Enterprise Impact Simulation Alliances - At The Core Of EIS

Alliance-driven IT

The key demand driver for the predictive capabilities of Enterprise Impact Simulation (EIS) is c-commerce and the alliance-based business model that results. Accurate, coherent, comprehensive blueprints of our IT systems form the foundation of EIS; the ability to accurately predict the impact proposed changes to the business will have on the IT infrastructure and vice-versa. This predictive capability is needed to reliably and repeatedly implement changes to IT systems on time, with all required functionality and without negative impacts to the business or the alliance to which it belongs.

Successful participation in the alliance model requires this predictive capability. We must be able to accurately predict the impact of change so that modifications intended only for the alliance don't cause negative impact to the other elements of the business, and vice-versa. We must also be able to accurately predict the schedule for implementing these changes. The alliance as a whole will need to implement changes in lock step to being new functionality to the network. Members who cannot accurately implement change on schedule will hold back the entire alliance. As a result, information about our IT systems becomes more valuable than the systems themselves. That information is our entry fee to the alliance, and admission to the alliance is a prerequisite for survival of the business.

This is a new value proposition for IT organizations. The value of the IT organization is shifting from the delivery of software systems to the delivery of information about those systems that enables the business' successful participation in the alliance model. This shift poses many challenges for today's IT organizations, but the value offered by c-commerce alliances make the shift unavoidable. Successful IT organizations will rise to the challenge and begin developing EIS capabilities now; before their absence becomes a limiting factor on the success of the business.

This article is the second of three in a series. The first introduced EIS, identified the technology breakthrough in software test automation that makes it possible, and identified the c-commerce alliance model as the key demand driver for EIS' predictive capabilities. The intent of this article is to explore the c-commerce alliance model, the challenges it poses for the IT organization, and the value it promises for the consumer and for alliance members in more detail. The last article in the series will develop the operating model that delivers EIS' predictive capabilities to businesses competing for membership in a successful c-commerce alliance.

Alliance-driven Challenges

Achieving the benefits of c-commerce requires system-to-system communication between collaborating businesses. GartnerGroup predicts that "[i]n a collaborative world, enterprises must compete not only on the availability, cost and quality of their products and services, but also on the quality of the information they can publish for consumption by collaborating partners." "ERP is Dead - Long Live ERP II" Oct. 4, 2000. The first information collaborating partners will need to share is their IT blueprints. They contain the information needed to establish the system-to-system communication that forms the basis for the alliance. Companies that already have those IT blueprints in place will be able to implement that communication more quickly than those that do not. This will put them in a preferred position when it's time to pick alliance members.

Processes that guarantee the continued maintenance of those blueprints will also be required. IT systems are going to change for c-commerce and, in most cases, they're going to change repeatedly. In fact, the more proactive a company was in the early days of ERP, the earlier it got in the game, the more change it will likely suffer in the months and years ahead. In the paper cited above, GartnerGroup also predicts that "most users will evolve to [c-commerce] systems via multiple upgrades of existing ERP systems. As vendors provide these upgrades, users will find sustained business process and system stability all but impossible to attain." The early, silo-oriented ERP systems are not just ill suited for service in the new business model. Their monolithic, mainframe-based architecture is irrelevant and obsolete from an architectural perspective. Major modifications are in store.

One of the critical success factors for an alliance will be the ability of its members to make modifications to their IT systems without unintended impacts to their business or to the alliance. This capability will depend on the ability to predict the impacts of change; on EIS capabilities based on the underlying IT blueprints. Information about how the systems work, how they work together and how the business, its customers and trading partners use them will be key to implementing changes for one set of users without negatively impacting others. This capability will be critical under the alliance model. Changes intended for use within a business or business unit must be contained. Impacts must not be allowed to leak into other user communities unintentionally. The same is true of changes targeted for use by the alliance but not intended to impact internal processes or systems.

The ability to make these modifications on a timely basis and to stay in synch with the rest of the alliance will also depend on EIS' predictive capabilities and the underlying IT blueprints. Forty to eighty percent of most IT projects time is spent in analysis/design and testing. Analysis/design time can be greatly improved, reduced by at least half in most cases, by eliminating the need for the programming staff to go into the source code to rediscover or validate the workings of the system at the beginning of a project.

