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Maximize Business Profits Through E-Partnerships Fang Zhao Royal Melbourne Institute of Technology (RMIT) University, Australia
IRM Press Publisher of innovative scholarly and professional information technology titles in the cyberage
Hershey • London • Melbourne • Singapore
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[email protected] Web site: http://www.irm-press.com and in the United Kingdom by IRM Press (an imprint of Idea Group Inc.) 3 Henrietta Street Covent Garden London WC2E 8LU Tel: 44 20 7240 0856 Fax: 44 20 7379 0609 Web site: http://www.eurospanonline.com Copyright © 2006 by Idea Group Inc. All rights reserved. No part of this book may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher. Product or company names used in this book are for identification purposes only. Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI of the trademark or registered trademark. Library of Congress Cataloging-in-Publication Data Zhao, Fang, 1956Maximize business profits through e-partnerships / Fang Zhao. p. cm. Summary: "This book gives a comprehensive introduction of the concepts and practices of epartnering and discusses the application of e-partnership in e-commerce, e-business, the supply chain and e-supply chains"--Provided by publisher. Includes bibliographical references and index. ISBN 1-59140-788-5 (hardcover) -- ISBN 1-59140-632-3 (softcover) -- ISBN 1-59140-633-1 (ebook) 1. Electronic commerce. 2. Strategic alliances (Business) I. Title. HF5548.32.Z473 2006 658.8'7--dc22 2005020630 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book is new, previously-unpublished material. Each chapter is assigned to at least three expert reviewers and is subject to a blind, peer review by these reviewers. The views expressed in this book are those of the authors, but not necessarily of the publisher.
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Dedication
To my parents, Deming and Peishen, for their inspiration and encouragement, and to my beautiful daughter, Kelly, for her love!
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Maximize Business Profits Through E-Partnerships Table of Contents
Preface ............................................................................................. viii Chapter I. Overview of E-Partnerships: Definitions and Patterns ...................... 1 Introduction: The Impact of Information Technologies on Business Relationships ............................................................................ 1 Business Relationships and Partnerships ........................................... 4 Defining E-Partnership ..................................................................... 7 E-Commerce, E-Business, and E-Partnership ................................ 12 Comparing E-Partnership to E-Collaboration and C-Commerce .... 15 Similarities and Differences Between E-Partnership and Traditional Partnership ............................................................................. 16 E-Partnership: Past and Present ..................................................... 18 Summary ...................................................................................... 25 References .................................................................................... 25 Chapter II. E-Business Supply Chains and E-Partnerships ................................ 30 Introduction .................................................................................. 30 Evolution of Supply Chain Management ......................................... 31 E-Supply Chains ........................................................................... 35 E-Supply Chain Management (E-SCM) ........................................ 39 E-Procurement .............................................................................. 40
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E-Partnerships and B2B E-Marketplaces ...................................... 43 Summary ...................................................................................... 48 References .................................................................................... 49 Note ............................................................................................. 52 Chapter III. E-Partnership Strategy and Structure .............................................. 54 Introduction: Taking a Strategic Management Approach ................. 54 Importance of Developing an E-Partnership Strategy ...................... 55 E-Partnership Strategy Formulation ............................................... 60 E-Partnership Strategy .................................................................. 64 E-Partnering Strategy Implementation ............................................ 71 E-Partnership Structure Design ...................................................... 77 Summary ...................................................................................... 82 References .................................................................................... 82 Chapter IV. Technological Challenges and Issues Facing E-Partnerships ......... 86 Introduction .................................................................................. 86 Technical Set-Up and Support ...................................................... 88 Process and System Alignment and Integration ............................... 91 Communication Technologies for E-Partnerships ............................ 96 Cast Study: BHP (BlueScope) Steel — Integration Practices and Lessons Learned ............................................................ 103 Issues of Interoperability .............................................................. 105 Summary .................................................................................... 106 References .................................................................................. 108 Chapter V. How to Make E-Partnerships Work: Human and Cultural Issues ....................................................................................... 111 Introduction ................................................................................ 111 Quality Dimensions of E-Partnership ............................................ 112 Ecosystems ................................................................................. 113 Network Management ................................................................ 114 Commitment and Support ............................................................ 116 Partnership Oriented Approach ................................................... 117 Communication ........................................................................... 118 Issue of Trust .............................................................................. 120 Information and Knowledge Management in E-Partnerships ......... 125
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Information Exchange and Security .............................................. 131 Change Management ................................................................... 133 Education and Training ................................................................ 135 Sharing Power and Empowering .................................................. 136 Termination of E-Partnerships ...................................................... 137 A Total Quality Partnership Approach ......................................... 138 Summary .................................................................................... 140 References .................................................................................. 141 Endnote ...................................................................................... 144 Chapter VI. Successes and Failures in E-Partnering: Multiple Case Studies ...................................................................................... 145 Introduction ................................................................................ 145 Case Study 1: Google ................................................................. 146 Case Study 2: eBay ..................................................................... 148 Case Study 3: Yahoo! ................................................................. 150 Case Study 4: Cisco Systems, Inc. .............................................. 154 Case Study 5: A Small Australian Manufacturer ........................... 157 Case Study 6: GlobalNetXchange (GNX) and a Retailer Company ... 161 Case Study 7: An Online Auctioneer ........................................... 162 Cross-Case Analysis: Key Issues Raised ..................................... 164 E-Partnership Failures ................................................................. 169 Summary .................................................................................... 170 References .................................................................................. 171 Endnotes ..................................................................................... 174 Chapter VII. Entrepreneurship and Innovation Through E-Partnering .............. 175 Introduction ................................................................................ 175 Entrepreneurship ......................................................................... 176 Innovation ................................................................................... 179 Conceptual Relationship Between Entrepreneurship and Innovation ............................................................................ 182 Empirical Studies of Synergies Between Entrepreneurship and Innovation ............................................................................ 183 Case Studies: E-Entrepreneurship and E-Innovation through E-Partnering ......................................................................... 186 Issues and Challenges Facing E-Entrepreneurship and E-Innovation ........................................................................ 198
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Summary .................................................................................... 200 References .................................................................................. 200 Endnotes ..................................................................................... 204 Chapter VIII. A Balanced Scorecard Approach to Monitoring and Evaluating E-Partnerships .......................................................................... 205 Introduction: Significance of Performance Measurement ............... 205 Basic System and Process of Performance Measurement ............. 206 Supply Chain Performance Measurement ..................................... 207 SCOR Model ............................................................................. 210 Various Issues and Elements Affecting Partnership Measurement ....................................................................... 212 A Balanced Scorecard for E-Partnerships .................................... 215 Benchmarking and Best Practices in Partnerships ......................... 218 Online Performance Measurement Technologies .......................... 221 Summary .................................................................................... 223 References .................................................................................. 224 Chapter IX. The Future of E-Business and E-Partnerships ............................... 228 Introduction ................................................................................ 228 Future Trends of E-Business ........................................................ 229 Future Trends of E-Partnerships .................................................. 232 Overall Conclusions .................................................................... 234 References .................................................................................. 237 Appendices ....................................................................................... 239
Appendix 1: E-Partnership Questionnaire ........................................... 239 Appendix 2: E-Entrepreneurship and E-Innovation Questionnaire ..... 241
Glossary ........................................................................................... 242 About the Author ............................................................................. 248 Index ................................................................................................ 249
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Preface
The business success and fast expansion of Amazon.com, Dell, travel.com and the like through e-business partnerships reinforce the value of strategic alliances. Corporate e-partnerships will be a crucial factor and play a key role in the future development of e-business activities. In the frenetically changing competitive landscape of today’s business world, few organizations can rely only on their internal strengths to gain a competitive advantage in national and/ or international markets. Irrespective of their organizational and management structures and styles and communication channels, inter-organizational collaborations, alliances, joint ventures and partnering are gaining unprecedented momentum. For example, to expand and branch into the printer market, Dell, one of the largest computer manufacturers in the world, entered a partnership with Lexmark International Inc. In the storage market, Dell has formed an alliance with EMC Corp. to sell co-branded storage machines (Business Week, 2003, p. 61). Today, it is not uncommon to see that many companies have portfolios of 20 or more alliances and partnerships, and some have over a hundred. In fact, it is reported that about 20% to 50% of corporate value has been generated from corporate partnerships (Bamford, Gomes-Casseres, & Robinson, 2003). Even the largest organization’s resources are limited in one way or another; therefore, the formation of a business e-partnership is increasingly one of the most popular strategies available to an organization to, on one hand, take advantage of the Internet highway and share risks, capabilities and revenue with partners, on the other. However, alarmingly, many early e-partnerships failed or did not achieve their goals. This research book aims to provide a practical, insightful and compre-
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hensive guide for both brick-and-mortar and dotcom companies to address the challenge of building and managing successful e-partnerships to maximize business profits. The book delivers new insights and substantial recommendations for corporate strategy and action in today’s e-business landscape where e-partnership prevails. The specific objectives of the book are: • • • • • •
• •
To investigate the impact of IT and the Internet on business relationships in e-business; To maximize the e-business value chain through the development of effective e-partnerships; To explore issues and problems relating to management of e-partnerships; To identify and examine best practices in managing e-partnerships through multiple case studies and a cross-case analysis; To explore strategies for achieving the best performance and optimal results from e-partnerships; To study the interface between entrepreneurship and innovation in vitalizing e-business and the role of e-partnership in the interaction between the two; To identify and develop effective and feasible performance metrics to monitor and evaluate the process and outcomes of e-partnership; and To speculate future trends of e-business and e-partnership.
A review of the current e-business literature finds that the majority of English language publications have focused upon e-commerce sales and marketing, although some studies have elaborated upon the supply chain dimension of ebusiness. The e-supply chain relies heavily on effective and efficient partnership from or between virtual enterprises and bricks-and-mortar companies (van Hoek, 2001). In the supply chain, each individual activity services another by focusing on operations across firms’ boundaries as opposed to seeking to only optimize internal firm efficiencies (Wagner, Fillis, & Johansson, 2003). The most common supply chain failures in e-business, such as products not delivered on time or are out of stock, are largely caused by poor organization and collaboration of partners in the logistical and supply processes. Inter-organizational partnerships become of central importance to the success and sustainability of e-business and supply chains.
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E-partnerships which are driven by the Internet and other electronic technologies open up a whole new range of opportunities. However, these have been largely unexplored in the current e-business literature. This book provides readers with practical solutions for effective e-partnerships through a systematic inquiry into the nature and processes of e-partnering. The book gives a comprehensive introduction of the concept and practice of e-partnership and discusses thoroughly its application in the areas of information flow, procurement, logistics, engineering and manufacturing, marketing, customer services and human resources. Readers will be able to appreciate the key issues involved in the process of e-partnering in e-business after reading the book. In addition, the book is written from an international perspective and presents a contemporary report of e-partnerships between brick-and-mortar and dotcom companies and among dotcom companies. Finally, although the main focus of the book is placed on B2B partnerships, it also concerns business-to-customer partnerships in cyberspace. The research design for this book follows a case study approach with the dual purposes of enhancing the validity of research findings and achieving the best possible results for the present study. A large number of real-world case studies of e-partnerships are presented in the book. The multiple case studies involve many different dotcom businesses as well as brick-and-mortar companies that have engaged in e-business. The companies profiled encompass a wide range of industry sectors, operating in different nations and cultures, and have different histories, varying in size and length of existence but serve to illustrate the main themes of the book. The case studies rely on both documentary research and extensive interviews with senior e-business managers from both dotcom and brick-and-mortar companies. These interviews focused on how the dotcoms/e-businesses have been managed, how they have succeeded or failed and what lessons can be learned from their experiences. The book provides a large number of real-world snapshots and detailed case studies to inspire active learning and critical thinking. The discussion questions after each case study aim to encourage creative contemplation of, and reflection on, the key issues covered by the case study and the book. In today’s e-business environment, technology, customers, competitors and partners can change frequently and rapidly. Technology can become obsolete in the blink of an eye, and customers can appear and disappear with a keystroke. There are practically no barriers to new market entrants, or competitors, in an e-business world. E-business partnerships and networks can become ephemeral and opportunistic in nature, depending on the interdependencies between partners and the extent to which their objectives have been
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achieved (Robbins et al., 2003). In such circumstances, it is crucial that ebusiness managers have an insightful guide to deal with the complexities of epartnerships. This book helps e-business managers formulate and implement e-partnership strategy and provides a greater understanding of the crucial issues in cross-firm business processes and inter-organizational partnerships in cyberspace. As the present study is based upon both empirical and theoretical research, the book is also a valuable resource for researchers and students in the study field. The structure of this book flows from the objectives of the book and has a total of nine chapters. Chapter I provides background information for the entire book and presents an overview of e-partnership, its connotation, evolution and current patterns. The chapter looks at the impact of information technologies and the changing scenario of today’s business environment and examines the driving forces behind the rapid growth of e-partnerships. In order that the operational context of e-partnerships is understood in greater detail, Chapter II explores the recent development of the supply chain, specifically, electronic and e-business supply chain and its interfaces with e-partnerships. The chapter presents a broader and comprehensive view of the landscape in which e-partnership prevails and the role it plays in the e-business arena. Chapter III is concerned with e-partnership strategy and structure and delineates various worked examples of e-partnerships in today’s e-business environment. It guides readers to develop their own strategy and appropriate structure for building and managing e-partnerships. Chapter IV deals with the technological challenges and issues facing e-partnerships, ranging from technical set-up and support to process and system alignment and integration. The chapter also discusses various information technologies and solutions used for the development and management of e-partnerships. Chapter V concentrates on people management in e-partnership and network management. Key human and culture issues are discussed, including quality of e-partnerships, ecosystems, commitment, communication and termination of partnership. It especially touches on the issue of trust and information and knowledge management in the context of e-partnership. Chapter VI presents multiple case studies of seven companies, ranging from big brand name dotcoms like Yahoo! and Google to a small manufacturer that has embraced e-business and e-partnership technologies and practices. The multiple case studies are followed by a cross-case analysis of the main issues
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depicted in relation to the development of e-partnerships. The chapter also presents key success factors identified from the successful cases and hard lessons learned from the failures. Chapter VII seeks to explore the thrust of entrepreneurship and innovation and their implications for e-business and e-partnership success from an integrative perspective. The chapter focuses on the role of e-partnerships in maximizing the value of entrepreneurship and innovation. Chapter VIII reviews and discusses various concepts, models and issues of performance measurement. On the basis of that, the chapter proposes, by taking a balanced scorecard approach, a new set of performance metrics for managers to assess the process and outcome of e-partnerships in a comprehensive and balanced manner. The chapter also helps e-partners to benchmark against best practices and to determine the future direction and priorities in their e-business partnerships. Chapter IX, the final chapter, is bifurcated, speculating the future trends of ebusiness and e-partnerships extrapolated from the current development and formulating overall conclusions based upon the research from the book. You will find the book extremely helpful if you belong to one of the following groups: • •
•
•
Managers, entrepreneurs and IT professionals of dotcom companies; Managers and IT professionals of brick-and-mortar corporations that plan to embrace, or have engaged in, e-business or e-commerce as an additional business channel; Academics (teachers and researchers) and students who study e-business management and/or operations management (including value chain and supply chain management) in e-business or e-commerce; and Anyone who is interested in the field.
References Bamford, J. D., Gomes-Casseres, B., & Robinson, M. S. (2003). Mastering alliance strategy: A comprehensive guide to design, management, and organization. San Francisco: John Wiley & Sons.
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Robbins, S. P., Bergman, R., Stagg, I., & Coulter, M. (2003). Management (3rd ed.). Sydney: Pearson Education Australia. van Hoek, R. (2001). E-supply chains: Virtually non-existing. Supply Chain Management: An International Journal, 6(1), 21-28. Wagner, B. A., Fillis, I., & Johansson, U. (2003). E-business and e-supply strategy in small and medium sized businesses (SMEs). Supply Chain Management: An International Journal, 8(4), 343-354.
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Acknowledgments
The production of this book would not have been possible without the assistance of the institutions and people to whom the author is grateful. The author is greatly indebted to the School of Management and the Business Portfolio of Royal Melbourne Institute of Technology University, Australia, for the teaching relief and the financial support needed to conduct the research for the book. The researcher is also greatly indebted to all those interviewees who devoted their valuable time and constructive input to the book. Also, special thanks go to the anonymous reviewers of my initial book proposal and the entire manuscript of the book for their encouragement, invaluable comments and advice. Finally, this author gratefully acknowledges the valuable contributions of Ms. Carmen Gould to some of the data collection, case studies, and editorial work of the book.
Overview of E-Partnerships 1
Chapter I
Overview of E-Partnerships:
Definitions and Patterns
Introduction: The Impact of Information Technologies on Business Relationships In the past decade, many significant changes have affected the business environment, including globalization of economies, the fast growth of electronic business, dramatically increased competition in most industries and sectors and rapidly evolving technology innovations. As globalization increasingly permeates the world markets, competition is no longer limited to that between individual businesses, but now exists between the entire supply chain. Equally, the convergence of IT and communication and the advent of the Internet have impacted dramatically on almost every aspect of our lives. Indeed, the Internet and WWW have been seen as the catalyst for radical change in business
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activities and business processes. The digital world offers a borderless and virtual village where companies are interconnected and interdependent through a network of partnerships and relationships. Companies have responded differently to the opportunity this represents; some use Web sites as a show window (a public relations tool) or build e-business portals which complement an existing brick-and-mortar business, while other Web sites serve as the only physical appearance of an e-business. Globalization entails multiple flows and exchanges of information, goods and services, and links local and global economic activities through a complex network of processes. It is this connectedness and interdependence through information technologies that drives our business world today. In such a world, collaboration through intelligent e-business networks becomes crucial because it provides the competitive edge that enables all members in the supply chain to prevail and grow (Horvath, 2001). The Internet has become an inextricable part of globalization. It has changed the way organizations communicate internally and externally, the way they are doing business, the way they are configured and the way they build partnerships. Take, for example, information flow through the supply chain. In the traditional supply chain, order information flows in a sequential way through resellers, wholesalers, distributors, manufacturers, parts suppliers and logistics providers. At each step, data and information are collected, processed and transmitted multiple times, incurring cost and time delays. The Internet changes fundamentally the way information flows in the supply chain. It offers real-time parallel processing of information, instead of sequential processing in the batch mode and provides a natural platform to capture the order, coordinate the activities, track the order status and deliver after-sales service (Lee & Whang, 2002). At the same time, the emergence of e-business and e-marketplaces, which rely on the Internet, has fundamentally changed inter-organizational processes and the nature of relationships, including buyer-supplier relationships. For instance, e-marketplaces require supply chain partners to transition their long-established and trusted business relationships from the physical world to the cyber-world. Powered by Internet technologies, system integration and interoperability between partners become reality. Companies have much more options and wider channels in selecting their partners. As a result, dependence on long-established trading partnerships is inevitably decreasing, and new e-partnerships are easily built and ended in the cyber-world.
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Overview of E-Partnerships 3
The Internet also creates a new environment for the manufacturing industry to get access to real-time market data. The Internet enables agile business practices across a much broader range of contexts and enables inter-organizational collaboration across multiple enterprises in the design, engineering, production, delivery and maintenance of products and services. It also helps companies with different backgrounds worldwide join their forces to form virtual networks or organizations. The Internet has not only expanded the scope of traditional business partnerships but also created an extra layer to them by adding unique and complex electronic components to the partnerships, that is, e-partnerships. Today’s complex and volatile business world calls for changes and alternatives to old and conventional paradigms of organizational design and new ways of doing business. As a result, e-business has become one of the most important forces shaping today’s business. Based upon Giga Information Group’s study, the cost savings from business use of e-commerce will reach $1.25 trillion by the mid-2000s. It is predicted that at its present growth rate, online retail sales in the United States will reach over $100 billion in 2004, constituting 4.5% of total retail sales of the country. According to International Data Corp, Business-to-Business (B2B) e-commerce is expected to grow worldwide to $4.3 trillion by 2005 (DeMark & Harcourt, 2004; Lumpkin & Dess, 2004). It is evident that the information technology revolution has made a significant impact on the economy driving transformative and dynamic change. Many researchers have agreed that IT has transformed the “old” industrial economy, which was epitomized by tangible assets, standardization and stand-alone players, into a “new and virtual” economy dominated by intangible assets, customization and networks. “The new economy is, therefore, undergoing a paradigm shift from a physical, supply-driven, and disconnected world to an intellectual, demand-driven, and interconnected one” (Chang & Li, 2003, p. 35). It is within this transformative change that e-business becomes a major driver of the new economy. The emergence of e-business leads to the convergence of technology and products, less predictable customer demand, shortened product life cycles and price transparency. Companies must address the challenge to improve operational efficiency, develop real time reporting systems and build and leverage strategic alliances and partnerships therefore the ability to adapt to e-business is a must for long-term survival of most corporations.
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In terms of business processes, in the 1990s, companies made great efforts to redesign and re-engineer their internal business process to streamline it and reduce functional barriers. In the twenty-first century, the Internet has pushed companies to align and integrate their processes with inter-firm processes across various organizations in order to do e-business. This changing scenario has resulted in a shift in information technology focus from integrated intra-firm application packages to Internet-based, e-enabled and inter-firm focused application software (Kirchmer, 2004). While the Internet and IT has created abundant e-business opportunities, it has also rendered many traditional business models obsolete. It requires digital transformation, that is, profound changes in organizational and business structure, strategy and culture, which presents unprecedented challenges to organizations and managers worldwide. How can technology, operation, strategy, structure and human resources in e-businesses be aligned and integrated? How can value-adding partnerships be built in e-business? How can value-added partners be integrated into an e-business system? How can the unique features of digital technologies be leveraged to create business and competitive advantages? These are some of the key challenges this book aims to address. The remainder of the chapter is devoted to a detailed discussion of the connotation, evolution and current patterns of e-partnerships, and the similarities and differences between e-partnerships and traditional partnerships, which provide background information for the entire book. The discussion is accompanied with a number of e-partnership exemplars of the real world.
Business Relationships and Partnerships Before moving on to a discussion of e-partnerships, it is important to clarify and understand the basic attributes of business relationships and partnerships, as they are closely associated with the foundation of e-partnerships. Recent research shows that today’s organizations live in a variety of tangible and intangible relationships and intricate inter-firm networks which can be vertical and/or horizontal. One organization’s performance is often significantly affected by other organizations’ performance and the quality of the relationship with them. The networked relationships often involve organizational relationships across industries and nations with suppliers, competitors, customers or
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Overview of E-Partnerships 5
other entities, forming not only interdependent business networks but also interwoven social networks. The underlying driving forces for the networks are largely network resources including primarily technologies, core competency, market share and information, which offer a competitive advantage for member organizations within the networks. This section synthesizes and reviews various perceptions about business partnerships in the current literature. Definitions of business relationships and partnerships in the literature often describe the following attributes: • • • • •
A high level of commitment; Mutual dependency (a good partner relationship results in a reciprocal dependence); Trust; Sharing of risks and rewards; and Sharing of information and resources.
In the context of the supply chain, Lemke, Goffin, and Szwejczewski (2003) specifically identified five key supplier partnership constructs through their empirical study of the attributes of manufacturer-supplier partnerships. The key constructs are: 1. 2. 3. 4. 5.
A personal business relationship which is developed on a personal level rather than at the business level; Special products tailor-made for the manufacturer; New product development which involves partners in the development process; Relationship maintenance in terms of communications and company visits; and Location nearby for speedy delivery and convenience of interaction.
These five constructs were highest-ranked in the study and considered to represent the critical success factors for a manufacturing-supplier partnership. In particular, they emphasized the importance of personal relationships and
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involvement of suppliers in product planning and development. While the study concerned business relationships between manufacturers and suppliers in the supply chain, the basic constructs also apply to the development of epartnerships and have implications for the study of e-partnerships. It is interesting to find that although the geographical closeness for physical delivery (number 5) is not important to e-partnerships, as it can be replaced by cyberspeed and efficiency using electronic communication and delivery, many epartners regard the closeness of locations between partners as an advantage to develop a solid platform for collaboration in the region. For example, an epartnership exists between Eastern Network, an information technology solution developer, and Equant, a provider of global IP, data services and ebusiness, and without coincidence, both companies are located at Dubai Internet City (MENA Business Report, October 23, 2002). There are generally two perspectives on business relationships: a “vendor” perspective and a “partner” perspective. “A vendor perspective is based on a transactional point of view, whereas a partner perspective is grounded in a relational standpoint” (Lemke et al., 2003, p. 13). The two perspectives reflect the different nature of business relationships. A transactional vendor approach often embodies a loose partnership, primarily based upon discrete transactions only, whereas a partnership approach represents a long-term orientation which supports relational exchanges between interdependent partners. In this regard, business partnerships are embedded in the second perspective. A business relationship can be a dyadic one involving two parties only and can also be a vertical and horizontal integration of a number of organizations. For example, a vertical integration may involve partnerships between one manufacturer and several suppliers in the supply chain. A horizontal integration often occurs when several competitors form a strategic alliance to achieve a common strategic goal. Given the nature of e-business, where business relationships may be either loose, transactional or a highly sophisticated network of formal business partners, this book is not restricted to one perspective of business relationships but refers to both when discussing e-partnerships. Cunningham (2001) categorizes business partnerships into three types in order of importance to the business. The first type is an “inside partnership” which includes partnerships with investors, accountants, legal counsel, board of directors and so forth, without whom a product or service cannot be made. The second type, of lesser importance, is a “nearside partnership”, such as supply chain partnership, traditional vendor relationships, OEM distribution relationships, franchises and so on. The last category is a “network partner-
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Overview of E-Partnerships 7
ship”, where partners are distributors, sales channels, value-added resellers (VARs), contributors, consultants, contractors, printers and others that are not individually critical to the business. Cunningham’s view represents a traditional perspective of partnerships which does not include the customer relationship (because customers are the receiving party only) and regards network partnership as the least critical one. Chiasson (2001) simply divides business partnerships into “tighter” partnerships (i.e., acquisitions, joint ventures, minority investments) and “looser” partnerships (i.e., non-exclusive strategy/product alliances and marketing alliances). However, this ownership approach to partnership description ignores the nature and the outcomes of partnership. The “tighter” partnership does not necessarily mean a stronger and more effective relationship than the “looser” partnership. As to the rationale behind entering a business partnership, Chiasson’s (2001) survey found that exploiting capabilities not available in-house and gaining timeto-market advantage were the most important reasons. Other factors contributing to the formation of a business partnership included obtaining a cost advantage over in-house capabilities and leveraging the brands or customer bases of potential partners. Thus, the general features and rationale of business partnerships share a great deal in common with those of e-partnerships, and this will be thoroughly explored and discussed in the following sections.
Defining E-Partnership E-partnership is a novel term, still in need of a commonly agreed upon, allencompassing definition. However, this author takes a liberty stance in defining the term with the intention of exploring the richness of e-partnership dimensions and encouraging the debate over its connotation. Theoretically, e-partnership refers to a business partnership relying on electronic (information) technologies to communicate and interact among partners. As e-business has become an integral part of most business practices where consumers, suppliers and buyers are connected by information technologies, the term e-partnership is mostly associated with electronic commerce partnerships and, in a broader sense, electronic business partnerships. In today’s digital era, innovative and entrepreneurial organizations use e-
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partnership as a key strategy and backbone of their e-businesses to improve internal operations, operate in new market segments and keep up with the fastmoving business environment. Deise (2000) defines e-partnership from a pragmatic perspective, as a relationship among companies that use e-business to share business improvements, mutual benefits and joint rewards. E-partnership requires capability and risk sharing among partners. It may also take different forms and involve various partners from or between virtual enterprises and brick-and-mortar companies, depending on the nature of e-business activities. In terms of levels of e-partnership, they range from simple contractual outsourcing to setting up joint ventures in which e-partners come together to do business, create a new venture and invest part of their equity and share revenue. For example, e-business customer software developer, Sideware Corp., entered into a partnership with BranTech, a company specializing in the design, development and commercialization of advanced pattern recognition technologies and products. Under the partnership agreement, BranTech became a value-added reseller (VAR) of Sideware’s electronic customer relationship management (eCRM) solution (Anonymous, 2000). This is a typical kind of simple contractual e-partnership which is very popular in the United States. There are three common forms of e-partnership: (1) partnerships among dotcom industries (e.g., partnerships between Yahoo! and Overture Services, and between Yahoo! and Google); (2) partnerships between brick-and-mortar companies and dotcom industries (e.g., partnership between Australia’s Seven Network and the American company, NBC Internet Incorporated (O’Brien, 2000) and (3) partnerships among brick-and-mortar companies for the purpose of carrying out e-business activities (e.g., partnership between Australia’s supermarket giant, Woolworths, and Commonwealth Bank). While the three forms of e-partnership have their distinct features, in today’s complex business operations, companies are often involved in more than one type of e-partnership and have multiple partners. An e-partnership between dotcom firms only is increasingly unlikely to get business done due to the interdependency between dotcoms and brick-and-mortars in meeting various needs of customers in the markets. Therefore, this book refers to the three forms of epartnership when using the term e-partnership unless stated otherwise. There are other ways to classify e-partnerships. De Man, Stienstra and Volberda (2002) identified two types of e-partnerships in terms of the primary purpose of entering a partnership: technology partnerships and business
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Overview of E-Partnerships 9
partnerships. Technology partnerships are usually between a brick-andmortar company and an IT service provider and/or an e-business technology company. These types of partnerships often involve research and development (R&D) partners, (Web site) design partners, technology partners (providing hosting services) and integration partners (designing software). The relationship between them is mostly supply or sourcing. Business partnerships in ebusiness, on the other hand, focus on developing new businesses, new markets, setting up new companies or reaching new customers. However, in practice, the two partnerships are not mutually exclusive and are often interwoven and complementary in e-business activities. For example, Covisint, a world automotive e-hub, developed e-partnerships with a number of technology companies to provide it with technological applications and infrastructure that enabled Covisint to operate efficiently and effectively. The partnerships allowed Covisint to offer new services and generate new businesses and new channels of revenues. Therefore, unlike De Man and der Zee’s (2002) classification, this book is not restricted to one type of e-partnership, instead describes both technology partnerships and business partnerships in e-business. Snapshot 1: Exostar’s Partnershi p Program Exostar is an e-marketplace orig inally built for the US$400 billion global aerospace and defense industry. Its founders include BA E Systems, Boeing, Lockheed Mart in Corp., Raytheon Co. and, later, Rolls-Royce. The co mpany claims to provide a single point of connection for electronic security, co mmerce and collaboration for g lobal manufacturers and aerospace and defense organizations. Today, it has around 16,000 t rading partners around the world. Exostar has developed a sophisticated e-partnering program wh ich consists of three main categories: (1) consulting and system integration partnerships, (2) software and technology partnerships and (3) business partnerships. The first group of partners provide Exostar with a wide range of consulting services, including imp lementation of software solutions, process and change management and strategic business services. The second group, software and technology partners, helps Exostar develop technology and software solutions with specific functionality and enabling technology the aerospace and defense e-marketplace need. The third group of partners focuses on providing business solutions to Exostar, which inc lude facilitating the imp lementation and integration of informat ion services and training services to trading partners. Source: Exostar (http://www.exostar.com)
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Snapshot 2: Global eXchange Services Partnership Progr am Global eXchange Serv ices (GXS), Inc. runs one of the largest B2B e-co mmerce networks in the world and manages one billion transactions annually for mo re than 100,000 t rading partners. Sixty percent of Fortune 500 co mpanies are GXS’s t rading partners. GXS has a well-established partner progra m designed to extend the value of GXS solutions delivered to customers worldwide. The perceived benefits of partnering with GXS, according to the company, include (1) increased market exposure, (2) joint strategic sales and co-marketing progra ms and (3) access to a global and growing customer base. GXS divides its partners into four categories: (1) strategic partners, (2) channel partners, (3) technology partners and (4) standards leadership. GXS has developed strategic partnerships with BearingPoint, Hitachi and Manugistics to leverage their “unparalleled depth to solutions across multip le industries and multip le technologies.” GXS’s channel partners include referral partners and reseller partners who are basically GXS’s sales partners. The intention behind developing technology partners is self-evident, that is, collaboration in creating technology solutions of B2B integration, synchronization and collaboration. Standards leadership partners are standards organizations that help GXS to realize its aim of becoming a leader in deploying and managing its Business Process Networks. Source: Global eXchange Services (2004)
In the context of the supply chain, e-partners may include raw material providers, component manufacturers, final assembly manufacturers, wholesalers, distributors, retailers and customers. This supply chain may involve a number, even hundreds or thousands, of suppliers and distributors. Cisco System, for example, is actually a network of e-partnerships which includes suppliers, contract manufacturers, assemblers and other partners and is connected through an intricate web of information technology. Seventy percent of Cisco’s products are outsourced through Cisco’s network. As soon as a client’s order is placed (usually through the Internet), suppliers send the required materials to assemblers who ship the product directly to the client, usually on the same day (McShane & von Glinow, 2000). This kind of informal and network-based e-partnership is an inevitable trend in the globalization and information era. In terms of structure, e-partnerships flourish in the launching of joint eventures, formation of a third dotcom firm and engagement with exclusivity agreements and equity partnerships. Although there have been a number of mergers and acquisitions within the dotcom industry over the past few years, many dotcoms have chosen e-partnership as their strategy for growth. Compared with mergers and acquisitions, e-partnership has the following advantages: Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
Overview of E-Partnerships 11
• •
It offers a flexible, efficient and provisional solution to e-business; and It can be quickly started and completed, which meets the cyber-speed of the e-world and also addresses the needs of a more volatile and less predicable e-business environment (Deering & Murphy, 2003).
Another key advantage of e-partnership that drives companies towards them is that it adds complementary and new services to accommodate changing customer demands and needs, creating new channels of revenues for each party involved. For example, Sony entered an e-partnership with Yahoo! Japan and Softbank to provide its customers with access to online auctions and the ability to chat with other game players online using a new Internet phone service (George, 2001). Another example is provided by Yahoo!, who developed epartnerships with three companies to assist the company with Web hosting services. The partners include British Telecom, United States’ ISP SBC and Australia’s Destra Corp. The match and combination between Yahoo!’s product range and marketing capacities and the e-partners’ specific expertise in Web housing provides a complete service for SME customers wishing to conduct e-business for the first time or expand their existing Web capabilities. Moreover, the e-partnerships are expected to create new revenues for both parties (Maslog-Levis, 2004). E-partnerships as “a new breed of online alliances, are fast emerging as the result of an incredible amount of Internet business in recent years” (Trask, 2000, p. 46). Technology, particularly Web-based resources and systems, are indispensable for the trend. They provide an interface between employees, between companies, and between companies, their suppliers and their customers. E-business, especially B2B commerce, is the most important contributor to the development of corporate e-partnerships because “e-business can enhance the interchange of information between partners by breaking down communication, negotiation and co-ordination barriers” (Cheng et al., 2001, p. 2). Obviously, e-business relies heavily on e-partnership to expand. For instance, the growth and success of Amazon.com in e-business has been largely achieved through aggressively expanding its extensive networks of e-partnerships. Through its online affiliate program, Amazon.com has developed epartnerships with hundreds of thousands of e-partners ranging from tiny, personal home pages to big brothers like Yahoo! and Excite. Over 600,000 Web sites have joined Amazon.com and placed hyperlinks to Amazon.com for e-shoppers to make online purchases (Amazon.com, 2002; Hagel & Singer, 2000; Werbach, 2000). Amazon’s e-alliances have extended to the UK, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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France, Germany and Japan. It has also developed close alliances with other big book distributors and publishers to strengthen its e-commerce capacity, and, by doing so, Amazon is able to provide its customers with lower prices, vast selection and speedy delivery.
E-Commerce, E-Business, and E-Partnership Regardless of how e-partnership is defined, there will be no e-partnership if there is no e-commerce or e-business. The phenomenon of e-commerce is not new and can be traced back to the earliest days of computer-based transactions between companies using electronic data interchanges (EDI) to place orders, transfer stocks, invoice and so forth. However, with the advent of the Internet and, later, the World Wide Web, e-commerce has moved beyond company-to-company transactions and entered into households, embracing individual consumers. The public sees e-commerce as an important means of promotion, advertising, sale and distribution of products and services by electronic technologies (UNESC, 2001). E-business is a comprehensive term used to describe the way an organization interacts with its key constituencies, including employees, managers, customers, suppliers and partners through electronic technologies. It is a broader construct than e-commerce. While ecommerce is part of e-business and is often used interchangeably with ebusiness in publications, e-commerce is limited to business exchanges or transactions over the Internet only. Rodgers, Yen and Chou (2002) stated in a recent study that e-commerce focuses primarily on a firm’s customers, whereas e-business expands the connectivity of an organization to include its suppliers, employees, and business partners. “E-business is revolutionizing the way of communication between internal and external stakeholders” (Rodgers et al., 2002, p. 184). E-business transforms the “generic code” of the enterprise and places a premium on partnerships, collaboration and alliances. E-business has two basic features: (1) relying on Internet and “Web” resources to interact between partners and (2) often involving external business relationships through either business-to-business or business-to-consumer interaction. E-business is also generally seen as having three primary segments: (1) business-to-customer (B2C), (2) business-tobusiness (B2B), and (3) business-to-employee (B2E). B2C describes elecCopyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
Overview of E-Partnerships 13
tronic retailing that often involves customers shopping online and may include collecting information, ordering products or services and using support services through a Web site. B2B often refers to electronic transactions between a company and its suppliers, involving electronic processes such as e-supply chains, e-logistics and e-procurement. B2E, as the name suggests, supports an organization’s internal processes using the intranet to distribute information and allows employees to put daily tasks and business processes online. Among the three segments, B2B is the dominant form of e-business, representing around 80% of e-business (Buyukozkan, 2004). As this book explores inter-firm business relationships in the context of e-business, the focus of the discussion is placed mostly on B2B and B2C. In the “e-boom” era, e-business was widely seen as something that must be pursued at all costs because it promised the opportunity of doing business faster, better and cheaper. Although this assumption has been under great scrutiny following the collapse of numerous dotcom industries, e-business is still a popular strategy and/or alternative business model for many organizations, in particular for large and medium companies. The driving factors for moving business online include: • •
•
•
•
The e-business process accelerates interactions between suppliers and vendors and may lead to a faster market response capability. The use of Web technology to move business online results in improved efficiency. E-business allows many processes to be fully automated, thus improving the efficiency of business processes and reducing the error of human interfaces. E-business also links suppliers to their customers, which offers opportunities of systems interconnection, production streamlining and automatic material order. E-business offers a wider network of partnerships that enables the right products available at the right time and price, thereby improving customer services and adding convenience. E-business increases price competition among suppliers. For example, GM and Ford reduced their procurement costs significantly by creating emarketplaces where the lowest bidder (e.g., suppliers of automotive parts) won. Internet-based transaction systems cost less over the long run. For example, Internet banking costs much less than over-the-counter banking.
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•
•
Customer information can be automatically extracted during e-commerce transactions, including purchasing behavior, which can lead to faster and more accurate market trend forecasting and targeted marketing. E-business can be accessed from anywhere and anytime, thus eliminating geographical, country and time barriers to business operations and transactions (Intel Corporation cited in Damanpour 2001; Rodgers et al., 2002).
However, e-business faces many challenges and issues. Early e-business models proved simplistic; the technologies were immature and necessary standards were non-existent. As e-business applications and infrastructure are becoming increasingly complex, there is an urgent need for the development of flexible middleware, intelligent decision support functionality and contextualization of the technologies. However, the costs of setting up and maintaining e-business infrastructure are high and remain one of the primary concerns for organizations that wish to get involved in it. High cost usually means high risk to business, especially when it comes to technology. Electronic projects typically involve new technologies and innovative development, which create a high level of technological, commercial and legal risk for every organization involved in e-business. Internet security is another crucial issue affecting the viability of e-business. News reports about Internet hackers’ attacks are no long a surprise to the public, and many customers are hesitant to transact online because of their concerns over Internet security. While the Internet and e-business facilitate improved communication of data, information and knowledge between e-partners, they also give rise to issues of privacy, data security and intellectual property protection. These issues inevitably have an adverse impact on the development of e-partnerships because they originate and grow from e-business. For example, the information database created through Internet transactions may lead to legal disputes among epartnerships over ownership of the IP and possible loss of the potential profit generated from the IP (Greif, 2000). More discussion on this is given in Chapters IV and V of this book. Nevertheless, e-business is still regarded by many as a means to achieve competitive advantage in the current national and international marketplaces, as the Internet still holds the promise of significant improvement in organizational performance. It is clear that the current increasing momentum of e-commerce and e-business offer considerable opportunities for redesigning inter-firm
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Overview of E-Partnerships 15
business relationships. E-partnerships will continue to be a favorable way for advanced and agile organizations to do business and maximize their profitability.
Comparing E-Partnership to E-Collaboration and C-Commerce The success of e-partnership results from effective electronic collaboration (ecollaboration). Generally speaking, e-collaboration refers to the use of the Internet and/or Internet-based tools among business partners beyond market transactions. The term is often used in the context of supply chain, in particular, in supply-buyer relationships. E-collaboration is identified as one of the new areas of optimizing the relationship between supplier and OEM via the Internet. It is an Internet-supported, enterprise-spanning cooperation which is viewed as crucial during the development and construction process (the so called eengineering process) (Kersten, Schroeder, & Schulte-Bisping, 2004). Ecollaboration aims to facilitate coordination of various supply chain activities and decision-making processes. It often involves sharing of information and knowledge on which joint supply chain decisions can be made. Information that needs to be shared among supply chain partners often include sales data, inventory status, production schedule, promotion plans, demand forecasts, shipment schedule and new product introduction plans. In addition to information sharing, e-collaboration provides opportunities for collaborative planning and new product development. By resorting to e-collaboration and Web technologies, supply chain partners can exchange product forecasts and replenishment plans and then develop new plans that meet market demand in a timely and effective way. Studies show that this kind of e-collaboration enables the reduction of inventory costs and enhancement of customer service level across the supply chain (Lee & Whang, 2002). New product development is also facilitated by e-collaboration between e-partners in which collaborative product development, such as product rollover (the transition from one version of a product to its successor), is completed with efficiency and speed powered by Web technologies. Some of the popular e-collaboration methods include virtual workrooms, online visualization of demand forecast, online monitoring of capacity utilization, virtual development platforms and online visualization of business processes (Kersten et al., 2004).
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Collaborative commerce (c-commerce) means the use of Web technologies to collaborate with other stakeholders (e.g., buyers and suppliers). It often implies communication and information sharing in the supply chain (Ratnasingam, 2004). In this regard, it has some common features with e-collaboration; however, it is restricted to partnership in e-commerce activities. It is an ebusiness strategy designed to take advantage of Web technologies to strengthen collaboration between channel network partners. Its vision is to establish a fully synchronized network of customers, manufacturers, suppliers and service providers to transfer critical supply chain information in real time. It was claimed that early adopters of the c-commerce strategy, such as Dell, WalMart and Hewlett-Packard, have achieved some of the key benefits of ccommerce, including closer and timelier contact with the customer, better channel inventory management, faster time-to-market and improved supplier synchronization which lead to increased revenue (Ross, 2003). As shown previously, e-collaboration and c-commerce are different facets of e-partnership used in specific contexts to build an interactive relationship between business partners relying on new information and communication technologies. More detailed discussion of e-partnership in the supply chain and e-commerce will be given in Chapter II.
Similarities and Differences Between E-Partnership and Traditional Partnership E-partnerships share a number of common characteristics with traditional cross-firm partnerships. A cross-firm partnership is a relationship formed between two or more independent entities to achieve specific objectives and benefits, regardless of the medium of communications used between them. Therefore, both e-partnership and traditional partnership have to deal with inter-organizational relationship issues, face the challenges of management complexities of making the cooperation work and deal with inter-organizational differences in organizational structures, systems, cultures and so forth. However, e-partnership differs from traditional partnership in many ways and often requires different strategies and structures to manage it. Bell (2001)
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Overview of E-Partnerships 17
studied the differences and found that e-partnerships are generally entrepreneurial and less planned in nature, must move at Web speed, require flexible network structure and have a short lifespan. For example, a typical model of traditional partnership requires up to 18 months to qualify, build, develop and manage, whereas e-partnerships can be up and running within 90 days as suggested by Siebel System’s senior managers, Lea and Creighton (2002). Transora, an e-marketplace, was a joint venture of a large number of manufacturers in fast-moving consumer goods. It took about five months only to set up the company from developing the concept and formulating a business plan to the first pilot launch (De Man & der Zee, 2002). Speed and efficiency in decision making are fundamental and the basic features of e-partnership. Another apparent e-partnership philosophy is that of “launching and learning”: discovering along the way what should be retained, altered or removed from the experience rather than learning and launching. The key lessons of building and developing e-partnership, learned by Siebel Systems, are: • • • • •
You must act fast. You need to operate with a “start-up” mentality to have the agility and flexibility to move at Internet speed. At all times, you need to be on the lookout for partners of any size who can get you where you want to go. You need to be prepared to begin or end partnerships on the fly. You need more than traditional metrics to gauge whether your epartnership is effective (Lea & Creighton, 2002).
