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Business Isn't So Simple Anymore

Business may be changing for the better, but it's not getting any simpler. The relationships among companies have even fewer clear boundaries and linear workflows; as a result, ideas such as partnering and competing have become less clear.

Earlier in this article, we discussed how companies are using the web to create new and creative ways of serving their customers—but they're finding that many more other companies are trying to do the very same thing, and with the very same customers. Increasing competition has become a fact of life in business, but with e-business the whole idea of competition has changed, becoming much more widespread and multidimensional. Companies used to know their competition. Now, competitors can come from out of the blue or even be one's own suppliers or customers.

The complex world of 21st century business is pushing companies to form new and different kinds of partnerships with suppliers, customers, and in some cases even competitors. These new relationships can last for a week or a lifetime, but companies need to be prepared to respond quickly to opportunities and shift mental gears in ways they rarely needed to before.

Competitors and partners now can come from almost anywhere. The global nature of the marketplace today opens new business opportunities for companies, but it also opens your current customers to competitors from elsewhere. With the World Wide Web now a worldwide activity, companies providing web-based services can sit next door or in Bora Bora, and still (in many cases) perform equally well; employee retention in Bora Bora may also be better.

One of the authors recently conducted a web search for companies with whom to outsource an organization's own in-house publications and web publication operations. This organization had a growing list of complex technical publications and wanted to avoid hiring more staff to handle the demand for technical content. Instead, they sought a turnkey operation that could display titles and descriptions and take orders over the web, although the organization would continue to handle physical fulfillment.

The search came up with several good candidates, all of which seemed to have sound operations and attractive web sites. Only after close inspection did the organization find that the candidates included companies with operations in the U.K., Singapore, and India. Before the web, would operations in those countries have even been considered for the job? Not likely. And given the business needs, physical location really didn't matter. For many kinds of business services, the web has made national boundaries irrelevant.

Businesspeople, journalists, and politicians are calling this new phenomenon globalization. But globalization is much more than business and technology. Thomas Friedman identifies six different dimensions to understanding globalization: politics, culture, military, financial markets, technology, and the environment. Friedman notes that being a globalist requires understanding the interaction of all six dimensions that defines the globalized system.7

The outsourcing example cited above relates to another feature of 21st century business and the complex, competitive environment in which it operates. With increasing competition from offshore, or to meet investor demands for increasingly more profitable performance, companies have begun concentrating on their core competencies, which means going outside for services not directly related to the mission of the company. In many organizations, the first operation outsourced was payroll, and companies such as EDS and ADP became profitable performing these tasks for clients.

Outsourcing key functions increases the interdependency of companies. Package-delivery services, for example, have become crucial to the success of many companies serving customers over the web. When the Teamsters Unions went on strike against UPS in August 1997, President Clinton came under pressure to invoke emergency provisions of labor laws and order the striking drivers back to work. These laws had been used in the past only for vital services such as the railroads. The dependence of companies on UPS had apparently made a strike against the company almost as much of an emergency.8

The need to go outside the company for vital services requires more sharing of information with the outsourcing partners. More than just suppliers, they become key players in the success of your business, which means that you need to share vital business data with them. But remember that one's partner today can also be a current or potential competitor; for example, when a partner is capable of doing what you suggest as an opportunity, or can partner with another company to provide the same thing. If you haven't already deployed and put the solution in place, beware! Therefore, one of the important requirements of e-business is the need to move quickly and engage in business from a dead start with little advance warning as opportunities develop, or if companies suddenly need to terminate relationships at a moment's notice and fill the resulting gap themselves.

Another feature of the 21st century economy is _the need to address markets through different means. Distribution channels using the traditional supply chains—manufacturer to distributor to dealer to customer—are under increasing pressure from customers looking to cut out the middlemen and their markups, as well as suppliers wanting to reach end users as directly as possible. A plain fact of life of 21st century business is that companies in the supply chain must add value to the process, or risk being cut out of the action.