Testing, where failures in the requirements and design are often first discovered, will be the biggest beneficiary of the existence and use of IT blueprints. Testing can become much more focused, eliminating unnecessary regression testing that happens today because of uncertainty about the workings of our systems. Testing time will also be reduced as rework and retest activities required today because of missed requirements or designs that fail to comprehend all requirements are eliminated. Where the introduction of new functionality requires all members of the alliance to make changes, members who have IT blueprints in place will finish much more quickly than those who do not. Tolerance for members who cause the alliance to be delayed in these efforts will diminish quickly. The ability to establish and maintain EIS capabilities and the underlying IT blueprints could easily become the key requirement for ongoing membership in a successful alliance.

The connected, chain-like nature of the c-commerce alliance model means that problems in one member's IT systems, or in their IT delivery process, can easily disrupt the overall network. Temporary outages of existing functionality are one predictable result. Worse, one member's inability to reliably implement change can cause the alliance as a whole to be delayed in introducing improved functionality to the network. Successful Alliances will choose their members carefully. Reliable, repeatable, reusable IT delivery processes that deliver EIS capabilities and maintain the company's IT blueprints could become the deciding factor in who gets a seat on the alliance and who gets left out.

Alliance-driven Value

The value of c-commerce alliances is compelling on three fronts: cost, competitive position and customer satisfaction. "For every on-line buy-and-sell transaction, there are 15 to 20 other transactions associated with it If you can achieve electronic collaboration among these processes, the cost savings go from 20 percent to 80 percent." "Success through Collaboration" SAPInfo Magazine, Sept. 18, 2000. But the value of c-commerce alliances in improving its members' competitive position relative to non-members and in achieving higher levels of customer satisfaction and loyalty could be even more important in the long run.

The alliance model is already firmly established in some industries. The airline industry was one of the first to move to the alliance model. The One World Alliance allows American Airlines to offer AAdvantage vacation packages at lower cost to the consumer than they could possibly achieve buying the individual pieces themselves. Even setting cost aside, the alliance model offers compelling value to the consumer. On the one hand, a customer can arrange the entire trip with one transaction through AAdvantage Vacations. On the other hand, they could arrange air transportation with two or three separate carriers, ground transportation, and hotel or resort reservations separately. One transaction versus four or five. And if, heaven forbid, something goes wrong during the trip? On the one hand, the alliance takes responsibility for the trip and the members work together to deliver end-to-end service. On the other? Each transaction stands on its own and the "ripple effect" of a problem in any segment of the trip is entirely the customer's problem.

The value of the alliance model to its members is particularly easy to see in this travel scenario. Imagine a vacation to the islands and the competitive advantage membership in the alliance offers to the resort. The worldwide marketing effort of AAdvantage Vacations extends the audience of the participating resort far beyond what individually competing resorts could realistically afford. At the same time, marketing costs per customer are reduced and volume increased as AA funnels vacationers to the member resort to the exclusion of its competitors.

The appeal of the alliance model extends well beyond the industries traditionally recognized as information intensive. Jonathan W. Ayers, CEO of the air-conditioning manufacturer Carrier Corp., detailed some of that value in a recent article in Fast Company magazine. Carrier reduced costs by $100 million dollars last year utilizing the web. Most of those savings were delivered via simple e-commerce reverse auctions. C-commerce can multiply those savings four to five times.

The possibility of putting an extra half a billion dollars on the bottom line is enough to ensure the initiative will move forward. But Ayers goes on to articulate two other components of the value equation. Talking about their Brazilian operation, he notes that "[t]he time required to get an order entered and confirmed by our channel partners has gone from six days to six minutes. Customer satisfaction is way up."