However, De Man, and der Zee’s (2002) case studies of e-partnerships in European countries found that most e-partnerships were set up for long-term purposes, and the average e-partnership lifetime appeared not to be short at all (De Man & der Zee, 2002). However, the different experiences and conclusions drawn from the case studies by Lea and Creighton (2002) and De Man and der Zee (2002) may be due to the different environments in which the epartnerships operated: one was undertaken in the United States and another in Europe. E-partnership relies on, and grows from, a network structure. Information technology and globalization are shaking up the concept and boundaries of
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organizations. “Virtual”, “cyber”, “meta” and other Internet terms have become the buzzwords of today. Virtual commercial services, such as virtual banks, virtual supermarket, virtual offices and the like, are no longer a surprise to ordinary customers. Globalization is pushing companies to build informal network organizations that are able to work in a faster, cheaper and more flexible way. Network organizations taking different names like virtual corporations, virtual companies, virtual teams and meta-enterprises become increasingly popular in the perception of managers and in business operations as we move from an industrial to a knowledge-based economy. The Virtual Revolution is the defining business transformation of this generation (Malone & Davidow, 1994) and boosts the expansion of networks of e-partnership across space and time, thereby offering greater flexibility for business operations. Epartnerships and network organizations interrelate and interact with each other in this digital era, and more discussion is given about the network structure in Chapter III of the book.
E-Partnership: Past and Present In the earlier “gold rush days” when dotcom industries were booming, epartnerships grew rapidly and dramatically. Based upon a survey conducted by Ernst et al. (2001), in 1999 alone, companies in the United States announced about 13,000 e-commerce partnerships. The average annual growth rate of the announcements between 1995 and 2000 was 103%. Most of the e-partnerships were loose, agenda-driven associations and, in some cases, were “onenight-stands” (Graham, 2002). Ernst et al.’s survey of 700 e-partnership deals, announced between 1997 and 2000, found that, of the three most popular epartnerships, partnerships between brick-and-mortar and dotcom companies (termed “bricks-and-clicks alliances”) were the most successful ones. Three out of four flourished more than one year after the announcement because the complementary nature of each partner’s contribution, both tangible and intangible, attributed to the success. Good dotcom firms are fast, dynamic, innovative and able to attract additional customers while, on the other hand, wellestablished brick-and-mortar companies have brands, products, distribution, supplier networks, customer relationships and physical sites, which become increasingly important assets for e-business success. The second type of epartnerships surveyed were partnerships between online content or e-com-
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Overview of E-Partnerships 19
merce companies and megaportals. The survey found fewer than 30% of the portals’ content or e-commerce partners achieved the financial or strategic objectives they sought. The problems with these partnerships were caused by poorly chosen partners, inequalities between the risks and the rewards for different parties, an absence of performance requirements or of metrics for assessing performance and a failure to focus on implementation. The third type of e-partnership was B2B partnerships. Only 29% of them were on track to create value or met medium-term objectives. The majority of them collapsed due to three common pitfalls: (1) too ambitious, tending to chase too many deals, (2) lack of commitment of the people, software, relationships, liquidity and capital needed to give the joint venture true autonomy and (3) burdened by equal governance arrangements (Ernst et al., 2001). New (2003) analyzed 302 B2B e-partnering initiatives in the form of e-marketplace in the UK and found that only 29 of them were able to demonstrate quantitative evidence of any substantial kind of e-business activities. These empirical studies present a general and insightful picture of the first wave of e-partnerships. The rapid demise of many e-partnerships was a direct result of the dotcom crash and the subsequent global economic recession. There have been quite a few studies about the causes of the dotcom crash in the literature. For example, Jantavongso and Li (2003) identified seven main factors that led to the dotcom failures. A study of the seven factors helps us to understand and learn lessons from the failures, which may in turn shed light on some of the key reasons for e-partnership failures. Poor management is one of the primary causes of e-business failure. Examples of this may include lack of a sound ebusiness strategy, poor business planning and lack of senior management understanding of the complex nature of e-business and the managerial skills it required. Insufficient infrastructure and immature Web technologies for conducting e-business are other factors cited which may contribute to e-business failure. Infrastructure includes internal and external network connectivity, telecommunication structure, standards and supporting services. Poor quality and design of Web pages are also considered factors behind the failures, specifically because they failed to provide site visitors with a pleasant experience when they conducted business online. Similarly, many Web sites failed to provide sufficient and relevant information to customers which would enable them to make well-informed decisions regarding transactions or persuade them to revisit the site. Weak marketing and lack of marketing strategies also contributed to the failures. In addition, there has been a general misconception that e-business requires little capital because the operating costs are low. The
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misconception may originate from the low initial set-up costs associated with a small virtual company without a physical office. Under the influence of this misconception, a lot of dotcoms rushed into the e-world with no real business activity. However, the initial investment obtained through IPOs, during the boom period when fund raising was quite easy for dotcoms, was soon burnt off. The costs to run a serious e-business are very high in terms of technology installation, maintenance, upgrades, operating costs, personnel and training costs and so forth. These high costs have driven a lot of dotcoms out of business, specifically because of a lack of capitalization. Last but not least, the general concerns of the public over online security and lack of trust of online business are also heavily attributed to the dotcom failures, as many earlier ebusinesses failed to address the issue with appropriate security measures. Following the burst of the dotcom bubble, many commentators asked the question: “Are e-partnerships a fad of the past?” The answer is no because epartnerships continue to grow but at a slower space than before, as investors have grown skeptical. Companies investing in e-commerce tend to be more cautious and choose to rely on the tried and true. As such, companies with strong brands still favor an e-partnership strategy to extend their range of products and services because, in this digital era, speed and scale are important sources of competitive advantage, and e-partnerships and alliances are often considered a “faster and less capital-intensive way to gain access to products, customers, and business capabilities” (Ernst et al., 2001, p. 92). Since 2003, dotcoms and high tech companies have started to revive. In the United States, it is reported that nearly 60% of the companies that made it through the dotcom crash made money in the fourth quarter of 2003. Those profits are luring investors back to the market. Venture-capital investment topped $5 billion in the first quarter of the year for the first time in nearly two years and 14 dotcom companies are registered to go public. Nasdaq index is another good indicator of investors’ confidence in high-tech and dotcom companies. It soared to its high around 5,000 points before the dotcom crash and then plunged to its low 1,000 points. And now it has gone up around 1,800 points since 2003. “The Internet economy is in full swing again”, a chief economist at Economy.com Inc. says, and indeed, the year 2004 may herald the second “E-biz strike”. There has been a general improvement in most dotcom survivors in terms of financial results. In February 2004, Melbourne IT, a domain name retailer and a commercial arm of University of Melbourne, Australia, announced a $A2.1 million full-year net profit. The company’s share price has been a classical indicator of dotcom performance in global stock
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Overview of E-Partnerships 21
markets. It peaked at $A17 before the dotcom crash, tumbled as low as $A0.29 and is now around $A1.00 (Greenblat, 2004). Epredix, founded in 2000, now has an annual revenue of US$20 million and US$4 million in earnings. Further, the dotcom survivors in travel booking, recruitment and auctions have seen significant improvement over the past year (Crowe, 2004). In addition to the general positive economic landscape worldwide, the rapid growth of broadband is another force to refuel e-business. Broadband provides high-speed Internet access and helps customers handle the huge loads of information dished up by the second wave of online players. It plays a crucial and instrumental role in the Internet’s advance. Broadband connection also facilitates programmers around the world to work together to develop new open-source software. The popularity of broadband has a significant impact on the Internet economy, including the economics of the US$200 billion software market (Mullaney, 2004). More and more people around the world now have high-speed access to the Internet; in the United States, 27 million households have broadband access, thanks to sharp cuts in the price of highspeed broadband. This is an increase of about 38% on the previous year (Business Week, 2004, p. 44). Australia has also witnessed a similar situation. Robust competition in the broadband industry has driven down the broadband price significantly. Telstra, the largest telecommunication company in Australia, has recently made an offer of “broadband at dial-up prices”, which “was aimed at stimulating rapid broadband take-up and expanding the overall market”. As a result, within three months, there were more than 100,000 additional Australians getting broadband access (Akhurst, 2004, p. 6). This rapid increase provides new opportunities to dotcom companies and e-business, as well as e-partnerships. Under the revived Internet economy and the rapid advance of information technologies, the current trends of e-partnership have the following features: •
•
Using more stringent criteria to screen and choose e-partners based upon, not only e-capacity (i.e., ability to perform electronic transactions in a timely manner), but also on the quality of products, the delivery performance and the value-added extras that the potential partners can bring to the relationship; Tending to form tight and long-term strategic e-alliances;
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• • • •
Focusing more on sharing knowledge and experience across corporate borders than on trading partnerships only; Focusing more on justification and accountability of business processes and outcomes than on a “can do” mentality only; Having a clear set of goals and expectations in e-partnerships; and Taking a variety of approaches to teaming up with other players such as by acquisition, inviting extra participants and an IPO. The Yahoo! epartnership strategy is a good case in point. It initially teamed up with Overture and Inktomi and then acquired them to strengthen its advantage to compete with Google. Current e-partnerships in e-marketplaces are, however, usually used for an IPO purpose.
The following studies of e-partnerships present snapshots of the current trends of e-partnership after the dotcom crash. Snapshot 1: Fl oors-2-Go and Shopcre ator Floors-2-Go, Britain’s b iggest laminate and hardwood flooring specialist, has entered a partnership with Shopcreator, a leading provider of portal and e-business solutions and one of the fastest-growing e-co mmerce co mpanies in the UK. Floors-2-Go has selected Shopcreator’s ebusiness technology to set up a new online e-store which allows Floors-2-Go to trade over the Internet. Thanks to the partnership, for the first time , Floors-2-Go can co mpete online with other “bricks-and-clicks” DIY stores and enables its customers to buy online the company’s wide range of products for ho me delivery. A key factor in Floors-2-Go ’s decision to partner with Shopcreator is that Shopcreator is a successful partner of many lead ing companies such as Sainsbury, the CoOperative Group and Safeways. Shopcreator has also recently entered a technology partnership with BT Global Serv ices, where BT has become their ma jor high technology provider, and this was another key factor for Floors-2-Go to enter the partnership. The highlight of the successful e-partnership is that it took Shopcreator only four wee ks to get the Floors-2-Go’s e-store up and running, unlike other site builders who often take months to implement comple x e -trading applications. The IT manager of Floors-2-Go appreciated the fast solution, explaining “we are a rapidly growing business and we needed an online presence fast. We already had a static site but required a fully functional e-store to ma ximize the Internet as a cost-efficient sales channel that reflected our brand and business culture” (p. 1). Source: M2 Presswire (2004a)
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Snapshot 2: Yahoo! and B anks Yahoo! Inc. and HSBC Bank U.S.A. have joined their efforts to offer an online personto-person money transfer service called PayDirect which will co mpete against the PayPal division of e Bay, currently the gold standard in this ma rket through its dominance in electronic auctions. The primary benefit o f the e-partnership is to extend their service to permit people to send money fro m the United States to 182 countries. There are several advantages of PayDirect over that of PayPa l, which include: (1) the money transfer can go to 144 more countries than PayPal, which does business in 38 only, and (2) Pay Direct gives more options for customers to withdraw remitted funds in incre ments or all at once and at any Travelers Exp ress or MoneyGra m store worldwide. In order to facilitate this international service, Yahoo! has expanded its partnerships with Viad Corp.’s Travelers Express and MoneyGram, DHL International Ltd, eFunds Corp. and MasterCard International’s Cirrus ATM network. The head of consumer e-business for HSBC vie wed the e-partnership as a great way to grow the customer base and the HSBC brand because of the nature of this international network of service. Yahoo! shared a similar view with HSBC. Source: Breitkopf (2003)
Snapshot 3: PartnerRe, Accenture and Plumtree Software PartnerRe is the world’s number 10 re insurer and provides multi-line reinsurance to insurance companies worldwide. Accenture is a global management consulting, technology services and outsourcing company. Plu mtree Software is the Enterprise Web leader. The Enterprise Web is designed to create a comprehensive Web environment for emp loyees, customers and partners across the enterprise to interact with different systems and work together. In 2003, PartnerRe signed a partnership agreement with Accenture and Plumt ree Software to develop an informat ion management solution and a collaborative portal to enable its staff to access and exchange informat ion and knowledge “anywhere, anytime, and anyhow”. Supported by a mixed PartnerRe-Accenture tea m of 10 people located in several international sites (New Yo rk, Paris and Zurich), PartnerRe successfully deployed a corporate portal called “PartnerRelin k” in less than a year. The partnership allows PartnerRe to offer a collaborative work p latform to over 800 staff me mbers worldwide. Source: M2 Presswire (2003)
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Snapshot 4: ThinPrint and Uni palm ThinPrint is a software printing solution distributor. A significant pillar of the co mpany is the print technology, providing a basis for the software print solutions developed for server-based, Web-based and mobile co mputing. ThinPrint has recently entered a partnership with Un ipalm, the UK and Ireland’s fore most specialist distributor of Internet technology solutions to distribute its software-based print solutions in the UK and Ireland. The partnership has given ThinPrint access to a wide range of market-leading resellers and allo ws it to raise the profile of its Web-based, mobility and printing solutions. In fact, the partnership is the result of another successful partnership between ThinPrint and Unipalm’s parent company, Co mputerlinks A G in Ge rmany. Source: M2 Presswire (2004b)
Snapshot 5: Austpex and Proacti veNet Auspex System, a p rovider of enterprise data servers, and ProactiveNet Inc., a provider of Web performance solutions, entered into an e -business partnership to help e-businesses quickly identify the source of performance proble ms in their e-business infrastructure. The partnership will allow ProactiveNet’s e-business performance management software to be integrated with Auspex file servers, thereby expanding the list of discrete components that ProactiveNet is capable of v iewing as it mon itors the transaction delivery chain. Under the partnership agreement, Auspex’s data servers will be the first storage devices from any vendor that ProactiveNet is able to track. With the integration, ProactiveNet will be able to detect any performance degradation in the Auspex system as well as the bridges, routers, fire walls and other hardware and software through which an Internet transaction must pass on its way to and from the end user. In short, the epartnership between the two enables their customers, not only to store, serve and manage their files with Auspex servers, but also have a ready solution for integrating Auspex filers into their enterprise management model. Source: M2 Presswire (2001)
Snapshot 6: AT2 (Artists Technologies) AT2, founded as Artists Technologies, is an Australian owned and operated dotcom company. It has developed into one of the world’s most advanced online casting systems and hosts an extensive e-network of partnerships with over 18,000 artists working in film, television and on stage, and more than 400 agencies with the vast majority of casting directors. Over 80% of Australia’s online casting briefs go through the AT2 site. The site has been used to cast over 40,000 roles for more than 7,000 projects since its launch. Currently, AT2 receives over 1.5 million hits per week. The company has also entered corporate partnerships with other dotcom companies such as SpeakerDirect (see Chapter VII for a case study of SpeakerDirect) to leverage the complementary skills and networks of its e-partners. Source: AT2 (http://www.at2.com.au) Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
Overview of E-Partnerships 25
Summary This chapter presents an introduction and overview of a wide range of epartnerships in different forms, structures, industry sectors and in different nations, and reviews the first wave of e-partnerships before the dotcom crash and their current development. It should be noted that the word partnership has been a buzzword in many press releases and marketing campaigns, and sometimes it does not have much substance. This chapter examines and defines the actual meaning of e-partnership and sets the scope of discussion for the entire book.
References Akhurst, B. (2004, May 13). Life in the fast lane proves an irresistible lure. The Australian Financial Review, 6. Amazon.com Inc. (2002). Amazon.com associates: Link up with the leader. Seattle: Author. Anonymous. (2000). Sideware signs e-business partnership with BranTech. Retrieved May 20, 2005, from http://dc.internet.com/news/print.php/ 537271 Bell, J. (2001). E-alliances: What’s new about them? In A. P. De Man, G. Duysters, & G. M. Vasudevan (Eds.), The alliance enterprise (pp.2530). London: Imperial College Press. Breitkopf, D. (2003). HSBC-Yahoo team takes a global run at PayPal. American Banker, 168(248), 10-13. Buyukozkan, G. (2004). Multi-criteria decision making for e-marketplace selection. Internet Research, 14(2), 139-154. Chang, T. S., & Li, P. P. (2003). How to succeed in e-business by taking the Haier road: Formulating e-business strategy through network building. Competitiveness Review, 13(i2), 34-46. Cheng, W. L. E., Li, H., Love, E. D. P., & Irani, Z. (2001). An e-business model to support supply chain activities in construction. Logistic Information Management, 14(1/2), 68-78.
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Chiasson, G. (2001). Who’s on first? TelephonyOnline.com, October 15. Crowe, D. (2004, March 10). Some dotcoms did change the world. Australasian Business Intelligence. Cunningham, M. (2001). Partners.com: How to profit from the new DNA of business. New York: Perseus Publishing. Damanpour, F. (2001). E-business e-commerce evolution: Perspectives and strategy. Managerial Finance, 27(7), 16-32. Deering, A., & Murphy, A. (2003). The partnering imperative: Making business partnership work. London: John Wiley & Sons. Deise, M. (2000). Executive’s guide to e-business. New York: John Willey & Sons. De Man, A. P., & der Zee, H. V. (2002). Strategies for e-partnering: Moving brick-and-mortar online. Groningen: Gopher Publishers. De Man, A. P., Stienstra, M., & Volberda, H. W. (2002). E-partnering: Moving bricks and mortar online. European Management Journal, 20(4), 329-339. DeMark, E., & Harcourt, R. R. (2004). Companies must adapt to the Internet to survive. The CPA Journal, 74(4), 9. Ernst, D., Halevy, T., Monier, J. H. J., & Sarrazin, H. (2001). A future for ealliances. McKinsey Quarterly, 2, 92-103. George, T. (2001, December 20). PlayStation 2 users to be offered highspeed Web access. InformationWeek. Global eXchange Services (GXS). (2004). Strategic partners. Retrieved May 20, 2005, from http://www.gxs.com/partners_strategic.htm Graham, D. D. (2002). E-partnerships in today’s economy. CompTIA. Greenblat, E. (2004, February 24). IT reboots its bottom line. Australasian Business Intelligence. Greif, J. (2000). Risky e-business. Association Management, 52(i11), 55. Hagel, J., & Singer, M. (2000). Unbundling the corporation. In N. G. Carr (Ed.), The digital enterprise: How to reshape your business for a connected world (pp. 3-20). Boston: Harvard Business School. Horvath, L. (2001). Collaboration: The key to value creation in supply chain management. Supply Chain Management: An International Journal, 6(5), 205-207.
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Jantavongso, S., & Li, R. K. (2003). A new age e-business model for SME. Brisbane: Southern Cross University. Kersten, W., Schroeder, A. K., & Schulte-Bisping, A. (2004). Internetsupported sourcing of complex material. Business Process Management Journal, 10(1), 101-114. Kirchmer, M. (2004). E-business process networks: Successful value chains through standards. The Journal of Enterprise Information Management, 17(1), 20-30. Lea, W., & Creighton, S. (2000, September). CyberStaking: Why partnership matters. E-Business Advisor, 18(i9), 10-16. Lee, H. L., & Whang, S. (2002). Supply chain integration over the Internet. In J. Genunes et al. (Eds.), Supply chain management: Models, applications, and research directions (pp. 3-18). Bordrecht: Kluwer Academic Publishers. Lemke, F., Goffin, K., & Szwejczewski, W. (2003). Investigating the meaning of supplier-manufacturer partnerships: An exploratory study. International Journal of Physical Distribution & Logistics, 33(1), 12-35. Lumpkin, G. T., & Dess, G. G. (2004). E-business strategies and Internet business models: How the Internet adds value. Organizational Dynamics, 33(2), 161-173. M2 Presswire. (2001, April 4). Auspex Systems: e-business partnership — Auspex and ProactiveNet announce strategic relationship to develop end-to-end performance analysis for storage networking; integration initiative will strengthen businesses’ ability to isolate performance problems. Coventry, p. 1. M2 Presswire. (2003, November 19). Plumtree Software: Partner-Re, in partnership with Accenture, develops information management solution based on Plumtree’s Enterprise Web; PartnerRe rolls out PartnerRelink — an open, personalized multi-feature portal, based on Plumtree’s Enterprise Web Suite. Coventry, p. 1. M2 Presswire. (2004a, February 23). Shopcreator: Floors-2-Go trades online with Shopcreator in just four weeks; Cart abandonment reduced through bespoke Floor Pack calculator; major order as a result of BT and Shopcreator partnership. Coventry.
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M2 Presswire. (2004b, February 18). Unipalm: Unipalm teams up with ThinPrint e-business and security specialist to distribute software printing solutions for thin client, Web and mobile environments in the UK and Ireland. Coventry, p. 1. Malone, M., & Davidow, B. (1994). Welcome to the age of virtual corporations. Computer Currents, 12(1), 12-24. Maslog-Levis, K. (2004, March 3). Yahoo signs Web hosting deal with Destra. ZDNet Australia. McShane, L. S., & von Glinow, A. M. (2000). Organizational behaviour. Sydney: Irwin McGraw-Hill. MENA Business Report (2002, October 23). Eastern Networks and Equant partner to manage global network integration services. Retrieved May 20, 2005, from http://web.lexis-nexis.com Mullaney, T. (2004, May 10). The Internet has rewritten the rules for books, music, and travel. Which industries are next? Here are six. Business Week, p. 44. New, S. J. (2003). E-enablement and B2B e-commerce: Findings from an empirical investigation. In G. Spina, & A. Vinelli (Eds.), One world, one view of OM? Proceedings of the EurOMA Conference, Lake Como. O’Brien, K. (2000, January 13). Seven Network to move online in partnership with NBC Internet. ABC Online. Retrieved from http://www.abc.net/a/ pm/s92981,htm Ratnasingam, P. (2004). The impact of collaborative commerce and trust in Web services. The Journal of Enterprise Information Management, 17(5), 382-387. Rodgers, J. A., Yen, D. C., & Chou, D. C. (2002). Developing e-business: A strategic approach. Information Management & Computer Security, 10(4), 184-192. Ross, D. F. (2003). Introduction to e-supply chain management: Engaging technology to build market-wining business partnerships. Boca Raton, FL: St. Lucie Press Trask, R. (2000). Developing e-partnerships. Association Management, 52(i11), 46. United Nations Economic and Social Council (UNESC). (2001). The African Development Forum ’99 Post ADF Summit: Electronic commerce in
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Africa. Retrieved May 20, 2005, from http://www.un.org/depts/eca/ adf/pforum.htm Werbach, K. (2000). Syndication: The emerging model for business in the Internet era. In N. G. Carr (Ed.), The digital enterprise: How to reshape your business for a connected world (pp. 21-34). Boston: Harvard Business School.
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Chapter II
E-Business Supply Chains and E-Partnerships
Introduction In today’s business world, most companies operate within an integrated system, or a network of organizations of upstream suppliers and downstream customers that produce and distribute products and services. It is estimated that about 60% to 70% of today’s transactions in any company are completed in the supply chain (Bovel & Martha, 2000). E-partnership in the supply chain is, therefore, the focus of this chapter. This author argues that e-partnership provides a powerful and transformative means for supply chain management to achieve its objectives through extended relationships and enhanced information technologies. The rationale for the argument is that an e-partnering supply chain can lead to greater business opportunities, better integration of suppliers and vendors, better management information, lower operational costs, better market understanding and expanded geographical coverage. Therefore, a Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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partnership approach to the supply chain provides significant opportunities to maximize bottom line results. Helping to better understand the broader operational context of e-partnerships, this chapter explores the recent development of the supply chain, specifically, electronic and e-business supply chain and its interfaces with epartnerships. The chapter presents a broader comprehensive view of the landscape in which e-partnership prevails and the role it plays in the e-business arena.
Evolution of Supply Chain Management A study of the development of the supply chain concept helps in understanding why e-partnerships are a strategic measure and an integrated part of current and future supply chains. The supply chain is defined as “a network of firms, activities, organizations, and technologies that performs the functions of procurement of material from vendor firms, transformation of this material into intermediate and finished products and the distribution of these finished products to customers” (Boone, Ganeshan, & Stenger, 2002, p. 363). A supply chain often involves suppliers who sell raw materials to subassembly manufacturers who then sell components to final assembly manufacturers who in turn distribute their products “downstream” through wholesalers, distributors, dealers and retailers to the final customers (Warkentin, Bapna, & Sugumaran, 2001). Thus, supply chain partners are usually suppliers, vendors, dealers and distributors in the supply chain, and supply chain partnerships and management have been gaining popularity over the past decade. The concept of the supply chain is evolving with the changes in the industrial and business environments. The traditional vertically integrated supply chain and the traditional one-enterprise supply chain no longer dominate the typical supply chain in today’s networked economy. Instead, they have been replaced with supply chain networks, which entail greater product and process variation and quality through collective agility and responsiveness, addressing an increasing demand for individualization of products and services. The supply chain network often consists of a number of entities interacting with each other in complex and interconnected ways. Take the automotive industry for example. About 65% of Ford’s automotive manufacturing operations are outsourced to its extended supply chain partners. The interconnected supply Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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chain networks are now the new business-to-business configurations and the key competitive levers in the new economy (McCormack, Johnson & Walker, 2003). Likewise, studies of supply chain management have shifted their focus on managing the supply chain of a single company and the physical flow of materials and products to focus on cross-enterprise management and the relationships between member organizations in the supply chain network. Supply chain management (SCM) provides organizations with a management method to work and collaborate with their supply chain partners outside of their organizations and/or their business. It offers a management strategy to transform isolated and internally focused organizations to one that is outwardlooking with active participation in supply chain activities. SCM is a relatively new management concept, defined by members of the International Centre for Competitive Excellence in 1994 as “the integration of business processes from end-user through original suppliers that provide products, services and information and add value to customers”. In other words, SCM spans the entire chain from initial sourcing to end-user customer. The idea behind SCM is to emphasize a supply-chain-wide view and total system thinking. Thus, the management of intra- and inter-organizational relationships is an essential feature (Walters, 2002). The essence of the SCM philosophy is that an enhanced supply chain performance can be achieved only when both intra-firm and inter-firm integration and cooperation are successful (Ackermann, 2003), and the management of interactions between supply chain members constitutes 80% of a supply chain manager’s activity (McCormack et al., 2003). SCM is also viewed as a business philosophy that covers all aspects of business activities in the supply chain. The main focus of this view is on vertical (within an industry section) and horizontal (cross-industry sectors) coordination to achieve competitive advantage. The fundamental construct of SCM is to foster a partnering environment where members in supply chains can work together in a more efficient and effective way. Another feature of SCM is joint planning and mutual exchange of information among members in the supply chain. Ultimately, the primary goal of SCM is to achieve the overall efficiency and competitiveness of the supply chain and enhance customer satisfaction. For example, through well-organized, well-planned and closelymonitored management processes, it is possible to remove superfluous stocks, reduce lead time, reduce uncertainly and optimize resources. From an operational perspective, there are two major activities in supply chain management in addition to cooperation management of the supply chain; they are the flow
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of materials and the development of information systems. SCM offers competitive advantage in better lead times, customer service and supply chain synergy (Burgess, 1998); therefore, it represents an effective strategy for many manufacturers. Ross (2003) explored supply chain management from a historical perspective and regarded its evolution as having five distinct management stages. Stage 1. Logistics Decentralization (from the late nineteenth century to the early 1960s). At this stage, logistics was an intermediary function concerned with inventory management and delivery. As logistics were not viewed as a significant contributor to profitability, they had little management status. The internal linkages between logistics functions were also weak. Stage 2. Total Cost Management (from late 1960s to early 1980s). This phase saw logistics functions centralized and the growing power of logistics management authority. The changes were made with the objectives of decreasing individual costs associated with transportation, inventory and physical distribution and minimizing the total cost of logistics. Stage 3. Integrated Logistic Management (from mid-1980 to 1990s). During this period, companies began to acknowledge the role of trading partners in logistics. Efforts were made to integrate partners’ logistics functions and expand logistics management functions. TQM (total quality management) philosophy was introduced and applied to supply chain management. Stage 4. Supply Chain Management (SCM) (from mid-1990s to 2000). The fourth stage of development witnessed the growing pervasiveness of information technologies in business operations and in logistics. For example, companies took advantage of Internet technologies to develop trading partner networks and virtual organizations. Members of the supply chain sought collaboration to leverage their partners’ competencies. This stage was also characterized by management taking a strategic view of the supply chain, benchmarking and BPR (business process reengineering).
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Stage 5. E-supply Chain Management (from 2000+). In the most recent stage of development management, focus has been placed primarily on the application of the Internet to the SCM concept and SCM synchronization. Networked and multi-enterprise supply chains have become a popular organizational design, together with e-tailers, e-market exchanges and other forms of dotcoms. As Ross (2003) describes, “SCM has evolved, through the application of e-business technologies, into a powerful strategic function capable of engendering radically new customer value propositions through the architecture of external, Internet-enabled collaborative channel partnerships” (p. 11). In this regard, e-supply chain management is concerned largely with the management of such “Internetenabled collaborative channel partnerships”, namely, e-partnerships. The key to success in today’s supply chain, in which a single organization struggles to survive without partnering, lies in managing the supply chain network connected and powered by information technology and Web applications. Today, many large manufacturers use, in addition to the Internet, interorganizational (information) systems (IOS) to manage the supply chain and interact with their nationwide suppliers and distributors. IOS allow organizations to share information and interact electronically across organizational boundaries (Warkentin et al., 2001). These systems increase information flow, which can be integrated with the flow of goods, followed by an approach focused on creating new products, services and markets based upon the synergy between the flow of information and goods (van Hoek, 1998). The systems link both upstream and downstream portions of the supply chain together, connecting organizations which have usually interacted as disconnected entities and, consequently, received sporadic flows of information (for more discussion of IOS, read Chapter IV of the book). By using Internet technologies, information and product do not have to go hand in hand in the supply chain. For example, the Canadian Society of Customs Brokers (CSCB) entered into an e-partnership deal with ViaSafe, an e-cargo services provider. The e-partnership will enable the joint implementation of an e-business initiative which is claimed to improve the flow of data and documents between carriers and customs brokers for cross- border shipments and provide customs officers with the information they need before shipments arrive at the border. The e-business initiative also automatically routes electronic probills and invoice images to the broker. This innovative partnership actually
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represents a win-win project for both carriers and brokers as Canadian Customs demands more comprehensive pre-arrival electronic data from both customs brokers and carriers (Mills, 2002). In summary, the old supply chains have evolved into networked supply chains that rapidly network optimal partners with the right components, technology and services for customers. These networked supply chains are extremely dynamic, allowing for companies to be included or excluded based upon technological advances, product life cycles and customer preferences (Kuglin & Rosenbaum, 2001, p. 59). These complex and volatile supply networks call for businesses to seek greater flexibility, agility and responsiveness. E-partnership, therefore, becomes a dominating business strategy to help companies meet these challenges. This author argues that e-partnership can be a powerful and transformative tool to enhance business performance through extended relationships and enhanced information technologies. The use of Internet and other electronic media and the introduction of inter-organizational information systems in supply chain management help streamline supply chain management, improve the efficiency of the supply chain operational systems and lead to the generation of e-supply chains. In fact, virtual networked supply chains are the foundation of epartnerships. The current and continuing shift of emphasis on strategic alliances and supply chain partner coordination in supply chain management represents major changes in the search for competitive advantage. An individual company’s competitiveness is now tightly bound with the performance and competitiveness of other members in the supply chain. This fact reinforces the importance of inter-firm partnerships and e-partnership in the e-supply chain.
E-Supply Chains E-supply chains refer to electronic supply chains in general and e-business and e-commerce supply chains in particular. Some years ago, commentators stated the electronic connectivity enabled by the Internet would drastically change the development of supply chain and reconfigure the supply chain to connect trading partners in real-time (Del Vecchio, 2000). Chorafas (2001) defines an e-supply chain as the Internet’s value-added chain which covers
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both the upstream and downstream business through which a product travels — from raw materials to manufacturing and from manufacturing to marketing and after-sales service. In this regard, e-business is the marriage between the Internet and supply chain integration and plays a crucial role in the e-supply chain. E-supply chain, as a new emerging trend, is gaining momentum. For example, Intel has moved many of its key business functions online, including integrated planning, global procurement, worldwide manufacturing, online marketing and cross-enterprise logistics. The company has also planned to move all its supply chain activities online. Empirical studies demonstrate that the adoption of Web technologies in supply chain processes helps enhance the level of supply chain integration with customers and supplier partners. Cagliano, Caniato, and Spina (2003) conducted quantitative research which involved a survey of a total of 338 manufacturing companies in eight countries in Europe. The survey found that 44.6% of the companies surveyed adopted e-business in their supply chain processes. The researchers classified the adoption of e-business processes into three categories: e-commerce, e-procurement and e-operations. Ecommerce refers to sales and customer service and support which, in a context of the supply chain, concerns the adoption of e-business in downstream partnerships. E-procurement represents the adoption of e-business in upstream partnerships with suppliers. E-operations refer to the use of the Internet mainly in internal operations across the company. The study found that there was a great variability in the level of adoption of e-business in the supply chain among the companies surveyed due to a high number of companies not adopting it at all and a limited number of companies adopting it to a high extent. The adoption appears to be higher in downstream and upstream processes (i.e., e-commerce and e-procurement) but is lower in e-operations. These findings suggest that e-integrators; companies that fully adopt e-business in their supply chains, have closer relationships with their partners, and the Internet is used to facilitate the relationships (Cagliano et al., 2003). The study illustrates the current status of a number of European manufacturing companies that have embraced e-supply chain practices and provides an insightful knowledge of how manufacturing companies can resort to e-business to the benefit of their companies and their e-partners. However, some empirical studies also reveal risks and problems caused by the adoption of Web technologies in developing and redesigning the relationship between OEMs and suppliers. For instance, Kersten, Schroeder and SchulteBisping’s (2004) study which was based upon a survey of 40 OEMs and their
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suppliers, followed by several in-depth interviews within the German automotive industry, has found that the views of suppliers and OEMs differ substantially regarding the benefits and risks associated with e-partnering or ecollaboration activities. Overall, suppliers do not trust the security and confidentiality of Web-based methods and are far more critical regarding transparency related risks such as shrinking margins of profit, the loss of know-how advantages, as well as competitive advantages. In addition, big suppliers view incompatibility of processes and lack of trust between OEMs and suppliers as higher risks. On the other hand, OEMs regard e-collaboration with suppliers as crucial to optimize the value chain and prevent the monopolistic dependencies of single-sourcing relationships (Kersten et al., 2004). The discrepancy between OEMs and suppliers in their perceptions of benefits and risks is one of the biggest barriers to the effective e-supply chain. E-partnerships and network organizations in supply chains are the basic components of e-supply chains. E-commerce hubs, portals and other Web resources and e-procurement systems also help generate electronic supply chains and e-partnerships. Partners in the e-supply chain can operate and collaborate across space and time by communicating with each other via electronic channels. The Internet becomes the most important interface between participating organizations, teams and individuals. For example, by synchronizing their systems on the Internet, e-partners within the supply chain can reduce order-to-delivery cycle time. E-partnerships enable businesses to sell and deliver products and services across the world in a more efficient way in terms of speed and cost. Amazon.com, Priceline.com and E*Trade are examples of successful e-businesses who have depended on, and maximized profits from, e-partnerships in their e-supply chains. A further example of an integrated e-supply chain is provided by Singapore’s Infocomm Development Authority (IDA), who set up an e-supply chain management system to help cut supply chain costs. The 20-million Singapore dollar system is used primarily by supermarkets and their suppliers. Under the new system, the logistics of participating supermarkets are integrated electronically with their large number of suppliers, which helps eliminate communication gaps along the supply chain and enhance competitive advantage of the supermarkets (Xinhua, 2003). To gain a competitive advantage, businesses are looking to the wider horizon to position themselves both globally and locally. One of the current trends in the world economy is the globalization of the supply chain in which domestic and local suppliers and customers play a less important role compared to global Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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suppliers and customers (Skjoett-Larson, 2000). Forming a business partnership in e-supply chains is increasingly one of the most popular strategies available to organizations, enabling them, on one hand, to take advantage of the Internet Highway and, on the other, to share risks, capabilities and revenue with partners. The key driving factors behind entering an e-partnership in the esupply chain include: • • •
Streamlining the supply chain by moving business processes online; Easily getting access to an extended network of suppliers, manufacturers, retailers and customers; Simplifying procurement, reducing inventory costs and shortening product-development cycles;
Give customers access to a wide range of services and technologies that a single company simply could never deliver by itself; •
• • • • • • • •
Leveraging the combined strengths and skills of multiple companies, especially for smaller companies, who often lack the critical mass to compete in the world market; Gaining a competitive advantage or increasing market share in national and/or global markets; Serving customers in foreign markets through local partners; Sharing revenue and expanding sales between merchant and partners; Expanding customer base and securing future markets; Facilitating the implementation of multi-channel strategies; Preventing competition loss and locking out potential rivals; Meeting the changing demands of customers and markets; and Gaining core competencies from competitors (Dussauge & Garrette, 1999; Lea & Creighton, 2000; Sierra, 1994; Trask, 2000).
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Snapshot: i2 Technol ogies and Siemens Business Services i2 Technologies, Inc., Intel Corporat ion and Sie mens Business Services joined forces to provide a new software and service solution for e lectronic supply chain management. The solution combined procure ment, logistics, customization, transportation, installation and integration tools into one highly integrated package. The jo int project benefited great ly fro m the e -business alliances between Intel and i2, a iming to accelerate the deploy ment of the i2 SCM solutions powered by Intel-based servers. The solution was designed to reduce lengthy procurement cycles, increase cost efficiency, and ult imately improve customer services. The partnership brought together the comple mentary skills and competencies of three major players in the IT industry. Siemens started to imp lement the solution in its supply chain management in Germany in 2001 and planned to roll it over to its other subsidiaries worldwide. Source: M2 Presswire (2001).
E-Supply Chain Management (E-SCM) E-SCM (e-supply chain management) as the latest advance of SCM has two pillars: the emerging strategic capabilities of SCM and the Web technologies that empower SCM. E-SCM aims to foster agile organizations and supplybuyer partnerships. E-SCM is defined as follows: E-SCM is a tactical and strategic management philosophy that seeks to network the collective productive capacities and resources of intersecting supply chain systems through the application of Internet technologies in the search for innovative solutions and the synchronization of channel capabilities dedicated to the creation of unique, individualized sources of customer value. (Ross, 2003, p. 18) The concept of e-SCM opens up a new field of study for e-partnership management. From an e-SCM perspective, strategic e-partnership in the supply chain is the primary source of customer value as well as collective capacities and resources that a successful supply chain depends on. The key tasks of e-SCM are building and optimizing the e-partnership through the application of e-solutions and applications and enabling firms to form customer-winning relationships with supply chain partners. Therefore, establishing a Web-enabled network of e-partners, providing e-partners with avenues for
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ongoing supply chain synchronization, providing the instantaneous visibility of events and decision-making processes across the entire supply chain are some of the main elements of e-SCM. Although the study of e-partnerships by this book exceeds the scope of e-SCM, e-partnership management shares many similarities with e-SCM.
E-Procurement In most cases, electronic procurement (e-procurement) refers to businessto-business electronic trade. It is undoubtedly a central function of e-businesses and plays a key role in the e-supply chain, as purchasing goods and services is always an integral part of the supply chain. Today’s manufacturing requires flexibility due to fast changing customer preferences, shortening product life cycle and increasing pressure of competition. This arena calls for more efficiency and greater speed of procurement. It is often the case that one manufacturing company needs to procure thousands of products or materials from hundreds of suppliers, thus e-procurement has become the preferred method of procurement of most companies. Cross-enterprise e-procurement solutions have been the core products of the IT industry for years. For example, Ariba and CommerceOne are able to offer Web-based enterprise procurement solutions that link the buyer into real-time trading communities over the Internet (Lee & Whang, 2002). Faced with the setbacks and disappearance of a large number of e-marketplaces, e-procurement practices such as maintenance, repair and operations (MRO) continue to grow (Sadeh & Lee, 2003). By using the Internet, companies are able to develop their partnering network globally. E-partnerships in e-procurement enable manufacturers or vendors to source parts worldwide, collectively manage inventory, forecast and plan production and manufacturing. E-procurement also offers transparency between ERP systems which allows suppliers to monitor and participate in the planning and execution of manufacturing forecasts. It is believed that if managed successfully, e-procurement will not only reduce purchasing cost and transaction time through digitizing and streamlining the procurement process, but also will “help to move manufacturing and distribution firms closer to becoming an extended enterprise, where the supply chain becomes a continuous, uninterrupted process extending from buyer through selling partners” (Neef, 2001, p. 36).
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Snapshot: Pinault-Printe mps-Re doute Re ducing Costs by E-Procurement Pinault-Printemps-Redoute (PPR Group) is a leading European retailer and distributor. To improve its bottom line and enhance the customer service level, the PPR Group endeavored to shorten its procurement cycles and optimize purchase prices on apparel goods for resale across its ma il order and department store divisions. It used online simu ltaneous negotiation of GlobalNetXchange (GNX), a retail industry online e xchange to achieve the objectives. “In two or three hours, thanks to GNX, I managed to get several offers and a good price at the end of the session when it usually takes two weeks to get the same result,” said a PPR depart ment store division. It is reported that the PPR Group has achieved a 10% reduction in purchase price of apparel goods for resale by using the online procurement system. The reduction resulted ma inly fro m improving the visibility and consistency of info rmation fro m vendors and reducing e xtra steps, paperwork and travel time costs. Source: GNX (2004)
While e-procurement provides opportunities for reducing the costs of purchasing bureaucracy and transaction processing, the realization of these benefits are not automatic. New’s study points out that effective e-procurement requires higher-level strategic management to deal with external issues such as supplier development and policy and collaboration on business processes. Moreover, e-procurement raises more complex internal issues than simple budgetary controls. The control of fraud in the e-procurement systems is one of the major issues. In the public sector, organizations’ procurement systems are constrained by a complex regulatory framework which may affect e-procurement process. Moreover, specialist procurement staff members with purchasing expertise and skills are often needed in e-procurement systems. Other issues such as lack of effective measurement of the performance of purchasing, and difficulty in determining reliable costs for the purchasing process itself are also hindering the adoption of e-procurement (New, 2003). With many companies embracing the concept and the technology of eprocurement using the Internet, several models for implementation have emerged. The most popular models include the sell-side one-to-many model, buy-side one-to-many model, independent portal model, and vertical and horizontal e-market model. However, e-partnerships remain a primary strategy, regardless of what model(s) a company chooses. The sell-side one-to-many model resembles a shopping mall where sellers create their own Internet sites and catalogs, and buyers browse and purchase their products online. The main advantage for buyers is that they can make their purchase online from all over the world. However, for companies with more Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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than a few suppliers, the model lacks attraction and is seen as being hardly practical because companies have to visit a number of, even hundreds or thousands of, such Web sites to locate supplier partners and make transactions. In this regards, the model is viable for small buyers or one-off purchases. There is also an issue of interoperability and consistency of protocol systems between sellers and buyers. As the seller’s Web site is often a common portal, it is difficult to integrate well with the buyers’ back-end financial systems. In contrast to the sell-side one-to-many model, the buy-side one-to-many model means that the buyer controls in-house catalogues, and establishes and maintains the databases of multiple suppliers’ goods and services. By doing so, the buyer ensures that all transactions are integrated into the company’s purchasing and financial systems. There are two different e-procurement methods in the model: buy-side desktop-based requisitioning mainly using software and the company’s intranet, and buy-side Internet-based central procurement. The main advantage of this model for the buyer lies in the control that he/she has over products and services available on the catalogues through setting quantity limits, pricing ceiling and so forth. Under this model, buyerseller partnerships become crucial because the buyer has to collaborate with the seller closely in maintaining catalogues, availability of products and services, lead times for delivery and prices. This model has been widely used by large companies and works well when buyers and sellers have a long-term relationship. However, the buy-side one-to-many model requires significant efforts and laborious work in maintaining and updating catalogues and systems on an ongoing basis. The independent portal model involves the development of an independent portal site where multiple buyers and sellers can make online transactions through a single point of integration. It allows anyone to log on and transact business for a subscription fee, a transaction charge or a percentage of exchange fees. E-Bay, Amazon.com and Priceline.com are some good examples of the model. The independent portal model helps create large emarketplace trading communities but only actually represents one form of emarketplaces. The following section looks into the interfaces between epartnerships and e-marketplaces.
