Ascertaining the direction of independent, public, and private trading exchanges is much the same as trying to guess who will win the World Series this year; it's just too soon to tell, but there are some strong teams already emerging that look to be contenders in October. It's the same with each of the three dominant exchange categories today. For the public exchanges, there is the issue of business models and whether they will be able to continue operating on marginal profitability, delivering mixed results along many metrics. The issues of consortia exchanges show greater promise as collaboration—the watchword of the new millennium—is providing traction for this class of exchange. In the life cycle of exchanges as a means for solving problems systemic to companies with multiple distribution channels, public exchanges were necessary to raise awareness of exchanges as a viable means for organizing applications.
Consortia exchanges have been getting greater traction than their public counterparts, thanks in part to the role that secondary and tertiary vendors play in the key vertical markets. Further, consortia exchanges taught valuable lessons to the businesses participating in them about the very important role of vertical domain expertise throughout a company, and the fact that exchanges have to map to existing processes in companies—not force new ones.
A development in both the public and consortia exchanges all lead to the maturation and use of private trading exchanges. The fact that many of the Global 2,500 companies that first started working with sell-side and buy-side applications to expedite order management and e-procurement functions today have an exchange that is a matter more of semantics and less of design. The critical issue in the successful development of exchanges is the precise definition of the pain points throughout a company and the capability of exchange architecture to map or meet those needs.
The most pressing issue that drives the development of exchanges is the lack of responsiveness that is seen throughout many distribution channels today. For many of the world's leading corporations, the pain points and lost revenue due to a lack of responsiveness will be accentuated by the economically challenging times the world's businesses find themselves in. The bottom line is that the greater the level of a company's capability to be responsive to their channels and ultimately their customers will dictate the level of revenue growth they will be able to attain over time. Figure 1 provides a graphic that shows how companies that operate at or below competitive parity are facing the challenges that are associated with a lack of responsiveness overall, and that private trading exchanges give companies the opportunity to raise their level of competitiveness by raising their level of responsiveness.
Figure 1 Responsiveness translates into sales growth, leaving competitive parity as the baseline.
So with the majority of the companies in the world wondering how to cut costs and drive revenue, how is it done? By getting greater mindshare in their channels. Quite frankly, there is no excuse for a Global 2,500 company not to at least explore how to be more responsive to their channels and ultimately their customers through leveraging of the Internet and the applications specifically built for this purpose. The reasons that many Global 2,500 companies don't are many, yet as the economy forces the issue of competitiveness and timeliness of response, the critical nature of having stronger relationships than ever comes to the forefront. For companies that compete with the Global 2,500 in limited regional or product areas, there is an opportunity to be pre-emptive by solidifying channels relationships.
Portals versus Exchanges—What's the Difference?
There's been plenty written about companies that have first adopted a portal strategy for organizing information and then moved on to exchanges. The adage made famous in the move Field of Dreams ("Build it and they will come") is definitely not the case when it comes to portals and exchanges today. Portals that began as online libraries—vast stores of content—did little to revolutionize processes inside the companies building them. Early successes of Yahoo!, Excite, and others met a fundamental need for providing a central reference point for content. Only when the interactive nature of a portal began to be exercised in the meeting of diverse information and process pain points throughout companies did the promise emerge as exchanges become visible.
Portals have had varying degrees of success, entirely dependent on their capability to manage and present content that maps to unmet needs in companies. Because portals by nature are static and interact with visitors only when prompted to, either through personalization or order status queries, exchanges exist as a result of communication disconnects throughout an organization. So, the major difference between a portal and an exchange is that the former is built to provide a massive library and reference point for content-oriented purposes. Exchanges, on the other hand, are built in response to the communication challenges that companies face with their suppliers, distribution partners, investors, and customers. The value of the exchange is in its capability to provide a strong focus on the pain points throughout a company. The three components of any company that interact, causing the need for an exchange to surface, include processes, products, and partners. The friction between each of these areas uncovers the need to turn existing communications and channel-related tasks into an exchange. Figure 2 shows a diagram that shows how exchanges come into being based on friction between parts of an organization.
Figure 2 Interactions between processes, products, and partners often uncover the need for an exchange to be created.