Perhaps even more compelling, however, is an impact that has the potential to deliver long term strategic advantage to Carrier. Ayers noted that their initial use of the web substantially expanded the number of suppliers who competed to do business with Carrier. An interesting thing happened next. Having identified the world's most competitive suppliers, Carrier's c-commerce initiative then tends to make them unavailable to Carrier's competitors. "We're usually the first company to go to our suppliers and say that we want to put them on a Web-based procurement system. ... When their second biggest customer comes along and says, 'We'd like you to use our Web-based purchasing system,' they say, 'We're already using Carrier's system, and we don't want to juggle two.' So first-mover advantage with suppliers is a big deal..." "How I Saved $100 Million on the Web." Fast Company, February 2000. The lock-in affect of the c-commerce alliance model has the potential to deliver long-term strategic advantage to the businesses that achieve these capabilities first.

The compelling value proposition offered by c-commerce value drives a fundamental and unavoidable change in the nature of business competition. Businesses cease to compete on an individual basis and begin to compete as members of alliance groups. Alliances hold the brand. Access to customers, market share, is a function of alliance membership. Members' costs and margins, their profitability, is a function of the alliance to which they belong. The survival of the business, especially for the small to mid-sized enterprises that participate at the discretion of the alliance leader, depends on membership in a successful alliance. Alliances improve the value equation for the customer, improve the competitive model for Alliance members, and demand a new value proposition from the members' IT organizations.

A new IT Value Proposition

The value proposition for IT organizations is shifting. The change in the value equation will happen very quickly once it begins. IT organizations should begin the development of their blueprints now. Waiting until they're needed as part of a bid for a position in a newly formed alliance puts the business at risk of being left out.

As a result of the compelling value of c-commerce and the alliance-based model it drives, the value companies require from the IT organization is shifting. The delivery of software becomes a given. The delivery of information about that software becomes the new value proposition. Success begins to be defined not as the delivery of change, but as the delivery of change readiness. The completion of the current project must result in an increased readiness for the beginning of the next. That change readiness comes in the form of IT blueprints that allow organizations to move forward with IT change immediately, without reverting to an examination of the systems' source code to rediscover or validate the systems' current workings.

The change in the value equation will happen very quickly for most IT organizations. As alliances begin to form, the readiness of the individual members to begin electronic collaboration will, in many cases, determine which alliance wins the race to be first to market. As Carrier's CEO noted, being first to market could be a very big deal in c-commerce. Whether or not the IT organization already has its IT blueprints in place, and the organizational capability to maintain them, could be the key factor in determining whether or not the company gets a chance to participate in a successful alliance. The expectations the business leaders have of the IT organization will change just as quickly as the value of participating in the alliance model becomes apparent.

IT organizations should move to quickly put these blueprints in place. They are key to improving the company's chances of success at being included in the first alliance to be formed in their industry. The exclusionary nature of the alliance model for late comers, as noted in the Fast Company article about Carrier Corp., is real. On Internet time, being first is an important element of success. Admission to the alliance model is a prerequisite for survival. IT organizations should focus their current efforts on putting the requirements in place that will help ensure their company doesn't get left out.



SOURCE:
http://www.technologyevaluation.com/research/articles/enterprise-impact-simulation-alliances-at-the-core-of-eis-16324/

E-procurement: From Brilliant Innovation to Common Cliché

Introduction

In 1998 researchers at the Haas School of Business of the University of California at Berkeley published an important study called "Procurement in the Internet Age - Current Practices and Emerging Trends." Essentially a survey of 80 technology-oriented companies, the paper proved to be a good guide to subsequent developments in E-procurement. It is a measure of how far we have come in less than two years that in their summary of "interesting findings" the very first one listed is:

* The attitude towards the Internet is overall positive

This was interesting at the beginning of 1998. It would not have been impossible that a majority of purchasing organizations were highly skeptical of the Internet. After all, purchasing agents depend heavily on personal interaction with suppliers. Furthermore, the Internet was far from omnipresent: many of the companies surveyed had no Internet access, or had only a single connection, and so were unable to complete the survey except by paper and pencil. But despite these and other potential roadblocks there was a strong realization that E-procurement had the potential to reduce costs and time, the two most important measures of success in procurement of goods and services. (Customer satisfaction was third and quality of goods was fourth).

So it is hardly surprising that, just two years later, E-procurement is taken for granted in almost every industry and sector, and that business-to-business E-commerce has overtaken consumer commerce as the focus of attention, especially on the part of the stock market and venture capitalists.