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E-Partnerships and B2B E-Marketplaces B2B e-commerce (B2B EC) plays a key role in the e-supply chain and encompasses all inter-organizational e-commerce among businesses in the supply chain. This type of e-commerce has gained great popularity today and is expected to be embraced by most businesses in the future. The greatest attraction of B2B e-commerce lies in its efficiency; using the Internet, companies can quickly and easily get price quotes from a large number of suppliers and also reduce their inventory levels and use less working capital. Other key benefits brought about by B2B EC are, for example, cost reduction in order processing and increased market intelligence. It also offers transparency within the target industries, giving producers a better insight into the demand levels in any given market and allowing them to make better decisions regarding what to and what not to produce (Lenz, Zimmerman, & Heitmann, 2002; Serve et al., 2002). In many cases, B2B EC operates in e-marketplaces which bring trading partners (buyers and suppliers) together in a virtual central market and often involve trade financing organizations, logistics companies and, in some cases, taxation authorities and regulators (Grieger, 2003). E-marketplaces refer to Internet-based intermediaries aiming to create new efficiencies in the supply chain, including new ways of buying, selling and brokering products and services (Monastero, 2001). They are designed to support all the business activities associated with transactions and interactions between its participants including design, development, production and distribution of final products in a supply chain. For example, an example of an e-marketplace within the retailing industry is the World Wide Retail Exchange (WWRE), which specializes in cataloguing and data synchronization. Its current partners include many of the world’s leading retailers whose combined revenue exceeds US$900 billion. It is claimed that the WWRE has saved its members over US$1 billion (WWRE, 2004). The success of e-marketplaces depends heavily on their participants and their effective collaboration in value creation. Their primary objective is generally to improve efficiency within a certain industry. Emarketplaces offer the potential to strengthen customer relationships, expand the market and facilitate greater reach within it. They are also likely to improve efficiency, reduce costs and enable an organization to gain greater competitive advantage. It is estimated that there are about 4,000 e-marketplaces worldwide (Lu & Antony, 2003). Most e-marketplaces offer online exchange transactions and auctions. The emarketplaces, or e-hubs, can be divided into four categories in terms of their Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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core business activities: (1) maintenance, repair and operating hubs (MRO); (2) yield management hubs with a focus on operating resources or advertising; (3) exchange hubs; and (4) catalogue hubs that focus on non-commodity items (Kaplan & Sawhney, 2000). There is another classification of e-marketplaces in terms of the industry sectors involved: vertical and horizontal e-markets. Vertical e-markets tend to focus on one particular industry, whereas horizontal e-markets extend trading exchanges across industry sectors (Neef, 2001). For instance, Covisint is typically a vertical e-market involving automotive industry only, while E-Bay is a classic example of a horizontal e-market which sells almost everything from real estate, business and industrial products to cars, toys and music CDs. E-marketplaces have a strong impact on the supply chain development as a whole. Cisco Systems, Dell Computer, Intel Corporation and W.W. Grainger were the first to move their B2B processes online by setting up e-marketplaces (Serve et al., 2002). Most e-marketplaces involve e-supply chains. Members of an e-supply chain work collaboratively to improve B2B processes in terms of speed, agility, real-time control and customer satisfaction. E-supply chains become the communications and operations backbone of e-marketplaces that link suppliers and business partners together as one cohesive entity. E-supply chains use information as a substitute for inventory. In virtual logistics, for example, ownership and control of resources are handled electronically through electronic communications and not by direct physical presence and control (Clarke, 1998; van Hoek, 1998). An e-supply chain in B2B EC usually involves multiple companies using e-business technology for e-procurement and e-logistics. With the application of e-procurement, for example, parts can be quickly identified with electronic search tools, and online purchase orders can be processed automatically and quickly. E-logistics is the redesign and implementation of warehouse and transportation management process using ebusiness technology. E-logistics allow distribution to couple routing optimization with track-and-trace capability (Deise et al., 2000). Despite much hype, however, the first wave of B2B marketplaces did not prove to be successful. This was largely due to overambitious scope, a failure to contribute assets at the outset and unworkable or flawed governance structure (Ernst et al., 2001). The dotcom crash has resulted in hundreds of emarketplaces shutting down or reducing their functionality. According to Kafka et al.’s estimation, of over 1,000 e-marketplaces in the United States that existed in 2000, about 90% of them will not be able to survive until 2003. This estimation was made based upon the fact that most existing e-marketplaces did not attract the numbers of buyers and sellers expected, while the dotcom crash, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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along with the economic slowdown, added a further blow (Kafka et al., 2000). According to another study, it was predicted that, by 2004, there would be over 4,000 e-marketplaces in the United States. But many of them were bubble-driven and went out of business when the venture capital ran out. It is estimated that today no more than 200 e-marketplaces have survived in the United States (Ulfelder, 2004). The business models followed by many e-marketplaces remained questionable. For example, many early examples of B2B marketplaces started out by providing technology solutions rather than providing sourcing and procurement business solutions. However, according to the findings of a survey of 245 suppliers to the UK utilities industry, more than 80% of B2B trade is not amenable to the impersonal, price-oriented, online catalogue mechanisms which have been the key stereotypes of B2B in e-marketplaces (New, 2003). Many e-marketplaces were set up and controlled by industry consortiums for their supplies. Suppliers were often hesitant to join or strike any deal online. From their perspective, the price transparency generated through the emarketplace means that suppliers get even thinner margins and higher competition. In fact, the lean margins of profit and competition can leave smaller suppliers feeling exploited and drive them away from the market, which gives buyers even fewer options (Jay, 2000). The cost and challenge of integrating the e-supply chain technologies may also hinder many smaller suppliers. Today, however, e-marketplaces are seeking to reinvent themselves and finetune or re-shape their business models. For example, Commerce One has evolved from an Internet-based software applications provider to a company that runs one of the largest e-commerce trading networks. This transformation was due to a shift in the company’s key focus, from targeting e-marketplaces that provide a high volume of sales and high fiscal return to selling procurement software to smaller enterprises with high potential purchasing capacity. FreeMarket, another survivor from the dotcom bust and a pioneer of the online reverse-auction process for large industrial partners, has now evolved into a provider of e-sourcing (Lei, 2003). These survivors in the wave of bankruptcy of e-marketplaces have learned how to focus on core aspects of their business, as the case of ForgeFinder shows (Snapshot 1). Equally, the partners involved in e-marketplaces have also learned to make realistic estimations of the savings from online trading. “Expectations are not what they used to be. Companies now expect to save between 10%and 20% when they buy materials or components through exchanges, instead of the 40% to 50% touted a few years ago” (Larsen, 2004, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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p. 53). In terms of technology, companies are looking for tools that not only improve the efficiency of their buying and selling but also their overall effectiveness. This is a new trend of development as e-marketplaces evolve, which is why companies such as i2 are endeavoring to provide tools “enabl[ing] richer, more-rigorous analysis of online and offline data, better vetting and management of supply-chain partners, and greater automation of purchasing” (Larsen, 2004, p. 53). Snapshot 1: ForgeFinder Inc. ForgeFinder is an e-marketplace founded in 1999. It connects makers of die-forged and other metal products to buyers (mostly car-makers). The vertica l e-marketplace has survived the dotcom bust and attracted more partners who co me to do business in its site. Its CEO and owner anticipated that ForgeFinder will have a 15% gro wth in the ne xt year, which would bring the exchange to nearly 700 part icipants. “The key to success is to know everything about the business from both the buyers’ and sellers’ perspectives, and to not try and sell everything to everybody”, said the CEO. Source: Larsen (2004)
Snapshot 2: Australia and New Zealand Banking Group (ANZ) Australia and New Zealand Banking Group (ANZ) is one of Australia’s leading banking and financial services groups and has over 150 years of history associated with it. ANZ offers a wide range of financial products and services, including residential and investment mortgage lending, electronic banking (including Internet banking), deposit trading and so forth. It also has overseas representation, predominantly in greater Asia areas. ANZ has been very keen to embrace new info rmation technologies to transform its existing business and seize new opportunities generated by these new technologies. ANZ is one of the early e-co mmerce marketplace players in Australia and has actively pursued partnerships to implement its e-business strategy. For examp le, ANZ has jo ined forces with Identrus Corporation LLC, an online provider identify ing verification to global banks and businesses. The e-partnership provides end-to-end solutions in the e-marketplace and facilitates e-co mmerce. ANZ has also teamed up with Citig roup, Deutsche Bank, Industrial Bank of Japan and other global blue-chip financial institutions to build standard authentication protocols both domestically and internationally, enabling Australian firms to make large transactions over the Internet. In the partnership with MRO.co m, a subsidiary of the US-based PSDI Corporation, ANZ established anzbiz.com, a business ecommerce portal. MRO.co m provides anzb iz.co m with end-to-end maintenance and repair and operations procurement solutions. The anzbiz.co m became ANZ’s Internet-based payments gateway and is also the first bank-operated and managed Internet gateway in Australia. The gateway was designed to process and manage transactions across the Internet using secure protocols. Source: Irvine (2001)
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Snapshot 3: EC21.com Founded in 1997, EC21.co m is a global B2B marketplace, facilitating trade between hundreds of thousands of exporters and importers in 220 countries. It currently lists 400,000 d ifferent products in categories ranging fro m med icine to vehicles and food. According to the company, more than 1 million businesses visit the EC21.co m ma rketplace each month. Buyers can register at the Web site for free, enabling them to search for suppliers using the online database and send inquiries direct to them, or post buying leads. Sellers register with EC21.co m and pay a fee based on three levels of partnerships: regular, trade and trade-pro. Regular sell-partners are able to display a small product catalogue, post trade leads and receive regular trade a lerts. Trade partners are able to build their o wn homepage and product “showcase” within the EC21.co m Web site which is prime-listed on buyer searches. EC21.co m will also verify the seller-partners (using credit and background checks) enabling them to exh ibit a “trade ok” cert ification logo, in order to increase buyer confidence. In addition, trade partners are matched with an import/export trading consultant specializing in their field in order to provide a buyer-matching service. The Trade-Pro level of partnerships provides all of the above benefits in conjunction with a more personalized service. For instance, a dedicated EC21.co m consultant would assist in target marketing to buyers. The seller-partner’s home page is listed on 500 search engines, including Google and Hotbot, and EC21.co m will cross-promote the company at industry exhibits. In addition, Trade-Pro seller-partners are provided with a buyer verification service. Source: EC21.com (http://www.ec21.com)
Lenz et al.’s (2002) research found that strategic partnerships in B2B emarketplaces are essential and should include not only partnering with buyers and sellers but also with specialized service providers and other marketplaces. B2B transactions usually involve complex multi-party transaction processes. The services provided can be divided into three categories: information services, transaction services and value-added services. Information services often refer to pre-transaction services needed to make a specific transaction deal. These services provide information about companies and products in the targeted industry and business intelligence information gained from mining the transaction data of the marketplace owned by the information services providers. Transaction services support the buyer-supplier matching process and help facilitate specific transactions. These services may include fixed pricing, co-shopping and negotiation. Value-added services are intended to increase the value proposition the marketplace generates for its customers.
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While these services are not essential to B2B e-marketplaces, they can add significant value to the function of the market, as well as the sustainability and competitive advantage of the e-partnerships. It is the value-added services that require strategic partnerships with providers of financial services, trust services and logistics services and other marketplaces; however, it is the value-added services, combined with a comprehensive service offering, which is critical to the success of B2B marketplaces. Lenz et al.’s (2002) research drew upon a survey of 248 European B2B marketplaces as well as a number of in-depth interviews with managers of emarketplaces. The findings showed that the use of strategic partners for B2B marketplaces can help achieve the following goals. •
•
• •
Critical mass in participation. E-partnering with key players in a certain industry increases the scope of potential transactions and brings substantial volume to a marketplace. A broader service scope to its members. E-partnering with specialized service providers entails the provision of specific transaction services, industry-specific information services and settlement and fulfillment services to customers in the e-marketplaces. A broader scope of products ranging from operating input to manufacturing input. Extension of the information value chain. E-marketplaces connect buyers and sellers at one level of the supply chain as infomediaries. Strategic partnerships with other players at the e-markets increase the potential benefits of information sharing by adding more levels of the value chain upstream or downstream.
Summary Realizing substantial benefits of e-supply chains requires cooperative business processes and genuine collaborations among supply chains partners, as demonstrated in this chapter. The nature and the process of supply chains and esupply chains require partners in the chains to share a long-term commitment
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within an interwoven relationship. Tight integration, effective coordination and trust among e-partners are crucial. As the B2B supply chain process is both a boundary-spanning and a function-spanning process, close partnerships are needed not only at the operational level but also at the strategic level. Collaborative planning, collaborative product development and collaborative quality control across the entire chain are crucial to a productive e-supply chain. However, building a value-added business e-partnership remains a significant challenge to many firms and relies on an effective strategy, structure and process for the partnership. The next chapter is devoted to a detailed discussion of these key issues.
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Sadeh, N. M., & Lee, J. K. (2003). Advances in B2B e-commerce and esupply chain management [Guest editors’ introduction]. Journal of Organizational Computing & Electronic Commerce, 13(3/4), 163166. Serve, M., Yen, D. C., Wang, J. C., & Lin, B. (2002). B2B-enhanced supply chain process: Toward building virtual enterprises. Business Process Management Journal, 8(3), 245-353. Sierra, M. C. D. L. (1994). Managing global alliances: Key steps for successful collaboration. Addison-Wesley. Skjoett-Larson, T. (2000). European logistics beyond 2000. International Journal of Physical Distribution & Logistics, 30(5), 337-387. Trask, R. (2000). Developing e-partnerships. Association Management, 52(i11), 46. Ulfelder, S. (2004, February 2). B2B survivors. Computerworld, 38(5), 2729. van Hoek, R. I. (1998). Logistics and virtual integration. International Journal of Physical Distribution and Logistics Management, 28(7), 508-523. Walters, D. (2002). Operations strategy. Sydney: Palgrave. Warkentin, M., Bapna, R., & Sugumaran, V. (2001). E-knowledge networks for inter-organizational collaborative e-business. Logistics Information Management, 14(½), 149-163. World Wide Retail Exchange (WWRE). (2004). WWRE overview. Retrieved May 21, 2001, from http://www.worldwideetailexchange.org Xinhua. (2003, August 8). Singapore sets up e-supply chain system to cut business cost. Beijing, China.
Note It should be noted that there are inconsistencies in the current literature regarding supply chain terminology. Some researchers refer to upstream participants as an individual firm’s supply chain and downstream participants
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as its demand chain. Horvath (2001) noted “the distinction between supply and demand chains seems increasingly arbitrary. In actuality, there is only one type of chain, the value chain” (p. 206). To minimize nominal confusion, this book takes a conventional approach and chooses the supply chain as the general term in its discussion unless otherwise stated.
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Chapter III
E-Partnership Strategy and Structure
Introduction: Taking a Strategic Management Approach Now that the Internet bubble has seemingly burst, the days are gone when anyone with Internet and IT knowledge can run a successful e-business. Like other businesses, e-business also needs strategic management skills and traditional business sense. This author argues that the success of e-business requires a well-defined and well-formulated e-partnering strategy. A good epartnering strategy can make a significant impact on business operations, customer relations and competitive market position of an organization, if it is implemented and executed successfully. E-managers must be able to think forward and strategically. Business partnership, in whatever form, has gone from being a peripheral tool of management to a centerpiece of corporate strategy and competitive advantage over the past decade (Bamford, GomesCasseres, & Robinson, 2003). This chapter studies e-partnership from a
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strategic management perspective because e-partnership has become an important component of the strategy of many successful companies. From a strategic management perspective, e-partnerships should be strategic e-business alliances. Strategic management focuses on the process whereby managers develop and implement strategies for achieving strategic goals within existing conditions, in turn, helping organizations identify and achieve a competitive advantage. By resorting to a strategic management approach, this chapter helps in understanding the complex nature of e-partnering strategy formulation and implementation, which involves changes to existing business models and procedures. The chapter focuses on the strategy of e-partnering and its matching structures and delineates various worked examples of epartnerships in today’s e-business world, thereby providing a practical guide to e-partnering strategy formation and implementation.
Importance of Developing an E-Partnership Strategy Strategy is often defined as large-scale action plans for interacting with the environment to achieve long-term goals (Bartol et al., 2001). It involves analyzing the environment of an organization, assessing its strengths and weaknesses, and identifying opportunities where the organization could develop a competitive advantage. Strategies have two essential characteristics: they are made in advance of the actions to which they apply, and they are developed consciously and purposely (Mintzberg, Quinn, & Voyer, 1995). Strategic planning helps organizations specify their goals and clarify their visions. Studies have found that companies having strategic management systems had higher financial returns than companies with no such systems (Robbins et al., 2003). There is a general believe in the current literature that e-business allows a lesser degree of partnership planning because of the uncertainties and lack of knowledge associated with e-businesses (De Man & der Zee, 2002). Fox (1999) attempted to justify the belief, saying that in an e-business environment, “partnerships must move at Internet speed. There is no time to sit back, do a lengthy partner and market analysis, and develop and implement a highly defined go-to-market plan. In the e-business world, it is launch and learn or be left in the dirt” (p. 26). It is a well-known fact that many dotcom firms are not Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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fond of strategic planning, especially in the earlier period of the dotcom hysteria period, and adhere to a launch-and-learn mentality. However, the quick demise of a myriad of dotcom firms challenges the rush-in mentality and indicates the importance of strategic planning and management. Strategic planning is an approach to dealing with change and turbulent environments. It encourages change and is not adverse to it. However, there are fallacies of strategic planning which have caused controversies. Mintzberg et al. (1995) described four of them as (1) predetermination, the idea that planners can formally predict the future; (2) detachment — separating strategic management from operating management; (3) formalization — breaking a process down into formal steps and analyzing each of them by quantitative information and rigorous procedures; and (4) the belief that analysis can provide synthesis. Mintzberg et al. (1995) warned that plans and planning processes may “encourage incremental change at the expense of quantum change, generic thinking at the expense of creative thinking, and a short-term orientation at the expense of a long-term perspective” (p. 54). Nevertheless, strategic planning has many positive attributes and has been well embraced and utilized by many successful firms throughout the world. Good strategies are both plans for the future and patterns from the past. Strategies need not be deliberate and can also emerge, more or less, according to Mintzberg et al. (1995). In this regard, an effective e-partnering strategy can lead to a successful and productive e-partnership. A survey study of 250 companies in the UK, which have built electronic links with their partners, suppliers, customers and the public, shows that around twothirds of large companies surveyed have established e-partnering strategies. However, more than 50% of small and medium sized enterprises (SMEs) surveyed have not formed a strategy for online partnering (Information Age, 2002). The survey results reveal a serious problem in the e-partnership landscape. Companies focusing on leveraging e-partnership as a vehicle for value chain creation must take a strategic approach to the formulation of an epartnering strategy. It is not enough to launch a Web site, rush in an epartnership and hope for the best to happen. Rowley’s (2002) case studies illustrate how important a strategic alliance approach to e-business is for four world industry leaders: Nestlé, Barnes & Noble, Merrill Lynch and AOL. Given the unique challenges of the e-business world, strategic planning for epartnership has its distinct features. These are characterized by a short-term orientation in terms of strategy formulation, everyone constantly involved in
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environment scanning and analysis and a faster response to environmental change in planning.
Snapshot: E-Partnering Str ategy: A Key B usiness Driver of Computer Associates Internati onal Co mputer Associates International (CA), Inc. was founded in 1976 and is the world’s leading provider of e-business management solutions, serving organizat ions in mo re than 100 countries, including 99% of the Fortune 500 co mpanies. The co mpany developed a mobile e-business init iative that pro mised to enable rapid and secure deploy ment, manage ment and integration of enterprise applications for wireless systems and devices, including WAP gateways, laptops, PDAs and Internet-enabled phones. Mobile e-business applications are attracting the attention of co mpanies seeking to optimize their e-business investment by enabling their customers, emp loyees and partners to make all of their existing e-business applications readily available to their mobile users via intuitive Web interfaces. To imp le ment the initiat ive, the co mpany devised an e-partnering strategy that targeted Novarra, Inc., a leading provider o f instant wire less software a iming to empower the mobile workfo rce with wire less access to e-business applications. Novarras’ patentpending software is claimed to offer a co mplete solution that adapts WAP-based applications to handheld devices, manages wireless connectivity and delivers end-to-end security. It is this capability that CA wants to leverage. The imp le mentation of this epartnering strategy allows customers to quickly enable their mobile workforces with wireless access to gain access to e-business portals and other applications that interact with databases, e-ma il systems, ERP systems and CRM applicat ions, without making any changes to those existing applications. It is this ability to extend the power of e-business portals to wire less that they believe will be a great asset to any company seeking to streamline its business processes. Source: M2 Presswire (2001)
Case Study: Realestate.com.au (REA) Realestate.com.au (REA) is Australia’s leading provider of online media and advertising services to the Australian real estate industry. Launched in 1997, the REA portal is Australia’s most comprehensive and most popular source of real estate listings and information, with information and listings on share accommodation, home and apartments for rent, first home purchase, homes and apartments for sale, investment properties, second lifestyle homes and retirement living. At the end of 2003, two-thirds of Australian real estate offices had bought an REA subscription, while in August 2004 the Web site received over 1.1 million visitors, consisting of just over 1 million Australian and 113,000 international visitors. The company has offices throughout Australia and currently has 120 employees. Realestate.com.au reported a net profit of
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$AU2.48 million for 2003/2004 compared with a loss of $AU1.54 million in the previous year, with revenue rising to $AU19.15 million from $AU9.54 million. The company has three additional business units: realestate.com.au, realcommercial.com.au, realestate.com.au Web Design Services and realestate.com.au Home Loans. Launched in December 2002, realcommercial.com.au is Australia’s most popular site for commercial and industrial property and for businesses for sale. In June 2004, 35,000 Australian and international visitors used the site to search through 18,000 properties listed by 190 commercial agents. Realestate.com.au Web Design Services is one of Australia’s leading Web development businesses. Leveraging the technology that powers realestate.com.au, Web Design Services has built, or powers, over 2,000 Web sites for Australian real estate agencies. In addition, the realestate.com.au Web Design Services power the Ray White Property Group corporate site and the Raine & Horne Queensland site. Realestate.com.au Home Loans is a 50:50 joint venture with Ray White Property Group and is now one of Australia’s largest mortgage broking groups, providing an expert home loan service with access to more than 300 mortgage products from over 30 lenders. The business currently has a loan book of over $AU300 million. It uses a team of mobile sales agents working closely with residential real estate agents to sell mortgages. The team also captures leads directly from the REA Web site. The realestate.com.au’s corporate strategy and ensuing success have been driven by e-partnership. Some of these include: •
•
•
Murdoch’s News Corporation owns a 44% stake in the company, after making an investment in REA in 2000. As a result, the companies collaborate on the sale of advertisements (e.g., News Corporation bundles REA advertising space into packages with other channels) to provide a significant revenue stream for both companies. REA Web Design Services is a 50:50 joint venture with the real estate group Ray White. REA also provide Ray White with hosting services using the REA technology. REA provides a property search facility to a number of Australian finance companies and banks’ Web sites, including ANZ, NAB and Bankwest, and other companies such as Ninemsn.com.au and the Herald Sun newspaper.
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•
•
•
•
•
In 2001, Destra’s Internet hosting division Ozhosting.com acquired REA’s Web hosting business and also became the exclusive Web-hosting partner for REA. Australian Property Monitors (APM) and REA entered into an agreement to promote and sell APM’s Home Price Guide range of real estate information products to consumers through the realestate.com.au Web site. The Home Price Guide is Australia’s leading national source of online property sales information to the consumer, professional and financial markets. REA entered a 50:50 joint venture with eMOCA, an Australasian mortgage brokers association, to form REA Home Loans services. eMOCA is also the new administrative body for Ray White Financial Services. REA has developed strong relationships with the majority of the Australian major real estate networks. These relationships include the implementation of data feeds from group Web sites to the REA site, the recommendation of REA by head office to their franchisees and the introduction of a discounted subscription rate. REA has attempted to foster more than a supply relationship with their real estate office customers, by actively collaborating with them to identify end-customer needs, therefore, enhance the service they provide to them. The company also provides free training and education programs on online marketing and advertising, and, to date, 5,000 real estate industry people have attended an REA seminar.
REA has built a portfolio of well-planned and strategically focused partnerships in order to enhance their core offerings and provide further insight into the market. The governance of REA partnerships is determined by the business area to which it belongs. For example, content distribution is managed under an online marketing manager. In this manner, the company has identified owners of the partnership who subsequently manage the process rather than having one centralized management team for all REA partnerships. Mr. Simon Baker, the CEO, likens a business built on partnerships to “a deck of cards” — if one falls down, the rest follow. In addition, he does not believe partnerships in the online or off-line environments differ. For example, it has been suggested that one of the vital characteristics of an e-partnership is speed;
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however, Simon argues that all smart businesses should work with speed, regardless of their business environment. The experiences of REA have demonstrated that there are a number of key elements vital to the success of e-partnerships. These include having common goals with clear benefits on both sides and unambiguously communicated at the outset of the partnership, mutual trust, verification, constant monitoring of the partnership and allocation of people internally to manage it, and having a clear dispute resolution processes. Partnership failure is, however, likely to occur when there are misaligned goals, if a partner attempts to use “strong arm” tactics over another or if there is an inability to execute the deal. For instance, some years ago, REA bought a 50% share in their New Zealand equivalent. However, the management at the time did not actively manage the investment or attempt to guide the business. As a result, the NZ business pursued its own goals, which were misaligned with those of REA, and the partnership failed to produce a favorable return for REA (http://www. realestate.com.au (REA) and interviews with the CEO). Discussion Questions 1. 2. 3.
Why are e-partnering strategies so important to REA? How well did REA implement the strategies? Could they have been better planned and executed? What lessons have you learned from REA’s experience?
E-Partnership Strategy Formulation The absence of a well thought out strategy early on may severely jeopardize later operations of collaboration, leading to failure of partnerships. Strategy is required at every level of an organization: corporate, business and functional. Corporate-level strategy, simply put, is the overall strategy an organization follows, including a grand strategy, that is, a master strategy providing the basic strategic direction at the corporate level and a portfolio strategy which helps managers determine the types of businesses the organization should be involved with. A business-level strategy describes how a particular business com-
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petes, while a functional-level strategy concerns specific ways functional areas can bolster business-level strategy (Bartol et al., 2001). There are close synergies among the three levels of strategy, each of them supporting and integrating one another. A good e-partnering strategy should be embedded and integrated in all three levels. When formulating an e-partnering strategy, the following key questions should be answered: • • • • • • • • • • • • • • • • • •
What are our short-term and long-term goals? In what market should we be? Does our organization have the skills, resources and other assets needed to achieve the goals? Who are our principal customers, clients, suppliers and partners? What are our principal products and/or services, present and future? What are our principal outlets or distribution channels, present and future? What is unique about our organization? (Or, what is the core competency of our organization?) Who are our competitors, and what will they be doing in three to five years? What will our marketplace position be in three to five years? What is our e-business strategy, and to what degree is it effective? What impact is an e-partnering strategy expected to have on our whole company? Does our e-partnering strategy align with our e-business strategy and other organizational strategies? With whom should we partner or network? What are the key criteria to use to select our strategic e-partners? What is the scope of cooperation through the e-partnership? What is our operating model for e-partnership? What form or structure will our e-partnership take? What are the potential pitfalls of e-partnerships, and how can we address them?
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These key questions urge managers to make a competitive analysis which involves both environmental and organizational scanning and assessments. Most strategists agree that it is important to undertake the external environment analysis before the internal organizational analysis in order to reduce possible biases (Mintzberg et al., 1995). The competitive analysis helps organizations to compare their strengths and weaknesses with those of their competitors in order to devise an effective strategy for gaining a competitive edge. As emphasized in this chapter, to survive and sustain in today’s volatile marketplace, organizations must be able to seize and quickly exploit opportunities both within traditional and cyberspace businesses. They must have a welldefined mission, a clear vision and an unambiguous understanding of how they intend to achieve their organizational goals. If e-partnership is a necessary means to help achieve the goals, the formulation of an effective e-partnering strategy becomes paramount. The scope of e-partnership should be a primary consideration in the formulation of the strategy. An e-partnering strategy can be one that focuses on only one element of the businesses such as sales or distribution. This can be termed a functional e-partnering strategy. The partnership between IBM and BellSouth is a classic example of e-partnership with a clearly defined scope of cooperation because each company has agreed to a “hands-off” approach to the other’s core competencies. “It’s all about cooperation as opposed to co-opetition”, said IBM director in describing the partnership. In light of the partnership agreement, BellSouth provides IBM with its Atlanta and Miami data centers and its connectivity. IBM assumes responsibility for existing e-business services customers in BellSouth’s centers and also houses any of its own new customers in those markets in the centers. The attractive aspect of the partnership is that IBM does not have to compete with BellSouth for customers. BellSouth is the leader in core transport but needs specialized skills in ebusiness hosting services. IBM was therefore perceived to be the right partner, in that it has invested US$10 billion in its e-business on-demand play and developed its own operations system to support the service (Engebretson, 2003). There can be a broader scope of cooperation between participating firms who agree to perform together at multiple stages of the process by which goods or services are brought to the market: product development, marketing, sales, distribution and so forth. This is referred to as a comprehensive e-partnering strategy. By taking a comprehensive e-partnering strategy, participating firms can combine and consolidate their strengths and resources to get a competitive
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advantage. However, integrating the different operating procedures of several participating firms over a broad range of functional areas can be a great challenge to e-partners. As there is no consensus in the literature and practice about what strategy actually means, primarily because strategy often has different meanings in different contexts and to different people, there are also different versions of an e-partnership strategy. For example, De Man and der Zee (2002) defined e-partnership strategies in terms of the goals pursued by brick-and-mortar and dotcom companies entering into e-partnerships. Based upon their analysis of over 150 e-partnerships announced in The Financial Times, they found that there were four different e-partnering strategies: (1) electronic reimplementation, (2) experimenting, (3) efficient procurement and (4) providing solutions. Of the 150 e-partnerships surveyed, 42% of companies took an electronic reimplementation strategy. That means a bricks-and-mortar selling current products and/or services on the Internet while still maintaining its traditional business operations and portfolios. This simple and less risky e-partnership strategy provides partners with extra sales channels on the Internet. An experimenting e-partnering strategy was the second favorite strategy chosen by 25% of the companies surveyed. The strategy concerns developing new and unproven online business models next to their current business. An online joint venture falls into this category, which aims to pursue new e-business opportunities while sharing the risks with partners. As the name suggests, the strategy has more risk than the others. The third strategy, the efficient procurement, refers to the improvement of procurement efficiency in the supply chain through the use of the Internet. “Partnering on the basis of this strategy has the advantages of lowering supplier search costs, lowering prices as a result of joint procurement, or improving information exchange accuracy” (De Man, Stienstra, & Volberda, 2002, p. 332). Eighteen percent of the companies surveyed chose this strategy. The last strategy, used by only 15% of the companies surveyed, provides a complete package or one-stop shopping solutions to e-customers. With this purpose, partnering companies combined their products and services with complementary offerings to customers. The main benefits of this strategy lie in its potential for cross-selling and the joint capability to engage in mass customization. E-partnering strategy has little value in practice if it stands alone. The nexus of e-partnering strategy with other strategies of an organization should also be a consideration in the e-partnering strategy formulation process. First, the epartnering strategy should be an integral part of e-business strategy if an
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organization decides to jointly run an e-business or part of the business. Second, an e-partnering strategy should have an interface with other organizational strategies, including corporate strategy, business strategy and functional strategy, including marketing strategy, information systems strategy, operations strategy and R&D strategy. Third, while an e-partnering strategy is embedded in organizational strategies, it should be clearly defined and articulated.
E-Partnership Strategy Information technologies are forcing managers to rethink and reshape their business strategies, their use of technologies and their ways of building relations with suppliers and customers. The following mini-cases provide a few exemplars of e-partnering strategies that are taken by companies. After that, two case studies are presented to further elaborate on the e-partnership strategies a dotcom firm and a traditional business utilized in order to administer their ebusiness activity, and how those e-partnership strategies worked. Snapshot1: Global eXchange Services and 7th Online Global eXchange Services (GXS), based in the United States, is a leading provider of B2B integration solutions. 7thOnline, also based in the United States, is a provider of Web- and application-based supply chain solutions targeted toward the buying and planning processes in the global retail industry. The two companies have had a technology partnership for three years and recently extended the partnership to a strategic marketing partnership. The partnership aims to deliver an end-to-end supply chain execution solution for the branded apparel and footwear market. The partnership is generated on the basis of the expertise of the two companies: GXS’s data synchronization and supply chain execution solutions, and 7thOnline’s assortment planning and order placement solutions. Source: GXS (2004)
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Snapshot 2: American Online and Sun Microsystems A Sun-Netscape Alliance iPlanet E-Co mme rce So lutions was launched in 1999 by America Online (AOL) and Sun Mic rosystems. The strategic alliance aims to provide easy-to-deploy, comprehensive e-commerce solutions for the Internet economy. It now provides the industry’s broadest portfolio of Internet infrastructure and e-commerce applications software and services. Source: Sun Microsystems (2000)
Snapshot 3: Wool worth and Commonwealth Bank Woolworth Ltd (Australia), one of the largest supermarket chains in Australia, entered into an e-partnership with the Co mmon wealth Bank of Australia, a lead ing bank in Australia, to offer their customers a convenient and simp le way of banking on the Internet while shopping online for Woolworth’s goods, or simp ly doing an Internet banking transaction. The joint initiat ive was called “Woolworths Ezy Banking”. The banking service is aimed at provid ing customers with more choices in financial services and increasing convenience and simplicity in banking. Woolworths Ezy Banking rewards users with Ezy bonus points to encourage people to use the banking service. Moreover, the Ezy Ban king partnership is not limited to e-commerce, so customers can get cash or ma ke deposits while shopping at Woolworth’s retail stores. Source: Woolworth (2004)
Case Study 1: Amazon.com Amazon.com “opened its virtual door on the World Wide Web in 1995 and today offers Earth’s Biggest Selection of products, including electronic greeting cards, online auctions, books, CDs, videos, DVDs, toys and games, electronics, kitchenware, computers and more”. According to the company, “Amazon.com is the place to find and discover anything you want to buy online” (Amazon.com, Inc., 2002a). Amazon.com focuses on both customer relation management (CRM) and infrastructure management. It has been a successful and leading player in the e-commerce industry, surviving the worldwide collapse of waves of dotcom industries. The growth and success of Amazon.com is largely built on its e-partnering strategy for aggressively expanding its extensive e-networks. Through its
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online affiliate program, Amazon.com has developed e-partnerships with hundreds of thousands of e-partners ranging from tiny, personal home pages to big brothers like Yahoo! and Excite. Over 600,000 Web sites have joined Amazon.com and placed hyperlinks to Amazon.com for e-shoppers to make online purchases (Amazon.com, Inc., 2002a; Hagel & Singer, 2000; Werbach, 2000). Amazon’s e-alliances have extended to the UK, France, Germany and Japan. Amazon has also developed close alliances with other big book distributors and publishers to strengthen its e-commerce capacity. By doing so, Amazon is able to provide its customers with lower prices, vast selection and speedy delivery. For example, if an online order for a book is received which is not in Amazon’s stock, the company immediately passes it on to its partners and ensures delivery is in the next daily shipment to Amazon’s facility. As soon as the book arrives, Amazon repackages it and delivers it to the customer. By using this e-supply chain network of partnership, Amazon makes savings in terms of inventory costs through its e-partnerships (Hagel & Singer, 2000). Amazon’s outstanding mission is to provide the biggest selection of goods possible through its warehouse and e-partnerships. According to Diego Piacentini, Amazon’s senior vice president of worldwide retail, the only way to achieve the mission is to host as many products as possible through its Web pages (Wingfield, 2002). Amazon.com has thus expanded its e-partnership network even further through the establishment of online shops, called zShops. These enable Amazon to host hundreds of small e-commerce providers. Clearly, it is this e-partnering strategy that has placed Amazon at a competitive advantage and driven the increasing expansion of its businesses. Amazon’s esupply chain networks help to increase its sales and extend its infrastructure business. Its e-partners also benefit in a seemingly win-win partnership by selling Amazon’s products in return for referral fees of up to 15% of generated revenue. However, Amazon has been beset with problems in the expansion of their enetworks and e-partnerships. In the first instance, Amazon’s customer information business was weakened due to the fact that its e-partners competed with Amazon for customer information and loyalty by joining Amazon’s enetworks. Second, Amazon’s long-term profitability was affected by its “poor management of logistics and supply processes in this e-business. Losses have increased in line with a growth in turnover last year, and it has been stated that the growth of the company led to an increase in inventory, especially with product diversity increasing” (van Hoek, 2001, p. 22). The annual reports of Amazon.com in 2001 and 2002 confirmed its heavy financial losses. In 2002
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alone, the company recorded a loss of US$149.1 million. Its financial report in 2002 revealed the problems and issues facing Amazon’s current and future operations such as risks of inventory management, significant amounts of indebtedness, customer or third-party sellers’ fraud and uncertainty of business combinations and strategic alliances (Amazon.com, Inc., 2002b). Amazon has endeavored to address the problems, and with the general improvement of the economic mega-environment and Internet businesses, the financial position of the company has been strengthening since 2003, culminating in a net income of US$35.3 million in 2003 (Linn, 2004).
Case Study 2: Covisint In February 2000, three of the world’s leading automakers, General Motors, Ford and DaimlerChrysler announced that they would create a joint e-business venture, Covisint, instead of setting up their own individual enterprise portals. This partnership initiative opened a new page in the history of e-marketplace, namely, the start of multinational corporations entering the e-marketplace rally. The joint e-venture was the largest virtual market in the world at the time, operating auto parts transactions valued at US$240 billion annually from tens of thousands of suppliers. The name Covisint was derived from “collaboration, vision and integration”, succinctly illustrating the company vision. Covisint was an automotive industry exchange and a global Internet B2B e-marketplace which was formally launched in 2000. It was a joint venture set up to achieve an e-business and epartnering strategy, which involved three leading automobile manufacturers with the help of their technology partners: Oracle Corporation, Cisco, and Commerce One. Renault and Nissan Motor Corporation joined the scheme later on. The aims of Covisint were to: •
•
Transfer key business processes within the automotive industry to the Internet and allow all the parties involved to utilize the technology to gain significant value and efficiency through collaboration and integration; Connect the disparate elements of the automotive industry in a virtually connected cyberspace to streamline decision-making processes, eliminate waste, reduce costs and increase efficiencies; and
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•
Provide a global independent e-business marketplace for the world automotive industry.
In short, the primary objectives for the creation of Covisint were to streamline the industry supply chain by removing many of the bottlenecks in the chain and to use the Internet to build an e-supply chain. “Moving processes online simplifies procurement, reduces costs, shortens and sharpens product-development cycles, allows for the exchange of internal information, and connects manufacturers and suppliers in a way never before imagined” (Robinson, 2001). Covisint provided a common platform for a host of automotive suppliers and other industry participants. The working system of Covisint was quite simple: Covisint provided its users with a secure B2B e-commerce technology that enabled them to conduct information searches and online bidding for bulk items. Covisint recuperated the costs by charging the users a transaction fee. The company offered a range of information and procurement transaction services such as an Industry Sourcing Directory which allowed users to locate over 250,000 suppliers worldwide, and Covisint Fulfilment, “an Internetenabled application that processes within a global infrastructure, that can effectively monitor various critical business events within the supply chain activity” (Kandampully, 2003). The development of Covisint, the first global automotive e-marketplace, was largely attributable to its e-partnership strategy. Covisint was constantly engaged in developing an e-partnering network with industry and technology leaders. It was reported that Covisint had 750,000 tier-three and tier-four suppliers; 50,000 tier-two suppliers and 1,500 tier-one suppliers, and hosted 14 automotive manufacturers in 2000 (The Financial Times, 2000). Managing such a large online trading community through an e-partnership strategy therefore constituted a serious challenge to the company. In addition to partnering with suppliers and manufacturers, Covisint partnered with SupplySolution, a leading supply chain execution company, to provide network customers with high-value collaborative supply chain applications. Other e-partnerships that Covisint entered into for the purpose of strengthening its business and technology capacities involved Sun Microsystems, Documentum, Mercator, Powerway, WebMethods, and MatrixOne. Covisint’s partnership with Powerway enhanced the quality of communication within the marketplace by enabling suppliers around the world to use standard Web-based environment for communication and collaboration with their customers and suppliers. The enhanced quality of communication also helped reduce potential quality Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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problems before they occurred in the automotive supply chain. “This unique network of communication and connectivity within the automotive supply chain provides an easy means of sharing quality information and displaying part quality readiness between customers” (Kandampully, 2003, p. 448). The financial benefit, or cost savings, from streamlining and moving the supply chain online for procurement exchange was claimed to be significant. The automotive industry relies on tens of thousands of suppliers, and the average cost of processing each transaction was estimated at US$100 to US$150 per invoice. This cost was likely to drop to $5 per invoice through Covisint (Cisco, 2001). It was reported that by operating in cyberspace, Covisint was able to lower its overhead costs, reduce order processing times and offer its customers various self-service and delivery options that their brick-and-mortar counterparts were not able to offer. Ford projected that it would save $350 million in procurement costs using Covisint in 2002 (Aberdeen Group, 2002 cited in Covisint, 2004). Other perceived benefits included enhanced communication quality due to the use of one standard Web-based technology for collaboration and communication among partners and the breakdown of corporate and enterprise boundaries between partners. Covisint set up an e-partnering management model in the old, traditional manufacturing industry. While coming together for a common goal of streamlining the industry supply chain, the big automotive manufacturers worked hard at striking a balance between each firm’s proprietary technology advantage. “Each company is doing its own thing to use Covisint, and we have our own processes behind our own firewall. We won’t be sharing our specific processes with each other, but we have collaborated very closely on the technological foundations of Covisint”, said the vice president of Ford (Robinson, 2001). However, the company has been financially struggling since the global technology downturn which started in late 2000. Business on the big auction site has never boomed, which is contrary to the high expectations of early days that Covisint would generate billions of dollars of business annually as buyers and sellers flocked to the site (Larsen, 2004). After selling its auction service assets to its rival FreeMarkets Inc., an auction site that provides electronic supply chain services, in December 2003, the company sold all its remaining assets to the software company Compuware Corporation in February 2004, “a deal that signals Covisint’s B2B run is at the end of its road” (Kerner, 2004). The company has now become part of Compuware and is facing an uncertain future. The fade of enthusiasm over online business contributed partly to the financial downturn of the company. However, mistrust between partners (automotive Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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manufacturers and their suppliers, and bureaucracies within the big automakers) was the key problem facing the company. In addition, suppliers felt that Covisint was a manufacturers’ owned company and were hesitant to compete for business online, and as a result, the company’s revenue gained from suppliers was only between 10% to 15% (Koch, 2003). As demonstrated above, Covisint and Amazon.com were pioneers and global leaders in the development of a powerful online platform through an epartnering strategy which aimed to facilitate collaboration between suppliers and buyers in the supply chain. In both cases, the Internet is used as a means to achieve the potential benefits of e-partnering in the supply chain. However, information technology is only a means to the end. The setbacks encountered by Amazon.com and Covisint provide a clear reminder that online procurement or business is often more complicated than what is initially envisaged. Those companies that saw online business as the way to solve all their internal problems were doomed to fail because the Internet is just an enabler and needs well-established supporting infrastructure and sound management strategy to run it. Likewise, success of e-partnership is based upon a healthy and supportive economic and social environment (e.g., strong economy and confidence of suppliers and buyers in online business) and active cooperation between supply chain partners. The lessons learned from Covisint and Amazon.com are profound and illustrate that inter-organizational relationship is as crucial to online business as it is to its traditional counterpart. Discussion Questions 1. 2. 3. 4.
