cheapest parts at fastest delivery from the lowest bidder."
With today's business networks and supply chains sprawling across international borders and multiple enterprises, companies need to have the confidence, trust and community mindset throughout their entire supplier and customer base in order to deliver the highest quality products as quickly as possible, jointly maximize profitability of the supply chain community, and minimize risk.
"The trend of brand owners limiting the number of suppliers and forming more strategic relationships with them has continued as manufacturing has gone even more virtual," continues Baer. "Like the computer industry, in which most production is done by contract manufacturers across the Pacific Rim, many manufacturers are relying more than ever on their suppliers."
Same Challenge, New Solution
While the focus on bringing companies together into collaborative communities driven by business transactions remains the same, the technology to actually accomplish this has matured.
Touted as easier to implement and maintain than traditional business software, the Software as a Service (SaaS) model took the world by storm with applications for departmental requirements like HR, sales force automation, and customer support. As SaaS matured, namely around security and connectivity to other applications, the model spread into other areas of the enterprise, such as back office accounting, and has emerged as a software delivery platform to make good on the promise that portals and exchanges failed to live up to.
Now, cloud computing - simply put, using Internet-based solutions across a multitude of diverse customers, at any time, from any location - has a stake in the ground to drive a new level of business synchronicity and collaboration for companies that depend on a global community of partners. From researching a new drug or designing an airplane to buying international amenities for a luxury hotel or managing offshore manufacturing of MP3 players, cloud computing is both mature and functionally deep enough to drive a significant level of IT success.
Take the supply chain world for example, which is experiencing a major structural shift as more brand owning companies rely on a community of partners worldwide to carry out the complex dance of designing, manufacturing, and distributing products.
Cloud-enabled solutions connect disparate partners around the globe with intercompany communication and real-time, cross-community visibility into all supply chain business processes from forecast and purchasing management to planning, logistics, and order fulfillment.
However, whether you're talking about procurement, customer ordering, or supply chain management (SCM), unless companies focus on that vital detail of making sure that partners are actually using the solution, the idea of communities enabled by cloud computing and SaaS will also die a slow death. And then companies will revert to, as they always do when technology fails to meet their needs, the "S Word" (spreadsheets!).
Build It ... So They Will Come
SaaS and cloud computing may, in fact, enable the nirvana of multiple, diverse companies using a centralized and collaborative system. But, how do you make sure that everyone is ready for that nirvana? The challenge is making onboarding easy and compelling, especially for partners and customers in the supply chain network, because they do not report directly to you.
According to Dr. Robert Handfield, the Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University College of Management, "Having a long-term view of mutual support creates a bond that will carry many supply-chain partners through difficult times and ensure continued growth through the challenges ahead."1
Because brand owning companies do not have direct control over the suppliers and customers in the new community model, they need to manage "by influence" to address the various risks and rewards of product sourcing, building, and delivery. Management by influence also trickles down to the technology itself. While customer-specific, cloud-enabled SCM is a perfect fit for today's collaborative and multi-company supply chains, its success - or failure - does not rest solely on IT's shoulders.
In order to create shared responsibility for effective community-focused cloud computing initiatives - regardless of the industry or business application - it is critical that the IT department work with the business side of the company to ask - and answer - the following critical questions:
Who Owns the Community Relationships?
Identify a central, go-to contact - a "community czar" - to straddle the fence between IT and business. In this role, the community czar can educate the internal team and the community of partners, supplementing the IT implementation with "partner satisfaction" responsibilities. This includes:
- How are partners using the system?
- What are their specific needs or challenges?
- What new capabilities are available for tracking and communicating community Key Performance Indicators (KPIs)?
By having someone "own" the business side of a community initiative, partners will be equipped with both the technology and the best practices to be successful.
Which Partners Do We Onboard First?
Prioritizing partner relationships is a must! Determine which partners will have the greatest impact from using a cloud computing solution to connect with the community and plan to onboard three to four of these partners first.
Take community supply chain networks, for example, so we can drill into more detail on evaluating onboarding priority:
- Which supply partners' products are most critical to 1) my most important customers, 2) my most important margins (the cash cow!), or 3) products with shortest product lifecycles;
- Which partner relationships are presently most primitive in communication; e.g. management by spreadsheet, phone, fax, etc., and require inordinate burden for collaboration?
- Which partner relationships are most error prone and would therefore benefit from greater automation?
- Which partner relationships require data tracking, documentation, and accountability for compliance, analytics, etc. and would therefore benefit from online automation and data tracking in a single repository?
- Which partners influence would encourage future onboarding and participation by the broader set of trading partners?
