In his latest book, The Agenda, millionaire business guru and author Michael Hammer proclaims collaborative commerce to be ‘The Next Big Thing’. Analyst group Gartner, meanwhile, boldly lays claim to having coined the term, declaring: “E was big. C is bigger.”
Hammer and Gartner are not alone in their enthusiasm. They and other industry watchers believe collaborative commerce heralds the next major wave in technology investment. And while each of them defines it in a different way, at the heart of each definition of collaboration is the concept of sharing information and processes between trading partners in the supply and demand chain, enabling everyone to do business more effectively, and at lower cost.
Two powerful forces are driving the need to collaborate. On one hand, suppliers want to cut costs; on the other, they need to please the customer in an increasingly demand-driven market.
At its most basic, collaborative commerce can simply mean sharing key information with trading partners. Parcel delivery service DHL, for example, collaborates with its customers by allowing them to place and track the progress of their orders online. Furthermore, order details go straight into the ordering system, so there are fewer margins for error. And DHL needs to employ fewer order processing and support staff.
Collaboration can also mean cooperative decision-making. According to Roger West, head of Cap Gemini Ernst &Young’s B2B Solutions team for the UK and Ireland, “Those who see collaborative commerce as just a technology play or a business process reengineering solution miss the basics. Collaborative commerce is about bringing people together, real time, to make decisions about business issues from design and new product development through to supply chain planning and project management. This is the essence of collaboration and at its heart are people.”
One example of this is UK grocery chain Londis Group, which for two years has been operating a collaboratively managed inventory system that now provides 19 of its major suppliers with real-time access to a common information portal showing the group’s purchasing requirements and allowing them to exchange ideas on best practice. Improved supply chain visibility has enabled partners to reduce inventory by an average of 14% and cut order cycle times by 6%.
On a deeper level, collaborative commerce can shave costs off the way organisations develop, distribute and purchase products and services in their supply chain.
Paul Strassmann, who has led corporate information systems strategy at some of the world’s largest and most prestigious organisations, coordinated a $35 billion cost reduction and business reengineering programme in his role as director of information at the US Department of Defense. He calculates that, as products evolve from components to manufactured goods and move through the tiers of the distribution chain, the accumulated administrative cost can amount to 34% of total product costs. Add in a further 23% for the retailer, and you have a massive 57% of total costs derived from administration.
By streamlining the supply chain through collaboration, Strassmann argues, those costs can be slashed, enabling suppliers to both offer products more cheaply and increase their own gross margins. “Collaboration means that you cut out duplication, so you can discard a lot of your installed capital,” he says. Cutting costs has become vitally important, argues Strassmann, because of the shift in power from supplier to customer.
In order to achieve this level of collaboration, argues author Michael Hammer, organisations must “knock down [their] outer walls” and tightly integrate business processes on every level. One company that has, arguably, achieved this is Dell Computer. Its strategy of building to order depends on a just-in-time manufacturing system with direct links between its ordering systems and its suppliers’ inventory systems. But this, combined with selling direct to customers, has enabled the company to make savings of over $150 million since 1998.
Dell has also managed to achieve an 80% improvement in time-to-market over the competition, a 10% to 12% cost advantage, and just five days’ worth of inventory compared with up to 90 days among its competitors. And it does not plan to stop there; according to Tommy Geary, head of business process for Dell EMEA, the aim is to move towards still closer integration with suppliers and zero inventory.
Cost advantages are not the only reason companies are looking to work together, says Mike Tilley, head of BT Retail, a division of UK telecoms company British Telecommunications. Another factor is the growing complexity of collaborative technologies. “Even a small business now has an array of technology,” says Tilley.
“And in the home, it’s not unusual to have several lines, several Internet connections in different rooms, and several mobile connections.”
To help consumers and small business overcome that complexity, BT has launched an initiative known as Digital Office in partnership with Dell, Microsoft, Cisco and US industrial giant General Electric.
Governments and local authorities are also looking to collaborative technology to help them achieve better relationships with the public as a growing proportion of the population moves online.
Cost savings and delivering a better service to customers are both aims of the UK government’s Modernising Government collaboration initiative, announced in 1999. The government has set a deadline of 2005 for local authorities to be delivering all their services online, and is aiming for all central government procurement to be tendered electronically by the end of this year.
However, the government faces significant challenges in integrating the many disparate systems and business processes in its offices around the country. According to Eurim, the European Information Society Group, the government’s 2005 deadline is unrealistic. Controversially, Eurim describes the move to create collaborative local authority portals as like “putting lipstick on a pig”.
Even in the private sector, few true collaborative projects have yet got off the ground for the same reason. Although the Internet has provided a common interface for universal collaborative applications, and made it easier to share information, sharing processes and data between systems is proving trickier. Many businesses have not yet even integrated their internal applications so that different departments in the same company can collaborate and share information. For different organisations’ systems to be able to share common processes, they have to be able to speak the same language, and collaboration mechanisms such as XML (extensible mark-up language) and web services are still clouded by conflicting standards.
But in implementing successful collaborative solutions, the biggest challenges are likely to be human and organisational, rather than technological. Mike Blackburn, head of innovation and policy for BT Government, is involved in a number of partnerships with public sector organisations including Liverpool City Council and City of Edinburgh Council.
He points to a recent survey by Harvard Business School that showed that of 150 unsuccessful business partnerships, 64% failed because of poor relationships. “Everyone focuses on getting the technology or individual processes right, but they forget to work on the relationships between organisations,” he says. “Having common ground rules sounds simple, but often gets overlooked – you have to articulate the rules for success and keep on measuring them.”
Even major players may be missing the point here, as US car manufacturer General Motors found to its cost. At the end of 2001, the company was forced to shelve its multi-million dollar plans to get 30,000 suppliers on the web in 18 months, when many of its dealers refused to adapt their own ways of working to fit in.
Although ultimately businesses may face a stark choice – collaborate or die – in the short term, would-be collaborators will have to work hard on convincing partners that they have much to gain by working together.