What e-partnering strategies did Amazon.com and Covisint take? Why? What are the common issues facing the two companies in implementing the strategies? How did the e-partnering strategies fit the companies’ overall business strategy? Use the case of Covisint as a model of e-partnerships. How would you reform the model with the wisdom of hindsight?
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E-Partnering Strategy Implementation A good e-partnering strategy requires serious commitment and significant investment of participating organizations to implement and execute it. Too often, companies enter into a partnership without giving considerable thought to strategic purpose and the partnership implementation strategy. Implementation of partnership intent is often far more complicated and difficult than striking a partnership ideal. Even the best partnership strategy can fail if management does not implement it and evaluate the results of implementation properly. “Corporate strategy is an organization process, in many ways inseparable from the structure, behaviour, and culture of the company in which it takes place” (Mintzberg et al., 1995, p. 67). Strategy implementation involves management activities to carry out the strategy and institute strategic controls for monitoring progress and the extent to which organizational goals are achieved (Bartol et al., 2001). The same is true for the implementation of an epartnering strategy. The key actions taken to implement an e-partnering strategy include selection of e-partners, organization structure design for epartnership, technology and human resource deployment, development of reward systems and a supportive, partner-oriented culture. This section will concentrate on the first two areas. Chapters IV and V of this book will address technological, human and cultural issues raised in e-partnership. To ensure successful strategy implementation, it is also important to maintain strategic control of critical environmental factors affecting the viability of strategic plan and assess the effects of strategic actions to ensure the strategic plan achieves its goal. This will be thoroughly discussed in Chapter VIII.
Selection of E-Partners As this book adopts a strategic management approach, the discussion of selection of e-partners should be dealt with from a strategic alliance perspective. Lu and Choy (2004) maintain that “fundamentally, strategic alliances are an externally oriented business approach emphasizing on improving business performance through the linkages in a supply network” (p. 288). Strategic alliances are defined as long-term cooperative arrangements at the strategic level between firms to improve their competitive position and performance by sharing resources and risks. Dyer et al.’s study showed that cross-firm and cross-industry strategic alliances have been increasing continuously and dra-
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matically over the past few years and that competition tends to be between strategic alliances rather than between individual firms (Dyer, Kale, & Singh, 2001). Therefore, selection of e-partners or partnering firms should not only take into account the need for a long-term cooperative relationship at the strategic level but the need to have strategic flexibility in order to modify the alliance when the environment changes, or to exit the alliance when the environment no longer requires one. Understanding each organization’s dynamics is also crucial to the selection as it will help organizations utilize those dynamics to their own advantage. With the collapse of a large number of dotcom firms and the subsequent sluggish e-commerce environment, the e-business model appears to have reverted from that of a new form of doing business back to business as usual. For example, large automotive manufacturers are more careful in selecting partners, focusing not only on their ability to perform electronic transactions efficiently but also on the quality of their products, delivery time and the value-added extras they can bring to the partnerships (Graham, 2001). The success of partnerships, both traditional and electronic, counts heavily on choosing the right partners. Some of the golden rules for partnerships that Segil (2004) found indicate that the first partner is not always the best one and that organizations should always consider the partners of their partner when evaluating partnership opportunities. Segil’s study found that successful organizations strive to build a network of partners rather than bilateral relationships. By doing so, they extend the partnership links to not only the organizations’ own partners but also their partners’ partners who may include other stakeholders and players in the supply chain or value chain. One of the most cited reasons for partnership failure is poor partner choice. Creating a value-adding network of partnership therefore requires a consistent and systematic approach involving the ranking of each network member for risk and value, allocating sufficient resources to manage the risks and leveraging the value derived from multi-dimensional partnerships. The crucial criteria for selecting the right e-partners are (1) complementarity and compatibility, (2) core competency, (3) electronic and technological capability, (4) financial commitment and (5) strong leadership and commitment. The key questions to be answered when selecting your potential partners are: 1.
Are the skills, capabilities and resources of the prospective partners complementary to those of our organization?
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2.
3. 4. 5. 6. 7. 8.
Are the prospective partners compatible to our organization in terms of management style and organizational culture? Can we get along with them? How well do the prospective partners manage other partnerships (track record of partnerships)? Do the prospective partners have a distinctive strength (core competency) that can be leveraged to gain a competitive advantage? Are the prospective partners ready to link up their systems using their ebusiness infrastructure and tools? Are the prospective partners prepared to invest in the partnerships? Do they have a fiscal future? Do the prospective partners have a strong leadership team or leader? Most importantly, will the prospective partners be committed to partnerships?
If the answers to the first three questions are no, it does not necessarily mean that you should refrain from entering into a partnership. The issue is how to approach these differences and deal with them jointly from the outset to increase the chances of success in the partnership. Operational strategies to get the right partners include: • • • • • •
Analyzing prospective partners and identifying markets to enter with them; Performing due diligence to examine prospective partners’ business, finance, technical, product and other operational aspects of fit; Understanding partners’ e-business strategies to match capabilities to theirs in the form of a value proposition; Getting to selected partners fast and early; Demonstrating distinctive strengths which form core competence; and Showing how creative, proactive and fast the organization is (Bamford et al., 2003; Fox, 1999).
De Man and der Zee’s (2002) study indicates that the personal element is also a very important factor in selecting partners. Trust and confidence in partner’s management and vision often play a key role in deciding on a partnership. This
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kind of trust and confidence is often developed through longtime personal contact and relationships between the managers of partnering companies. Efforts have been made by researchers to develop various facilitating models to help find capable and trustworthy e-partners. For example, Ono et al. (2001) created a model they described as a “trust-based facilitator” for selecting e-partners. The facilitator “collects and maintains private ‘word-ofmouth’ trust information as well as capabilities from each user and uses the information for personalized trust-based facilitation for each user” (p. 1). The model proposes trust metrics for e-businesses to calculate over a set of numerical trust values. For example, on eBay, sellers and buyers can check rating scores of potential partners before trading as they evaluate each other by providing feedback after their trades. The issue of such metrics for trust will be discussed in detail in Chapter 8 of the book.
Complementarity, Compatibility, Capacity, and Commitment Complementarity refers largely to complementary skills, technologies, human and financial resources. In other words, it is the tangible and intangible strengths of the potential partner that can be utilized to strengthen the workforce and/or financial position to achieve a certain specific objective. Compatibility concerns the similarities in operating, management structures, communication styles, business strategies, corporate vision, employees and labor policies, organizational norms and so forth. Like marriage, compatibility is often crucial in the selection of partners to make sure that partners can get along with each other and sustain the partnership. However, it is not uncommon that the prospective partnering organizations are in different stages of growth and life cycle — some in the developmental stage, some in high growth and others in decline. Managing these differences is a significant challenge, as it requires different managerial behavior and strategies to fit the circumstances. Capacity refers to an organization’s financial, technological and management ability to contribute significantly to an e-partnership. Commitment indicates how much a partner prepares to contribute to an e-partnership. These four “Cs” are crucial to building and maintaining a productive e-partnership. They should be
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viewed in an integrative manner in selecting an e-partner. The following cases present a few worked examples of e-partnerships formed on the basis of the four Cs. Developing a balanced partnership portfolio is a popular partnership strategy of many companies such as Yahoo!, Covisint, and eBay. A balanced partnership portfolio has several advantages. It can provide a variety of complementary partnerships to strengthen a company’s network position through increasing and expanding its variety of products and services. It serves as a buffer to mitigate the damage caused by the loss of one partner if the partnership goes sour, and it can also consolidate the independent status of the company by not over-relying on one partnership. The portfolio approach may increase the bargaining power of a company in negotiating prices or stabilizing the prices and better services. Other advantages of the approach may include more market opportunities, expanded customer base brought in by partners, reduction of competition and gaining access to more social capital. Social capital is often viewed as the sum of the actual and potential resources derived from a network of relationships possessed both by individuals and organizations. However, there is a need to standardize the processes for selection of portfolio partners that span the supply chain to ensure transparency and consistency. Snapshot 3 below indicates a balanced partnership portfolio approach taken by the pharmaceutical industry. Snapshot 1: Destra Corporation Destra Corporation is a publicly-listed enterprise incorporating a number of consumer entertainment and Internet hosting business interests. These include Destramusic.co m, the largest facilitator of online d istribution of dig ital music using Digital Rights Management technology in Australia, and OzHosting.com, a co-branded Web hosting initiative between Yahoo! Australia and New Zealand. The company was originally formed in 1993 by the CEO, Do minic Caruso and his sister, in order to import video games, but over the course of two years, their focus shifted to software and finally the Internet. Turnover in 2003 exceeded $AU9 million, of wh ich 95% was derived fro m the hosting business. Destra currently employs 55 staff members throughout Australia. continued on following page
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Snapshot 1: Destra Corporation (c ontinue d) The company’s partnership strategies are both strategic as well as operational. For example, Destra’s decision to use an e-partner in conjunction with their Web-hosting business was pro mpted by their desire not to co mpete in the ma rket based on price, as many such companies do, but rather by leveraging an e xisting brand. The company therefore formed an exclusive Web-hosting alliance with Yahoo! Australia and New Zealand in April 2004, whereby Destra licenses the Yahoo brand on a revenue-sharing basis. Yahoo! Web-hosting customers are therefore d irected to a site o wned and managed by Destra, albeit having the physical appearance of a Yahoo! site. The e-partnership between Destra and Yahoo! is controlled by their init ial terms of agreement and ongoing communicat ion between the companies. Some e-partners have more strategic than financial significance. For instance, Destra has partnered with a music retailer who is unlikely to p rovide a substantial revenue stream but serves to lock out the competit ion. The company’s Destramusic.co m provides a platform for dig ital music distribution relying on its retail partners such as Sanity, HM V and JBHiFi on a revenue-share basis. At this stage, the Destra digital music strategy fundamentally entails leveraging every opportunity for partnership that presents itself. In the view of the company, e-partnership is like “a bunch of people with a box of contracts”, and anybody embarking upon an e-partnership should consider the “softer” side of the business first. Th is includes communicating e xpectations in the long and short terms, especially because there is often an “initial fizz” of activity and e xc ite ment at the start of the partnership, which may dissipate after reality sets in. The manage ment of the company strongly encourages the concept of “co-opitition”, or working with competitors in order to gain advantage in the broader sense. For example, TPP Internet, Destra’s domain registration subsidiary, currently sells doma in names to Telstra, the la rgest telecommun ication co mpany in Australia , who in turn is a co mpetitor in the Web-hosting ma rket. A lthough there are boundaries to the relationship, it is believed that the relationship is advantageous to Destra. Source: Senior manager of Destra, personal communication (September 2004)
Snapshot 2: Fourth Shift and Grant Thornton American Minneapolis-based enterprise resources planning (ERP), customer relat ionship manage ment (CRM) and financial manage ment solutions provider, Fourth Shift Corp., entered into a strategic alliance with A merican Ch icago-based management consulting firm, Grant Thornton LP. With in this a lliance, Grant Thornton focused on providing ebusiness consulting services, while Fourth Sh ift attended to the imple mentation of various e-business software solutions through its e-ERP backbone. The imp lementation supports featured connectivity between all business activities, including manufacturing, order-entry, product configuration and financials. Through the alliance, Grant Thornton offered manufacturers an “eAssessment” workshop to facilitate the imple mentation. continued on following page
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Snapshot 2: Fourth Shift and Grant Thornton (c ontinued) To improve and extend the utility of its e-business solutions, Fourth Shift also partnered with SupplierMarket.co m to use the latter’s XM L (e xtensible markup language) Integration Toolkit. This strategic alliance will enable Fourth Shift’s users in the discrete manufacturing industry to source built-to-order co mponents and other specification-based materia ls needed in the manufacture of their end products directly fro m their desktops, as well as search for open request for quotation (RFQ) data in their areas of e xpertise and nominate their co mpany to bid on the contract. The users will be ab le to interface with Suppliermarket.co m fro m Fourth Shift’s e-business centers. Source: Manufacturing Systems (2000)
Snapshot 3: Pharmace utical Industry and Internet Service Provi der E-partnerships between the pharmaceutical industry and electronic connectivity providers are prevalent, particula rly in the United States. Both pharmacy retailers and eprescription connectivity providers are aggressively pursuing as many connectivity partnerships as possible due to their common objectives. Pharmacies want to gain access to physicians, no matter what type of connectivity service they are using, whereas connectivity providers want to give their physician users and their patients as much fle xib ility as possible to connect to the pharmacies of their choice. For instance, Seattlebased CVS.co m entered e-prescription partnerships with three connectivity providers, while Bellevue, a Washington-based drugstore.com, co llaborated with a dozen leading physician connectivity companies and one ma jor application service provider to support and enhance a single protocol for the transmission of prescriptions over the Internet. Source: Getting connected (2000)
E-Partnership Structure Design Conventional partnerships and alliances often operate in a range of partnering structures, of which joint ventures, functional agreements and equity investments are often the favorite choices. A joint venture is created by two or more parent companies to promote their mutual interests. It is a jointly owned independent entity with its own identity and management structure and team. The equity breakdown of the company varies based upon the number of partners and their share holdings. In a conventional joint venture, 50:50 equity is quite common. On the other hand, functional agreements are a simple, flexible and convenient structure for partnership, as they do not require the creation of a new legal entity. Under this structure, partners work together in one or more specific functional areas such as manufacturing, production, finance, marketing and R&D. Equity investment, as the name suggests, is an equity-stake Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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alliance in which one company buys and owns a certain amount of equity of its partner. The equity investment is often accompanied by functional agreements (Griffin & Pustay, 2004; Sierra, 1994). To facilitate e-business, many e-businesses have adopted the conventional partnering structures such as joint ventures and consortiums. Covisint is a typical example of a joint venture built by three automotive giants as shown earlier in this chapter. Team-based structure, project structure and matrix structure are also good options for e-partnership structure design. More examples about e-partnership structures are given now. Snapshot 1: Functional E-Partnershi p Between eBay and Wells eBay Inc., one of the largest global on line auction sites, and Wells Fargo & Co., a leader in Internet banking, entered an e-partnership agreement in 2000. Under the partnership, Wells became the payment processor for eBay credit card transactions, offering electronic checks to eBay’s international customers from 29 countries. This service allo ws people to use informat ion fro m their paper chec ks to pay for products bought at the eBay auction site. Wells’ undertaking was to make sure the funds were in buyers’ checking accounts before goods were shipped. Wells would also let eBay know with in three days when sellers could be alerted that the pay ment had been guaranteed. One of the benefits of the electronic check service is that it lets sellers avoid the fees associated with c redit card pay ments. Sellers pay a 2% interchange fee for online transactions but will only have to pay a 35-cent transaction fee for e -checks. This functional e-partnership enhances eBay’s customer services and expands eBay’s customer base by addressing the concerns of those customers who do not want to use credit cards. Source: Toonkel (2000)
Snapshot 2: E-Business Joint Venture Be tween China Souther n Airlines and Et-chi na China Southern Airlines, the largest airline in mainland Ch ina, and Et-china, an online air ticket booking service provider, further extended an existing strategic alliance to establish the new e-business joint venture, China Southern Et-china E-business Company Ltd. The joint venture is exclusive in nature and is joint ly managed by executives fro m both Etchina and China Southern Airlines under a separate board of directors. Et-china contributed RMB5.88 and has a 49% equity in the jo int venture, while China Southern Airline is holding a 51% stake in it. China Southern Airlines is also one of the foundation shareholders of Et-china which has proven to be one of the most successful e-businesses developed in China over the past few years. Et -china launched its Web site in January 2000 in order to provide real-time online ticket reservation, online pay ment and ticket delivery services to corporate and high-end leisure travelers within and fro m China. Echina has relied heavily on a strategic alliance strategy to develop and expand its business and has established a multi-year exclusive strategic alliance with China Southern Airlines since its beginning. Et-ch ina now serves more than 200 corporate customers, including many leading global corporations’ Chinese subsidiaries. continued on following page
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Snapshot 2: E-Business Joint Venture Between Chi na Southern Airlines and Et-chi na (continued) The new jo int venture is expected to reach gross ticket sales of more than RMB500 million in 2002 and RMB1.6 billion o r appro ximately 10% g ross ticket sales of Ch ina Southern Airlines in 2003. This joint venture is used to accommodate the expanding e-ticketing needs for the airline and helps strengthen their leading position in the domestic e-business marketplace. Source: M2 Presswire (2003)
Snapshot 3: RosettaNet – An E-B usiness Consortium RosettaNet claims to be the leader in global e-business process standards. It was founded in 1998 by 40 information technology companies, mainly representing computer sellers and their suppliers. Since its inception, RosettaNet has quickly e xpanded into other industries such as consumer electronics and semiconductor manufacturing. Today, RosettaNet has become a non-profit consortium of over 500 industry-recognized organizations around the world. Its Managing Board includes Advanced Micro Devices, AMP, Arrow, Avnet, A VX, IBM , Intel, Molex and Motorola (Bayles, 2001). In collaboration with its participating members, RosettaNet aims to create, promote and imple ment open e-business standards and services that improve effic iencies across the global supply chain. The majority of Fortune 500 co mpanies wo rld wide were said to have imple mented RosettaNet standards. RosettaNet has the reputation of being able to drive collaborative solution development and motivate its industry partners to put aside their differences to successfully create a comprehensive, industry-wide standard for conducting Internet-based e-business. Source: RoesttaNet Press Release (2004) and Bayles (2001)
In addition to the conventional partnering structures for e-business, there are other commonly used structures. De Man et al.’s study of over 150 epartnerships in Europe, announced in The Financial Times in 1999, found that there were four popular e-partnering structures: (1) e-channels, as chosen by 50% of e-partnerships surveyed; (2) e-alliances, constituting 30% of epartnerships; (3) e-networks, which made up a further 10% of e-partnerships; and (4) e-markets, which represented 10% of e-partnerships. E-channel structure is the simplest, yet most popular e-partnering structure. Under this structure, a contract is entered into by two firms: one providing a Web site, another providing the goods that will be sold through it. The fundamental purpose of the partnership is to open extra sales channels, as many companies, especially small and medium sized companies (SMEs), are not able to establish
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a strong Internet presence without assistance from Internet specialized providers. E-alliances are joint ventures set up by a few parent companies for the purpose of providing complementary services or products and developing multiple business dimensions. They have their own identity and independence from their parent companies. E-networks are actually virtual organizations formed by large numbers of e-partners who collaborate via the Internet on the basis of contracts with a focus on supply chain activities. Finally, e-markets have a number of distinctive characteristics. They are formed by a large number of buyers and suppliers. The primary objectives are to lower procurement costs and enhance market transparency. It should be noted, however, that in practice, e-partnerships may take more than one structure. For example, echannel partnership may be combined with e-alliances (De Man et al., 2002). Key issues for consideration in designing an appropriate structure for epartnership should include the nature and the scope of partnership, and the basic nature of e-business activities and operational processes. The structure design depends on whether e-business is developed as a separate business function or an integral part of the entire business of an organization (e.g., a dotcom). The issue of partnering structure is also determined by, and closely associated with, strategic directions of companies. The following questions can facilitate a decision: At the operational level: • Are we partnering in a single functional area? • Which markets or products, technologies and business processes will the proposed partnership include? At the strategic level: • Are we partnering for a potential market? • Are we partnering to capture market leadership? As e-business operates mostly in a network form of organization, the design of a “boundaryless organization” suits network-based e-partnerships. The term boundaryless organization was coined by Jack Welch, former chairman of General Electric (GE), who was determined to break down the external barriers between GE and its customers and eliminate vertical and horizontal boundaries within GE. The boundaryless organization is hence “an organisation
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whose design is not defined by, or limited to, the horizontal, vertical or external boundaries imposed by a predefined structure” (Robbins et al., 2003, p. 292). This innovative concept of organizational design is a breakthrough in traditional organizational design. The flexibility and openness offered by the design can help organizations, both dotcom and brick-and-mortar, maximize efficiency and effectiveness in accomplishing their goals. E-partnership structural design needs to recognize, accommodate and nurture the essential features of ebusiness such as speed and extensive and diverse business relationships with customers, vendors, suppliers and others anywhere around the world who interact with the partnering organization at any time. Amazon.com, for example, operates in an extremely extensive network of partnerships as illustrated in earlier this chapter. It has a network of authors, readers and publishers of books, employees of book distributors such as FedEx and UPS who fulfill customers’ book orders, e-commerce providers, online affiliates and other intermediaries. Tejari, a Middle East e-marketplace, has recently entered an e-partnership with the Dubai Aluminium Company Limited (DUBAL), the largest single-site aluminium smelter in the Western world. DUBAL, which produces more than 560,000 metric tons of aluminium per annum, will utilize the Tejari online market to source a diverse range of products it needs. The primary purpose of partnering with Tejari is that DUBAL will be able to widen its supplier base, streamline its existing relationships, secure more competitive pricing on its supplies, reduce its administration work in procurement and, as a result, increase related cost savings (World IT Report, 2004, p. 1). The partnering structure that DUBAL chose for its e-business is a network design which links its independent e-partners together. It is an inevitable trend in this digital era that companies are seeking new business models that shift away from vertically integrated structures to horizontal structures which enable them to focus on core activities and outsource noncore activities. Kandampully (2003) examines the new business paradigm of the global marketplace and considers that business networks and relationships have become increasingly imperative to e-business operations. Supply networks powered by information technologies have provided significant business and competitive advantage through mutually complementary action for a common goal, and e-markets or e-hubs are characterized by such supply networks. Ernst et al.’s (2001) study found that alliances that implemented equal governance often end up in gridlock and failure, especially “where the parents Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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themselves must be involved in day-to-day operations”. Ernst et al., therefore, suggest two governance models for effective e-partnerships, drawing on the lessons learned from the failures of the many B2B partnerships they surveyed. One is to set up an independent joint venture that controls assets, people and the technology. This requires the parent companies to commit liquidity and outsource to the B2B joint venture and works well when no partner is willing to relinquish control. Another model is called “hub-and-spoke” where one company, usually a larger or better performing one, dominates the decision making while the other partners assume relatively minor roles.
Summary This chapter reviews and explores various e-partnership strategies and structures that are currently employed by e-businesses. The chapter deals with both strategic and operational strategies for e-partnership and discusses critically a wide range of e-partnership structures. Given the diversity and complexity of e-partnership operations, the chapter presents a number of empirical studies concerning key issues of e-partnership strategies and structures. Nonetheless, it should be noted that no matter how important it is, a partnership structure is a means but not an end. An appropriate partnering structure cannot guarantee the success of an e-partnership, much like an e-partnership strategy. Instead, there are far more complex issues raised in the theory and practice of e-partnerships, and the following chapters are devoted to detailed discussions of these issues along with potential solutions.
References Amazon.com, Inc. (2002a). Amazon.com associates: Link up with the leader. Seattle: Author. Amazon.com, Inc. (2002b). AMZN Q2, 2002 financial results. Retrieved May 22, 2005, from http://corporate-ir.net Bamford, J. D., Gomes-Casseres, B., & Robinson, M. S. (2003). Mastering alliance strategy: A comprehensive guide to design, management, and organization. San Francisco: John Wiley & Sons. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Bartol, K., Martin, D., Tein, M., & Matthews, G. (2001). Management: A Pacific Rim focus. Sydney: McGraw-Hill. Bayles, D. L. (2001). E-commerce logistics and fulfilment: Delivering the goods. Upper Saddle River, NJ: Prentice Hall. Cisco. (2001). A wealth of savings. Retrieved May 22, 2005, from http:// www.cisco.com Covisint. (2004). Covisint facts. Detroit, MI. De Man, A. P., & der Zee, H. V. (2002). Strategies for e-partnering: Moving brick-and-mortar online. Groningen: Gopher Publishers. De Man, A. P., Stienstra, M., & Volberda, H. W. (2002). E-partnering: Moving bricks and mortar online. European Management Journal, 20(4), 329-339. Dyer, J. H., Kale, P., & Singh, H. (2001). How to make strategic alliances work. Sloan Management Review, 42(4), 37-43. Engebretson, J. (2003, March 14). Analysis: Deconstructing the IBM/BellSouth e-business partnership. America’s Network Enews. Ernst, D., Halevy, T., Monier, J. H. J., & Sarrazin, H. (2001). A future for ealliances. McKinsey Quarterly, 2, 92-103. Fox, R. (1999). The rules of e-business: Partnering tips for securing e-success. VARbusiness, 1520, 26. Getting connected: E-business partnerships abound. (2000, June 3). Drug Store News, 22(23), 28-30. Global eXchange Services (GXS). (2004). Strategic partners. Retrieved May 22, 2005, from http://www.gxs.com/partners_strategic.htm Graham, D. D. (2001). E-partnerships in today’s economy. CompTIA. Griffin, R. W., & Pustay, M. W. (2004). International business: A managerial perspective (4th ed.). Upper Saddle River, NJ: Pearson Education. Hagel, J., & Singer, M. (2000). Unbundling the corporation. In N. G. Carr (Ed.), The digital enterprise: How to reshape your business for a connected world (pp. 3-20). Boston: Harvard Business School. Information Age. (2002, April 10). E-partnerships exposed. Retrieved May 22, 2005, from http://web5infotrac.galegroup.com/itw/infomark/458/ 892/45945667w5/purl=rcl_CDB-0 Kandampully, J. (2003). B2B relationships and networks in the Internet age. Management Decision, 41(5), 443-451. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Kerner, S. M. (2004). Compuware buys auto industry play Covisint. Retrieved May 22, 2005, from http://www.internetnews.com/ec-news/ article.php/3309311 Koch, C. (2003). Covisint’s last chance. CIO Magazine. Retrieved May 22, 2005, from http://www.cio.com/archive/120102/ecomm.html Larsen, P. F. (2004). Going, going… CFO, 20(8), 52-54. Linn, A. (2004). Amazon.com posts first annual profit. Business Report 2004. Retrieved May 22, 2005, from http://www.busrep.co.za/general/ print_article.php Lu, D., & Choy, T. K. L. (2004). Competitive supply chain development through strategic alliance and dynamic relationship. Proceedings of Supply Chain Management and Information System 2004 (pp. 287296). Manufacturing Systems. (2000, September). Fourth Shift announces ebusiness alliances. 18(9), 13. Mintzberg, H., Quinn, J. B., & Voyer, J. (1995). The strategy process. Englewood Cliffs, NJ: Prentice Hall. M2 Presswire. (2001, May). Computer Associates: Computer Associates and Nobarra partner to enable mobile e-business; partnership empowers customers to quickly extend Web applications to handhelds, WAP phones and other wireless devices. Coventry, p. 1. M2 Presswire. (2003, January 9). China Southern Airlines: China Southern & Et-china announce new e-business joint venture. Coventry. Ono, C., Paulson, B. C., Kanetomo, D., Cutkosky, M., Kim, K., & Petrie, C.J. (2001, May 28-June). Trust-based facilitator for e-partnerships. Agents’01. Robbins, S. P., Bergman, R., Stagg, I., & Coulter, M. (2003). Management (3rd ed.). Sydney: Pearson Education Australia. Robinson, B. (2001, January-February). Covisint: Driving the automotive industry. iQ Magazine. RosettaNet Press Release. (2004, May 18). TeleManagement Forum and RosettaNet announced partnership. Retrieved from http://channelminds. com/imprimersans.php3?id_article=2005 Rowley, J. (2002). Synergy and strategy in e-business. Marketing Intelligence & Planning, 20(4), 215-222.
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Segil, L. (2004, February). The eight golden rules of alliances. Financial Executive Magazine & Business Week Online. Retrieved May 22, 2005, from http://www.Isegil.com/article.php?sid=21&PHPSESSID= 31a35501cff8c66412ac8edc826 Sierra, M. C. D. L. (1994). Managing global alliances: Key steps for successful collaboration. Addison-Wesley. Sun Microsystems. (2000). Palm, Inc., Sun Microsystems and iPlanet plan to develop end-to-end enterprise wireless solution. Retrieved May 22, 2005, from http://www.sun.com/smi/Press/sunflash/2000-2/ sunflash.20000229.2html Financial Times, The. (2000, December 13). Commerce One and Covisint strike deal. Toonkel, J. (2000). Wells-eBay partnership tackles online checks. American Banker, 165(111), 1-2. van Hoek, R. (2001). E-supply chains: Virtually non-existing. Supply Chain Management: An International Journal, 6(1), 21-28. Werbach, K. (2000). Syndication: The emerging model for business in the Internet era. In N. G. Carr (Ed.), The digital enterprise: How to reshape your business for a connected world (pp. 21-34). Boston: Harvard Business School. Wingfield, N. (2002, July 23). Could Amazon be another eBay? The Asian Wall Street Journal, A4. Woolworths. (2004). What is Woolworths Ezy Banking? Retrieved May 22, 2005, from http://www.ezybanking.com.au/whatis/tbc-whatis.asp World IT Report. (2004, January 25). DUBAL joins Tejari for e-business partnership. Retrieved May 22, 2005 from http://proquest.umi.com/ pqdweb?index=25&sid=8&srchmode=1&vinst=prod&fmt=3&
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Chapter IV
Technological Challenges and Issues Facing E-Partnerships
Introduction As discussed in the previous chapters, e-partnerships have a number of advantages and benefits that can help organizations sustain and achieve their organizational goals in today’s e-business world. “The rewards of a happy union can be both substantial and satisfying. But, just like marriage, the failure rate is alarmingly high” (Seligman, 2001, p. 34). Partnering companies often face the challenges of sharing customer information; integrating business, IT processes and systems; and aligning business models. As e-partnership has gained momentum, the difficult question posed to managers is not why epartnerships are necessary, but how to make them work. Like e-business and e-commerce, e-partnership faces a range of issues relating to the use of Internet and IT technologies as well as the reliance on inter-organizational interfaces. The rapid development and advance of information and Internet technologies have triggered a whole range of possibilities for integration and alignment of systems among e-partners and supply chain members. For example, the Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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partnership between Exostar (an e-marketplace) and Federation (a software provider) provides trading partners of the e-marketplace with opportunities to securely exchange information in the key design and manufacturing process. Coordination of product data information including product engineering data both internally and across the supply chain is made possible in the Exostar emarketplace. With Federation’s software, Exostar’s customers are able to securely and inexpensively interconnect and share engineering product data from their Product Data/Lifecycle Management (PDM/PLM) system with their partners and suppliers (Withrow & Brock, 2004). E-partnership takes advantage of the current Internet-driven business environment which integrates the most advanced electronic technologies and the knowledge-based economy. Companies engaging in e-partnerships must participate in external business relationships by using computer interactions (Damanpour, 2001). Implementing e-partnership strategy can require many sophisticated technologies and systems such as EDI, XML, and eCRM. Epartners are thus confronted with the great challenge of re-engineering their IT strategies and resources and rethinking their ways of communication and doing business with e-partners. “Nearly 80% of organizations that have rushed to establish Web sites for online retailing have failed to invest in the purchasing and distribution systems that make delivery of their products possible” (Neef, 2001, p. 3). Web site or system failure is a common incident in e-business, which prompts the question: how many orders and how many customers have been lost because of this problem? System failure has a profound effect on ebusiness and e-business relationships, both in the short- and long-term. The tremendous complexity of information technologies has become a huge hurdle to companies embracing them, affecting their entire management strategy, process, structure and, most importantly, business bottom-line results. The main technological issues to be considered are associated with IT infrastructure, and managers’ and operatives’ knowledge and skills in e-business and ecommerce operations. The following constitutes some of the key technological issues facing e-partnerships. • • • •
Interoperability of systems of e-partners; Accessibility, security and compatibility of inter-organizational information systems; Traffic in collaborative e-commerce activities; Sustained IT support and resources;
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• • • •
Transferring and sharing information and data between e-partners; Building and sustaining an effective virtual network structure among epartners; Effectiveness and efficiency of real-time commission reporting system; and Quality and effectiveness of networking and communications (Zhao, 2004).
Addressing each of these issues poses a formidable task for e-managers responsible for inter-organizational collaboration through electronic technologies. This chapter focuses on the technological aspects of e-partnerships in the areas of information flow, procurement, logistics, engineering and manufacturing, marketing, customer services and human resources. It deals with the technological challenges and issues ranging from technical set-up to process and system alignment and integration. Various information technologies and applications used for the development and management of e-partnerships are also discussed. The chapter specifically discusses the issues of interoperability and back office operations which have become of primary concern in the practices of e-partnerships. As the emphasis of this book is placed largely on business and management, it is not the intention of this author to get too technical in discussing electronic technologies in the book. Nevertheless, it is anticipated that an appreciation of the broad key technological issues involved in the process of e-partnering will be inculcated in readers by the end of the chapter. This chapter serves as a basis for further discussion and a framework for future research in the technological areas of e-partnering.
Technical Set-Up and Support The initial set-up phase of an e-partnership is crucial. A well-planned and welldesigned technical system can avoid or minimize many technical problems that may rise at a later stage. Building an effective e-infrastructure for e-partnership is however quite challenging and can be very expensive to many organizations, especially to SMEs. To support e-partnerships, we need to build a capability that provides an advanced, secure, standardized and high-speed network to connect business partners and to offer on-demand business applications. For
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example, in a simple revenue-sharing e-partnership, the merchant must distribute HTML code, graphics, logos and so forth that its partners need to establish a link to the revenue-sharing program. Technical support must include basic real-time assistance to help partners through the operational process. In terms of the e-supply chain partnership, simplified and standardized solutions based on common technology architecture must be instigated, which may include trading partner processes, multiple levels of connectivity among trading partners, internal infrastructure and system re-engineering to ensure e-supply chain interoperability (that is, the ability to be fully compatible and capable of being integrated with each other in e-business) and e-application architecture (Ross, 2003). Given the fact that many companies now operate in more than one electronic supply chain, multiple IT integration becomes paramount to their business operations. Interoperability can be achieved through process standardization and information standards (e.g., EDI and RosettaNet Standards). Studies show that the achievement of multiple IT integration brings significant benefits to the companies that implement it (Davis & Spekman, 2004). Covisint, for example, implemented a portal service called Covisint Collaborate to assist its e-partners in achieving application interoperability in a managed service environment. By using the portal service, third-party application, cross-enterprise supply chain applications, CRM solutions and so on could be deployed in an efficient manner to solve emerging business problems raised in e-business. Covisint also offered other set-up and support services to its partners such as help desk assistance and Covisint Trading Partner Management services (Covisint, 2004). As multiple levels of integration imply a very complex process for supply chain network members, implementation should be iterative, starting with the easiest process or the one that provides the biggest return. On a practical level, businesses should not attempt to do too much in the first round. Rather, they should be realistic about the costs and challenges of the implementation. A study of implementation of e-SCM solutions shows that often the implementation is “fraught with difficulties, potentially enormous expenses, and significant trauma to even the best of organizations”. Thus, “pilot, go live and iterate” is the most advisable method of implementation (Ross, 2003, p. 325). There are also issues relating to levels of implementation. As companies vary considerably in terms of the nature of their business, capacities, resources, size, developmental stage, culture, competency of leadership and so forth, the strategy for epartnership infrastructure should be realistic, feasible and in line with the Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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company’s actual need and capacity to embrace e-business. Incremental rather than radical changes are encouraged to implement limited, tactical Web technologies that will enhance existing processes for partnership. Indeed, Garvey (2001) reported that managers’ fear and the uncertainty of radical technology transformation process were some of the major causes of failure of many industry-backed e-marketplaces. Incremental implementation from the start costs less in terms of investment and time, less serious disruption of the existing business and less technology risks. The collaborative technology infrastructure capacities required may vary in different supply chains and e-business contexts, along with the role and size of each e-partner. The following presents fundamental and broad strategies for establishing and maintaining an effective e-infrastructure for e-partnerships: •
•
•
•
Establishing simple and low-cost connectivity to ensure that smaller firms are able to access, and participate fully in, a collaborative infrastructure without having to make a major investment. For example, organizations should have access to networked SCM applications which are browserbased through broadband Internet connections or virtual private networks. Establishing and implementing a common data model for data storage across the supply chain, which would be simpler, faster and far more efficient than integrating all the various data models. Developing high-level self-service technologies which enable supply chain members not only to track orders, obtaining logistics and billing information, but also automatically configure products, make payments and resolve disputes. Developing business intelligence technologies to analyze the ongoing flow of information drawn from the entire supply chain, which helps companies make improvements in internal operations and collaborative capabilities in an ongoing process. In fact, applying business intelligence into e-business processes poses enormous opportunity for value creation in the supply chain and enhances SCM practices (Horvath, 2001).
This discussion has briefly covered only some of the technological aspects in relation to the initial set-up of an e-partnering collaborative infrastructure. More detailed discussion is given in the rest of the chapter to the issues pertaining to the ongoing process and system of e-partnering. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Process and System Alignment and Integration Integration refers to collaborative planning and control, decision integration, information integration and business process integration between inter-firm partners, using information technologies and systems. The technological side of the integration is crucial to companies that are partnering or wishing to develop e-partnerships in an e-network. For example, the complexity of integration required by e-marketplaces is one of the big problems that have been attributed to the sharp decline in the number of e-marketplaces. Today, most companies have implemented enterprise resource planning (ERP) systems to automate their back-end planning and scheduling processes and to undertake internal IT integration to meet the needs of multiple vendors and customers for years. B2B software has allowed IT integration across companies with different IT platforms, but there is limited application of Web technologies to the rest of the procurement process. There is generally a lack of real-time supply and demand information flows among supply chain partners, which results in inaccurate planning leading to either inventory shortages or excessive inventories. Therefore, system integration and alignment becomes paramount to e-partnership operations, thus, directly affects bottom-line results. E-business provides organizations with opportunities to align their processes for e-partnership to attain success. However, technology-wise, interoperability requires enhancement of existing systems to transfer them into a cross-firm mode. Electronic supply chain requires integration of software platforms, or open systems, across the entire network. Integrating processes and systems is paramount to a seamless link with partnering companies. For example, successful implementation of Electronic Data Exchange (EDI) requires realignment of work processes and systems within the network of partnerships. However, according to Lowson and Burgess’ (2003) study, many organizations, particularly small to medium sized enterprises (SMEs), have not taken on, or have a limited use of, EDI and other inter-organizational systems (IOS) to integrate their supplier processes, operations processes and sales processes because they are often not able to undertake the cost of technologies and the management systems integration. Much R&D work has been undertaken to facilitate inter-firm system connection and integration. For example, Microsoft Corp. recently launched Microsoft BizTalk Server 2004. This is an e-business solution platform that brings
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together customer, partner and employee integration capabilities into a unified environment. The Microsoft BizTalk Server provides an integrated and extensible foundation for enterprise integration including enterprise portals for employee, customer, partner and information integration through alignment with the Microsoft Office System. According to Microsoft, their solutions provide organizations with the opportunity to “build integrated, interoperable, modularized, extensible, and secure e-business solutions that connect information, systems, people, and process” (Microsoft, 2004). Equarius, a Microsoft Gold Certified Partner and a company that specializes in designing integrated technology solutions, is delivering its “Connected Enterprise” solution offerings on the BizTalk Server 2004 platform. One of the key integration solutions offered by Equarius permits companies to connect with trading partners which helps “enable rapid supply-chain integration using standards-based XML technologies, decrease the costs of existing EDI operational costs, and enable greater levels of partner collaboration through partner self-service” (Equarius, 2004, p. 1). These server and solution offerings are only a few of the many solutions that assist organizations in aligning and integrating their systems with partners’ business processes and systems. E-partnership often requires the re-engineering of business processes across companies, which is very expensive in terms of time, capital and human resources. As one former supply chain executive explained, it took major collaboration efforts and 12 to 18 months to implement business process reengineering between just two trading partners (Davis & Spekman, 2004). In addition, system integration and alignment should take into account the diversity of e-partners. There is hardly a one-size-fits-all solution for all partners. Take Sun Microsystems, for example. Sun has employed three main Web technologies in its e-network: connected ERP systems, B2B e-marketplaces and Web stores. The company enables its large partners to directly place their orders in its ERP systems. Other partners have the options to choose the ebusiness application that suit them best. The flexibility of e-business applications that Sun provides facilitates system integration and alignment in an optimal way. In a recent study, De Man and der Zee (2002) suggested that there were a number of technological lessons learned in the process of starting and building Web applications in an e-network. These included that systems should never be forced upon partners and that channel conflicts should be avoided by selecting the right e-business application for each partner and client group. Internal systems should be changed to cater for the requirements of e-network, and finally, the overall process should be guided by the concepts of standardization, harmonization and simplification. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Establishing e-business process standards is another issue for inter-firm B2B integration whose objective is to meet the needs of global supply chains. RosettaNet has been successful in providing a common language for B2B transactions and in building integrative e-business processes among partners within the global trading network. RosettaNet standards that have been used by Fortune companies worldwide to “prescribe how networked applications interoperate to execute collaborative business process”. RosettaNet standards consist of a three-level business process architecture for interaction between inter-firm e-partners: (1) partner interface processes; (2) RosettaNet dictionaries, including the Master Dictionary which contains over 6,000 common terms and processes, and grammar that describes how systems communicate; and (3) RosettaNet implementation framework (RNIF). RosettaNet Partner Interface Process (PIP) is a business process designed for inter-firm system integration. It is a specialized system-to-system XML-based dialogue that defines business process between trading partners. PIP can be used in the core processes of administration, partner product and service review, inventory management, marketing information management, service and support and so forth (Kirchmer, 2004; RosettaNet, 2004). There are numerous companies that specialize in providing business-tobusiness integration, synchronization and collaboration solutions. Global eXchange Services (GXS) is one of leaders in the field. GXS has designed a set of solutions called the “Extended Value Chain” to help streamline crossenterprise business process. The Extended Value Chain consists of four key layers: transaction, monitoring, synchronization and collaboration, enabling companies to: •
• • •
Transact information with their trading partners by enabling the transmission of information regardless of protocol (e.g., TCP/IP, EDI, XML, etc.); Monitor their operations by providing visibility and analytics into the movement of information between enterprises; Synchronize business processes by enabling their integration, automation and optimization; and Collaborate using solutions that leverage cross-enterprise business processes in real time (Greenfield, 2004).
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As illustrated previously, the implementation of system integration among epartnering companies is a huge task, and an incremental step-by-step approach is advisable. This approach involves several phases, each having a specific focus and a realistic scope. In the supply chain integration, for example, the organization could first integrate the purchase order transaction between a specific partner’s procurement system and the internal supply chain and then move on to integrate further transaction types with other partners in subsequent phases. However, even if the scope of the first phase of the integration is to simply connect two different applications, the overall road map has to be clearly defined and considered (Drews & Wesseler, 2003). Murtaza, Gupta, and Carroll (2004) also divide integration into different levels in the context of emarketplaces. Information-level integration is the simplest level where only basic data and documents are exchanged between the parties concerned, and there is no end-to-end transaction flow taking place. The second level is transaction-level integration, which is required in those industries where transaction rates are high. Through the transaction integration, suppliers can link their ordering and inventory systems directly with the exchange, which leads to the automating of manufacturing and shipping processes. The transaction-level integration usually involves integration with ERP and other systems. The third and highest level is collaborative integration, which involves collaboration between buyers and sellers in product design and manufacture. The main benefits of this level of integration include a significant reduction in costs and time in product planning and development if the collaboration goes well. It should be noted, however, that the level of integration required in the emarketplace depends on the business purpose of companies entering the emarketplace. For example, if the purpose is to gain product or transaction information only, you may not need a high level of sophisticated integration. Therefore, system integration should take into account the actual need and expectation of your company when doing business in e-marketplaces. Cisco System is often cited as a successful example of seamless integration throughout its supply chain operating systems with its partners (Davis & Spekman, 2004). The integration consists of three parts: (1) planning, control and design integration; (2) information integration; and (3) business process integration. Planning, control and design integration mainly concerns making collaborative decisions regarding inventory replenishment and collaborative product development. As the name suggests, information integration refers to the sharing of forecast data, inventory data, customer order and status information, but it also includes system application integration with trading
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partners. Business process integration involves allowing partners to access ERP system and MRP processes, automation of routing of EDI data to supplier partners, automation of cross-firm business processes and real-time flow of customer orders to all partners. However, there remain many barriers to the implementation of system and process integration and alignment. For example, the problems of incompatibility of the systems of the trading partners can inhibit the operation of a fully transparent environment between trading partners. With an e-procurement system, for example, it is important that the system should be integrated with the internal systems of the buyer partners, and external order information from this system would be easily transferable to the supplier partners. Given the high costs of implementation, the uncertainty of technologies and, most importantly, a lack of direct causality between the implementation and profitability of business, it is difficult to motivate e-partners to enable the integration. Some commentators warn that the integration of a company’s systems with an emarketplace is a very risky endeavor because of the uncertain future of emarketplaces in terms of the financial viability of the e-marketplace business model. In these circumstances, it is suggested that using integration brokers will reduce the risk and increase a company’s chances of selecting an appropriate e-marketplace (Murtaza et al., 2004). Other barriers include lack of trust among partners and fear of information leakage or misuse and loss of the ownership of customers. Legal and financial issues are also important. As these issues exceed the technological sphere, they will be discussed in detail in the next chapter. It is vital that management teams have the level of project management expertise required to plan, organize, control and monitor every phase of implementation. It is also vital that project managers are able to drill down and recognize issues at the operational level and take necessary corrective actions during project execution (Czuchry & Yasin, 2003). Implementation of the technology changes must be realistically defined and regularly monitored. Tight control in terms of the implementation schedule and the participation of human resources is crucial. Benchmarking against best practices in the implementation of similar companies should be used in all aspects of the process of integration and alignment. This enables companies to identify the magnitude of gaps in implementation and take proactive and effective measures to close the gaps. Best practice benchmarking should be a systematic exercise to identify and capture best practices and transfer them across all business units of a company. In parallel with the best practice benchmarking, hard lessons learned, failures and
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problems related to system integration of others should also be made known across networks of partners in order to avoid the repetition of similar mistakes by taking preventive action.