Once you have identified several willing partners, you will be in a better position to subsequently fine-tune the system, its processes, and your approach to onboarding.
What Is the Overriding IT Infrastructure of My Key Partners?
While IT can control internal processes, such as security and compliance, your organization may not have the sway of big brand names like HP or Wal-Mart to dictate that partners use a SaaS solution. Team with the business users--C-level executives, VPs, and managers--to help them understand the requirements for creating a successful infrastructure, as well as to understand the overriding IT infrastructure of your most critical partners.
Consider how to span the levels of IT sophistication to be inclusive of your broad partner set. A sophisticated partner may need you to support electronic messaging; e.g. EDI, RosettaNet, or want to interact directly from their ERP system; SAP, Oracle, Axapta, or the like, which would require an integration provider. For a smaller, less sophisticated partner, you'll want to enable them with simpler, flat file CSV uploads/downloads. With basic manually entry into a portal (fat finger in the data!) you can, over time, train and incent the less sophisticated partners to advance to electronic messaging. At the same time, larger partners will certainly have times when they will want to provide discrete updates by manual entry, so there is value in providing a range of options.
What Are the Needs of the Business Ccommunity?
The key to being an effective partner in SaaS onboarding is to create minimum impact and be sure to work within the community's existing constraints and needs. Consider these tips to help you be flexible and minimize variables:
- Tread Slowly: Do not ask for too much right away. Tread slowly to ensure you do not disrupt partners' or customers' existing communication methods and business processes. A rip and replace approach is not palatable by any organization in mission critical supply chain operations, so consider operating in parallel or as complementary capabilities. Especially in the first wave of SaaS onboarding, accept how your customers and partners already do business and adopt their practices. Look for SaaS solutions that can mold around your community's needs, and also expand for further collaboration down the road.
- Adapt: Be prepared to adapt to industry and operating standards, such as EDI or RosettaNet, of your largest customers so that they do not need to immediately change their existing infrastructure, but can still benefit from getting more visibility into information, such as self-service order status. Because SaaS by nature is easy to customize and implement, such accommodations for customers and partners is hassle-free.
- Prepare: Once the partner is ready, ensure your IT onboarding team is ready and available to help with evaluations, implementation, and troubleshooting. This may mean deploying someone to the partner site for a few days or hosting a web-based training program. After all, whether the application technically plugs into your systems or your partners' its ultimate success still lies on your company's shoulders.
- Educate and Train: In a community supply chain, the team starts with key IT and business touch points from inside the brand owning company and extends to all partner organizations and customers. When you select a SaaS solution, it is critical to educate everyone in the community about how SaaS can help them drive a more cost-effective, agile business network.
How Can We Encourage Continued Use?
Create community incentives that will motivate partners for both initial onboarding, as well as ongoing, sustained use, such as: Net 25 payment for partners using the SaaS solution, compared to Net 30 for those not using the system; or passing along joint cost savings to contributing (not simply participating) partners.
SaaS has a low barrier to entry and increased - self-improving, self-appreciating - reward compared to traditional software. Partners need to understand how their level of effort will increase their return. Showcase your business acumen with some internal PR: monitor, report on, and reward adoption and user growth. Additionally, communicate usage - or lack of usage - back to business leaders. If usage is low, the company can create additional incentives for partners; if usage is high, the benefits can be shared back with the entire community.
For example, agree on shared KPIs for the community and associated shared financial rewards. If customer service levels increase and create faster order to cash, then the brand owning company can offer a percentage pay increase or faster payment to all partners involved. Congratulate and thank the partner for participating. Once other partners hear and understand the business value, partners will be calling on you to be part of the inner circle. This may sound like motherhood and apple pie, but for partners used to having pie thrown in their face, this peer-to-peer approach to joint success will taste much better!
Deriving ROI from a cloud computing model with SaaS applications depends heavily on use. Especially in this economy, when every dollar counts, knowing how to drive adoption and ongoing participation can be the difference between success and failure. For today's global business communities, the trick is moving beyond transactional, contract-driven relationships towards strategic, long term partnerships. With the right combination of technology and best practices to be a "good partner," you will create a business community that yields both short-term ROI and long-term value.
1. "United They Stand," Wall Street Journal, March 23, 2009.
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About the Author
Amar Singh is President and CEO of Amitive. He brings more than 17 years of supply chain management (SCM) and enterprise software experience to the company, having held senior management positions at SAP, i2, Procter & Gamble, Warner Lambert, Logictools and Bain & Company. He can be reached at Amar.Singh@amitive.com.