What does E-procurement look like today? Roughly speaking there are seven kinds of players, of which four are software and service vendors and three are marketplace operators. The four vendor groups include:

Enterprise Procurement: These are the vendors whose early successes and high market capitalization created E-procurement. They specialize in E-procurement and their products carry large price tags. Players in this segment include Ariba and Commerce One.

ERP Vendors: ERP vendors have been suffering from their own success. Having conquered the corporate IT world, they have been struggling to show the impressive growth curves of their heyday. As they watched the enterprise procurement vendors sell to their own biggest customers they saw a natural fit and a new niche into which they could expand. Players in this segment include Oracle, PeopleSoft, Oracle, and Baan.

Corporate Portal: These are companies that already have other products but have seen the potentials of E-procurement and have launched products in this space. They are building from their existing strength, and repackaging their existing products with procurement to offer integrated product suites with common user interfaces, common backend systems, and common administrative tools. Players in this segment include Peregrine, Concur, Remedy, and Intelisys.

Application Service Providers: The ASP market in E-procurement is developing at a time when Internet technologies make outsourcing convenient for both client and provider. Players in this segment include almost all of the above. Most of the companies that offer corporate licenses are also looking for ASP arrangements. Some are becoming their own ASP's, some are licensing their software to ASP's or even to ISP's who then resell the license to their own ASP customers, and some are doing both.

As Figure 1 suggests, larger corporations tend to be sought after by the ERP and Enterprise Procurement vendors, while midrange and smaller companies are targets for the corporate portal vendors and the ASP's.

There are other companies that don't fit any of these molds. For example, Clarus Corporation recently unloaded its portfolio of applications (ERP, financials, and human resources), thereby forgoing the strategy of other Corporate Portal types, to create a new E-procurement business from scratch.

The types of marketplaces include:

Singletons: These are companies that create their own marketplaces, which they host themselves. Companies like Staples and Dell fall in this class.

Verticals: Vertical marketplaces concentrate on a specific industry or type of product. Examples include: CHEMDEX.com in the life sciences, E-hospitality.com in the hotel industry, GM TradeXchange in the automotive industry, and buzzsaw.com in construction.

Aggregators: These marketplaces bring together a number of suppliers. The marketplace will provide catalog creation and hosting for the suppliers and some form of unified searching for the buyers. Examples include Concur Commerce Network, the Ariba Network, and Commerce One's Global Trading Web.

At this point in the evolution of the market, software vendors are creating their own marketplaces, although some also sell marketplace-creating tools to others. The larger aggregators may have a number of marketplaces - a combination of verticals and regional markets - that are tied together as a network.

One significant indicator of the direction of the marketplace market is Commerce One's strong push to create a truly global marketplace. Commerce One is partnering with significant corporations in many regions to create regional marketplaces that will also serve as portals to a global marketplace consisting of the collection of all of them.

Another indication is the recent announcement of Concur's Business Advantage, a program offering leveraged buying advantages to small and mid-sized companies. What is especially novel about this is Concur's teaming with insurance and investment giant SAFECO, which will likely result in Concur's products and services being sold - or at least promoted -- by SAFECO's independent agents.

A company looking to bring this technology in-house has to predict not just which vendors will be able to do the job - meeting both immediate and future needs - but which new business models will spin off from emerging technologies.

The growth of business-to-business electronic auctions, for example, is not an evolutionary step from pervasive non-digital auctions, although such were of course not unknown. Rather, it comes from the availability of technology to support such auctions cheaply, meeting a need that was not high on very many lists because there was no expectation that the need could be met. What other needs might be someplace down on the wish list just waiting for the right technology to propel them into the "must have now!" column?

Trend

Independent vertical marketplaces will sprout like mushrooms, but some will dry up and others will become part of higher-order colonies.

Trend Overview: It is clear that vertical marketplaces are a hot item. As they come down the runway, one after another, each is greeted with delight, at least from its own particular industry. The star of the show has been Chemdex, a company that recently renamed itself to Ventro and redefined itself from a builder of vertical markets to an incubator for vertical markets. Vertical markets will proliferate because the more general MRO marketplaces cannot afford to build strength in specialty industries, and will find it easier to offer connections to existing verticals.