Communication Technologies for E-Partnerships The advancement of information and communication technologies has enabled the development of technology solutions and applications such as interorganizational information systems (IOS), Electronic Data Interchange (EDI) and Partnership Relationship Management, which become necessary tools to link partnering companies throughout an e-supply chain and other e-partnerships. These technologies play a pivotal role in sharing and transferring information between partners, contributing to the development of a productive and cooperative relationship. This section discusses some of the most important technologies that can be deployed for inter-firm partnership and collaboration in conducting e-business.
Inter-Organizational Information Systems (IOS) IOS are networks of company systems that allow organizations to share information and interact electronically across organizational boundaries (Kaufman, 1966 in Warkentin, Bapna, & Sugumaran, 2001). IOS are one of the most important technologies used in creating and sustaining e-partnerships. Since their inception several decades ago, these systems have been used to share information in inter-organizational cooperation. They link buyers, sellers and business partners together in key business processes and create new channels of business. IOS can be used for different types of inter-organizational partnership: one-to-one, one-to-many, and many-to-many. A one-to-one partnership usually involves a key supplier or vendor and a buyer-seller, using IOS. This was popular among the earliest adopters of IOS technologies. A one-to-many partnership can also be facilitated by IOS and is very popular in the automobile manufacturing sector, airline service industries and supermarket chains. For many-to-many partnerships, combined with Internet technologies, IOS connects multiple firms simultaneously on both sides, thus creating an
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electronic marketplace (e-marketplace) for e-businesses and the sharing of information (Konsynski, 1993). Anderson’s survey suggests that supply chain failures such as products not being delivered on time or out of stock, are often caused by a lack of rapid reporting structures to identify emerging stock shortfalls, order processing systems to manage the needed repeats and vendor quality management programs to ensure minimal complaints and returns (cited in van Hoek, 1998). These problems, therefore, highlight the importance of information management in the supply chain to ensure information flow and sharing among epartners and also reflect the inefficiency of the information management systems. Thus, IOS have become crucial in the management and coordination of epartnerships by increasing information flow which can be integrated with the flow of goods to create an e-supply chain. In the case of some of the most advanced adopters of IOS, business is transacted through the synchronized management of information to provide product and service packages assembled from across multiple companies in the supply chain. Large manufacturers can use IOS to interact with their nationwide suppliers and distributors. The most recent development for larger organizations entails the transfer of the traditional IOS to the Internet to improve accessibility and flexibility, and reduce its costs. For example, Ford and General Motors announced that they switched their supply chain management systems from IOS to the Internet, establishing their online systems at http://www.auto-xchange.com and http:// www.gmtradexchange.com (O’Toole, 2003). However, the downside of IOS is that the information shared is usually operational such as inventory information, but not strategic such as demand and market forecasts because most IOS are designed to share narrowly-defined data and information (Warkentin et al., 2001). In the e-marketplace, information that is shared among partners is often homogenized to such an extent that it is of little value in many cases (senior managers of e-marketplaces, personal communication, 2004).
Electronic Data Interchange (EDI) One of the most popular IOS is the Electronic Data Interchange (EDI) which exchanges business documentation from computer to computer among partners. EDI carries out standard business transactions in a standard format that
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permits the receiver to perform the intended transaction. EDI can replace most of the clerical and intermediate business processes with direct electronic communication between system applications. By doing so, it enables businesses to eliminate paper document handling and increase information transaction speed and accuracy. EDI is also one of the earliest forms of e-commerce and has been used by many large companies for over three decades (Sweet, 1999; Wojtkowski & Walker, 2001). Indeed, it has attracted a great deal of attention from practitioners and researchers over the past decade, much of which focuses on the purported benefits associated with the implementation of EDI. For instance, the system can be invaluable in facilitating inter-organizational exchanges of information and the synchronization of production and service activities between business partners. EDI is also likely to enhance productivity, quality, speed and flexibility and help organizations to incorporate buyers, sellers and partners in the redesign of their key business processes (Jun, Cai, & Peterson, 2000). Other perceived benefits include: • •
Standardization of business transaction processes and sets, helping reduce transaction costs; and Allowing inventory information to be readily shared by partners in the supply chain, in turn enabling: • • • • •
Better control of inventory and tracking of shipments; Advanced notification of shortages and backorders; Reduced inventory costs and safety stock; More reliable forecasting throughout the supply chain; and More accurate and effective planning for inventory to be made (Wojtkowski & Walker, 2001).
Many companies now use EDI powered by the Internet or based on the Web, and such applications are popular in e-marketplaces. For example, Covisint developed a Web-based EDI system to enhance the effectiveness and efficiency of communications between trading partners in its network. By using a Web-based EDI system, mission critical supply-chain documents such as shipping schedules, advance ship notices and forecasts were able to be exchanged electronically between Covisint’s trading partners. Covisint’s EDI system also helped its trading partners improve the effectiveness of mission-
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critical processes, specifically, collaborative product development, procurement and supply chain management. As a result, the quality of customers’ product, cost structures and time-to-market worldwide have been significantly improved. As a result, Covisint helped fundamentally transform the way that most automotive companies communicated with each other (Kandampully, 2003). However, if EDI is used as a stand-alone tool, its connectedness function is relatively narrow and restrictive. In many cases, it is limited to communications between OEMs and their largest suppliers and is used little beyond these relationships. If EDI is not based on the Internet, it requires all partners to be connected via expensive private networks. Perhaps for this reason it is estimated that less than 15% of the information exchanged between tier-one companies and below use EDI. Other key barriers that have prevented companies embracing the technology include the cost and the complexity associated with the implementation of EDI. It is estimated that only 300,000 firms worldwide have adopted it, and most of them are large companies who use it to communicate with either their largest buyers or key suppliers, while EDI has been prohibitively expensive to deploy and maintain for smaller companies (Bayles, 2001; Neef, 2001). Some in-depth case studies also reveal the key limitations of EDI. McIvor and Humphreys’ (2004) case studies found that extending EDI to second tier suppliers proved to be both costly and inflexible, although the cost/benefit of implementing EDI systems between large OEMs and their super suppliers can be justified due to economies of scale.
Extensible Markup Language (XML) and ebXML As discussed above, EDI is perceived to be complex, rigid and too expensive for smaller companies to take on. In order to solve the problem, extensible markup language (XML), a relatively new development of IT for supply chain applications, was invented. In 1996, when the technology was first introduced, XML was hailed as a revolution because it promised “to provide a simple and affordable solution for secure exchange of transactional business data between firms” and to be “everything that EDI was not” (Neef, 2001, p. 102), and it would indeed appear that any organization wishing to share information in a consistent way can resort to XML. XML is similar in nature to hypertext markup language (HTML), used in Web pages. Both contain markup symbols to describe the content of a page or
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file. HTML describes the content of a Web page (e.g., text and graphic images) in terms of how it is to be displayed and interacted with. However, unlike HTML, XML is extensible, as its markup symbols are unlimited and selfdefining (Drews & Wesseler, 2003). The new tool “allows the tagging of groups of data to smash the language barriers that have segregated different breeds of computers, different business-process software, and different database formats” (Davis & Spekman, 2004, p. 74). The tool is particularly helpful for program and system developers to integrate data from business partners with back-end systems and facilitate computer-to-computer transactions between trading partners in e-marketplaces. Currently, XML is regarded as the leading interoperability facilitator for inter-application communications (Ross, 2003). “By taking the lowest common denominator approach, XML makes it possible for heterogeneous new systems and old systems to communicate with each other. Regardless of the programming language used to process XML, it will enable the new, networked environment” (Bayles, 2001, pp. 236-237). XML is especially useful for integrated supply chain management, as communication and sharing of data and information between supply chain partners is one of the key elements of SCM. In terms of supply chain integration, XML can be used to exchange data in a defined format between internal and external applications. For example, purchase orders can be easily described by XML and distributed via the Internet and then passed on across firewalls to a company’s intranet (Linthicum, 2001). XML is often viewed as a meta-language standard of communications. If all partners use and agree upon XML standard, they will have a relatively simple and inexpensive way to communicate directly with each other, and an integrated e-supply chain can be established in this way. As the XML standard does not include document description, the description can be self-defined. However, XML standards are different because they are defined by various bodies, based upon major industry sectors. There is still no true agreement on cross-industry standards for protocols at the product labeling or business transaction levels. Even in the same industry sector, firms have difficulty in implementing the technology because of variation of the standards (Neef, 2001). A good example of XML in practice is again provided by Covisint, who developed a data messaging service called Covisint Connect. The system, which could be used as an alternative to its EDI transmission methods, provided a single connection for a company to exchange data with its partners by using XML. The solution aimed to achieve greater participation of suppliers in
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Covisint’s e-marketplace by reducing the complexity and the cost of trading partner maintenance and to give companies the flexibility to deploy new business processes to solve industry specific problems (Covisint, 2004). ebXML (electronic business using extensible markup language) is a “modular suite of specifications” designed to help create a single global electronic market to all trading partners of any size and anywhere in the world to conduct e-business. The initiative of the specifications is to maximize XML interoperability within and across trading partner communities. Using ebXML, firms can have a standard method to exchange business messages, communicate data in common terms and define and register common business processes among trading partners. The open XML-based standard is built specifically on e-business experience. Other values of ebXML include enabling trading partners to complement and extend current EC/EDI investment, expand ebusiness to new and existing partners and facilitate convergence of current and emerging XML efforts (Geyer, 2005).
Web Services Over the past few years, the Internet has become the most powerful technology to facilitate collaborative commerce among businesses to form Web services. Web services are a set of capabilities that transmit data from one application to another over the Internet. They do not require a direct connection between the two applications or the operating systems that the individual applications are run on but are provided from a Web server for Web users or other Webconnected programs. In this regard, Web services offer interoperability across heterogeneous platforms and facilitate and enrich communications between epartners. For example, companies can use a Web service to transmit real-time information back and forth between their ERP backbone running on different platforms such as Microsoft Windows, NT or a Java-based production planning application (Ross, 2003). There are different labels for the Web services. Microsoft calls them “.Net”; Oracle names them “Network Services”; and Sun refers to them as “Open Network Environment”. Web services are developed to address the accessibility issue that is commonly experienced by supply chain partners providing different supply chain components. An integrated e-supply chain requires compatibility of the applications involved, and Web services provide this by embedding existing applications and making them accessible to various components of the supply chain. Thus,
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the technology of Web services allow companies to reuse the major applications in their existing IT infrastructure and build Web services around them (Drews & Wesseler, 2003). Ratnasingam (2004) summarizes the main benefits of Web services, which include faster time to market, convergence of disparate e-business initiatives, significant reduction in total cost of ownership and easy to use software tailored for trading partners. In terms of cost reduction, Web services minimize the financial risks of using obsolete technologies and rely on external application providers to offer the latest technologies. Web services use standard Internet protocols. There are three XML-based standards that are becoming the de facto standards for Web services: SOAP, WSDL and UDDI. Web services are a major step toward the technology maturity needed for inter-firm ebusiness collaboration.
Partner Relationship Management (PRM) Partner relationship management (PRM) is a subset of e-CRM (electronic customer relationship management). Like CRM, it is defined as a business strategy as well as a set of application tools designed to increase the long-term value of a company’s network of partnerships. PRM is able to assist companies: (1) to select the right partners through the formation of a partner profile database; (2) to provide partners with information and knowledge needed to deal satisfactorily with channel customers; (3) to collectively search for ways to improve sales, productivity and competitiveness; and (4) to ensure that each trading partner contributes to customer satisfaction. PRM provides software toolsets that automate and enhance communications, processes and transactions among partners throughout the supply chain system. PRM software can assist in developing a partner database containing the capabilities and profiles of partners from contact information and infrastructure to past sales contribution and general performance. By offering a standardized method and enhanced visibility, PRM helps companies to systematically manage their portfolio of partners by identifying partnership risks and rewards, maintaining ongoing contracts, forecasting planned revenues and providing metrics to measure and monitor profitability and losses associated with the partnerships. In addition, PRM can also assist in marketing development. One of the most important tools used within PRM is “lead generation”. In many cases, there can be as many as 5,000 open leads at a time. The PRM system makes sure that no leads are lost
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by providing partners with the capability to update leads. Parent companies can also match customer leads with partners, based on the partner database developed from the PRM system. By using the software, marketers can not only locate the most qualified partner for the customer leads but also capture partner win or loss results. The PRM marketing function links partners to campaigns and promotion activities and helps to measure results. PRM can also assist in sales management by offering partners the visibility of channel product availability, order status, service requests and warrants and so on. Finally, in addition to these basic functions, PRM system can be used by partners to co-develop marketing programs and joint business plans (Ross, 2003). It is claimed that PRM has made a significant contribution to the reduction of channel costs and maximization of total supply chain revenues. For instance, Captaris, based in Washington, USA, is a leading provider of Business Information Delivery solutions. Ninety-three of the Fortune 100 companies are using Captaris’ products and services. The Company has a global distribution network in 44 countries and has established strategic alliances with many industry leaders such as IBM, Canon, FileNet, Microsoft, Oracle, SAP, Siebel, and SAP. About 90% of Captaris’ sales come from its 1,200 Channel Partners. PRM provides the company with a single contact point to manage its large number of partners and the value-added resellers (VARs). The Captaris’ PRM system works as follows: as soon as a new VAR registers with the company (becoming a Captaris’ partner), an internal salesperson will get an automatic e-mail notice and instantly see the partner profile and contact the partner. With the help of PRM, the VAR can retrieve basic sales data and seek call center’s assistance. PRM can also help partners to update their profiles and help Captaris to identify partners’ training needs or identify qualified VARs for new product introduction (Captaris, 2004; Ross, 2003).
Case Study: BHP (Bluescope) Steel — Integration Practices and Lessons Learned BHP Steel (now called BlueScope Steel) was founded in 1885 and is not only one of the oldest companies, but the largest steel producer in Australia. BHP Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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was one of the first companies to integrate e-commerce systems into its traditional trading systems 15 years ago, when the company formally implemented VAN-based EDI. By replacing its manual purchasing system with a PC-based purchasing system with built-in EDI capabilities, BHP’s trading partners were able to trade electronically. In the early stage of implementation, technical and software problems, such as lack of technical knowledge, support and understanding of the technology were identified as being major issues. However, BHP was relatively successful in overcoming these barriers. One year after the implementation, BHP built the biggest electronic trading network in Australia and expanded its trading partners from 12 to 96. About 80% of all its purchasing orders were placed through the EDI network. The implementation of EDI brought to the company significant efficiency and savings. For example, as a result of the implementation, lead times in the day-to-day purchase and supply process were reduced from more than 10 days to 26 hours for contract lines and from 42 days to 10 days for direct purchase items. After 4 years of implementation, EDI merged with the Electronic Trading Gateway (ETG). The new initiative was designed to add value to trading partner relationships based upon international electronic documentation and communication standards. However, the implementation did not achieve its desired goal. Only three major trading partners used the ETG. As a result, BHP had to expand the implementation from a purely EDI-based system to include an EDIto-fax alternative. Fortunately, the advent of the Internet provided BHP with an alternative medium to the high-cost VAN-based EDI, which would prove to be particularly attractive for small and medium sized trading partners. In November 2000, BHP developed a B2B private e-marketplace network at http:// www.bhpsteelconnect.com. The network, protected by a 128-bit level of encryption, can be accessed only by the trading partners with a password (Chan, 2003). By utilizing Internet technology, the company aimed to reach SME partners and gain further penetration worldwide. BHP therefore developed an e-commerce strategy which divided transactions into categories and deployed different technologies for each type of transaction. As such: • •
Strategic transactions characterized by high volume, high risk and high return, VAN-based ETG would use EDI; Tactical transactions characterized by medium volume, medium risks and medium return would utilize EDI and e-fax; and
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Consumer transactions characterized by low value, low risks, and low return would use various e-commerce technologies including the Internet.
Chan and Swatman’s (2000) study identified two primary technological lessons learned from BHP’s experiences: 1.
EDI proved to be difficult and complex to implement, requiring highly structured and agreed computer-to-computer message mapping; and
2.
The extended use of EDI from having an internal focus to inter-organizational and/or international focus required compatibility in terms of both hardware and software, which represented significant cost to the company.
Financial constraints may therefore prove to be a major obstacle for small and medium trading partners to trade electronically because of the high costs associated with the start-up and ongoing activities of EDI and ETG; however, the use of alternative channels and mediums may overcome such problems.
Discussion Questions 1.
2. 3.
What are the key technological issues facing BHP in using IT and the Internet to improve the effectiveness and efficiency of its e-partnering activities? What would you have done to address the issues? Was the cost of embracing e-partnership technologies well justified to the company as well as to its smaller and medium trading partners?
Issues of Interoperability The case study of BHP indicates that interoperability problems are one of the key issues paramount to competitiveness and success of corporations and epartnerships. Interoperability must be viewed as a core business process in managing inter-organizational networks of e-partnerships. Unfortunately, the
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costs of interoperability problems are often underestimated or generally neglected by management. Empirical studies show that interoperability problems can be very costly in terms of financial and time resources and can adversely impact corporate productivity and cause enormous frustration among e-partners. Some large companies have endeavored to alleviate the negative impact of interoperability problems by implementing significant procedures, tools and infrastructure. However, they are not always successful in resolving the issues (Anonymous, 2004). According to a recent research presented by David Prawel (2003), president of LongView Advisors Inc. in Colorado USA at the Time Compression Technologies 2003 Conference, many companies still spend a huge amount of engineering resource on performing the manual tasks associated with sending and receiving data, confirming receipt, tracking contract information and so forth due to a lack of underlying infrastructure support. Lack of management involvement and assigning responsibility for interoperability to a specific manager or team also contribute to the failure in resolving interoperability problems. Prawel made some key recommendations which may help companies with interoperability problems to improve their interoperability. Interoperability training and consulting; management support; a corporate approach to addressing interoperability issues; developing service relationships with service providers; and investment in infrastructure such as good translation and infrastructure tools are among the key recommendations.
Summary E-partnership collaboration requires inter-firm business architecture, including the re-engineering of the processes that link companies to their channel trading partners and the development of a collaborative community of trading partners. It also requires closely integrated databases and closely synchronized information flows to eliminate distortions and the “bullwhip” effect in the communication of information between supply chain partners. E-application architecture is imperative to the collaboration and involves “determining individual integration points between the application and data sources, the application and back-end installed software, and between multiple back-end systems” (Hoque, 2001, p. 153).
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This chapter has demonstrated that information technologies have greatly expanded the way companies do business and partners interact with each other. The advances and improvements of Internet-based solutions provide supply chain members with vital technology support in the following ways: • • •
“Total program management; Web design, including sites and storefronts; Inbound and outbound direct marketing programs;
• • • •
Financial transaction management; Online secure payment processing; Inventory and sales reporting; Response management and fulfillment;
• •
Order verification and tracking; and Tier one end user customer support” (McIvor & Humphreys, 2004, p. 254).
The value and the prospects that e-partnership strategy can generate for business are compelling firms to adopt e-partnership technologies and systems into their business processes. However, technology integration and interoperability issues can be complex. For example, data synchronization using XML can be a formidable task in the transformation process because there are many different data and alert types, and the published XML-based standards do not cover all possible collaboration data. The chapter highlights many implementation issues regarding technology adoption; nevertheless, the most universal concerns relate to management commitment, technology sophistication and partnership orientation. This chapter has focused on one of these key issues, that is, selection of technologies. However, the “softer” aspects of technology adoption, or the human and cultural issues, will be explored in the next chapter.
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References Anonymous. (2004). Interoperability best practices: The ongoing problems of sharing engineering data. Strategic Direction, 20(5), 31-33. Bayles, D. L. (2001). E-commerce logistics and fulfilment: Delivering the goods. Upper Saddle River, NJ: Prentice Hall. Captaris. (2004). The Captaris channel partner program. Retrieved May 22, 2005, from http://www.captaris.com Chan, C. (2003). BHP Billiton Steel Division: B2B e-commerce strategy and implementation. In D. Samson (Ed.), E-business: Value creation for management (pp. 203-213). Sydney: McGraw-Hill. Chan, C., & Swatman, P. M. C. (2000). From EDI to Internet commerce: The BHP Steel experience. Internet Research: Electronic Networking Applications and Policy, 10(1), 72-83. Covisint. (2004). Covisint facts. Detriot, MI. Czuchry, A. J., & Yasin, M. M. (2003). Managing the project management process. Industrial Management & Data Systems, 103(1), 39-46. Damanpour, F. (2001). E-business e-commerce evolution: Perspectives and strategy. Managerial Finance, 27(7), 16-32. Davis, E. W., & Spekman, R. E. (2004). The extended enterprise: Gaining competitive advantage through collaborative supply chains. Upper Saddle River, NJ: Prentice Hall. De Man, A. P., & der Zee, H. V. (2002). Strategies for e-partnering: Moving brick-and-mortar online. Groningen: Gopher Publishers. Drews, D., & Wesseler, M. (2003). Web technologies in supply chain. In S. Seuring, M. Muller, M. Goldbach, & U. Schneidewind (Eds.), Strategy and organization in supply chains (pp. 273-288). New York: PhysicaVerlag. Equarius. (2004, March 2). Equarius delivers “connected enterprise” offerings for Microsoft BizTalk Server 2004. Retrieved May 22, 2005, from http://www.equarius.com/PressReleases Geyer, C. (2005). About ebXML. Retrieved May 22, 2005, from http:// www.ebxml.org/geninfo.htm Greenfield, G. (2004). GXS: Enabling tomorrow’s solutions today. Retrieved May 22, 2005, from http://www.gxs.com Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Hoque, F. (2001). E-enterprise: Business models, architecture, and components. Cambridge: Cambridge University Press. Horvath, L. (2001). Collaboration: The key to value creation in supply chain management. Supply Chain Management: An International Journal, 6(5), 205-207. Jun, M., Cai, S., & Peterson, R. T. (2000). EDI use and participation models: From the inter-organizational relationship perspective. Industrial Management & Data Systems, 100(9), 412-420. Kandampully, J. (2003). B2B relationships and networks in the Internet age. Management Decision, 41(5), 443-451. Kirchmer, M. (2004). E-business process networks: Successful value chains through standards. The Journal of Enterprise Information Management, 17(1), 20-30. Konsynski, B. (1993). Strategic control in the extended enterprise. IBM Systems Journal, 32(1), 112-130. Linthicum, D. C. (2001). Architect e-business integration: Six proven paths. Ebusiness Advisor, 19(9), 24-27. Lowson, R. H., & Burgess, N. J. (2003). The building blocks of an operation strategy of e-business. The TQM Magazine, 15(3), 152-163. McIvor, R., & Humphreys, P. (2004). The implications of electronic B2B intermediaries for the buy-supplier interface. International Journal of Operations & Production Management, 24(3), 241-269. Microsoft. (2004). Microsoft integrated e-business solutions competency. Retrieved May 22, 2005, from http://members.microsoft.com/partner/program/competencies/iebsolutions.aspx Murtaza, M. B., Gupta, V., & Carroll, R. C. (2004). E-marketplaces and the future of supply chain management: Opportunities and challenges. Business Process Management Journal, 10(3), 325-335. Neef, D. (2001). E-procurement: From strategy to implementation. Upper Sanddle River, NJ: Prentice Hall. O’Toole, T. (2003). E-relationships: Emergence and the small firm. Marketing Intelligence & Planning, 21(2), 115-123. Prawel, D. (2003). Interoperability best practices: Advice from the real world. Proceedings of the Time Compression Technology (TCT) 2003 Conference, NEC, Birmingham, England, November 11-13.
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Ratnasingam, P. (2004). The impact of collaborative commerce and trust in Web services. The Journal of Enterprise Information Management, 17(5), 382-387. RosettaNet. (2004). Dynamic trading networks. Operational efficiency. New business opportunities. Investment protection. Aliso Viejo, CA. Ross, D. F. (2003). Introduction to e-supply chain management: Engaging technology to build market-winning business partnerships. Boca Raton, FL: St. Lucie Press. Seligman, M. (2001). Rules of engagement: How to manage a successful epartnership. New Zealand Management, 48(7), 34-39. Sweet, L. (1999, July 26). Giving them the business. Infoworld, E2-E4. van Hoek, R. I. (1998). Logistics and virtual integration. International Journal of Physical Distribution and Logistics Management, 28(7), 508-523. Warkentin, M., Bapna, R., & Sugumaran, V. (2001). E-knowledge networks for inter-organizational collaborative e-business. Logistics Information Management, 14(½), 149-163. Withrow, C., & Brock K. (2004). Exostar and Federation partner to improve industry collaboration. Retrieved May 22, 2005, from http:// www.exostar.com/news/pressrelease_view.asp?id=112 Wojtkowski, W., & Walker, D. (2001). EDI revisited. In M. Singh & T. Teo (Eds.), E-commerce diffusion: Strategies and challenges (pp. 65-78). Melbourne: Heidelberg Press. Zhao, F. (2004). E-partnerships and virtual organizations: Issues and options. In M. Singh & D. Waddell (Eds.), E-business: Innovation and change management (pp. 105-119). Hershey, PA: Idea Group Publishing.
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Chapter 5
How to Make E-Partnerships Work: Human and Cultural Issues
Introduction Today, partnerships and alliances have proliferated and become a key corporate strategy to gain competitive advantage. However, studies show that most business alliances fail halfway through their expected lifetimes (Segil, 2004). The previous chapters have demonstrated that dealing with the challenges and risks of e-partnership is a difficult and complicated task for e-business management. The success of e-partnership will not be achieved by simply adding electronic technologies to the infrastructure of traditional partnerships. Firms need to incorporate an e-partnership concept into their overall corporate strategy. The alignment and integration of information systems and processes and the effective use of various inter-organizational information systems and Web technologies among e-partners are only part of the challenge of making e-partnerships work. The components of alignment and integration between eCopyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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partners should also include corporate strategy, organizational and business structures, job specifications, organizational culture, values and beliefs. While sufficient support of IT infrastructure and resources are undeniably crucial for successful e-partnerships, effectively dealing with human and cultural factors and reducing potential financial, commercial and legal risks associated in epartnering exceed the complexities of information and communication technologies in building and supporting e-partnerships. Thus, managing e-partnerships requires more than the navigation of technological hurdles and complexity. Human, organizational and cultural factors become more crucial as ebusiness moves toward maturity. In this regard, the biggest challenges to management include conflict in different organizational and country cultures, taxation, financial and commercial risks, and legal risks concerning online intellectual property, national and international online trade and law. This chapter focuses on people management in e-partnership and network management. Key human and culture issues will be discussed, including quality of e-partnerships, ecosystems, commitment, communication and termination of partnership. In particular, this chapter investigates the issue of trust and information and knowledge management in the context of e-partnership.
Quality Dimensions of E-Partnership To systematically manage e-partnerships, it is essential to define and understand the key constructs and dimensions of online and e-business partnership quality. Based upon previous empirical studies, Keating, Rugimbana, and Quazi (2004) identified six dimensions of relationship quality in the online environment: trust, effort, understanding, communication, cooperation and liking. Trust essentially refers to the security and credibility of online businesses and information. Effort represents the commitment to customers or partners through increases in levels of security, depth and breadth of services, and the customized nature of the interaction between partners. Understanding refers to the knowledge gained about partners or customers’ particular needs and how this knowledge is compiled, shared and utilized in the online environment. Communication is defined as the exchange and sharing of information among partners through electronic technologies, while cooperation requires a high degree of goal congruence between partners and an non-adversarial approach to the exchange. Finally, liking represents the degree of socialization and
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interpersonal relationship in the interface of business exchanges. In an online context, the relevance of this dimension remains questionable; however, as discussed in this book, social bonding and interpersonal relationship are also very important to inter-firm partnerships and can be established through electronic communications. The essence of the issue does not concern physical contact but the intensity and quality of communication between partners. For example, working in a virtual partnership can be more rewarding and productive than in a traditional one. This argument has been supported by a recent study published in the Harvard Business Review (Majchrzak et al., 2004). Nevertheless, the key issue raised is still one of management, that is, how to manage the virtual partnership and turn distance and diversity into competitive advantage. Profit and productivity, including volume of sales and services, are no doubt a central agenda for all organizations, regardless of whether they are dotcoms or brick-and-mortars. The primary aim of building e-partnerships is to generate more profit and achieve the best business results by taking advantage of online resources and extensive e-networks. Therefore, profits and bottom-line results should be a key quality dimension of e-partnerships. A well-designed revenue-sharing program among e-partners is viewed as the best and fastest way to generate online business (Trask, 2000). Revenue sharing becomes the most important issue in e-partnerships when productivity increases and revenue goes up. The nature, timing and amount of compensation (in the form of referral fees, royalty and commission) together with the financial stability and honesty of commission reporting are core considerations of e-partners and crucial factors of success in sustaining e-partnerships. In order to achieve a sustainable and beneficial e-partnership, organizations should therefore endeavor to achieve quality in a number of key areas, as described previously. The remaining part of this chapter presents a comprehensive discussion of the central issues affecting the development of quality epartnerships.
Ecosystems Today, businesses tend to be more reciprocal in their use of information technology and are more closely interconnected and interactive with each other. As a result, e-partnerships have become ubiquitous in e-business and the Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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e-supply chain. While there are many types of e-partnerships in terms of governance structure, ownership, purpose and industry sector, they all resort to electronic technologies to communicate and are involved in an electronic network or networks. Therefore, e-partnership management concerns not only individual e-partnerships, but also the entire network of e-partnerships. In other words, e-partnership management should also focus on how to develop, nurture and expand an e-partnering ecosystem. Siebel (2000) defined the e-partnering ecosystem as a complex network of partners that operates as an interconnected whole, sustaining mutual growth, creating future options and locking in advantages for the entire group. The application of the concept of ecosystem to e-partnership is innovative and represents a holistic and transformative way of partnering, and building and developing partnerships. By taking an ecosystem view, e-managers can develop the network-thinking mindset and attitude needed to grow and succeed in, and add value to, the e-partnering ecosystem. To be able to fit in, and benefit from, the ecosystem, partnering companies must align their internal network and system with external ones to achieve “seamless integration”. This requires the achievement of planning, control, decision integration, information integration and business process integration (Davis & Spekman, 2004). Cisco Systems is a classic example of the seamless integration which assists them in developing a productive ecosystem and competitive advantage. More discussions about Cisco’s ecosystem are given in Case Study 4 in Chapter VI of this book.
Network Management As the majority of e-partnerships operate in the supply chain context, a number of studies concerning the management of supply chain provide insight into the area of network management. As discussed in Chapter II of this book, supply chain management including the e-supply chain, is actually the management of a network or networks. It has been argued, therefore, that “supply network” is a more appropriate term than supply chain because of the shift of the supply chain from a vertical pipeline of interlinked firms to a complex network of firms involved in exchange processes (Christopher, 1998). The success of a firm depends not only on how well it cooperates with its direct partners and customers but also on how well its partners cooperate with its Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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partners’ partners and customers’ customers. From a network perspective, there are three key components in network management: activities, actors and resources. Activities refer to the commercial, technical and administrative functions of individual firms. In this respect, one of the key tasks of network management is to create links between firms to facilitate these functions. Actors refer to both institutions (e.g., suppliers, distributors, customers, transport, and logistics providers and other intermediaries) and individuals (e.g., managers of the institutions). Network management bonds the actors together and aligns them in the web of organizational relationships. Resources, in a supply chain context, often include tangible manpower, equipment and financial and production capacity, in addition to intangible resources of knowledge, organizational learning, market image, innovative capabilities and patent rights. Network management concerns the control of resources which in turn defines the actors and their activities (Halldorsson, Skjott-Larsen, & Kotzab, 2003). This network perspective helps better demonstrate the nature of network management and the key contingencies of network coordination. In terms of the governance structure of network management, there are generally two popular forms of inter-organizational governance in the literature that can be adopted for e-partnerships: unilateral governance or hierarchy, and cooperative or bilateral governance. Unilateral governance or hierarchy is an authority structure in which one partner exercises a decisive power by imposing decisions on participating firms and develops rules and instructions for them to follow. The dominating partner is responsible for the set-up of the structure and the corresponding costs. However, these costs will only be born if the partnership is intended not to be short-term oriented. In contrast to the oneparty dominating structure, cooperative or bilateral governance represents a flexible cooperative mechanism which is based upon bargaining and negotiation between partners. The structure often involves the reach of an agreement or contract which must fulfill the interests of the cooperative parties and ensure that partners maintain decisive influence over the process and outcomes of partnership (Albers, Gehring, & Heuermann, 2003). The two governance structures and modes are distinct but, in reality, they are not mutually exclusive. In order to motivate and eventually enhance the performance of partners, many partnerships take on a combined governance modes containing both hierarchy and cooperative structures. Given the flexibility and dynamic nature of epartnership, managers should give priority to the cooperative or bilateral governance mode because it allows for a multitude of alternative arrangements and horizontal communication and interfaces.
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Commitment and Support The active participation of top management is crucial to the formation of epartnerships, especially in terms of continuous development and improvement of the partnerships. Studies show that much of the inertia of partnership stems from a lack of senior management commitment and the inability of leadership to tie supply chain-wide efforts to strategy (Davis & Spekman, 2004). Establishing a long-term strategic alliance between e-partners involves reengineering processes to fit cultural integration and to develop synergy and dependency between partners. Management of relationships between epartners is a highly resource- and skill-demanding task due to the complexity of issues raised in electronic inter-organizational interfaces. For example, the rollover and implementation of inter-organizational information system requires collective commitment between trading partners. Management commitment and support are therefore vital to the success of partnerships. Commitment of organizational assets helps, for example, B2B e-marketplaces to reach a critical mass of trading volume rapidly. It is said that the success of external alliances often depends on having a supportive internal infrastructure (Bamford, Gomes-Casseres, & Robinson, 2003). In other words, managers of participating organizations must align their organizations to their e-partnering strategy, invest the right resources in it and garner internal organizational support for it. The concept of commitment often describes employee commitment and management commitment. A successful inter-organizational partnership relies on commitment from both. Cheng et al. (2004) developed a joint commitment model for a long-term strategic alliance in the construction industry. This author modifies the model to entail a general appeal. The adapted model focuses on four core aspects of commitment: 1.
2.
Investment of time and effort: Building an inter-organizational partnership is time consuming and requires significant efforts from both employees and management to support it. It is a change management process made up of three key stages: establishment, implementation and evaluation. Time and effort are essential at every stage of a partnership. Clear goals and organizational structure: Goals of partnerships must be clearly defined and agreed upon by each participating organization. The establishment of a flexible, decentralized and organic organizational
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3.
4.
structure that integrates the contents of a partnership requires organizational commitment as well as inter-organizational commitment. Strong focus on people management: The performance level of staff involved in a partnership is a key determinant to the output of a partnership. Placing the right people in the right place enhances both performance and employee satisfaction levels. Provision of staff training and recruitment of the right people for positions or tasks calls for management and employee commitment. Passion and enthusiasm for partnerships: While passion and enthusiasm are not essential to a partnership, they are important determinants of a productive partnership with real value. They are also sources of commitment.
Partnership Oriented Approach One of the key issues impeding the development of a sustainable business and e-partnership is the short-term and short-sighted approach taken by many companies to their business or trading partners. It is not difficult to find that the e-partnership strategy of many companies is transaction oriented, not relationship or partnership oriented. A partnership orientation represents a cooperative, trusting partnership for mutual value creation (O’Toole, 2003) and should be a key guiding principle in the formation of partnerships and a platform to add strength and depth to ongoing partnerships. By taking a long-term partnership perspective, companies will be able to reap the benefits from a fully-integrated e-partnership and justify its costs. By taking a partnership oriented approach, e-partners collaboratively create forecasts and align processes and technologies to share the forecasts and other planning information simultaneously, globally and in real-time. However, a partnership oriented approach represents a paradigm shift and requires fundamental change in ways of doing business, in particular, in dealing with partnerships with suppliers and customers, as a partnership culture should prevail in every aspect of an organization’s operations and relationships with other organizations. A good example of this approach is provided by the Dell Computer Corporation. Rather than take a “baseball bat” approach to supplier quality and threaten
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the supply line, Dell launched an initiative called the Critical Supplier Partnership Program. It is a partnership oriented approach to improving supply performance and supply quality. In fact, this approach helped Dell to realize they were responsible for some of their existing quality problems. For example, it was found that communication gaps and barriers existed between Dell and its supply partners (Anonymous, 2002). (This issue is discussed further in the next section.) Since the implementation of the supplier partnership program, supply quality has significantly improved. For example, year-to-year early failures dropped by 37%, and manufacturing line failures fell from 15,000 to 3,000 dppm.
Communication Communication plays a key role in e-partnership, particularly in coordinating and liaising inter-organizational collaboration. Intensive communication behavior entails trust to reduce communication barriers among partners. Expanding e-networks and achieving effective communication among e-partners are top priorities for most of e-businesses because they undoubtedly provide the foundation that supports the networked supply chain and e-networked partnership. The impact of the Internet and Web technologies on the way businesses communicate with each other is profound and frequently revolutionary (see Chapter I for more detail). In the case of Cisco Systems, the communication backbone underpins the entire system of its e-business, providing global connectivity with appropriate security, reliability and bandwidth availability. However, this all-embracing approach represents best, not standard practice. A recent survey of 245 suppliers to the UK utilities industry found that about one-third of the suppliers used electronic links such as EDI to communicate with their partners and customers, and the majority of the rest of the companies used e-mail systems as the key medium for communications. The study also revealed that the process of managing the communications in most of the companies surveyed was very amateurish, and the administrative infrastructure for managing the electronic systems was underdeveloped (New, 2003). This empirical study therefore raises the issue of quality and effectiveness of electronic resources as well as IT management in the SME sector.
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However, communication is more than a technological issue. Like culture and commitment, effective communication is both a means and a “soft” outcome of a productive partnership. Effective communication helps to eliminate barriers to collaboration; therefore, successful e-businesses are those that are able not only to leverage Web technologies to achieve global connectivity with appropriate security, reliability and bandwidth availability but also to communicate effectively with supplier partners and customers. Thus, continuous improvement of quality and mediums of communication are other key issues in the epartnership management agenda. In Dell’s supplier partnership initiative, bridging the communication gap between Dell and its suppliers was an important objective. For example, after experiencing quality problems with one of its suppliers, a Dell senior manager met with a decision maker of the supplier in project review meetings to identify, discuss the problems and find solutions to the problems. Dell’s manager found, during the meetings, that the supplier had never been asked for input before, which had not only resulted in the creation of communication barriers but was also a key factor of the quality problems (Anonymous, 2002). Effective communication occurs when the other party receives and correctly understands the message. Communication is not a stand-alone issue, and a number of factors are attributable to effective communication on the human side. In the inter-organizational communication process, organizational culture, ethnical or national culture, gender, organizational structure, people’s perceptions and languages used all have a certain effect on communication. In a global supply chain, the variability of nationality/ethnicity has a significant impact on partnerships and communication between cross-nation supply chain partners. For example, in countries with individualistic cultures, such as America, individuals are more likely to engage in open and precise communication than individuals from collectivist cultures, such as China. Also, previous cultural experience is an important factor influencing people’s communication behavior (Ratcheva & Vyakarnam, 2001). The cross-culture factor should therefore be taken into account when engaging in inter-firm communication in different countries and with people with different ethnical backgrounds. A productive inter-firm partnership depends not only on the synergy between organizations but on good inter-personal relationships between e-partnership managers. More discussion about cross-culture issues is given later in this chapter.
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Issue of Trust There is a general consensus in the literature that trust plays a key role in developing and maintaining a healthy relationship and business partnership and is one of the important contributors to e-business success. Trust is a most sought after but elusive asset for partnerships. Many supply chain failures are caused by the inability of managers to foster trust in their partnerships with members of the supply chain. It is also one of the top factors affecting online buyer-supplier relationships as well as a buyer’s decision to strike a deal. As such, trust is often viewed by managers as number one on the list of priority concerns of partnerships. Sharing relevant information and other assets are fundamental to the success of a productive partnership, especially in high-tech industries such as IT, biotechnology and telecommunication. Yet conversely, information sharing depends on trust and is also a prerequisite for trust. In today’s complex network of e-partnerships and business environment, partners rely heavily on the ratification of trust through legal contracts to protect themselves and to ensure each party fulfills its commitment. A contract can help reduce uncertainty and designate the outcomes of partnerships. It can also help clarify commitment and obligations and minimize disputes and conflicts during the course of the partnership. However, a legal contract is more reactive than proactive in nature. Once signed, the contract requires compliance and conformance by partners but not changes. Davis and Spekman (2004) differentiate contractual thinking from alliance-like thinking. They argue that partners need to transform themselves from contractual thinking to alliance-like thinking in order to address the range of contingencies and exigencies that businesses face in today’s dynamic and global competitive arena. Contractual thinking is represented by risk mitigation, protection and fear, narrow and rigid interpretation, and emphasis on legal correctness. On the contrary, alliance-like thinking focuses on value creation, facilitation and collaboration, flexibility, expansion, adaptation and balancing legal logic with common sense. Thus the alliance-like thinking goes beyond the boundary of legal contracts and relies heavily on mutual trust. There are numerous definitions about trust. In a general term, trust can be defined as meeting one’s expectation about another party’s behavior and/or having confidence in another party. Trust may actually be considered a psychological and social contract between partners which is an intangible asset crucial to partnerships. Aulinger (2003) synthesizes the current literature and
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defines three types of trust: (1) calculus-based trust, (2) knowledge-based trust and (3) identification-based trust. “Calculus-based trust often involves a high degree of monitoring to assess whether a party is being opportunistic” (pp. 233-234). This trust is based on control through the deterrent of punishment rather than reward. Knowledge-based trust relies on information to develop confidence in the partners. This trust requires regular communication and courtship among partners. Identification-based trust is developed on the basis of identification of partners’ desires and needs; therefore, understanding partners’ intentions and wants is the key to sustaining the partnership. Given the diversity and complexity of e-partnerships, the three types of trust should therefore be considered when formulating an effective partnering strategy to build trust. Broadly speaking, trust is a belief as well as an expectation based upon future actions of the partners. The key measures of trust are credibility, reliability, integrity and benevolence (Sahay, 2003). For example, the fulfillment of an online exchange between partners from transaction to delivery manifests trust. It concerns credibility and reliability of partner’s services. Trust in e-business can also be viewed from different perspectives such as transaction, institution, technology, product and information content (Srinivasan, 2004). However, as the scope of this book is e-partnerships, the discussion will be focused on transactional, technological and institutional dimensions of trust. Srinivasan (2004) considers that there are two key factors contributing to the success of e-business: (1) the trust that people place in the online business and (2) how secure they feel in transacting business on the Internet. As epartnerships involve mostly buyer-supplier partnership in supply chains and emarketplaces, trust and Internet security are crucial to short-term profitability of businesses and, consequently, long-term sustainability of e-partnerships. Trust can be developed over a period of time through past experiences and can also be obtained through research as well as third-party recommendations. From a transaction perspective, key factors contributing to trust reciprocity between buyers and suppliers in e-business often include: • • • •
Ease of access to, and sufficiency of, product and/or service information; Security of online communication and trading; Quality and brand of products and/or services; Reputation of the supplier(s), often obtained from third-party recommendations;
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• • •
Ease of placing order, order confirmation and order tracking; Sufficiency of after-sales services; and Speedy and secure delivery.