The plight of travel agents today vividly illustrates this fact. Agents used to make commissions from their booking of inventory held by travel suppliers: airline seats, hotel rooms, rental cars, and tour packages. They justified their commissions on the volume they could produce for the suppliers, and on finding the best travel values for customers. Travel agents used third-party services called global distribution systems (GDSs) that aggregated the inventories of the travel suppliers and made it possible for travel agents using online terminals to search out the best travel bargains quickly and easily.

Sabre is perhaps the best-known GDS, although others such as Worldspan, Galileo, and Amadeus compete for travel services. Sabre started as the online booking engine for American Airlines, and then expanded the service to include other airlines and later other travel services. AMR Corporation, the parent company of American Airlines, spun off Sabre as a separate company in December 1999.9

Obviously, the web has changed the travel industry landscape. Not only can customers do their own searching for the best of posted prices; they can search out distressed inventories (empty seats, rooms, or cars) on their own or through dynamic pricing services such as Priceline.com. With this increasing computing power in the hands of customers, both travel suppliers and GDSs want the ability to reach the customer, as well as work through the traditional travel agents, for those customers who need help with bookings.10 Sabre created its Travelocity.com service specifically for this purpose.

Making business even more interesting in the 21st century is the fluid nature of competition. Your partner in one activity today can be your competitor in another activity tomorrow, in a practice called coop-etition. For example, companies may form joint ventures to develop specific products and services, while competing at other levels. Organizations also take part in consortia to develop industry standards and specifications. In these consortia, such as the Interactive Financial Exchange Forum or the Open Travel Alliance, companies that normally compete with each other pool their knowledge and experience to agree on specifications that provide the overall industry with a common platform or data-exchange specifications. (Notice that many of the ebXML participants today come from these multi-company consortia.)

But if a partner today is a competitor tomorrow, companies need to take steps to protect themselves from partners using the information gained from the relationship against the former partners. As a result, one finds greater use of a document called a non-compete agreement, in which partners agree not to divulge details of the joint work or use it in competitive products or services.11

And what about customers? Companies who took care of their customers used to be rewarded with the customers' loyalty. This is no longer the case. Now, with increased competition, companies need to continuously build value in their relationships with customers or find their former loyal customers going to the competition.

Companies want to be able to build a continuous relationship with their vendors, but still get the best quantity/quality value for the price. To meet this objective, companies try to translate their requirements into specifications that enumerate and quantify their requirements, so any vendor with the right capabilities can take its best shot for the business.

This process forces suppliers to fit their products and services into their customers' specifications, to enable the customers to make a rational selection. But once this process happens, customers can start treating their suppliers' products and services like commodities, since they become, in effect, interchangeable.

Taking the idea to the next stage, companies can _post their requirements on an open exchange, and have vendors compete for the business. These vertical exchanges have become a common way of doing business over the web. In the beginning, vertical exchanges provided matchmaker services—essentially putting together buyers and sellers. However, exchanges have begun taking on more functions and covering more of the supply chain. Marketplaces including e-Steel, FastParts, and ChemDex have now started covering more functions than simply buying and selling, in order to compete for business.12

The market research company IDC categorizes exchanges as follows:

E-distribution sites, designed to serve the sellers' interests

  • E-procurement sites, designed for buyers

  • E-marketplaces, which are neutral and take into account the interests of both buyers and sellers

IDC predicts that e-marketplaces will become important players in the e-business arena. The company estimates that e-marketplaces will account for 7.5% of the world's total e-business volume in 2000, but grow to 56% by 2004. IDC cites examples of e-marketplaces including Freemarkets and Suppliermarket.com for industrial goods and QuoteShip.com and GoCargo for logistics services.13

However, exchanges have raised questions about potential violations of antitrust laws. As of October 2000, these questions have not been settled conclusively, but some early signs suggest that they will pass legal scrutiny. In September 2000, Covisint, the automotive industry exchange formed by DaimlerChrysler, Ford Motor Company, General Motors, and Renault/Nissan, received antitrust clearance by the U.S. Federal Trade Commission and Germany's Bundeskartellamt.14

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