Trend Impact: Some of the larger E-procurement companies, such as Ariba, Commerce One, Oracle and SAP are involved in building verticals in high profile areas such as the energy and automotive sectors, but industry specialists will build most verticals. This does not leave the major vendors out of the picture: they will provide the platforms for building the vertical marketplaces that are managed by others.

In the longer run, apparently independent verticals will merge to take advantage of common buyers or suppliers or simply economies of scale. This will be driven by those large industries that first become heavy users of a number of verticals, because of the inefficiencies of working with large numbers of marketplaces.

Trend

Standards will accelerate the drive toward market commoditization; market commoditization will accelerate the drive toward standards

Trend Overview: There's no better indicator of this than a recent announcement that General Motors, Ford and Daimler Chrysler will cooperate to create a single marketplace for the automotive industry. This announcement came only a few months after Ford signed with Oracle and GM signed with Commerce One for independent marketplaces. Many commentators were surprised that Daimler Chrysler did not have its own announcement at that time; some looked to Ariba to make its mark in that arena, while others noted SAP executives becoming frequent fliers to Detroit's Metro Airport.

Announcements of the new global marketplace stressed the difficulty that separate marketplaces would have for suppliers doing business with more than one automaker, but there were two subtexts, both involving standards.

First, it is not at all clear why a supplier working in two or more marketplaces should have any integration trouble at all. Both Oracle and Commerce One stress open standards and XML, which means that entering a second marketplace should be almost trivial for a supplier.

Second, the absence of both Ariba and SAP from this partnership may be news in itself. While the big three automakers might reasonably have decided that two vendors were enough, both Ariba and SAP stand a bit further from standardization than the others. Ariba's proprietary dialect of XML is not blessed by any of the major standards initiatives; while it is theoretically true than XML makes it easy to translate between dialects, the practice is still complex. SAP's E-procurement solutions play only with SAP's own ERP systems, and in fact require a complicated and costly upgrade to version 4. We think it likely that interoperability and standards had a role in the way this giant trading exchange got shaped.

At press time there were rumors circulating that Chrysler-Daimler may be going after its own vendor after all, probably SAP, and that the degree to which this marketplace will be unified will not meet early expectations. This would be a minor setback to the cause of interoperability. It may represent a concern about sharing corporate data or an objective look at the realities of standardization today. However, so long as the marketplace and suppliers can interoperate with each company the basic nature of the venture will not change.

Trend Impact: One lesson is that standards work has to accelerate, and that a viable standard or collection of standards must evolve soon for E-procurement to reach its potential.

Another is that with standards, there is little benefit to having multiple competing marketplaces. If the technical work of entering marketplaces was nearly nil after the first, then both buyers and suppliers would have easy entry and exit. And, as Adam Smith taught, that leads to increased efficiencies and to low margins. In some cases, as with the automotive industry, the best move will be for independent marketplaces to merge. In others the result will more likely be that marketplaces will compete aggressively on transaction fees and amenities. We think that the technical sophistication of the suppliers in an industry will drive the direction that the industry's verticals take.

A year from now we think it will be very clear that key players in E-procurement will have to have open, public XML access. Ideally a standard would develop as a large vocabulary of tag and schemas that apply across industries, with each industry able to produce its own specialized dialects. This is one of the goals that Microsoft was shooting for in its BizTalk initiative, with the exception that Microsoft was looking for market forces to develop standards based on use.

We think that things will move in the general direction we've outlined, but that it will take closer to three years for something approaching a cross-industry standard to be both defined and generally accepted. And, even then we believe that there will be somewhat less progress at the level of individual industries.

We expect that within three months Ariba will start giving out signals that they are moving away from their proprietary dialect toward a more widely accepted standard. This may come in the nature of increased support for one of the evolving standards that is accepted by their competition, or as the kind of marketing statement that says "we've always been interoperable, but now we'll be even more so." Similarly, SAP will tell us that integration with other ERP vendors was always in their plans, although it will probably be effected through third party tools and integrators rather than as a core feature of the SAP product.




SOURCE:
http://www.technologyevaluation.com/research/articles/e-procurement-from-brilliant-innovation-to-common-clich-15635/