In a transactional relationship, there exists interpersonal trust (between two individuals) and inter-firm trust (between companies). Dyer’s (2000) study shows that inter-firm trust is related to process-based trust. In other words, the inter-firm trust is derived from fair and consistent business processes for working with partners. In this regard, key business processes can either foster or destroy inter-firm trust; therefore, their effectiveness is vital to secure trust. It should also be noted that trust is an important factor in partnerships across different national cultures, although the basic constructs of trust vary in different national contexts. Personal relationships between managers are also critical to trust, especially in partnering organizations with strong Eastern cultural values. For example, for British managers, trust requires that the partners meet their contractual and financial obligations in collaborative business; however, for Japanese managers, good interpersonal relationships across organizations and resource commitment are good attributes to trust. For Chinese managers, goodwill, good personal relationships and the provision of practical help and support will lead to trust (Gill & Butler, 2003). How can we build trust between e-partners? Trust is built on good relationship management in general, but it is also nurtured by other specific contextual factors. For example, frequently switching suppliers on the basis of price will damage trust and long-term relationships. Failure to deliver goods and/or services promised betrays trust and leads to termination of relationships. Therefore, building trust is not a stand-alone issue as it is embedded in the entire business process where partnerships exist. The building of trust should be treated as an integral part of building e-partnership and the enhancement of partnership management. Further discussion of the issue of trust can be found in the following chapters.
Case Study: Wotif.com — Depending on Trust to Expand E-Partnerships1 Wotif.com (http://www.wotif.com.au) is a global, last-minute accommodation booking Web site founded in Australia in 2000 in a landscape of dotcom
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crashes. Its founder and current CEO turned a business idea — matching vacant hotel rooms at cut-price rates with last-minute travelers — into a commercial reality. Since its inception, the company has established offices in New Zealand, the UK, Singapore and Canada and has forged partnerships with over 6,000 accommodation houses (hotels, B&Bs, short-term apartment rentals, etc.) in 32 countries. It employs 65 staff, and in 2003, its turnover amounted to $150 million. Its bookings total around 100,000 per month, and the Web site records more than 1 million visitors each month. It has now become Australia’s third most visited travel Web site (DITR, 2004). Wotif.com e-partnership strategy parallels with its expansion strategy. New Zealand represented the company’s first international operation because it is an English-speaking country close to Australia. It was also viewed as an opportunity to test the company’s system on an international level, in view of the objective of further expansion. Likewise, Singapore’s proximity was viewed as an advantage, while the UK was considered an appropriate entry into Europe. There are also plans to introduce the Web site to the United States; however, Wotif.com believes that this particular market is highly competitive, therefore, have relied on establishing its Canadian operations with a view to providing a “stepping stone” into the late accommodation market. Accommodation houses who have signed up with Wotif.com are registered to use the Web site system, enabling them to upload a detailed description of the accommodation offered, including photos and a live mapping system which permits customers to precisely locate the address. Room prices can then be updated by the accommodation house as they become available. Customers can book rooms using the Wotif.com live system up to 2 weeks in advance, paying for the room costs upfront. Wotif.com deducts a 10% fee from this amount and forwards the money to the accommodation house with predefined regularity, depending on the tax rules for each country they operate in. The Wotif.com Web site uses a live reporting system whereby accommodation houses can log in and compare statistics such as average sales by state/ geographic location. On the flip side, Wotif.com monitors what accommodation houses advertise to ensure that the Wotif.com guidelines have been met. In addition, Wotif.com regularly surveys a sample of their customers as part of their ongoing quality assurance process. Wotif.com generally recruits accommodation houses using business development managers. Wotif.com employs product managers who maintain the dayto-day relationships with their partners. However, there is a tiered system, whereby significant accounts would be managed by more senior staff members, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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to the extent that the CEO would personally be involved with several of the large hotel chains. Wotif.com has endeavored to build strong relationships with the major hoteliers, which has some advantages. One is that Wotif.com can work closely with the supplier in order to maximize profits through its partnerships. For example, if a hotel offers Wotif.com exclusive room rates, they may reciprocate by administering a special promotional program during the hotel’s “soft business” periods. Another advantage of building these special partnerships is, because the people they deal with often move around within the hotel industry, many of their new business is as a direct consequence of having developed a trusting relationship with those individuals in a previous capacity. Wotif.com does not always have a written agreement with its e-partners, preferring to rely on trust. However, all accommodation houses are required to abide by Wotif.com’s policy on customer care, which includes an agreement that all bookings should be honored and that the service provided should be as transparent as possible so that customers receive exactly what was advertised. The accommodation houses are free to publish as many or as little discounted rooms as they like, while Wotif.com does not attempt to manipulate the type or amount of discount offered. Wotif.com plans to further expand their international operations, but unlike a number of similar Web sites at present, it does not intend to move into complementary product areas (such as car hire or flight reservations). The company believes that although they have conducted research to this effect, Wotif.com has retained an advantage by doing one thing well, maintaining that global expansion of the business presents sufficient challenges in the form of new languages and cultures. Indeed, they suggest that this may be a failure factor for some e-businesses who have tried to move into an area where they have little expertise, resulting in them being “spread too thin”. Wotif.com provides a clear example of a successful e-partnership strategy based upon trust between partners and between customers and the company. All parties have a clear understanding of the guidelines governing the relationship and how the terms of the agreement should be honored. Yet the CEO, in an interview for the present study, does not believe that e-partnerships are different from conventional ones (even likening them to a “marriage”). In the Wotif.com case, the e-partnership is built on a “win-win” strategy, whereby each party is only as successful as the other. Based upon the company’s epartnering experience, they believe that those e-partnerships where there is no mutual benefit involved or where there has been a breakdown of trust, are bound to fail. In addition, many unsuccessful e-partnerships have not been
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driven by an underlying consumer demand or business problem, rather, have been engineered by technologists, not business specialists. For example, many individuals appear to be “dazzled by technology”, therefore, have instigated an e-partnership without having a clear business case underpinning it. As such, the company firmly believes that businesses should not enter into an e-partnership “just for the sake of the technology”. Discussion Questions 1. 2. 3.
What do you think about Wotif.com’s business model? How well does Wotif.com’s e-partnering strategy interact with the model? What are the perceived advantages and disadvantages of an informal epartnering arrangement (without legal contracts)?
Information and Knowledge Management in E-Partnerships The electronic networks of e-partnering offer the advantage of accelerated diffusion of know-how and information. Study shows that tacit knowledge (i.e., the know-by-doing knowledge) can be diffused through the deep socialization of a community of knowledge, that is, in industry cluster or networks (Von Krogh, Ichijo, & Nonaka, 2000). Therefore, knowledge diffusion, access and management become paramount issues to optimization of e-partnership benefits. The quality of partnerships between organizations in the network determines not only how successful the relationship can be but also the level and effectiveness of knowledge diffusion to gain competitive advantage. This section is therefore devoted to a comprehensive discussion of information and knowledge management in the context of e-partnerships. The new century is typified by the domination of knowledge-based enterprises operating within a knowledge-driven economy. Knowledge has increasingly become a key competitive tool for business and a vital economic resource. The process of knowledge management (KM) through knowledge construction, dissemination, use and embodiment is gaining momentum in the knowledge
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industries and our society. Knowledge management has been defined in different ways and from different perspectives in current literature. Davenport, DeLong, and Beers (1998) defined knowledge management using a projectbased approach: Knowledge management is concerned with the exploitation and development of the knowledge assets of an organization with a view to furthering the organization’s objectives. The knowledge to be managed includes both explicit, documented knowledge, and tacit, subjective knowledge. Management entails all of those processes associated with the identification, sharing and creation of knowledge. This requires systems for the creation and maintenance of knowledge repositories, and to cultivate and facilitate the sharing of knowledge and organizational learning. (p. 43) The emergence of the knowledge management concept has profound implications for e-business and e-supply chains, where knowledge and information are fundamental and critical resources. The concept has also changed the way in which knowledge and information are gathered, managed, disseminated and created. Information and knowledge management plays a primary role in epartnerships, as sharing and transferring information between partners helps ensure and maintain a productive, cooperative relationship. It is widely acknowledged that effective business decisions and corporate strategy rely upon obtaining, systematically analyzing, processing and utilizing relevant knowledge. The selection of partners and e-marketplaces is certainly dependent upon business intelligence, that is, the ability to apply knowledge to decision making which may include gathering, management and analysis of company data to generate necessary information (Hill & Scott, 2004). In this regard, knowledge management is an integral part of the e-partnering process. Knowledge management concerns both technology management and people management. Examining the literature, we can easily see the dominating theme of information and knowledge management is centered around information technology and applications. However, information and knowledge management in e-partnerships represents more than the resolution of technological hurdles and complexity. Drucker (1998) pointed out that “advanced dataprocessing technology isn’t necessary to create an information-based organization” (p. 5). He believed that transformation of data into information requires
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knowledge, resulting in information that is relevant and purposive. In the information-based organization where the structure is flatter, the “knowledge is primarily at the bottom and in the minds of specialists who do different work and direct themselves”. In the information-based organization, “everyone takes information responsibility and directs and disciplines his or her performance through organized feedback from colleagues, customers, and headquarters” (Drucker, 1998, p. 6). Drucker’s perspective highlighted the power and the importance of information management within an organization. Both knowledge workers and information systems must therefore play key roles in information flow and sharing in inter-organizational e-partnerships. This book explores information and knowledge management from the perspective of e-partnership processes. Figure 1 depicts the knowledge transformation process in e-partnership. Inputs to the process include a combination of knowledge of partners’ needs and expectations, knowledge of products and services to be delivered to the value chain formed by e-partnership networks and data/information and know-how that need to be shared with partners. The knowledge conversion and transfer process is actually an improving and transforming process. It consists of preserving, embedding and enhancing knowledge of the process, products and services in the value chain. The knowledge transfer and conversion process can also be seen as one of knowledge creation, transferring and sharing, and a process of knowledge access improvement as well. In this information and technological era, knowledge embedded in products and services, intellectual capital and an improved
INPUTS Embedded knowledge relating to partners’ needs and expectations Data / Information Know-how
OUTPUTS Knowledge embedded in partners and products/services Intellectual capital Enhanced conversion knowledge
VALUE CHAIN
E-PARTNERS
Figure 1: The knowledge transformation process
KNOWLEDGE TRANS FER & CONVERSION PROCESS
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knowledge and understanding of customer and partner needs are among the most important outputs of the knowledge transfer and conversion process. The process clearly indicates that knowledge management takes information, knowledge and partner/customer as its basic inputs and applies knowledge and intellectual capital as its desired outputs. KM emphasizes knowledge creation, transfer and embedding to serve different organizational purposes. This may include the enrichment of knowledge of partners or customers and the building of knowledge capital or developing enhanced access to knowledge (Armistead, 1999). Fostering a knowledge environment that is conducive to knowledge development, use and transfer is vital in the knowledge transfer and conversion process. This is not a one-stop process but a spiral cycle of continuous improvement and development. The outputs to the value chain of the cycle are supplied as inputs for the next transformation process which will generate greater cooperation, information and knowledge sharing and transfer between partners, begetting a greater contribution to the value chain. The transfer and conversion of information and knowledge between partners in order to add value to the supply chain or value chain poses one of the most important challenges to e-partners. Information and knowledge management in terms of information flow and sharing among e-partners lies in the efficiency of inter-organizational management systems as well as a partnership-oriented culture and open organizational structures and systems. Davenport (1997) in Warkentin, Bapna, and Sugumaran (2001) recognized the pitfalls in relation to over-emphasis of the technological advantages of information and knowledge management and stated that if you spend one-third of your time on technologies, you neglect the content, organizational culture and motivational approaches that will make a knowledge management system (information system) actually useful. Another human barrier to information and knowledge exchange between e-partners is caused by the concerns over the greater power that partners may gain from the information sharing. The key elements of information and knowledge management for e-partnership include: • • • •
Transferring and sharing information and knowledge between e-partners; Continuous improvement and learning from partners; Valuing employees and core competencies; People competence development;
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• • • • • • • • • • •
Empowerment and involvement; Partnership building and team collaboration; Acquiring knowledge of competitors, customers, suppliers and partners; Facilitating and improving access to information and knowledge; Improving quality and efficiency of decision making through information and knowledge sharing and transferring; Embedding knowledge in staff, customer, products, process and services; Regarding information and knowledge as a source of competitive advantage; Achieving greater productivity through the use of information and knowledge; Creating/disseminating new knowledge and embedding it into new technologies and products; Searching for new sources of information and knowledge; and Adapting knowledge to market needs.
In today’s ambiguous and uncertain environment, organizations face critical issues of adaptation, survival and competence. It is through creating new knowledge and acquiring, embedding and using knowledge of partners or customers that companies can address these critical issues as well as obtain competitive advantage. Searching for and acquiring new sources of information and new technologies from partners help companies to gain market share as a result of improvement to their products and services. Knowledge of, and understanding, customer and partner needs and requirements are also prerequisites for customer and partner satisfaction; thus, knowledge embedded quality products and services are vital to the achievement of satisfaction. In e-supply chain operations, there are a number of flows within and across supply chain partners. For example, a supply chain usually involves the flow of materials and products from the suppliers to the point of sale; the flow of cash including invoice preparation and transacting payments; the flow of process and work that manage operations between supply chain members; the flow of people forming intra- and inter-organizational collaborative teams; and the flow of information such as orders, tracking requests and so forth (Boone, Ganeshan, & Stenger, 2002). Among these numerous flows, information flows play a key role. Knowledge management skills are essential to enhance the efficiency and
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effectiveness of the information flows in the complex supply chain system. Done and Frohlich (2003) conducted an empirical study which investigated the correlation between knowledge management and inventory investment reduction in the supply chain, involving a survey of 338 European companies. The findings showed that inflows of knowledge from suppliers, customers and integrated supply chain partnership sources have a beneficial effect upon inventory investment reduction. The study also found that knowledge inflows from downstream are more valuable in reducing inventory investment than those from upstream. Moreover, the study indicated that the richest knowledge inflow is from the integrated supply chain. These findings highlight the importance of knowledge management in the supply chains and partnering. As stated earlier, the basic concept of KM includes information sharing, which is also crucial to a productive partnership, engendering many benefits to the partners involved. An empirical study found that major benefits gained from information sharing with supply chain partners may include: • • • • • • • •
Increased sales; Cost savings; Increased market share; Inventory reduction; Improved quality; Accelerated delivery times; Improved logistics management; and Improved customer service (Davis & Spekman, 2004).
There are a number of information sharing initiatives available, in particular, to supply chain partners. Collaborative Planning, Forecasting and Replenishment (CPFR) is one of the initiatives created by the Voluntary InterIndustry Standards (VICS) association. CPFR represents a new business model which encourages supply chain partners to share information in realtime, collaboratively make plans and forecasts and make automatic replenishments. The CPFR process has been used by Wal-Mart and its suppliers (including Sara Lee and Lucent), to share information regarding key planning parameters and communicate or resolve variances within item level forecasts (Boone et al., 2002). According to an empirical study, the key benefits that can be generated from the CPFR model include an increase in order fill rates, a Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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decrease in supply chain inventories and a reduction in supply chain cycle time, thereby leading to an increase in revenue, profit margins and shareholder wealth. However, the realization of the benefits depends on trust and goodwill between partners and the nature of the partnership. An interactive relationship requires more than just one based on electronic transaction. Furthermore, as partnership is a dynamic process, collaborative agreements will also need to be re-evaluated and changed over time. According to Lei (1997), core competencies comprise a company’s specific and special knowledge, skills and capabilities to stand out among competitors. They are intangible and an integrated part of a company’s intellectual capital and untradable assets rather than legally protected intellectual property (p. 211). As demonstrated in the previous chapters, one of the drivers for entering partnerships is to gain core competencies from competitors. Inter-organizational collaboration provides an opportunity for participating organizations to acquire and absorb the core competencies from each other (Couchman & Fulop, 2000). This opportunity is particularly valuable for innovative business such as e-business. However, transferring and sharing core competencies will not just happen — participants have to work, and work hard, to overcome barriers to the process. The greatest barrier is competitive concerns over information leakage which, unfortunately, is an unavoidable dilemma facing epartnerships, making it difficult for e-partners to achieve the potential that IT technology can offer. The next section discusses this issue in greater detail.
Information Exchange and Security While the Internet and network organizations facilitate improved communication of data, information and knowledge, they give rise to issues and problems of privacy, data security and intellectual property protection. For instance, the information database created through Internet transactions may lead to legal disputes among e-partnerships over ownership of the IP and possible loss of the potential profit generated from the IP (Greif, 2000). A big human barrier to information exchange between e-partners is caused by concerns the issue of one partner gaining greater power as a result of information sharing. In other words, some partners may abuse the information sharing and try to access unauthorized data. Yager (2000) describes such partners as data thieves posing as allies. Confidentiality is an important issue, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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in particular, in the context of the e-marketplace. There is generally a fear that competitors can gain access to highly confidential, business-critical and company-specific information by entering e-marketplaces and e-partnering. Partners are also concerned about sharing sensitive information such as engineering information, demand forecasts and production schedules (Murtaza, Gupta, & Carroll, 2004). There are however a few practical guidelines which companies should comprehend to prevent their company from falling prey to a predatory partner. These include: • •
•
Define clearly the scope of the partnership and outline exactly what information and services will be exchanged in a partnership agreement; During the development phase of the system, never give a partner’s developers (they may be independent contractors but could have covert connections with your partners) direct access to your data or real data. Developers should be able to work with random or obfuscated data to complete the system development; and Data links and exchanges between partners should be carefully planned, scrutinized and monitored. Server isolation and detailed audit trails are necessary to protect sensitive data from ill-intentioned partners (Yager, 2000).
Sharing data among e-partners in the supply chain may bring about an issue of ethics in terms of data privacy and security. “Guarding data privacy takes on even more significance when supply-chain partners share information online outside company walls” (Wilder & Soat, 2001, p. 39). As e-business requires e-partners to move business processes, transactions and communication online, they are placed at the forefront of decisions with ethical implications raised in the exchange of personal data, business and/or technology information. For example, more suppliers are designing key components for competitors and sharing those designs online. In some industries, such as automotive and high-tech manufacturing industries, partners on one project can often be competitors on another. E-partners should be aware of their ethical obligations which are often critical to the development of the trust and integrity needed to succeed at online business and e-partnerships. Internet security is another key issue in information exchange. Great efforts have been made to resolve this issue. This author considers that Internet Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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security is both a technological and human issue. From a technology perspective, there are several tools available now to enhance the security of online exchanges among partners. For example, secure socket layer (SSL) and secure electronic transaction (SET) technologies have been widely used in ebusiness to enhance the security of online transactions (Srinivasan, 2004). Internet security is also a human issue because the information gained from the e-business transactions is ultimately controlled, utilized, manipulated or managed by personnel and companies such as infomediaries. The case of Amazon.com, described in Chapter III of this book, indicates that the company felt the threat posed by its e-partners who were competing with them for customer information. On the other hand, online customers may be hesitant to transact online because they are concerned about losing control of their personal information to online merchants.
Change Management The concept and practice of e-partnership requires innovations that fundamentally change the way of doing business, the way of communicating and the way of configuring and defining an organization. E-partnership brings with it a whole new business and management paradigm of gaining competitive advantage in today’s volatile and dynamic corporate world. As many e-partnerships and alliances go beyond local and national boundaries, companies face not only the challenges of incremental and/or radical transformation of existing business processes, and seamless integration and alignment of systems with those of partners, but also the challenges of different laws and regulations, different cultures, different languages, different customer-fulfillment needs, varied payment methods and currencies, and different market systems in the international arena. Singh’s (2004) study suggested that e-business innovations entail the embrace of rapid changes and the application of technology to work with business partners and customers. One common mistake in implementing technology changes is said to be the exclusive focus on technical aspects at the cost of change management elements (Al-Mashari & Zairi, 2000). In this regard, a holistic change management approach is needed, which recognizes and emphasizes active integration and interaction of strategy, business processes, management system and structure and organizational culture.
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Cultural Change Culture can be defined as the shared assumptions, beliefs, values and norms that characterize an organization. Each organization has its own culture developed from its own particular experiences, its own role and the way its owners or managers get things done (Hellard, 1995). A company’s decisionmaking style and processes often affect the way inter-firm partners interact and the degree to which interactive exchanges are made. Adaptive and open organizations are more conducive to cultural change. Culture also shapes people’s expectations about what constitutes appropriate behaviors and attitudes within an organization. One of the key factors in any failed new business operation or partnership is associated with organizational culture. Differences in culture and resistance to cultural changes affect partners’ abilities to achieve partnership advantage. Organizational culture often represents learning over time. In order for a partnership culture to be accepted and developed across the board, employees must be able to feel and see tangible and intangible incentives and reward systems working for the culture. People’s behaviors are often grounded in their underlying values. Identifying these values and aligning them with the needs of the organization is one way to achieve cultural change; however, in the current business operation environment, companies cannot afford to stand alone. There should be a cultural shift toward partnering, where it is part of the organizational culture and is viewed as a highly valued component necessary to build a competitive company. Davis and Spekman (2004) suggest that a win-win orientation be promoted among partners because this “can be reflected in the psychological contract that shapes expectations of how trading partners will interact” (p. 202). The winwin orientation can help to foster a supportive organizational culture, encourage partner-like behavior and maximize the mutual benefits that accrue from the partnership. In addition to cultural differences at the organizational level, multi-national epartnerships inevitably encounter barriers caused by cultural differences between nations. Legal, political and economic differences among countries are also unavoidable. For instance, EU member states have enacted legislation to ensure that transfers of data outside their boundaries are allowed only to jurisdictions that can offer adequate protection of their citizens’ data. The United States, on the other hand, believes that minimal domestic regulation
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would foster trans-border Internet trade (Damanpour, 2001). Managing the cultural and system change necessary to resolve differences across organizations and across nations is therefore a critical issue that managers of epartnerships must negotiate.
Education and Training The management of technology and people within e-partnership is a complex and systematic process. Working in, coordinating and managing e-partnerships require not only IT and IT integration skills but also relationship and partnership skills. The ability of managers to manage a wide range of partnership technologies, achieve the necessary IT integration and deploy the right IT applications faster than their competitors will win competitive advantage and deliver higher value to their partners and stakeholders (Davis & Spekman, 2004). This requires the competency to plan, deploy, support and manage a growing number of e-business infrastructures. Thus, effective e-partnership requires that managers and team members are proficient in both technical as well as interpersonal and inter-organizational management aspects of the process. Some skill-sets may represent considerable diversion from employees’ core competencies; however, the solution may be found in education and training. Technological training entails the basic understanding of technological issues involved in e-partnerships and leads to mastery and control over the technologies. On the other hand, interpersonal and inter-organizational training may involve the development of participative and collaborative decision-making skills, collaborative planning skills and communication skills. Generally, the focus of education and training should be on developing partnership mindsets and system thinking, which aims to achieve fundamental changes across a number of dimensions, specifically: • • • •
From functional/departmental to inter-organizational process integration; From customer service to relationship management; From individual to collaborative behavior; and From information possessing to information sharing (Davis & Spekman, 2004).
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Sharing Power and Empowering The active involvement of partners in the decision-making and management process is crucial to a successful partnership. De Man and der Zee’s (2002) empirical study illustrates that one of the factors critical to the success of an emarket is having the industry’s top players on the governance board as partners. However, at the end of the spectrum, if there are too many partners involved in the partnership e-business development, an excess of meetings and lengthy deliberations could slow the process down. In this situation, it is therefore advisable to identify core partners or founders to serve on a management board, while the other partners can be represented on an advisory board. It is often the case in online joint ventures that the decision-making body of inter-organizational collaboration is proportionately represented by the participating organizations in terms of equity holdings. Thus, a power disparity, which is likely to affect the performance of the inter-organizational collaboration, occurs as a result of the differences in equity holdings, despite the fact that division of power and responsibility has been clearly defined in legally binding agreements between the e-partners. The administration of inter-organizational partnerships implies multiplication of decision-making bodies from each participating organization and a potential clash of interest and values among participants. A single blueprint for success does not exist; however, a total quality partnership approach, where each individual and/or organization is offered an opportunity to participate, contribute and develop a sense of ownership in the process may help to solve the problem. More discussion on the total quality partnership approach follows in this chapter. In a supply-buyer partnership, there are two further aspects of power, that is, the bargaining power of the buyer, or the power of a supplier that provides scarce resources or access to these resources. This kind of power may have a significant adverse effect on the partnership if it is not properly managed because, unchecked, one party can control the relationship using this power. Conversely, however, the control power of trading partners can be positive if used to engineer a change such as a system change that may lead to greater efficiency and reduction of costs in the longer term.
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Termination of E-Partnerships The contractual e-partnership between Yahoo! and Google described in this book lasted for four years (2000-2004). Equally, Yahoo! had had a good working partnership with Overture Services Inc. for years before acquiring it in 2003. Partnerships or alliances are not indefinite; therefore, adequate planning and an appropriate strategy to successfully terminate an e-partnership will maximize returns for both parties. According to some reports, the average strategic alliance lasts seven years, and 80% of alliances end up in a sale to one of the partners (Bamford et al., 2003). As far as e-partnerships are concerned, the length of lifespan is largely determined by the nature and type of the partnership. An e-partnership can be as quickly terminated as it is commenced, for example, in a simple online transactional partnership. Generally speaking, e-partnerships are intrinsically temporary and provisional and can be unbridled much more easily and quickly than conventional ones. To avoid confusion, in this section, e-partnership refers to a formal corporate e-partnership developed under a legal partnership agreement or contract. Unlike conventional brick-and-mortar strategic alliances, e-partnerships are generally entrepreneurial and less planned in nature, move at Web speed, require flexible network structure and have a relatively short lifespan. Epartnerships operate in a more dynamic and uncertain business and technological environment than conventional partnerships, and, in this regard, it is more difficult to plan for successful e-partnership termination. No matter how difficult it is, conventional wisdom is applicable to a smooth and positive termination. Key issues and questions to be addressed in preplanning for termination include: • • •
What options does the company have to offset the negative impact of the termination? What changes are to be made in the process of termination in terms of human, technological and financial resources management? What organizational structure is most adaptive to changes in partnership portfolio?
Planning for successful partnership termination should start before entering a partnership and signing a contract because some (if not all) of the issues
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concerning termination can be addressed in a legal contract or become the agenda of a partnership at its inception. These issues include termination costs, level and scope of system integration, length (short-term or long-term) and nature (a trial-on or formal launch) of the partnership and so forth. In a dynamic and non-linear e-world, there are a lot of premature terminations of partnership; therefore, it is advisable to take a partnership portfolio approach in order to reducing the extent of loss and maximize return.
A Total Quality Partnership Approach The final section of this chapter proposes solutions to some of the human and cultural issues and problems discussed earlier, based upon a total quality partnership approach. The total quality partnership approach is built upon the primary concept of total quality management (TQM) and extended into the context of inter-organizational collaboration in order to achieve desired epartnership processes and results (Zhao, 2000). Vital principles of the total quality partnership approach include: • • • • • •
•
Customers should include business partners, employees, investors and all stakeholders. Meeting and exceeding customer needs is the ultimate goal of partnership and the highest priority among participating organizations. Teamwork and collaboration are the primary methodology for effective partnership. The highest levels of integrity, honesty, trust and openness between business partners are essential ingredients of a total quality partnership. Mutual respect, mutual trust and mutual benefit of all partners are important successful factors. Total quality partnership offers each individual and participating organization the opportunity to participate, contribute and develop a sense of ownership. Total quality partnership involves continuous and measurable improvement at all links of a partnership network.
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•
Total quality partnership requires consistent and precise performance to high standards in all areas of participating activities (Aggarwal & Zairi, 1998; Hellard, 1995; Rounthwaite & Shell, 1995).
Clearly, these total quality partnership principles provide a theoretical and practical guideline for the success of e-commerce and e-partnerships. Achieving the best collaboration among e-partners requires more than tangible resources like IT infrastructure and support. It needs a high level of intangible commitment and effort to understand the needs and values of e-partners and customers. By resorting to a total quality partnership approach, business ethics, integrity, honesty, trust and sharing are required of e-managers of interorganizational entities not only at the top, but from individuals and teams throughout the entire partnership network (Rounthwaite & Shell, 1995). Disputes and conflicts caused by culture and system differences could be reduced if e-partners maintain a flexible and realistic attitude toward the differences. There has always been a trade-off between differences and the need to be united in partnership. Discovering the common ground and exploiting the dynamics of the common ground where partners’ goals meet will enrich and strengthen the partnership. Hence, be prepared to manage and exploit the differences in management style, culture, system, structure and process. To conclude, the critical success factors for the satisfaction of organizational, human and cultural issues within e-partnerships include: • • • • • • • • • •
Planning pro-actively and strategically for e-partnering; Collaborating on forecasting, products and services development, and inventory management; Ensuring partners share the same vision and mission; Individual and organizational commitment to e-partnerships; Mutual trust, understanding, respect and openness; Risk sharing; Mutual benefit through revenue sharing; Establishing protocols to deal with differences between partners; Corporate and business ethics and integrity; Credibility of e-partners in relation to their financial situation and business experience;
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• • • • • • •
Effectiveness and efficiency of real-time commission reporting system; Performance and productivity of e-partners; Jointly establishing performance objectives and metrics for the process and outcomes of partnering; Actively pursuing and sharing core competencies; Willingness to share power and empower among e-partners; Ensuring open lines of communication; and Quality and effective networking and continuous improvement of communication.
Summary While e-partnerships in whatever form may entail the optimization of organizational resources and attainment of competitive advantages of parties involved, it is necessary for e-managers to confront the complexities of making this cooperation work from a human and cultural perspective. As illustrated in this chapter, total quality partnership embodies the fundamental principles for managing collaborative partnerships, including e-partnerships, and can be developed and extended to facilitate inter-organizational collaboration to achieve desired outcomes. However, managing e-partnerships is arguably more complex than managing intra-organizational collaboration, or collaboration among brick-and-mortar companies, due to the IT and inter-organizational issues outlined in this chapter. Failure to consider the complexities of any of the issues described will lead to the divorce of e-partnerships and collapse of virtual organizations. The risks facing e-partnerships are greater than those facing conventional inter-firm partnership, as electronic e-business research projects usually involve new technologies and innovative development, which creates a high level of technological and commercial risks for every organization involved. However, it is the motivation of sharing and minimizing these risks which provides the rationale for e-partners to join together and consolidate their resources to win competition in an increasingly globalized market.
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References Aggarwal, A. K., & Zairi, M. (1998). Total partnership for primary health care provision: A proposed model — part II. International Journal of Health Care Quality Assurance, 11(1), 7-13. Albers, S., Gehring, M., & Heuermann, C. (2003). A configurational approach to supply chain governance. In S. Seuring, M. Muller, M. Goldbach, & U. Schneidewind (Eds.), Strategy and organization in supply chains (pp. 100-113). New York: Physica-Verlag. Al-Mashari, M., & Zairi, M. (2000). The effective application of SAP R/3: A proposed model of best practice. Logistics Information Management, 13(3), 156-166. Anonymous. (2002). How Dell resolved its quality issue through supplier partnerships. Supplier Selection & Management Report, 2(8), 1-3. Armistead, C. (1999). Knowledge management and process performance. Journal of Knowledge Management, 3(2), 143-154. Aulinger, A. (2003). Supply chains as strategic alliances: A route map for cooperative management. In S. Seuring, M. Muller, M. Goldbach, & U. Schneidewind (Eds.), Strategy and organization in supply chains (pp. 226-238). New York: Physica-Verlag. Bamford, J. D., Gomes-Casseres, B., & Robinson, M. S. (2003). Mastering alliance strategy: A comprehensive guide to design, management, and organization. San Francisco: Jossy-Bass. Boone, T., Ganeshan, R., & Stenger, A. J. (2002). The benefits of information sharing in a supply chain: An exploratory simulation study. In J. Genunes et al. (Eds.), Supply chain management: Models, applications, and research directions (pp. 363-381). Bordrecht: Kluwer Academic. Cheng, E. W. L., Li, H., Love, P. E. D., & Irani, Z. (2004). Strategic alliances: A model for establishing long-term commitment to inter-organizational relations in construction. Building and Environment, 39, 459-468. Christopher, M. (1998). Logistics and supply chain management: Strategies for reducing cost and improving service. London: Financial Times Pitman. Couchman, P., & Fulop, L. (2000). Transdisciplinary research bodies: The changing nature of organizational networks and R & D in Australia. Journal of World Business, 8, 213-226. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Damanpour, F. (2001). E-business e-commerce evolution: Perspectives and strategy. Managerial Finance, 27(7), 16-32. Davenport, T. H., DeLong, D. W., & Beers, M. C. (1998). Successful knowledge management projects. Sloan Management Review, 39(2), 43-57. Davis, E. W., & Spekman, R. E. (2004). The extended enterprise: Gaining competitive advantage through collaborative supply chains. Upper Saddle River, NJ: Prentice Hall. De Man, A. P., & der Zee, H. V. (2002). Strategies for e-partnering: Moving brick-and-mortar online. Groningen: Gopher. Department of Industry, Tourism, and Resources (DITR). (2004). Wotif soars amid dot.com ashes. Canberra: Author. Done, A., & Frohlich, M. (2003). Upstream and downstream knowledge in the supply chain: An empirical investigation of impact upon performance. In S. Seuring, M. Muller, M. Goldbach, & U. Schneidewind (Eds.), Strategy and organization in supply chains (pp. 242-255). New York: Physica-Verlag. Drucker, F. P. (1998). Harvard Business Review on knowledge management. Boston: Harvard Business School. Dyer, J. H. (2000). Collaborative advantage. New York: Oxford University Press. Gill, J., & Butler, R. (2003). Managing instability in cross-cultural alliances. Long Range Planning, 36, 543-563. Greif, J. (2000). Risky e-business. Association Management, 52(i11), 55. Halldorsson, A., Skjott-Larsen, T., & Kotzab, H. (2003). Inter-organizational theories behind supply chain management: Discussion and applications. In S. Seuring, M. Muller, M. Goldbach, & U. Schneidewind (Eds.), Strategy and organization in supply chains (pp. 32-46). New York: Physica-Verlag. Hellard, R. B. (1995). Project partnering: Principle and practice. London: Thomas Telford Publications Hill, J., & Scott, T. (2004). A consideration of the roles of business intelligence and e-business in management and marketing decision making in knowledge-based and high-tech start-ups. Qualitative Market Research: An International Journal, 7(1), 48-57.
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Keating, B., Rugimbana, R., & Quazi, A. (2004). Building effective online relationships. In M. Singh & D. Waddell (Eds.), E-business innovation and change management (pp. 84-104). Hershey, PA: Idea Group Publishing. Lei, D. T. (1997). Competence building, technology fusion and competitive advantage: The key roles of organizational learning and strategic alliances. International Journal of Technology Management, 14, 208-237. Majchrzak, A., Malhotra, A., Stamps, J., & Lipnack, J. (2004, May). Can absence make a team grow stronger? Harvard Business Review. Murtaza, M. B., Gupta, V., & Carroll, R. C. (2004). E-marketplaces and the future of supply chain management: Opportunities and challenges. Business Process Management Journal, 10(3), 325-335. New, S. J. (2003). E-enablement and B2B e-commerce: Findings from an empirical investigation. In G. Spina & A. Vinelli (Eds.), One world, one view of OM? Proceedings of the EurOMA Conference, Cancun, Mexico. O’Toole, T. (2003). E-relationships: Emergence and the small firm. Marketing Intelligence & Planning, 21(2), 115-123. Ratcheva, V., & Vyakarnam, S. (2001). Exploring team formation processes in virtual partnerships. Integrated Manufacturing Systems, 12(7), 512523. Rounthwaite, T., & Shell, I. (1995). Techniques: Designing quality partnerships. The TQM Magazine, 7(1), 54-58. Sahay, B. S. (2003). Understanding trust in supply chain relationships. Industrial Management & Data Systems, 103(8), 553-563. Segil, L. (2004, February). The eight golden rules of alliances. Financial Executive Magazine & Business Week Online. Retrieved May 22, 2005, from http://www.Isegil.com/article.php?sid=21&PHPSESSID= 31a35501cff8c66412ac8edc826 Siebel. (2000). CyberStakes: Eight rules of e-partnering. Boston, MA. Singh, M. (2004). Innovation and change management. In M. Singh & D. Waddell (Eds.), E-business innovation and change management (pp. 1-18). Hershey, PA: Idea Group Publishing. Srinivasan, S. (2004). Role of trust in e-business success. Information Management & Computer Security, 12(1), 66-72.
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Trask, R. (2000). Developing e-partnerships. Association Management, 52(i11), 46. Von Krogh, G., Ichijo, K., & Nonaka, I. (2000). Enabling knowledge creation. Oxford: Oxford University Press. Warkentin, M., Bapna, R., & Sugumaran, V. (2001). E-knowledge networks for inter-organizational collaborative e-business. Logistics Information Management, 14(½), 149-163. Wilder, C., & Soat, J. (2001). Doing business online brings into sharp focus ethical questions about privacy, employee monitoring, and sharing data in supply chains. Are IT professionals prepared to respond? — A question of ethics. Information Week, Feb.19, 2001, 39. Yager, T. (2000). Grab your partner: But choose carefully. InfoWorld, 22(50), 63-66. Zhao, F. (2000). Inter-organizational excellence: A TQM approach. In R. L. Edgeman (Ed.), Proceedings of the First Annual Conference of the Multinational Alliance for the Advancement of Organizational Excellence (pp. 260-266). Ayer, Scotland: MAAOE.
Endnote 1
The case study of Wotif.com drew heavily upon the data collected for the present study from an in-depth interview with the CEO of the company, the company’s Web site and a government’s report published in the public domain.
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Chapter VI
Successes and Failures in E-Partnering: Multiple Case Studies
Introduction The previous chapters have included a comprehensive discussion of general issues concerning e-partnership management from both technology and people perspectives, and, continuing this theme, this chapter presents extended and systematic multiple case studies which allow a more profound exploration of the way in which companies have partnered in e-business. It also contains an indepth examination of specific issues and problems raised in e-partnerships. The cases selected for the case studies represent a broad range of interests, from big brand dotcoms like Yahoo! and Google to a small manufacturer that has embraced e-business and e-partnership technologies and practices. The case studies are followed by a cross-case analysis of the key issues in relation to the development of e-partnerships. Key successful factors are identified from the successful cases, along with the hard lessons learned from failure. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Case Study 1: Google In his recent article, titled “Google Here, There, and Everywhere”, Salkever (2003) illustrated vividly his early morning experience in an all-Google world: I woke up this morning and Googled my dry cleaner to see if my shirts were done. Then I Googled the weather to see what to wear to work. Before breakfast, I Googled my stocks to see how they did yesterday, and then I Googled the supermarket for sale prices and to schedule a delivery, right from Google. I Googled the movies playing theaters near my house, and then I told Google to email me with travel itineraries to Paris…” (p. 1) Google was named after the mathematical term “googol”, meaning a 1 followed by 100 zeros. The founders of Google Corp. chose the word for the company because their aim was to organize the immense amount of information available on the Web (Google, 2004a). The company was established in 1998 after a US$100,000 donation from the co-founder of Sun Microsystems. Today, Google handles over 200 million search queries each day (Anonymous, 2004), and the Internet search engine giant is hailed by many as being a bright dotcom star that has expanded tremendously against the backdrop of dotcom disasters and collapses over the past few years. Google’s incredibly powerful search engine uses 10,000 networked computers, which enables a search of 3 billion Web pages in an average of 500 milliseconds. At present, Google’s share of Internet searches in the United States accounts for 49.7%, 4.3% more than Yahoo!’s associated search engine (BBC News, 2004). Google operates Web sites at many international domains and is widely recognized as being one of the best search engines in the world. This competitive advantage has won it millions of dollars in advertising business and numerous business partners who rely on Google for their business operations. Many big brand companies have chosen Google as their e-partner for advertising and search service, the two major sources of Google’s revenue, including Yahoo!, AOL, Sony, Cisco, Amazon.com, Canon, Disney, General Motors, Volvo, Xerox, Alamo Car Rental, Forbes.com, USATODAY.com, and Washingtonpost.com (Google, 2004b). Google is currently the search and search engine advertising provider of the United States America Online. This e-business partnership was formed in 2002 when Google beat Overture and Inktomi to win the partnership deal. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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AOL selected Google to replace them because of the quality of Google’s search, the widespread good reputation of its search brand and the ability to help AOL monetize its search listings (Sullivan, 2002b). The partnership turned out to be a very successful one with better than expected performance. According to a recent report, the partnership brought in revenues of US$27 million and contributed significantly to the overall earnings of AOL in the first quarter of 2003. These strong earnings resulted from AOL’s paid search powered by Google. Following the success in the e-partnership, AOL and Google recently announced that they “will be working together in AOL’s global expansion” and that the partnership will be extended to AOL Latin America to display its paid listings on AOL sites in Brazil, Mexico, Argentina, and Puerto Rico. Google has already provided Web search technology to AOL Latin America (Sullivan, 2002a). In June 2000, Google and Yahoo! also entered into an e-partnership which, for a 2-year-old company was seen to be a significant boost for Google in terms of the solidification of the company’s reputation not only as a provider of good technology but also as a substantial business able to process millions of queries every day (Google, 2004b). Google’s partnership with Yahoo! brought in over US$7 million each year (Sullivan, 2002a). Unfortunately, the partnership did not last long and was ended in late 2004. For more discussion, please refer to the case study of Yahoo! later in this chapter. There is however scope for further e-partnering opportunities. For instance, Google currently provides links to eBay pages; however, should the two enter into a partnership, with Google becoming a key provider of eBay traffic, the two Internet giants will benefit substantially from the partnership, especially as Google handles up to 75% of all search queries on the United States’ Internet (Salkever, 2003). Google’s success has been reflected in the financial statements issued in its IPO documents. It achieved a net profit of US$105.6 million in 2003, on revenues of US$961.9 million and US$63.9 million in the first quarter of 2004, more than double the figure for the same period of 2003. It had a cash flow of up to US$454 million at the end of March 2004. This significant fiscal growth is by and large a product of a global growth trend of online advertising since 2003. According to the projections made by New York-based eMarketer (which aggregates e-business information from over 1,200 research firms, consultancies and government agencies around the world), US spending on online advertising will rise to US$6.7 billion in 2003, US$7.2 billion in 2004, and US$8.1 billion in 2005 (eMarketer, 2002). In addition, the paid search market, which Google Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Yahoo! and others rely on and excel in, is getting bigger and bigger. According to Jupiter Research, this market was worth US$1.6 billion in 2004 and will be worth US$14.8 billion in 2008. However, Google’s strong financial position and its innovative search technology based on highly sophisticated algorithms cannot stop its competitors. In fact, the biggest challenge facing Google is the everlasting pressure of competition in the marketplace. For example, Microsoft’s founder, Bill Gates, has publicly recognized the superior position of Google’s search technology and has determined to overtake it by 2006 (BBC News, 2004).
Discussion Questions 1. 2. 3.
What are the key factors contributing to the success of Google? To what extent does Google’s e-partnering strategy contributing to the success? What are the main challenges facing Google in general, and in epartnering, in particular?
Case Study 2: eBay eBay was founded in 1995 as a trading post for Beanie Baby soft toys. Since then, it has developed into the world’s largest online auction company with 27,000 categories, including 8 with gross sales of more than US$1 billion each. It has built a community which includes tens of millions of registered members from around the world (Anonymous, 2004). Its ambitious goal is to provide a global online marketplace where “practically anyone can trade practically anything”. Each day, there are millions of items in thousands of categories listed on eBay. It sells almost everything from real estate, business and industrial, cars to toys and music CDs. For instance, one of its business interests, eBay Motors, is an online auto-sales site which contributed about US$100 million to eBay’s total revenue of US$1.2 billion in 2002 (Lumpkin & Dess, 2004). eBay has a large number of local sites covering all the major countries and regions around the world. Through partnership and acquisition, eBay is able to provide its members with a wide variety of features and services that fulfill online transactions in a safer, quicker, and more convenient way. For example, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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customers have the option to buy in an auction style or at a fixed price. In 2003, eBay bought payment processor PayPal to speed up its online trades. The PayPal payment-processing system allows eBay sellers who do not or cannot afford credit card accounts to process electronic payments enabling simple and fast transactions between buyers and sellers. The management style of eBay is characterized by its openness, transparency and pursuance of long-standing relationships with partners, customers and investors. It has endeavored to turn its customers and vendors into collaborators and partners. As an example of this, it developed a rating system by which buyers and sellers rate each other on transactions. The objectives of the rating system are to help both buyers and sellers build reputations and credit as well as to reduce fraud on online auction. By supporting an open and transparent governance and transaction system, eBay has developed and expanded its ecosystem quickly through e-partnering. In fact, eBay management view their online users as partners and as the key to their success because they control the fate of the company (Hof, 2003). eBay not only provides a successful model of nurturing e-partnerships between buyers and vendors, they are also a company who benefits significantly from epartnerships and alliances. Indeed, eBay has developed a number of corporate e-partnerships with technology, marketing, finance and Internet security companies to boost its business. For example, eBay entered a partnership with Commission Junction, a leading player in online affiliate marketing. The partnership aimed to assist eBay in accelerating its international expansion through the inauguration of a major affiliate marketing program (Anonymous, 2001). eBay’s partnership with Microsoft Corp. has recently extended to Microsoft’s Internet service, MSN, which is able to add direct links to eBay and showcase the online auctioneer’s advertising. MSN’s customers can view links to eBay to buy items that they have searched for on various MSN’s services (Anonymous, 2003). Further, in order to fight against Internet fraud and increase the Internet security to enhance users’ confidence, eBay has formed partnerships with a number of organizations specializing in authenticating merchandise (Bywell & Oppenheim, 2001). With a vast and diverse network of e-partners, eBay faces many challenges. According to Hof (2003), one of the biggest challenges to eBay is balancing the needs of large corporate vendor partners with those of their smaller players. Another significant problem is Internet fraud; a survey undertaken by the company revealed that fear of fraud is a major concern and turn-off for prospective online auction users, despite eBay’s claim that the fraud rate on its Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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marketplaces constitutes less than 0.01% of all transactions. Consequently, eBay needs to respond faster to fraud by encouraging its millions of users to identify and report fraud. Problems with listing items and the supply chain, and poor communication with buyers are also serious barriers to the achievement of efficiency of the eBay operating system. Further, it has been suggested that eBay should offer easier listing software for use and that arrangements should be made with shippers for more convenient pick-ups using established dropoff points (Hof, 2003).
Discussion Questions 1. 2. 3.
What are the key factors contributing to the success of eBay? To what extent does eBay’s e-partnering strategy contribute to its success? What are the main challenges facing eBay in general, and in e-partnering, in particular?
Case Study 3: Yahoo! Yahoo! was founded by two Stanford PhD students in 1994 as the first online navigational guide in the world. It started as a hobby but soon evolved into a serious business. Today, Yahoo!, the Internet portal giant, has become a household name throughout the world and the number one trafficked Internet brand in the United States, according to Nielsen/NetRatings (Yahoo!, 2002). The company claims that Yahoo! “has changed the way people communicate with each other, find and access information, and purchase things”. It has become one of the few leading Internet consumer and business services companies in the world, offering a comprehensive network of essential services including communications, commerce and content services in over 100 distinct properties for individuals and businesses of all sizes throughout the world and reaching over 237 million customers in 25 countries. Yahoo! is also an industry leader in online advertising and offers an integrated set of marketing services which merge clients’ traditional marketing programs online (Yahoo!, 2004a). Nevertheless, Yahoo! has faced a myriad of hurdles and difficulties throughout its development. According to its 2001 annual report, net revenues dropped Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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from US$1,110,178 in 2000 to US$717,422 in 2001, representing a huge loss of US$93 million in one year. The burst of the dotcom bubble and the global economy downturn were partially blamed for the loss, but the business strategy that Yahoo! took at the time was not without question. As a result, in May 2001, Terry Semel replaced Timothy Koogle as the new chairman and CEO of Yahoo! Inc. This, the company claims, heralded the start of the “new” Yahoo!, as Semel fundamentally reshaped the culture, management style and business strategy of Yahoo!. This new Yahoo was grounded by a host of Old Economy principles that its new CEO gained from his past management experience (Semel had been chairman and co-chief executive officer of Warner Bros., one of the world’s largest media and entertainment enterprises). As a result, the company gained US$43 million on revenues of US$953 million in 2002, compared with a US$93 million loss in 2001 on US$717 million in sales. Yahoo! was even more successful in 2003. By the end of 2003, its annual revenue reached US$1,625 million, and, based upon the financial data of the first quarter of 2004, Yahoo! will achieve another record-high revenue in 2004 (Yahoo!, 2004b, c). Today, Yahoo! has a market capitalization of around US$26 billion (compared to Amazon’s US$22 billion), according to its Yahoo! Europe managing director (Gilmore, 2004). One of the most important contributors to Yahoo!’s business turnaround were acquisitions and partnerships that produced rich new revenues for the company. For example, in November 2001, Yahoo! and SBC Communications Inc. announced a partnership to offer co-branded, customized high-speed DSL Internet service to America. Consequently, in June 2002, SBC Yahoo! Dial was officially launched. The new service combines SBC’s network access with Yahoo!’s content, personalization capabilities and network to enhance consumers’ online experience and offer new choice for consumers. The partnership with SBC expanded Yahoo!’s business to selling broadband access to millions of American homes. This partnership deal was estimated to generate about US$70 million for Yahoo! in 2003. Yahoo!’s relationship with Overture Services Inc., a leading Internet advertising company specializing in commercial search services on the Internet, had been ongoing before Yahoo! acquired Overture in October 2003. Overture provided paid listings to Yahoo! under the partnership deal. In the rapidly growing Internet advertising market, commercial search is the most dynamic and fastest growing segment. The partnership allows Yahoo! to carry advertisements on its search-results pages, which brought to Yahoo! about US$230 million in revenue, that is, about 20% of Yahoo!’s revenues in 2003 (Elgin, 2003). Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Clearly, Yahoo!’s success could not be achieved without partnering. It is its partnership strategy that enables Yahoo! to offer comprehensive online products and services in a wide range of fields and significantly enhance its customer services. In the field of real estate, for example, the Yahoo! Real Estate program relies on a partnership with ServiceMaster, a leading provider of home maintenance and repair service. This provides Yahoo!’s consumers with the ability to schedule and purchase home services through the Home Service Centre on Yahoo! Real Estate (Anonymous, 2002). In the automotive online retail sale market, Yahoo! partnered with Reynolds. The partnership enabled Reynolds’ retail customers, including retailers using Reynolds Automark Web Services, to list their used vehicles on Yahoo! Auto, a popular online site for buying and selling new and used vehicles. Through the partnership, Yahoo! gained broader exposure to Reynolds’ retailers and customers. Reynolds’ retailers had the ability to post an unlimited number of “Featured Tier” used car listings on Yahoo! Auto classifieds, and their customers were able to browse all of the retailer’s listings in one place. Yahoo! has also entered into partnership with UPS, the world’s largest package delivery company. The partnership incorporates a suite of UPS shipping tools into the Yahoo! Small Business site. This site targets small businesses and provides them with various services facilitating e-business. The partnership allows Yahoo! Small Business’s 30,000-plus merchants to get easy access to UPS services and process and ship orders more efficiently and cost-effectively. In addition, Yahoo!’s merchants have access to import and export processing services through the use of UPS WorldShip to easily download customer orders. In addition, as part of the partnership, a new cobranded Web site was created (Yahoo!, 2004d). In July 2003, Yahoo! and Oracle Corporation announced a partnership which provided enterprise customers with more news choices for their employee portals. Under the partnership agreement, customers have access to over 100 prebuilt news applications, featuring content from more than 2,000 Web and premium news and trade sources. The partnership provides both Oracle and Yahoo! customers with the access and control needed to integrate My Yahoo! Enterprise Edition’s aggregated content and tools together with a platform to build the enterprise portal environment (Yahoo!, 2003a). Yahoo!’s partnership with WebEx Communications, Inc. provides corporate customers with tightly integrated access to the WebEx Meeting Centre service and WebEx MediaTone network, helping to enhance the productivity of enterprise communications (Yahoo!, 2003b).
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In 2000, Yahoo! chose Google to take over from Inktomi, another player in the portal powering market, to provide the search engine for its non-paid search facility. Meanwhile, Yahoo! retained its partnership with Inktomi who turned to run search services for Yahoo!’s new corporate product launched in 2000. Yahoo!’s partnership with Google has entailed a blend of Yahoo!’s own human-powered search result listings with Google’s crawler-based results. This has significantly enhanced the Yahoo! customer experience as users can enjoy the quality of Google and the unique view that Yahoo!’s human-powered results bring to the Web (Sullivan, 2002a). The partnership deal between Yahoo! and Google is non-exclusive. In other words, Yahoo! is free to bring in another third-party provider to provide results alongside Google (Sullivan, 2002b). In an attempt to avoid becoming dependent on a single third-party provider, Yahoo! finalized its purchase of Inktomi in March 2003, and Yahoo! Australia has been testing Inktomi’s search engine at a number of the company’s regional portals to evaluate its capability as a viable alternative to Google’s crawler-based search engine (Colley, 2003). However, Yahoo! appears to be cautious about the decision to replace Google, well aware of the pros and cons of ending the partnership. This may save US$13 million a year in licensing but will lose Yahoo!’s Google-loving customers who are likely to search straight to the Google site rather than use the Inktomi search engine, as Google is a well-known good quality search engine provider (Elgin, 2003). According to Mark Opzoomer, Yahoo! Europe’s managing director, “we have a long, ongoing and good relationship with Google, and the nature of that relationship will evolve over time” (Gilmore, 2004, p. 45). Nevertheless, Yahoo! closed its partnership with Google in late 2004. Yahoo!’s acquisition of Overture brought in more e-partnerships for Yahoo! due to Overture’s e-business capacities. For example, Destra Corporation, an Australian digital rights management provider, and Yahoo! Australia and New Zealand announced a sales alliance agreement in May 2004. According to the agreement, Yahoo! and Destra will combine their services, including those of Overture with Destra’s OZHosting.com Web hosting services, to create a new co-branded service aiming to solve the problems for SMEs associated with dealing with multiple vendors. The partnership will help both companies strengthen their position in the SME e-business marketplace but was also seen as an initial step toward their expansion into the Asian marketplace (MaslogLevis, 2004). (More discussions about the partnership are given in Case Study of Destra in Chapter III.) Recently, Australia’s ninemsn and f2 have also Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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formed alliances with Yahoo!’s Overture to compete with LookSmart (The Australian Financial Review, 2004). Finally, over the past couple of years, Yahoo! has pursued a strategy of diversification of its revenue streams, going beyond its single advertising model to provide a number of online enterprise applications. In pursuing their objectives, e-partnership was an integral part of this strategy. For example, Yahoo! struck a partnership deal with Cigna Corp. to provide the latter’s 16 million health-care and retirement plan participants with personalized benefit Web sites in 2002. In order to provide these services, Yahoo! chose Sprint’s Silicon Valley Internet Centre as its hosting provider, and this partnership is crucial to the one with Cigna Corp. The deal provided Yahoo! with “an internet center infrastructure, power scalability and direct IP backbone connectivity on a highly reliable network that Yahoo needs to support its future growth” (Mosquera, 2002).
Discussion Questions 1. 2. 3. 4.
What are the key factors contributing to the success of Yahoo!? To what extent does Yahoo!’s e-partnering strategy contribute to its success? What lessons have you learned from the termination of the partnership between Yahoo! and Google? What are the main challenges facing Yahoo! in general, and in epartnering, in particular?
Case Study 4: Cisco Systems, Inc. Cisco Systems is considered the most mature of the network companies. Over 90% of its business is transacted over the Internet, and 70% of service inquiries are resolved online (McCormack, Johnson, & Walker, 2003). It is said that Cisco has gained about US$450 million annually by moving many of its supply chain operations online. By using Cisco’s system, clients can configure products and place orders completely online. About 55% of orders received online are shipped without any human intervention. Most importantly, its business
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partners can link directly to Cisco’s enterprise resource planning (ERP), which provides real-time access to valuable information needed for the supply chain. Its productivity is significantly higher than its competitors, given that it produces US$650,000 of revenue per employee per year (Chorafas, 2001). Cisco Systems’ e-partnership strategy has provided a solid foundation for its success in e-business. Cisco actually operates within a large network of partnerships that serve to enhance its technology exchange, product and solution development, joint sales and marketing, including developing new markets. Cisco has allied and had functional agreements with IBM, Intel, Motorola, Oracle, and Sony. To achieve its objectives and goals in a specific functional area of its operation, Cisco’s e-businesses include Cisco Connection Online (CCO), developed for its customers, and Manufacturing Connection Online (MCO). Cisco Connection Online is viewed as the largest e-business site in the world, generating 80% of the revenue of Cisco. The CCO is actually an information hub that links Cisco with its customers and partners. It provides a whole range of services needed to transact business with Cisco (Lee & Whang, 2002). Manufacturing Connection Online is a B2B supply chain portal created to serve the needs of its e-partners, including contract manufacturers, suppliers, distributors and logistics companies. The MCO links Cisco’s partners to the portal which provides manufacturing applications, planning tools, forecast data, inventory information, purchase orders and so forth. Cisco has been successful in moving the entire business process online and developed an automated order-flow system by which most of their orders go directly to Cisco’s third-party suppliers who are responsible for shipping directly to customers. Later on, Cisco developed its e-Hub, an e-marketplace to expand its network of partnerships and achieve its “single enterprise” initiative, which views partners as part of the company. For instance, its partnerships with Federal Express and UPS have enabled customers to track their packages online and determine the status of shipments. Cisco System’s e-partnership scheme goes beyond brick-and-mortar companies. It also seeks alliances with dotcoms. The Cisco Solution Center on Yahoo! Small Business is a joint initiative between Cisco Systems, Inc. and Yahoo!. Under the partnership scheme, Cisco provides vertical-specific information through the Yahoo! Small Business site and features industryfocused solutions that are provided by Cisco’s partners, such as IBM and Expanets. The Web site aims to provide small- and medium-sized businesses with comprehensive and specific information and solutions to help them accelerate their business progress in vertical-specific industries (Yahoo!, 2003c). Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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To reinforce its partnering strategy, Cisco has developed an extensive partnership ecosystem. The New World Ecosystem, for example, is an open partner program that brings together a group of industry partners “to create a whole range of profitable solutions for service providers”. It aims to assist service providers with legacy networks, enabling the improvement of “time-to-profitability and development of new services they can rapidly deploy”, according to the senior manager of the New World Ecosystem program. The open partner program allows vendors to add value to a Cisco Powered Network while partners would gain benefits from the program in terms of exposure and sales (Blagi, 1999). In an interview, the president and CEO of Cisco Systems revealed some of the problems that Cisco struggled with in the process of developing the partnering ecosystem and the strategies it used to handle them. For instance, some of Cisco’s largest reseller partners who enjoyed some of the steepest price discounts resold products and services at or below cost. It was reported that some of Cisco’s biggest partners offered equipment by as much as 45 points off the list price to customers. “That’s three points below what some of Cisco’s best wholesalers can buy gear for before selling it to resellers who are expected to sell it once more to customers” (Doyle, 2002, p. 35). This was one of the main causes of the ensuing price erosion and was damaging the rest of Cisco’s partnering ecosystem as well as Cisco’s profitability. The demise of the Internet economy further deteriorated the company’s financial situation. In 2002, the stock price of Cisco was down nearly two-thirds from its 2001 high, and its business was at a standstill. Equally, the downturn of the economy left many of Cisco’s partnering companies struggling and competing for price. This price war created a vicious cycle where “the more the companies struggle, the more they need to cut prices to get new businesses”, and “the more they cut price, the more they struggle”. Another issue that plagued Cisco’s partnering ecosystem was its specialization scheme. In 2001, Cisco had around 300 partners with 400 specializations, and, a year later, it had 2,500 partners with 3,900 specializations. This philosophy of partnering companies regardless of their size cost them heavily in terms of time and resources. The burden of the cost for maintaining trained and certified specialists in a down economy was too big to take for many partnering companies (Doyle, 2002). Nevertheless, Cisco’s partnering ecosystem is here to stay, owing to the determination and partnering mindset of its top management which was built into its corporate strategy. The CEO of Cisco Systems made it crystal clear that Cisco would not be able to follow “a vertical model where you try to do
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everything yourself”, rather, a partnering model was the only solution for Cisco. In fact, the key pillar of Cisco’s ecosystem lies in the value added through partnerships. In other words, every partner must add value to the ecosystem and must make money out of it. It was the win-win mentality that underpinned the ecosystem. Consequently, the strategy that Cisco took to address the problems with the ecosystem included open and honest communication with partnering companies in order to enhance their understanding of the benefits of a healthy partnering ecosystem, including educating them with the risks of losing partner contracts if they continued to resell product and services at or below cost. The company also planned to improve its specialization program by distinguishing partners from one another and limiting “the number of partners that can resell certain lines through open and closed distribution programs” (Doyle, 2002).
Discussion Questions 1. 2. 3.
What are the key factors contributing to the success of Cisco Systems? To what extent does Cisco Systems’ e-partnering ecosystem contribute to its success? What are the main challenges facing Cisco Systems in general, and in epartnering, in particular?
Case Study 5: A Small Australian Manufacturer Large scale multi-national firms operating in globalized markets have traditionally been at the forefront of developments in e-business transformation. The emergence of e-partnership has presented challenges to these corporations in terms of technology and people management in their interaction with customers and their supply chains. However, the issues of e-partnership take on a different perspective when the organizations involved are in the small- and medium-sized enterprise sector. These companies are often strongly associated with the owner/manager’s background, knowledge and skills base. In such circumstances, the imperative remains in the marketplace, while the
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question of whether the company embraces the latest technology and participates in the e-business evolution often depends on personal preferences of the owners/managers. The case company (Zhao & Dalrymple, 2002) is a family-owned electrical engineering and manufacturer producing mains transformers and related systems with 15 employees. The company, which has been operating for over 50 years, has a business profile of a jobbing shop with excellent growth and innovation performance backed by strong financial management. The company’s business involves subcontracting and outsourcing materials, components and assemblies. In-house manufacturing is predominantly transformer winding and electronic and mechanical assembly. The starting point for e-transformation by the company was the acquisition of an appropriate CAD system. This company invested in CAD technology over 20 years ago. The rationale was related to the effective and efficient design of bespoke transformers. At that time, the complex design criteria meant that the CAD design was more effective in producing a product which worked, and it saved some 20% in material costs. This was followed by the acquisition of AutoCAD and word processing capability, and, by 1990, the company had computers on most desks. These were networked by 1995, and e-mail was installed in 1997, followed by the company’s first Web site in 1999. Internal communication and information provision has been electronic for five years. Thus, the move to electronic design and information storage is very mature in this company. This company has moved to e-business with its main partners: sheet metal assembly suppliers as well as circuit board manufacturers. The company insists on AutoCAD as part of its vendor capability in these two areas. All drawings are delivered electronically using a broadband connection, and, geared to this electronic mode of operation, the firm will only deal with vendors with this capability. The company is now a leader in the SME sector in this respect by requiring vendors to keep pace with its technology. However, orders to other supplier partners are currently faxed, while e-mail is used for other external interactions and communication with both customers and suppliers. The company is in the process of two major e-business developments. First, it is implementing an accounting package system which will enable all orders to be placed electronically with the associated data capture and paperless transactions. Second, it is moving toward the establishment of a “virtual private network” which will enable members or customers to access and download information and materials from the company’s Web site. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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This will include manuals and other proprietary information. Thus, the development seen in the case of this company is that e-business tools were initially acquired and deployed for internal and product-focused information management purposes. The original CAD system was acquired as a design efficiency tool with the other capability following. The move toward AutoCAD has reduced the cycle times significantly in the case of sheet metal fabrication. It has also transferred the responsibility for drawing interpretation to the sheet metal fabrication vendor. One of the additional benefits arose from the fact that all drawings are now in full scale. This enables templates to be made directly, and, in the jobbing shop environment, the fit of components can be checked and tested before the physical product has been made. In the case of circuit board manufacture, no camera-ready artwork is required, as the job file is transmitted directly to the vendor and then used to produce the printed circuit boards directly. The management of the electronically generated and stored information, drawings and instructions has produced both financial savings and significant error reduction. The next phase of the e-business and e-partnership developments for this company demonstrates a move toward the enhancement of the existing ebusiness partnership with suppliers and customers. In many respects, these developments have awaited the assurance of appropriate levels of security of information and the financial accessibility of systems for companies of this size. The company has also been a catalyst and a driver of the e-business partnership developments, and, having been responsive to its customer requirements, it has in turn encouraged its network of suppliers to develop their e-business capability. The current trend of globalization and the rapid development of information technology and communication have undoubtedly stimulated small companies around the world to embrace e-business and e-partnership practices and tap their opportunities. This case study presents a successful story of a small manufacturer in adopting e-business and e-partnership practices, and demonstrates that efficiency and better performance can be achieved through emanufacturing and e-partnering with suppliers and vendors. However, based upon many studies into the e-business practices of small companies, there is significant variability in adoption and implementation of ebusiness. A survey on barriers to Internet connectivity in Ireland found that small companies (except for high-tech ones) had significantly lower rates of ebusiness activity than larger companies (Smyth & Ibbotson, 2001). There is a general awareness among owners/managers of small companies that technolCopyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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ogy can enhance business practice and provide considerable business opportunities through electronic marketplaces, electronic data interchange, e-commerce and so on. Owner/manager orientation of small companies is a key determinant of adoption and development of e-business. The perceptions of owners/managers vary considerably from the highly positive entrepreneurial view to the conservative and resistant-to-change stance. Smaller companies often have the potential to do their business in a more flexible way and respond to market changes quickly. Entrepreneurial orientation associated with many small companies often creates an ongoing advantage to adopt new e-business practice swiftly. However, these advantages are likely to be offset by a number of disadvantages and difficulties that smaller companies face in terms of implementation of e-business. The most cited barriers are resource-based, that is, lack of time; shortage of new sets of competencies required to develop ebusiness; and financial constraints to startup costs, maintenance and upgrading. Other perceived barriers include increased workload for establishing ebusiness processes, technical difficulties, inertia and lack of interest (Fillis, Jahannson, & Wagner, 2004; O’Toole, 2003). The case study company demonstrates that an SME sector company with 15 employees can be faced with similar challenges in technology management and people management to much larger organizations, coupled with the additional challenge of securing financially accessible but reliable technology to facilitate e-partnerships. However, the owner/manager in the case company recognizes the challenges facing the company and has chosen a prudent and incremental approach to the adoption of technology and ways of doing business with partners. The benefits of the prudent approach have hitherto provided significant advantages to the company, some of which were anticipated and others were not. The owner/manager is confident that the e-business and e-partnership developments are part of an ongoing evolutionary process, and, as a responsive small business, the company will continue to move with the evolution.
Discussion Questions 1. 2. 3.
What are the key issues a small local manufacturer has in embracing ebusiness and e-partnering technologies? Are they different from the issues facing large manufacturers? What are the advantages and challenges that a small local manufacturer
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has in terms of e-business practices in general, and e-partnerships, in particular?
Case Study 6: GlobalNetXchange (GNX) and a Retailer Company GlobalNetXchange (GNX) is a global, vertical retail e-marketplace whose aim is to keep its members at the front of supply chain management. It currently has nine partners with an equity share and around 20 fee-paying members, representing many of the world’s major retailers, including the Sears and Carrefour groups (who provided initial seed funding). GNX is governed by a board consisting of representatives from each of its partners, along with the CEO, and employs around 110 people. The company has developed a number of supply chain and sourcing tools in order to facilitate electronic reverse auctions¹, along with a forecast replenishment tool and product/collaborative development instruments. Company X² is a major Australian retailer of a wide range of consumer goods such as food, liquor, fuel, general merchandise, automotives and technology, and employs around 160,000 staff. In mid-2000, it became a partner of GNX in order to align itself with other major retailers and share and promote best practice among the respective members, leveraging their capabilities while improving on particular areas such as supplier sourcing and supply chain management. As such, GNX has set up a number of “best practice” groups, including a Technical Advisory Group, focusing on connectivity and communication, a Merchandising Group and a Negotiations Group. At present, Company X has a policy of awarding online auctions to the lowest bid; however, using the GNX system, buyers can assess the quality of the supplier and its products and services prior to the auction and apply a formula to the supplier’s raw bid in order to “weight” it against predetermined criteria. This ensures that additional costs such as delivery are factored into the final price. At present, GNX auctions represent around 2.4% of Company X’s total spending, comparative with most of its partners, although around 50% of product spending is done through electronic trading. At 5% of total spending, Carrefour has the largest proportion of online auctions through GNX, which is considered best practice. Nonetheless, in 2003, the total value of GNX
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auctions amounted to US$9 billion, and it is envisaged that the figure will continue to grow in 2004. The key e-partnering strategy of GNX is to act as the “glue” among the community. As such, GNX has access to information on all auctions; however, its members and partners only have access to their respective data. In an effort to promote data sharing, it distributes generic auction information on an annual basis and will accommodate specific information requests. However, in the view of Company X, the data are often homogenized to such an extent that their actual value is low. In fact, although the principle of openness was one of the founding principles of the e-marketplace, it appears that in practice, it is rarely adhered to. This is because various Anti Trust or Competitive Trading laws in the countries in which the GNX partners operate make it extremely difficult to get the partners to agree on common ground when attempting to hold a collaborative event. To this end, Company X has only ever participated in one collaborative auction. There is also a lack of specific key performance indicators with which Company X evaluates its partnership with GNX, although the associated tangible benefits such as cost savings are monitored on an ongoing basis.
Discussion Questions 1.
2. 3.
How well has GNX done to manage the global, vertical retail e-marketplace in terms of the governance structure and e-partnership technologies? How can GNX and GNX’s partners improve their information exchange? What are the perceived pros and cons Company X has gotten by joining in GNX?
Case Study 7: An Online Auctioneer² The e-marketplace is an online auction business established in 2000 by an Australasian leading asset management company founded in 1989 specializing in the valuation, marketing and sale of industrial and commercial plants and equipment. The e-marketplace was designed to complement the existing brickand-mortar business of its parent company and aimed to offer a “turnkey” Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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solution for vendors, where it takes refurbished and excess stock from them and sells them to consumers online. Unlike other online auction models in the industry, the e-marketplace manages the entire sale process, including warehousing, delivery and payment. The e-marketplace offers 24x7 (24 hours, seven days) online auctions and claims to provide all stakeholders with complete transparency. After four years of development, the e-marketplace has now become one of the largest online auctioneers based in Australia. It has over 80,000 registered users, achieves over 100 sales a month and has over 500,000 visitors a month. Its monthly revenues have reached over US$2 million. The e-marketplace has resorted to an e-partnering strategy to develop its business. It first entered an e-partnership in 2000 and now has over 100 epartnerships worldwide, which include international alliances with New Zealand online auction dotcoms; multi-national corporations like Dell, Sony, Sharp, Ericsson, Nokia and Siemens; Australian major wine companies and so forth. Partnering with Star Track Express, an Australian express freight company, the case company is able to run a complete package of customer services from online sales to delivery. From these partners, the e-marketplace sources and locates excess stock and assets to be disposed of. Business development managers specifically manage this through online research of the marketplace to identify decision makers but also through personal networks and relationships. The main criteria for selecting e-partners not only includes the profitability of the product the vendor partner is offering, but also what the volume of the product is, what the brand is and whether the product complements any of their online product areas. The business development managers and account managers are directly responsible for the partnerships, overseen and supported by the company’s management team. The performance metrics used for assessing partnership results are generally profitability and volume of goods but also quality of products, and this assessment is performed on a monthly basis. An open dialogue has been established between the company and the vendor partners, and an initial meeting with them establishes what works and what does not work with the products. The key success factors for a good working partnership, according to the company, include having an open dialogue, setting boundaries early on, the speed with which the solution can be provided and providing a mutually beneficial service. Mindful of this, the company has never had to terminate a partnership for any other reason than the stock sent by the vendor was of unmerchantable quality. The key lessons the company has learned in its
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e-partnership practices are having a sound business model, having an openmind, talking to other businesses and undertaking research with the idea of forming partnerships in mind.
Discussion Questions 1. 2.
What specific measures has the online auctioneer taken to enhance its partners’ e-business experience and outcomes? How well does the company evaluate the outcomes of e-partnership activities (refer to Chapter VIII for a detailed discussion of performance measurement of e-partnerships)?
Cross-Case Analysis: Key Issues Raised Competition A cross-case analysis of the partnerships described finds that competition is the key driving force for e-partnerships, yet it is also a major factor for changing and/or ending a partnership. The tough competition apparent in the online search engine market has become a significant component of the Internet landscape. Search-engine advertising, a barely unnoticeable business 18 months ago, has now become “the fastestgrowing segment in the advertising industry, and one of its most intensely competitive”. In 2003, total online advertising grew by 41% to $236 million. Of that, search-engine advertising accounted for US$69 million, a growth of 53%. A growing number of small- and medium-sized businesses have turned to search-engine advertising because it is cheap and flexible (Lloyd, 2004, p. 1). For example, the AOL/Google partnership represents a strategic alliance in the face of fierce competition. AOL has engaged with partner organizations for some years in order to provide the search facility on their US Web site. For instance, online searches also return “sponsored links” with the search results, and these were provided by Overture, while Inktomi had provided editorial results to AOL Search since 1999. However, both companies lost their
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respective AOL partnerships to Google, in a move which attempted to reduce market competition. Likewise, the winning of the AOL partnership was significant progress for Google in competing against the dominant position that Overture had had in the distribution space of AOL (Sullivan, 2002b). Ironically, two years later, Yahoo! decided not to renew its contract with Google, replaced them with Overture and Inktomi, which they now own. Google’s operation in Australia is another example of such competition. Google Australia lost a search and advertising distribution deal for News Interactive, the News Limited’s online division, to Overture Australia in 2004, which was seen as a significant blow to Google Australia. Overture Australia, the advertising sales subsidiary of Yahoo!, has also ousted Google out of distribution agreements with the biggest Australian Internet publisher, Ninemsn, and John Fairfax Holdings’ f2 division. Recently, Sensis, the directory subsidiary of Australia’s largest telecommunication provider, Telstra, decided to launch its own search engine to compete with Google and Overture for the search engine market share (Lloyd, 2004). New et al.’s cross-case study of three large world industry e-marketplaces— Covisint, Exostar, and Transora—found that all three have experienced ongoing competition, not only from other B2B e-marketplaces in their industry but from competing internal developments from their e-partners. In addition, they have confronted complex internal politics, as their major stakeholders have competed to manipulate the e-marketplace to their own advantage and their local agendas (New, Oh, & Siddall, 2003). Of course, traditionally, competition has always existed between individual companies. However, in today’s network-dominated businesses, more and more competition occurs between networks. Companies belonging to the same network collaborate to compete with another network or other networks to gain competitive advantage. This cooperative competition helps strengthen and add value to the network of partnerships by enhancing the competitiveness of the value chain and developing an ecosystem of partnerships.
Change Management Change management, as the multiple case studies in this chapter demonstrate, is an issue of paramount importance to e-partnership management because of the uncertainty and dynamic nature of the e-business environment and the future and, consequently, relatively short lifespan of e-partnerships
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when compared with traditional partnerships. Changes to partnership happen when the circumstances in which the organization or its partners collaborate change, or when most of its partners are non-core members of the partnership. Managing change successfully is therefore a major challenge for e-managers who must act as change agents in the change process. Techniques for managing change may include changing structure, changing technology and changing people. Changing structure may involve alteration of the partnership structure (e.g., changing from a joint-venture partnership to a simple functional area partnership), or the e-business structure (e.g., changing from operating online auctions to providing search-engine services only). Changing technology may include changes in software and applications used for e-partnerships and ebusiness, while changing people is the most complicated task in change management. It may encompass changes in organizational culture and/or employee attitudes, expectations, perceptions and behavior, and aims to reduce negative impact or engender the positive effect of changes in epartnerships. The extensive discussion and exploration of issues in e-partnering given in Chapters IV and V demonstrate that an integrative management approach is needed to address the changes confronting e-partners. Companies should take a holistic approach to e-partnership management, recognizing and emphasizing the synergies and integration of strategy, business processes, technology, management system and structure, and organizational culture. The achievement of intended business results through e-partnering relies heavily upon the active integration and interaction between partners. It is therefore important that companies address business process changes in a holistic fashion (Zhang & Cao, 2002). As e-partnership necessitates innovation and change, companies must build and nurture an organizational culture that favors innovation. Organizational culture has a significant impact on the success and failure of e-partnership. It reflects the norms and deeply rooted values and beliefs that are shared by people in an organization. Slevin and Covin (1990) emphasized the importance of an appropriate organizational culture in developing effective innovation behavior to address market dynamics. While an organizational culture cannot be speedily imposed by top management, it can be built over time. The key determinants of an innovative organizational culture are strategy, structure, support mechanisms, behavior that encourages innovation and changes (Martin & Terblanche, 2003). An agile organizational culture is needed for e-partnership, which focuses not only on the technological side of organizational agility
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but also on its human side (Crocitto & Youssef, 2003). More discussion of general change management issues has been given in Chapter V of the book.
Customer Ownership The issue of customer ownership, or who “owns” the customer is often harmful to the relationship between e-partners. If not dealt with properly, the issue can become disastrous to e-partnership. Amazon’s customer information business was weakened due to the fact that its e-partners competed with them for customer information and loyalty as a result of joining Amazon’s e-networks and the affiliate program. Google and Yahoo! face the same issue in their partnership. One of the standard strategies to retain customer ownership is to block customers’ ability to access partners’ sites (De Man & der Zee, 2002). However, in this digital era, it is unlikely to block your customers so long as your partner’s name or brand is mentioned in the Web. Moreover, as partnership is a two-way process; any attempts to deny access to your partners’ sites will trigger reciprocal action by your partners. In the e-business world, owning the customer relationship and customer knowledge is paramount. In recent years, another e-partnership entity, dubbed “infomediary”, has emerged and is gaining more attention in the information era. As the name suggests, infomediaries specialize in information management, collecting and storing customer information and controlling the flow of commerce on the Web. Yahoo! is actually one of the most popular and powerful infomediaries in the world. Its success is built on e-partnerships with big Internet-access providers, which enables them to collect data on customers by connecting customers with advertisers and merchants. As the control of customer information is vital to any business, many brick-and-mortar companies are thus faced with the choice of either competing with, or entering into, epartnership with powerful groups of infomediaries like Yahoo! (Hagel & Singer, 2000). Therefore, customer ownership is a key source of corporate competition as well as a source of conflicts between partners. It is an issue that should be dealt with before the commencement of a partnership in order to reduce conflicts which may ensue. The hands-off approach taken by IBM and BellSouth in their e-partnership may provide a sound strategy to deal with this issue. With a clearly defined scope of cooperation, BellSouth provides IBM with its Atlanta and Miami data centers and its connectivity. On the other hand, IBM assumes responsibility for existing e-business service customers in
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BellSouth’s centers and also houses any of its own new customers in those markets in the centers. Under the partnership agreement, IBM does not therefore have to compete with BellSouth for customers (Engebretson, 2003).
Flexibility in Partnership E-business requires the constant expansion of networks of e-partnerships, as more partners often mean more businesses which result in more partners. The dynamic nature of e-business also requires more flexible partnerships to respond speedily and freely to market changes and maintain a competitive advantage. The flexible partnership often leads to non-exclusive partnership arrangements which enable companies to partner with others. However, this flexibility in partnership often means a short lifespan of partnership and frequent change of partners. Yahoo! and Google shared a non-exclusive partnership agreement, which invested in Yahoo! the liberty to choose other partners to its advantage. In 2004, Yahoo! has decided not to renew its contract with Google because it wanted to maintain its competitive advantage, as Google has developed into a significant competitor. Flexibility is also required in the event of unplanned or unexpected incidents which may affect the partnership. The ability to change direction quickly when the road is washed out is important to business and partnership. In this dynamic e-business world, there is always something happening beyond your expectations and planning; therefore, the ability to be flexible is imperative.
Brand Names and Trademarks Complaints and lawsuits concerning the alleged violation of brand names and trademarks in search-related advertisements run by Internet search providers have increasingly become one of the major issues facing the dotcom industries as well as the sustainability of e-partnerships. Auto insurance company, Geico, has recently lodged a lawsuit against Google and Yahoo!owned Overture for violating its trademarks in search-related advertising. The high-profile American insurance company has accused Google and Overture of infringing on its trademarks when they sold them as keywords to Geico’s rivals, causing confusion among consumers. Such lawsuits and complaints are not rare. For example, Google has already faced a number of lawsuits similar to
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Geico’s as more companies endeavor to exercise control over their brand names and trademarks in paid searches. Inevitably, this will adversely affect the sustainability of search-engine companies like Google and Yahoo! who rely predominantly upon the revenues from paid search and search-related advertising partnerships. At present, there is no clear legal regulation specifying the extent to which search engines must ensure that trademarks and brand names are not infringed upon; therefore, this issue represents a further challenge for dotcoms today.
E-Partnership Failures The following section presents examples of e-partnership failures which illustrate the main problems and challenges confronting e-partnering companies and, from which, important lessons can be learned. Although lack of viable ebusiness models and poor e-business management skills directly contributed to the e-partnership failures, on the whole, they can be attributed to managements’ inability to understand and manage the complexity of partnerships. CorProcure was launched in August 2000 by 14 of Australia’s largest companies and provided a horizontal local online trading place. It facilitated “aggregated auctions” whereby smaller companies could also participate collaboratively. However, the marketplace failed predominantly because the partnering companies entered the partnerships with different expectations (e.g., product specifications), while CorProcure management did not focus on the companies capabilities, leading it into new areas in which they had no expertise (anonymous interview, 2004). It was sold in January 2002 and has now become a wholly owned subsidiary of Australia Post. Furniture.com is as an example of a dotcom that promised to deliver a better customer experience than conventional stores but subsequently failed to uphold this undertaking. It was reported that the online business was beset with serious quality management problems such as higher return rates of product because of damage to goods in transit, late delivery, poor Web site service (e.g., waiting for 15 minutes for an answer to “instant messages”) and so forth (Mullaney, 2001), placing them in deep financial trouble. The failure of Furniture.com was not only due to poor quality management but largely the failure of business partnership management. Furniture.com relied heavily upon its logistic partners for delivery, but its choice of partner failed to take into account the critical Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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effects of key logistical factors on its business, including the quality of the transportation and distribution infrastructure, the availability of value-added logics service partners and the efficiency of its Web site ordering and processing services. The metals industry in the United States witnessed the demise of several major e-marketplaces, including MetalSite, Metal Spectrum and Auminium.com in 2001. Of the e-marketplaces, MetalSite was the most well-positioned to succeed when it was founded in 1995. MetalSite was backed and funded by industry partners from Bethlehem, Weirton, LTV, Steel Dynamics, and, later, Internet Capital Group also joined and invested over US$100 million. The collapse of the dotcom industry, the economic downturn in the steel industry, reduced access to capital, cultural barriers of the industry to e-business, lack of strategic partnerships between suppliers and vendors, expensive marketing campaigns and the disadvantage of being the “first mover” (i.e., the costs of pioneering technology) were said to be among the key reasons contributing to the failure of MetalSite (Garvey, 2001).
Summary This chapter examines both successful and unsuccessful cases of e-partnership across several industry sectors and provides readers with an insight into key strategic and operational issues concerning e-partnerships. As e-partnering is a relationship of interdependence and interconnectedness, the more values and goals overlap, the stronger and more productive a partnership can be. Understanding the importance of the value of synergistic partnership can help partners act in each party’s interest and seek win-win arrangements and solutions (Rigsbee, 1996). In the e-partnership, the business needs to win, but, at the same time, its partners must also win to be motivated for further collaboration. The multiple case studies of e-partnerships in this chapter demonstrate the importance of win-win common ground, which underpins the success of e-partnerships. Without this common ground, no partnership will survive.
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References Anonymous. (2001, April 26). eBay signs up commission junction for affiliate drive. Marketing Week. Anonymous. (2002). ServiceMaster teams with Yahoo! Real Estate to offer online scheduling of leading home services. Yahoo! Media Relations — Press Release. Retrieved May 22, 2005, from http://docs.yahoo.com/ docs/pr/release1036.html Anonymous. (2003, July 10). Financial News USA: Yahoo! earnings sparks nervousness and MSN broadens alliance with eBay. M2 Presswire. Anonymous. (2004). eBay and Google march on. Strategic Direction, 20(2), 16-19. BBC News. (2004, April 29). Google plans $2.2 bn share auction. Retrieved May 22, 2005, from http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/ 3670951.stm Blagi, S. (1999, May 31). The Cisco ecosystem. Telephony, 236(22), 19. Bywell, C. E., & Oppenheim, C. (2001). Fraud on Internet auctions. Aslib Proceedings, 53(7), 265-272. Chorafas, D. N. (2001). Integrating ERP, CRM, supply chain management, and smart materials. Boca Raton, FL: Auerbach. Colley, A. (2003, August 20). Yahoo! stepping back from Google partnership. ZDNet Australia. Crocitto, M., &Youssef, M. (2003). The human side of organisational agility. Industrial Management & Data Systems, 103(6), 388-397. De Man, A. P., & der Zee, H. V. (2002). Strategies for e-partnering: Moving brick-and-mortar online. Groningen: Gopher Publishers. Doyle, T. C. (2002, August 5). John Chambers & you. VARBusiness,34-43. Elgin, B. (2003, June 2). Yahoo! act two: After leading a gritty turnaround, CEO Terry Semel is thinking big. So is the competition. Business Week. eMarketer. (2002, December 2). Online advertising projected to rebound in 2003. New York: Author. Retrieved May 22, 2005, from http:// www.emarketer.com/article.aspx?1001879 Engebretson, J. (2003, March 14). Deconstructing the IBM/BellSouth ebusiness partnership. America’s Network E-news.
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Fillis, I., Johannson, U., & Wagner, B. (2004). Factors impacting on ebusiness adoption and development in the small firm. International Journal of Entrepreneurial Behavior & Research, 10(3), 178-191. Garvey, R. (2001, September). Networking with suppliers and customers. Iron Age New Steel, 17(9), 18-21. Gilmour, K. (2004, January). Yahoo!’s unbridled ambitions rest on offering added value, paid-for services. But will enough of us reach for our wallets? Mark Opzoomer is banking on it. Internet Magazine, i112, 4246. Google. (2004a). Google corporate information: Company overview. Retrieved May 22, 2005, from http://www.google.com/corporate/ index.html Google. (2004b). Google corporate information: Quick profile. Retrieved May 22, 2005, from http://www.google.com/corporate/facts.html Hagel, J., & Singer, M. (2000). Unbundling the corporation. In N. G. Carr (Ed.), The digital enterprise: How to reshape your business for a connected world (pp. 3-20). Boston: Harvard Business School. Hof, R. D. (2003, August 25). The eBay economy. Business Week, 89. Lee, H. L., & Whang, S. (2002). Supply chain integration over the Internet. In J. Genunes et al. (Eds.), Supply chain management: Models, applications, and research directions (pp. 3-18). Bordrecht: Kluwer Academic. Lloyd, S. (2004, June 23). Goggle-eyed at Google. BRW (Business Review Weekly) Sales and Marketing. Lumpkin, G. T., & Dess, G. G. (2004). E-business strategies and Internet business models: How the Internet adds value. Organizational Dynamics, 33(2), 161-173. Martin, E. C., & Terblanche, F. (2003). Building organizational culture that stimulates creativity and innovation. European Journal of Innovation Management, 6(1), 64-74. Maslog-Levis, K. (2004, March 3). Yahoo signs Web hosting deal with Destra. ZDNet Australia. McCormack, K. P., Johnson, W. C., & Walker, W. (2003). Supply chain networks and business process orientation: Advanced strategies and best practices. New York: St. Lucie Press.
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Mosquera, M. (2002, January 9). Yahoo selects Spint as hosting provider. InternetWeek. Mullaney, T. (2001, January 22). Gone but not forgotten: The dot-com dropout class of 2000 tells a lot about what won’t work online. Business Week, 3716, EB14. New, S. J., Oh, Y., & Siddall, M. (2003). Understanding B2B e-commerce: Explaining the histories of B2B initiatives. In G. Spina, & A. Vinelli (Eds.), One World, One View of OM? Proceedings of the EurOMA Conference (EurOMA), Cancun, Mexico. O’Toole, T. (2003). E-relationships: Emergence and the small firm. Marketing Intelligence & Planning, 21(2), 115-123. Rigsbee, E. R. (1996). The art of partnering. Dubuque, IA: Kendall/Hunt. Salkever, A. (2003, December 16). Google here, there, and everywhere. Business Week. Slevin, D. P., & Covin, J. G. (1990). Juggling entrepreneurial style and organizational structure: How to get your act together. Sloan Management Review, 43-53. Smyth, M., & Ibbotson, P. (2001). Internet connectivity in Ireland. Joint report by the Bank of Ireland and the University of Ulster. Retrieved May 22, 2005, from http://www.bankofireland.co.uk Sullivan, D. (2002a, April 29). Yahoo renews with Google, changes results. The Search Engine Report. Sullivan, D. (2002b, May 6). Overture & Inktomi out, Google in at AOL. The Search Engine Report. Yahoo! (2002). Yahoo! gets local no. 1 online local destination in the U.S. according to Nielsen/Netrating’s marketview report. Retrieved May 22, 2005, from http://docs.yahoo.com/docs/pr/release1030.html Yahoo! (2003a). Oracle teams with Yahoo! to bring personalized news to enterprise portals. Retrieved May 22, 2005, from http://docs.yahoo.com/ docs/pr/release1104.html Yahoo! (2003b). Yahoo! integrates WebEx Meeting capacities into Yahoo! Messenger enterprise edition. Retrieved May 22, 2005, from http:// docs.yahoo.com/docs/pr/release1098.html Yahoo! (2003c). Cisco and Yahoo! team to offer networking solutions to small and medium businesses. Retrieved May 22, 2005, from http:// docs.yahoo.com/docs/pr/release1064.html Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Endnotes 1
A reverse auction is where suppliers are invited to tender for a product or service and bid down prices. The auction is a transparent process, and Internet capabilities mean that suppliers can modify their bids to compete with the lowest prices as they are tendered, thereby improving the traditional tendering process.
2
These two case studies were based upon interviews conducted for the present study with senior managers of the companies. The two companies cannot be named in the book due to a confidentiality agreement.
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Chapter VII
Entrepreneurship and Innovation Through E-Partnering
Introduction The dotcom crash and the following 3-year economic downturn saw hundreds of Internet startups closed down or sold. However, many of the innovations and technologies created by them “live on and play important roles in the future either via acquisitions, in new startups, or through copycatting by the industry’s giants” (Hamm, 2003, p. 52). Blogger.com was a troubled startup that hosted 200,000 Web logs, personal Web sites where people could share insights and Web links with all comers. It was bought by Google in 2003 and has since become part of Google’s information storehouse. Another example was Liquid Audio, a digital music pioneer subsequently acquired by Anderson Merchandisers, a major distributor of music CDs, to help create profitable online music distribution. Despite the many failures caused by the dotcom crash, it presented new challenges as well as new opportunities to entrepreneurs of e-business. This author argues that a combination of entrepreneurship and innovation will be a
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crucial factor to the long-term sustainability of e-commerce and e-businesses. In this frenetically changing competitive landscape, e-entrepreneurship and einnovation enable organizations to gain competitive advantage and hold the key to their e-business success. For the purposes of this book, e-entrepreneurship and e-innovation refer broadly to entrepreneurship and innovation in the context of e-business activities and operations. The fast growth and business success of companies such as eBay, Amazon.com, travel.com and priceline.com, along with the bankruptcy of numerous dotcom firms worldwide in 2000, hold potent management implications for IT innovation and entrepreneurial organizations worldwide. As such, e-entrepreneurship and e-innovation have become emerging disciplines for proactively responding to changes in the ebusiness world. As an integral part of e-commerce and e-business, e-partnership directly derives benefit from e-entrepreneurship and e-innovation, yet equally, is often the means to achieve the outcomes of the two. This chapter seeks to explore the thrust of entrepreneurship and innovation and their implications for e-business and e-partnership success from an integrative perspective of entrepreneurship and innovation. The chapter focuses on the role of e-partnerships in maximizing the value of entrepreneurship and innovation.
Entrepreneurship The following is a brief review of the principal concepts of entrepreneurship and its key developments. It aims to clarify misconceptions in the current literature and form the basis for further discussions in the chapter. “Entrepreneurship, in its narrowest sense, involves capturing ideas, converting them into products and, or services and then building a venture to take the product to market” (Johnson, 2001, p. 138). A noticeable trend in the study of entrepreneurship in recent years has been a shift away from the subject of small business per se toward the concept of entrepreneurship (Chell, 2001; Cornwall & Perlman, 1990). Similarly, this book emphasizes the concept of entrepreneurship itself, rather than the personality or psychology of small ebusiness entrepreneurs. Entrepreneurship requires organizational behavior related to change and innovation, which centers around both external and internal environmental elements and structures for fostering entrepreneurship and innovation. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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The key elements of entrepreneurship include risk taking, proactivity, and innovation (Miller, 1983). However, Slevin and Covin (1990) argued that the three elements are not sufficient to ensure organizational success, maintaining that “a successful firm not only engages in entrepreneurial managerial behaviour, but also has the appropriate culture and organisational structure to support such behaviour” (p. 43). Furthermore, entrepreneurship may not only benefit one organization, or its partners. From an economic perspective, entrepreneurship increases national prosperity and competitiveness by virtue of its impact on employment creation and the development of new goods and services (Zahra, Kuratko, & Jennings, 1999); therefore, it is a concept that should be uniformly encouraged.
Entrepreneurs and Small Business Owners Entrepreneurs are different from small business owners. Garland et al. (1984) and Steward et al. (1998) argued that small business owners were concerned primarily with securing an income to meet their immediate needs and that they did not usually engage in innovation, whereas entrepreneurs had higher achievement motivation, engaged in greater risk taking and were inclined toward innovation and change. This author presents a related perspective in arguing that entrepreneurship and innovation are closely related and complementary.
Corporate Entrepreneurship or Intrapreneurship Drucker (1994) made an important contribution to the theoretical construct of entrepreneurship in large organizations when he referred to “corporate entrepreneurship” or “intrapreneurship”. In the present study, entrepreneurship includes corporate entrepreneurship and intrapreneurship. Corporate entrepreneurship can be used to improve competitive positioning and transform corporations, their markets and industries, as opportunities for value-creating innovations are developed and exploited (Lumpkin & Dess, 1996; Miller, 1983; Naman & Slevin, 1993). Antoncic and Hisrich (2003) argued that intrapreneurship goes on within organizations, regardless of their size. Intrapreneurship research has studied the individual intrapreneur, the formation of new corporate ventures and the characteristics of entrepreneurial organiza-
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tion (Antoncic & Hisrich, 2003). There is a firmly established empirical base for claiming the effectiveness of corporate entrepreneurship (Lumpkin & Dess, 1996; Zahra & Covin, 1995). Corporate entrepreneurship rejuvenates and reengineers corporate growth through innovations in various forms.
E-Entrepreneurship E-entrepreneurship describes entrepreneurship in e-business. The e-dimension of entrepreneurship incorporates all the key elements of entrepreneurship including risk taking, proactivity and innovation in building, running and managing e-business. As discussed previously, the concept of e-entrepreneurship is not limited to small e-businesses but includes corporate e-intrapreneurship which is embedded in establishing e-infrastructure to do e-business in large organizations. E-business operates in a fast-moving, highly uncertain, unknowable and unpredictable context. As such, entrepreneurship in e-business by necessity exceeds the traditional concepts of entrepreneurship. For example, the traditional notion of entrepreneurship of being or becoming an expert or finding and protecting a unique knowledge in a niche market clashes with the fact that e-business knowledge is often short-lived and available to everyone, anytime and anywhere (Steinberg, 2003, 2004). Empirical studies demonstrate the concept of e-entrepreneurship has changed in the wake of the dotcom crash, presenting new challenges to e-entrepreneurs. In 2003, Alexandra Steinberg conducted a multiple-case study on e-entrepreneurship in the Greater London business area, which provided intriguing findings about the changes in the social meaning of e-entrepreneurship since the dotcom crash. The study used a sample of 42 dotcom entrepreneurs who had started a small business in the wake of the dotcom crash in 1999/2000 or who had business which survived the crash. In the view of the entrepreneurs surveyed, entrepreneurship in e-business was different to classic entrepreneurship. In terms of skills and knowledge, e-entrepreneurship requires not only basic business skills and expert knowledge, but also the social skills necessary to be able to relate to other disciplines and sectors. In this regard, relationship and partnership with other sectors and businesses are crucial to e-entrepreneurship. The study also found that the dotcom crash had proven to be a positive turning point for a new generation of entrepreneurship which would open up e-businesses and endeavor to establish a new professional identity within e-business. E-business networks also played a central role within the
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new e-entrepreneurship. This e-entrepreneurship community was made up of business people who had previously been working in other sectors or in other firms and had moved into the e-business field to pursue a new personal and professional challenge. Traditionally, expertise in entrepreneurship was limited, by and large, to one specialist discipline; however, unlike the traditional entrepreneurship, the new sense of entrepreneurship in e-business was determined by the ability to creatively combine different sets of expertise to accommodate the wide range of needs of e-businesses powered by rapidly evolving and complex new digital technologies. The very character of ebusiness thus shaped the fundamental construct of e-entrepreneurship, that is, constantly engaging in and developing innovative information and communication technologies in one way or another.
Innovation For more than half a century, research and development (R&D) has been closely associated with technological innovation (Miller & Morris, 1999). Invention is the narrowest definition of innovation. Drucker (1994) maintained that there are seven basic sources of opportunities to innovate. Only one of them refers to inventing something new. Innovation is thus more than invention and does not have to be technical. There are, for instance, numerous examples of social and economic innovations (Drucker, 1994). Innovation is a proposed theory or design concept that synthesizes extant knowledge and techniques to provide a theoretical basis for a new concept (Bright, 1969; Sundbo, 1998). Innovation thus has many facets and is multi-dimensional. The most prominent innovation dimensions can be expressed as dualisms—(1) radical vs. incremental; (2) product vs. process and (3) administrative vs. technological (Cooper, 1998). Innovation can be radical and incremental. Radical innovations refer to path-breaking, discontinuous, revolutionary, original, pioneering, basic or major innovations (Green, Gavin, & Aiman-Smith, 1995). Incremental innovations are small improvements made to enhance and extend the established processes, products and services. However, this contradistinction does not “necessarily [correspond] to the more fine-tuned reality” because “radicality is a continuum” (Katila, 2002, p. 307). Product innovation, as the name suggests, “reflects change in the end product or service offered by the organizations, [whereas] process innovation represents changes
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in the way firms produce end products or services” (Utterback cited in Cooper, 1998, p. 498). Some researchers have categorized innovation as either technological or administrative. Technological innovation refers to “the adoption of a new idea that directly influences the basic output processes”, whereas administrative innovations “include changes that affect the policies, allocation of resources, and other factors associated with the social structure of the organization” (Daft, 1978 cited in Cooper, 1998, p. 497). For the purpose of the present study, innovation is defined broadly to include new products, new processes, new services (including new uses of established products, processes and services), new forms of organization, new markets and the development of new skills and human capital.
E-Innovation Technological innovations in e-business have significantly changed inter-firm communications and have the great potential to revolutionize the efficiency and effectiveness of inter-firm relationships and their governance. For example, the inter-firm and Web-based sophisticated software packages that are currently available in the markets cover almost every functional aspect in which interfirms interact in the supply chain. The common and most important functionalities of e-business technological innovations are standardization, centralization and formalization to facilitate inter-firm collaboration. However, technological e-innovation is only one aspect of e-innovation. Einnovation can be broadly defined as innovation that is related to e-business. It may include establishing and/or implementing innovative processes, operations, service, strategy, structure, technology and so forth in relation to ebusiness. For example, e-innovation may represent an innovative strategy enabling customers to do what best serves their purpose via information communications technology (Martin, 2004). In order to implement an ebusiness innovation strategy and realize the commercial value of the innovation, companies often resort to partnerships which provide complementary resources and advantages in order to get things done. The snapshots below illustrate some examples of e-innovation through e-partnering.
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Snapshot 1: New E-B usiness Applicati ons Palm, Inc., a 3Co m co mpany and a leading provider of handheld computers, Sun Microsystems, Inc. and iPlanet E-Co mme rce So lutions, a Sun-Netscape Alliance, decided to join forces to develop an end-to-end solution that would provide global wireless access to enterprise applications and services via Palm’s handheld computers. The three companies also decided to jointly market the new solution to enterprise and service provider customers world wide. The solution was cutting-edge, changing the way that mobile professionals do business by providing them with access to their corporate applications and data more easily and securely anytime and anywhere. It was claimed that the solution would also help improve a co mpany’s customer service function and streamline the internal sales, manufacturing and financial p rocesses. Notwithstanding this, the alliance made it possible for the co mpanies to meet the growing demand for a reliable, secure wireless access to information. Source: Sun Microsystems (2000)
Snapshot 2: New E-B usiness Services Co mme rcia l Co mmunications, Inc. (CCI) is one of the largest electronic print and digital informat ion providers in North A merica and a p ioneer in online document ordering, viewing, tracking and management with its software, Publicat ion Zone. CCI entered an ebusiness partnership with Sa myog, a global Web-based integrator focused on building user-centric business solutions and tools, in order to develop a new suite of e-business services for B2B customers to better manage and distribute information. Under the partnership, Samyog helped CCI to e xtend and customize additional products for new ma rkets. Source: Siliconindia News Bureau (2002) Cybersettle.com was founded in the mid-1990s by a pair o f attorneys and has not only survived the dotcom crash but attracted more customers and partners. The dotcom does what most do not: created a thriving e-business model through e-innovation. Customers can use the Web site to settle a wide variety of co mmerc ial disputes online quickly and inexpensively. By August 2003, it had handled mo re than 75,000 transactions and over US$500 million in settlements. Source: Winston (2003)
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Snapshot 3: New E-Business Venture Zayed University in the Unites Arab Emirates has entered a partnership agreement with IBM to establish a new e-business venture called SmartSquare. SmartSquare aims to help private and public institutions create and enhance their e-business and communication activities. It offers full services ranging from conceptualization to turnkey delivery of an operational electronic service environment. By combining the innovative potential of Zayed University students and academics with global IBM leadership in pioneering e-business, SmartSquare became a flagship of innovation in e-business at Dubai Internet City. It has a portfolio of business value analysis and strategy consulting as well as concrete IT solution delivery. This partnership offers an ideal opportunity for transferring Zayed University’s innovative ideas to local industry. The director of SmartSquare enumerated the benefits of the partnership: “Working with students from Zayed University helps to develop a local expertise in many business and technology areas. Cooperating with a strong partner like IBM makes us the centre of choice for putting ideas to work in real life business style and accelerating customer returns, thus helping the overall economy.” Source: AME Info (2003)
Conceptual Relationship Between Entrepreneurship and Innovation The conceptual interface between entrepreneurship and innovation have been discussed in the literature for many years. The economics of innovation, in particular, have attracted increased attention in recent years (Arora, Fosfuri, & Gambardella, 2002; Grupp, 2001; Stoneman, 1995). Sundbo (1998) summarized the basic theories of the economics of innovation and identified three competing paradigms in the current theoretical discussion of innovation—(1) the entrepreneur paradigm, (2) the technology-economics paradigm and (3) the strategic paradigm. As the present study focuses on innovation and entrepreneurship, only the first paradigm is discussed here. The entrepreneur paradigm can be traced back to the 1930s when Schumpeter (1961) first attempted to establish a linkage between entrepreneurs and innovation in theory, viewing the entrepreneur as innovator. He maintained that innovation contributes to the growth of the economy because entrepreneurs produce
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innovations. The concept of the entrepreneur as innovator underpins the entrepreneur paradigm in which the role of the entrepreneur is highlighted in the innovation process. According to this paradigm, only a person who founds a new company on the basis of a new idea can be called an entrepreneur. Entrepreneurship is viewed as a creative act and an innovation; therefore, entrepreneurship refers to creating something that did not previously exist. The creation adds value to the individual and the community and is based upon perceiving and capturing an opportunity (Johnson, 2001). Bygrave and Hofer (in Legge & Hindle, 1997) held similar views. They regarded entrepreneurship as a change of state, a dynamic process and a unique event. Meanwhile, Legge and Hindle (1997) believe that people who lead teams and organizations to introduce innovations are entrepreneurs. Entrepreneurs seek opportunities, and innovations provide the instrument by which they might succeed. Corporate entrepreneurship often refers to the introduction of a new idea, new products, a new organizational structure, a new production process or the establishment of a new organization by (or within) an existing organization. As Herbig, Golden and Dunphy (1994) have observed, “Innovation requires three basic components: the infrastructure, the capital, and the entrepreneurial capacity needed to make the first two work” (pp. 37, 45). Innovation is the specific tool of entrepreneurship by which entrepreneurs exploit change as an opportunity for a different business or service. There is therefore considerable overlap between entrepreneurship and innovation (Drucker, 1994; Kanungo, 1999; Schumpeter, 1961; Sundbo, 1998). Moreover, innovation has to address market needs, and requires entrepreneurship if it is to achieve commercial success (Zhao, 2004). In summary, there is theoretically a strong correlation between entrepreneurship and innovation, and the two are complementary to business success. The following sections thus seek to establish empirical evidence supporting this theory, describing the relationship between entrepreneurship and innovation and how the concepts relate to each other in an e-business context.
Empirical Studies of Synergies Between Entrepreneurship and Innovation This book author has conducted a number of interviews with senior managers from both brick-and-mortar and dotcom companies to elicit their perceptions Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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about the relationship between entrepreneurship and innovation in their managerial practices. The majority of the managers interviewed considered that entrepreneurship and innovation share an interdependent and synergistic relationship and cannot actually be separated. For example, the CEO of Destra, a successful dotcom based in Australia, believes that entrepreneurship means “creating something out of nothing” and that it is a mindset, where “anything is possible and the only boundaries are those that we create ourselves”. To him, innovation means “doing something that hasn’t been done before or doing something differently”. His company’s Destramusic.com was the first digital music provider in Australia, going live in 1997/1998, far in advance of their current competitors. eBay, a widely successful startup, is a classic example of entrepreneurship and innovation in the e-business world. From its humble origins as a trading post for Beanie Babies, eBay has become one of the world’s largest online trading centers. It has created a whole new business arena which hosts over 150,000 entrepreneurs and about 30 million customers worldwide. The company has constantly pursued new ways of doing business. For instance, eBay created an innovative feedback system in which buyers and sellers can rate each other following a transaction, thereby enhancing users’ experience and satisfaction. Its PayPal payment-processing system also allows buyers to make electronic payments to eBay sellers who can’t afford a merchant credit card account. This opens up a whole new medium of exchange. As a result of such innovations, it is estimated that eBay’s net revenues will grow to US$3 billion by 2005 (Hof, 2003). Google, the Web search engine giant, is not only an entrepreneurial company in terms of its aggressive growth strategy but also a pioneer of innovation. To enhance the level and efficiency of its features and services, Google has continuously improved its technologies. It created a services and tools section in its Web site known as Google Labs to demonstrate its innovation and ask its users to experiment with and provide feedback on the features and tools. Google toolbar, Google Groups and Google Answers are a few of their other innovative e-business developments (Anonymous, 2004). The founders of Google, two graduate computer students expressed their innovation mindset quite frankly: “Google is not a conventional company. We do not intend to become one”. In this respect, Google has persistently taken an unconventional way of designing its business and concentrated on building a better search engine rather than spending millions on marketing campaigns. It has innovated the existing technology to provide a fast, accurate and easy-to-use search
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service that can be accessed from anywhere at anytime. “Never settle for the best” is one of the company’s philosophies (Google, 2004). In fact, Google’s strategy against the fierce competition in the search engine provider market is one of constant innovation and entrepreneurship through creating new and innovative services and tapping new channels of revenues. For example, Google has recently launched a string of new services such as the free Webmail service called G-mail and Froogle, an online shop price comparison service (BBC News, 2004). Most recently, Google filed papers proposing to float the company, and it has become one of the hottest public offerings since the peak of the dotcom bubble. The floating approach is innovative and “peculiar” (in some analysts’ view) as Google’s management decided to sell its shares through an online auction rather than the traditional allocation by big banks. It was reported that this approach to the initial public offering (IPO) aimed to give the general public a better chance to buy Google’s stock before the shares begin trading rather than let investment banks decide who should own the shares. However, the floating plan caused concerns that the impending float would fuel a second Internet bubble. Analysts expected that Google would attract a market valuation of up to US$40 billion (BBC News, 2004; Clarke, 2004). Amid a weak stock market and a lukewarm investors’ response to Google’s IPO proposal, the company’s executives had to reset the opening price from US$108-US$135 to $85 and cut the number of shares offered from 25.7 million to 19.6 million. After two days trading, Google’s share price jumped 27%. The value of the young startup dotcom became, all of a sudden, worth more than the Ford Motor Company (Wood, 2004). Amazon.com’s success has everything to do with innovation and entrepreneurship. The company has been a pioneer in the dotcom industry since its beginning. It was the first company to move book retailing business online; the first to offer its customers a “one click” program to streamline the buying process by storing detailed customer information including credit numbers and the first to use collaborative-filtering technology to give customers an idea about what other people with similar purchase histories have bought. Amazon.com was the first company to develop the comparison-shopping program that directs its customers to other retailers if it does not sell a certain product. Its affiliates program was also the first in the dotcom industry, having directed millions of customers from its partners’ sites to Amazon.com. Undoubtedly, Amazon.com has always been a first mover in e-business through continuous innovation (Mellahi & Johnson, 2000).
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These empirical studies of e-entrepreneurship and e-innovation demonstrate that the success of e-business is inextricably linked to a combination of entrepreneurship and innovation and that the two are enablers and key drivers of e-business. However, it will be difficult to achieve long-term success by relying on one’s own resources to realize the great potential that e-entrepreneurship and e-innovation can bring about in today’s ever-changing business environment. Even dotcom giants such as eBay, Google and Amazon.com have continuously leveraged their partners’ capacities to achieve the potential benefits of entrepreneurship and innovation. The following case studies will deliver more practical insight into how companies studied can engage in entrepreneurship and innovation activities through e-partnering. The case studies also reveal some of the key issues and problems facing entrepreneurial and innovative companies in managing e-businesses.
Case Studies: E-Entrepreneurship and E-Innovation through E-Partnering Case Study 1: Dell Computer Corporation Dell Computer Corporation is best known for its “direct model” which creates a make-to-final customer order supply chain. In fact, the Dell direct model and business strategy has broken the rules of the game and completely changed traditional ways of doing business in the computer industry. Instead of manufacturing for inventory, Dell assembles product for specific customer orders and replaces inventory with information. Unlike other computer manufacturers who sell their computers through value-added resellers, Dell makes optimal use of Web technologies to establish direct connectivity to customers in order to sell computers online and communicate directly with them. Michael Dell, the CEO of Dell, indicated a few years ago that the overall direction of the company is toward virtual integration which, by using technology and information, blurs the traditional boundaries in the supply chain among suppliers, manufacturers and customers, and establishes an actual Internet-based supply chain (Karpinski, 2001; Magretta, 1998). In terms of the direct model and its “be-direct” sales strategy, Dell is innovative and entrepreneurial. However, this same strategy has been criticized, as it has
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left Dell unable to make cutting-edge products. In other words, Dell is not innovative in R&D and does not invest in developing new innovative products due to the heavy costs associated with R&D in the computer industry. However, its CEO argued that Dell had been innovating in a different way, maintaining that it was still the most innovative company in the industry in terms of changing the way products are delivered (Harrison, 2004). Indeed, Dell pursues an unconventional way of innovation and entrepreneurship through its aggressive partnering strategy. It takes advantage of its wide range of partnerships, well-established brand, large customer base worldwide and its global sales channels to sell the most innovative products of IT and computer industries. Instead of manufacturing everything it sells, Dell partners with OEMs to get printers, servers and network storage systems to compliment its PCs and notebooks. Dell evaluates 20 new ideas (new products made by its partnering OEMs) or opportunities every year and selects two or three of them to incorporate into their product packages for customers. Generally, Dell targets companies that need a sales and distribution partner to boost their sales volumes. For example, the company sells printers with the cooperation of partners including Lexmark International Inc. It has partnered with Good Technology to co-develop a next generation wireless handheld to meet the demand of Dell’s corporate customers who want a wireless product that can be synchronized with e-mail and datebooks in addition to CRM and ERP applications. Under the partnership agreement, Dell will sell Good’s current handheld along with the GoodLink system to run on Dell servers (Lacy, 2003). In 2004, Dell expanded its partnership with Oracle. This initiative resulted in a Dell/Oracle configuration whereby CDs containing the Oracle Standard Edition One database would be offered with the Dell PowerEdge 2600 or 2650. The new partnership deal also included the resale of Oracle licenses to China, enabling Dell’s customers in China to deploy Oracle products on Dell servers (Dell, 2004a). Dell has also recently announced several new technology partnerships with Fuji Xerox Co., Eastman Kodak Co. and Samsung Electronics Co. (Dell, 2004b). These technology partnerships aim to maintain Dell’s innovations in the industry. Dell’s e-partnering strategy is not, however, limited to technology, sales and manufacturing areas. The company has also been pursuing partnerships with public e-marketplaces and suppliers. For example, Dell struck a deal with ParMiner, a New-York based independent e-marketplace to help it source hard-to-find parts. The partnership enabled Dell to benefit from PartMiner’s 12 million catalogue listings, access the e-marketplace to buy products and
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place its excess inventory into the PartMiner Free Trade Zone to sell (Karpinski, 2001). Dell’s Critical Supplier Partnership Program is also another initiative aiming to develop real working partnerships and improve supply performance (Anonymous, 2002). These and other innovative strategies have delivered very promising business results for Dell. Currently, Dell has a 16% worldwide market share and has achieved full-year sales of US$41.4 billion in the 2003/2004 fiscal year. The company has also continued its global expansion and growth. In China, for example, Dell has become the region’s second largest national market. While Dell’s innovation-through-e-partnering strategies seem to be successful, Dell still has much room for improvement in terms of product quality as well as partner satisfaction. According to an ARC study in the United States and ARC’s annual rating of companies’ performances in various areas, Dell rated last in three categories: entry-level servers, advanced desktops and workstations and mobile computing in 2003. Moreover, Dell’s partner satisfaction scores were among the lowest in the entire ARC study. The main cited causes included channel conflict, poor communication and poor sales support (Doyle, 2003). These problems should serve as a wake-up call and send a strong message to Dell’s managers because poor partner satisfaction can indicate fundamental problems of overall performance and management of a company. Indeed, in the long run, partners’ dissatisfaction may have a detrimental effect on the bottom line results of a company. Discussion Questions 1. 2. 3.
How well did Dell’s innovation-through-e-partnering strategies work in its e-business? What will be the key challenges facing Dell’s innovation capacity in the near future? Is Dell still an entrepreneurial company? Why?
Case Study 2: Bicycle Exotica* Bicycle Exotica was formed in 1999 after the owner/manager experienced frustrations while attempting to purchase a high-end bike for himself. Prior to this, he had been employed by a bicycle wholesaler, therefore, had some
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expertise in the area. The case company imports a range of high-end ($AU5,000+) bicycles and components and sells them direct to the public in Australia, unlike the traditional supply model where wholesalers sell to bike shops. The company employs one other full-time staff member and gets parttime support from the owner/manager’s partner. Specific activities such as book keeping and Web site development are outsourced. Turnover was around $AU750,000 in 2003. The direct-selling business model is non-traditional and risky, as bikes (especially high-end models) are an emotive product, and customers prefer to “see before they buy”. However, the owner/manager’s earlier experiences of trying to buy a high-end bike convinced him that not only could he improve access to the products for customers, but he could “cut out the middle man” and offer the bikes at a more competitive price than the traditional model of selling through shops. The Bicycle Exotica Web site provides an online “shop front”, although the owner/manager encourages customers to contact him directly. He likes to offer a personalized service (he might speak to a customer five times before a sale), and, in this way, he overcomes the intangible element of his business. The Web site specifically does not offer a “shopping cart service”, again because of the product characteristics. The company’s business model obviously has advantages and disadvantages compared to the traditional brick-and-mortar model. Australians often buy high-end bikes from the United States because it has a smaller number of supply steps than the Australian market; therefore, bikes can be offered at a cheaper price. However, Bicycle Exotica’s business model means they can compete with the global market. Bicycle Exotica has consciously tried to maximize the advantages of their business model and minimize its disadvantages by using innovative methods. For instance, rather than using a print catalogue, the company developed a CD which comprehensively showcases its products. In addition, the company’s Web site has a level of detail higher than the standard among bike sellers. Most important of all, the Web site is a core part of the business rather than an addon. The company has also developed a “bike fit” program whereby customers can send their body measurements to ensure they get the right size bike, which again, is a departure from the traditional method whereby it is done in person. The business model is in fact built around entrepreneurship and innovation. The owner/manager frankly admitted that he had “stuck his head out” by selling direct to the public because the bike industry is traditionally quite protective. Furthermore, the owner/manager’s offering of a personalized service to Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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customers provides for the emotive element of the sale. The company can sell high-end bikes at a similar price to lower-end bikes sold through shops. However, this philosophy has not been embraced by everybody. For example, one competitor applied pressure to an Australian bike magazine in order to prevent the company advertising within the magazine. Nonetheless, the company tries to maintain good relationships in the industry by offering bike shops discounted bikes for them to resell to their customers. It is likely that the business model would not succeed if the company did not maintain good e-partnerships with other bike sellers, suppliers, Web site developers and other Web technology providers. To enhance customer services and minimize the disadvantage of online sale, the case company has developed a tentative “clicks and mortar” partnership with a Sydney bike shop in relation to one of the bike brands it sells. Customers can view the range at the bike shop and purchase bikes through them. The company will sell the products to the bike shop at such a price that they can offer them at the company’s prices (ordinarily, although shops would buy the company’s products to resell to their customers at a favorable price, the resale price would still be higher than what the company would sell it for). Hence, customers are getting the “best of both worlds” whereby they can view the products they want to buy at a favorable price, although the profit margins would be lower for both the company and the bike shop than if the bike was sold direct. Although the e-business model is working well, there are serious challenges the company has to address. The bike industry is a typical cottage industry, where many businesses are owner/manager or run by bike riders, not business people. To this extent, entrepreneurship and innovation are still relatively new concepts. According to the owner/manager interviewed for the present study, at present, the Internet is hardly utilized effectively by the industry in Australia, and most Web sites are superficial. B2B electronic supply chains hardly exist in the bike industry (although he claims, they would be welcomed!). The market is also fairly small with many competing products, which means that no one business has a big enough share to invest in innovative ideas. Nevertheless, the case company has survived the worldwide dotcom crash and is profitable, thanks to its innovative and entrepreneurial business model and good working relationship with its brick-and-mortar partners.
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Discussion Questions 1.
How did entrepreneurship and innovation interact in the case of Bicycle Exotica?
2.
What role did the case company’s partnering strategy play in its directselling business model? What challenges and issues will the case company have to address if its “clicks and mortar” partnership is in full swing?
3.
Case Study 3: SpeakerDirect* SpeakerDirect (http://www.speakerdirect.com.au) is a young Melbourne (Australia) based dotcom, providing an online speaker portal. The online speaker portal business idea was developed in December 2003, and the portal was formally launched in March 2004, illustrating the fact that the founders believed speed to market was one of the essential elements of their strategy and characteristic of the e-market. The Web site system was developed from scratch with the premise that the company wanted a corporate friendly and comprehensive tool for both speakers and speaker-seekers. SpeakerDirect is actually a business resource as well as a promotional platform. SpeakerDirect.com.au provides a free service for corporations to search and select corporate speakers; however, unlike their competitors, the company does not take engagement fees. The company has an ambitious goal of becoming the number one global speaker portal within 5 years and to connect the entire business community. The company philosophy is one that aims to offer both speakers and seekers a personalized service alongside the electronic service, although the emphasis of their efforts is on the latter (e.g., they might meet with a major corporate and maintain communications by telephone on a frequent basis). The founders and current directors of the company came from marketing and public relations backgrounds and also have experience in introducing an online tool in a market traditionally run by agencies. During their time within the corporate world, they identified a need and a business opportunity for a comprehensive search tool for corporate speakers. Under the traditional model, speaker-seekers were required to contact individual agencies who
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would provide a list of their registered speakers. The agency would then charge a fee on top of the speaker cost. However, this model is administration-heavy, for both the agency and the speaker-seeker. Therefore, the company’s founders came up with the idea for an online speaker portal. This essentially is an online database of corporate speakers and entertainers which is free to search and provides a profile of each speaker, online show reels and indicative fees. Searchers can then contact speakers through the company’s online system to arrange bookings and so forth. Speakers pay an annual fee to be listed on the Web site and, in return, are given their own personal Web site (they can also link to their own Web site) and an e-mail inbox to receive and respond to inquiries. This is complemented by regular reporting functions (such as the number of searches the speaker has been displayed on, personal Web site hits received, etc.). The success of the model is evident, and only 6 months after the formal launch of the portal, SpeakerDirect.com.au has around 300 speakers and receives 12,000 hits per day. From the perspective of the company’s founders and directors interviewed for the present study, entrepreneurship and innovation mean risk (financial, emotional and personal): Entrepreneurship is taking control and action on a concept or a dream in the face of adversity. The tangible aspect of making that happen is where innovation comes in. For example, I want people to communicate with each other over long distances (the dream), therefore I am going to do something about it and invest time and dollars to do it even when everyone is saying it cannot be done/I am mad/it is too risky (entrepreneurship/the risk) and a phone is designed to achieve this (the innovation to achieve the dream). A combination of both is the “big picture” that requires tenacious and passionate people to turn an idea into reality by being independent and in control. (directors of SpeakerDirect, interview data, August 2004) The business model that the company has developed is in itself an example of a combination of entrepreneurship and innovation—it is the first of its kind, replacing the idea of the client having to deal with many agencies separately by creating a one-solution portal. Another example of entrepreneurship and innovation is the system behind the Web site. This was designed to be multifunctional (but streamlined) and very user-friendly for both speakers and seekers. One of the most innovative features is a bulletin board where
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companies can advertise an event for which speakers can express an interest in being engaged for—this would be a useful tool for anyone who is timepressed or needs a speaker at short notice. Another key e-dimension of entrepreneurship and innovation that the case company demonstrates is responsiveness to client and market needs. For example, SpeakerDirect.com.au is seeking to position itself as a media tool (e.g., by providing a service whereby speakers are available to journalists for “expert comment”, gaining valuable and credible exposure without actually being engaged on a fee basis). In the directors’ words, they have “flipped the agency concept on its head”, and, as a result, many seeker clients believe the free service is “too good to be true”. The company’s initial success relies not only on its entrepreneurial and innovation capacities but also its active partnering program which includes developing existing relationships with corporations and building strategic alliances with trade associations and other dotcoms. Evaluation of the partnerships is done up-front (e.g., with speakers, how to position themselves with clients, what their needs are and how they can be met). For example, the company has developed a strategic alliance with an online talent agency, called AT2 (for more detail of the company, read Snapshot 6 in Chapter I), located on the same premises and has become part of the agency’s network. The two directors of this agency also sit on the company’s board, complementing the company’s experience with their own 8 years of experience in international Web site development and with actors and entertainers. The company has also engaged in developing working partnerships with corporate speakers. Although the company’s e-partnering strategy has not been finalized because, according to the directors of the company, they do not want to restrict their growth, a plan has been made to develop a systematic procedure and structure for selection of partners (i.e., speakers) and monitoring of their performance. At this early stage of the process, all speakers are accepted. However, it is likely that after 12 months, those speakers who have not received engagements because, for instance, they are unsuitable, will not relist themselves. SpeakerDirect has however developed a reporting tool for speakers who want data in order to assess their relative successes, which details speakers’ personal Web site hits, inquiries, engagements and so forth. Speakers are also encouraged to contribute to the marketing and public relations effort themselves by directing people to the Web site and through self-promotion because those who do not are likely to be less successful than those who do. Speakers do, however, have an initial consultation in which they can discuss their Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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positioning. Subsequent evaluation by the company may include assessment of the speaker’s fee, testimonials, their show reels and general credibility. On the client’s side, key organizations and associations who may use the service are identified and contacted in order to explore their needs and promote the online portal. However, there are some issues relating to the company which may warrant attention. In terms of e-partnership, there needs to be people behind the system driving it and a commitment to the partnership on both sides. There is a corresponding need to be fluid, dynamic and responsive to needs, adapting to clients. Non-responsiveness or a slow turnaround and/or delivery of solutions are key problems which may damage the partnerships. In an online context, the intangibility of the service provided may also lead to customer dissatisfaction. The company has however tried to counter this with more tangible solutions, such as by producing company literature to give to speakers and seekers and through personal contact. The business model of SpeakerDirect is innovative in a sense that it is not an agency and takes no engagement fees, and it takes clients directly to speakers with the specific skills and areas of expertise they are looking for. However, the financial viability of the model remains a question, which inevitably reminds readers of the key lessons learned from the dotcom crash in 1999/2000. There is also an issue of acceptance and credibility facing this young and innovative company. It has found that corporations have often been skeptical about the online speaker portal service because they have been conditioned to think and work according to how the market worked previously, for example, dealing with numerous agencies or believing they should be paying a fee for the service. In this respect, they think the online speaker portal concept may be too entrepreneurial. However, the company addresses these concerns with education, personalization of the service (e.g., telephone contact) and by evidencing its credibility within the corporate world. The founders also experienced difficulties in strategizing and implementing their idea and believe that more education and funding for small businesses are required in order that ecommerce does not appear to be too elusive for startups. Discussion Questions 1.
Do you agree with the definitions of entrepreneurship and innovation made by the company’s founders and directors? Why?
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What are the pros and cons of the company’s business model? What role did the case company’s partnering strategy play in the business model?
Case Study 4: An Online Retailer* The case company is an online retailer formed in January 1999. The business was initially funded by private investors, but, in early 2000, it secured $AU20million from venture capitalists. The Web site sells a broad range of products from books to flowers direct to consumers, although the focus of its core business has shifted to corporate customers with gift-giving requirements. Most items are held as inventory (around 2,500 stockkeeping units), but some are supplied directly to the customer by the supplier. The Web site is powered by Web technology which not only allows live ordering linked to the inventory but allows the customer to customize their experience such as by creating a gift reminder service or a gift wish list. The company has been named Best Ecommerce Site and Most Entrepreneurial Internet Achievement Site in the Australian Financial Review’s annual Australian Internet Awards. However, despite strong market expectations, the company succumbed to the effects of the dotcom crash, and two rounds of redundancies significantly reduced their workforce. As many online businesses found, profit and turnover did not meet expectations. Nevertheless, the company survived and today attracts over 10 million hits per month, having acquired two other dotcoms along the way. In light of the rating results of Redsheriff (acquired by United States based Nielsen/NetRatings in 2004) and WebTrends (a leading Web analytics company), the company has regularly secured number one ratings positions and become one of the most popular online shopping sites in Australia during the peak Christmas periods. The e-business strategy of the case company has evolved into two components. The first was the original online retailing business. However, after realizing that the market simply was not big enough (possibly because of the current climate in Australia, where consumers have failed to fully embrace e-retailing, unlike countries such as the United States), the company has switched its focus to the corporate gifting service. Likewise, the e-partnering strategy was initially ad hoc, with people scrambling to “do deals” and be part of the online boom. In entering e-partnerships, speed was seen to be the key factor for online businesses, especially as venture capitalists were keen to push the business into
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newsworthy deals which would add “sizzle” to a company, potentially increasing the company’s value. However, in recent times, the e-partnering strategy of the company has become more mature and strategic. The company has entered into a diverse variety of partnerships, each serving different purposes. Examples of these partnerships included one with a major bank who offered its credit card customers a reward system by which they could claim gifts from the company according to the number of reward points they had accumulated. Another involved a call center operated by a large Australian bank where operators earned performance-based bonus points which could be deposited at the case company. The company has also secured alliances with major corporations such as Telstra, the largest telecommunication company in Australia, in order to launch a new business-to-business site dedicated to corporate reward and gift buying. Their first major alliance was with a global fuel business with over 250 service stations in Australia which would be used as a delivery point for customers, representing an innovative distribution model. From the company’s point of view, this would partially overcome one of the perceived problems of online retailing in a large country such as Australia. The incentive for customers would be cheaper and potentially quicker delivery of orders. In return, the fuel business not only received a proportion of the company’s equity but anticipated that the partnership would be an opportunity to create a relationship with their customers and grow their secondary business (e.g., food and consumables). Another partnership formed was with a national clothing retailer, whereby the company was commissioned to build the retailer’s online Web site utilizing the company’s own system, including logistics and payment systems. The dotcom company has a traditional board structure, including the venture capitalists along with the company founders and management team. Governance of the e-partnerships differed, depending on the nature of the partnerships and partner’s circumstances. For example, the agreement with the clothing retailer was overseen by a board represented by managers from both companies who met monthly. To monitor and manage its partnership portfolio, the company has developed different partnership performance measurement systems according to each partnership. For example, the partnership involving the fuel retailer was assessed by key performance indicators (KPIs), such as documentation conformity (e.g., parcel tracking) or when cross or co-promotional activities were carried out (e.g., utilizing deals with snack food companies), how successful they were in terms of units sold. As far as the company’s suppliers
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were concerned, the key metric was lead time, as this was seen to be a critical factor in online retailing (part of the appeal of online shopping is convenient and fast delivery), along with traditional KPIs such as units sold. Conformance of partners with the company policy is also an important KPI and was achieved through a combination of standard and ad hoc agreements. Based upon the interviews with the company’s senior manager, e-partnership success requires a shared understanding of goals, especially in a bricks-andclicks partnership. In these situations, often the off-line business does not have a sufficient understanding of the online medium (e.g., suppliers who do not appreciate that delivery on time is crucial). These mutual goals should be cemented by some sort of agreement between the two parties that lock them both in. Ideally, both parties should have some sort of equity or profit share arrangement which would infuse a mutual interest in the success of the partnership. One of the important lessons that the case company learned from its experience is that partnerships which involve an imbalance of power, or are unrealistic about the planned arrangements or goals, are doomed to failure. Additionally, those partnerships which fail to garner buy-in from all managers will probably not succeed. The case company has been taking an innovative and entrepreneurial approach to building corporate partnerships and running its e-business. An example of this was the company’s e-partnership with the multi-national fuel retailer which involved great risks, as the distribution model was the first of its kind in Australia. This clicks-and-bricks alliance helped create an innovative distribution model which reduced the delivery charge to the customer by 50% and resolved the problem that many e-shoppers have to deal with, of waiting around at home for a courier. Another example of innovation was the company’s Web site which employed mapping technology in order that customers could input their area postcode in order to find their nearest distribution outlet. Furthermore, to encourage entrepreneurship and innovation behavior, the company has an Employee of the Month award, which rewards employees who come up with new ideas that will enhance customers’ experiences. However, the case company has faced some of the similar problems as the majority of dotcoms. Its e-partnership with the fuel company has to be terminated because many customers just do not want to pick the goods up themselves. It looks like the case company forgot that the whole point of ecommerce was that it did not involve any contribution from the consumer apart from the ordering process. Also, the company’s infrastructure needs to be improved to support the overall business activities and processes, especially Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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when it directly involves the customer. For example, the company’s supply chain partners should be able to deliver quality services on time as promised to the end customer. This is particularly paramount in the online environment as consumers want immediate access to products. Discussion Questions 1. 2. 3. 4.
What has contributed to the success of the online retailer? How did the case company’s e-partnering strategy evolve with its ebusiness strategy? How well did the case company manage its partnership portfolio? What implications does the experience of the case company make for dotcom management?
Issues and Challenges Facing E-Entrepreneurship and E-Innovation Today’s e-business operates in a highly competitive marketplace where sustainable competitive advantage is almost impossible as there are minimal barriers to new entrants and competitors in the marketplace. Innovation faces constant challenges of imitation and erosion. There have been different views in the literature about the benefits of first movers in the e-business marketplace. Mellahi and Johnson (2000) asked the question: “does it pay to be first to market or should e-commerce firms wait for first movers to make an investment and then cannibalize the idea with lower entry cost?” The cause of the concerns are raised by a general belief that it is safer and less expensive to imitate the first mover in the e-business environment, where there is a higher level of technical uncertainties and rapid rate of technological innovation. For instance, many new dotcoms rushed to build an e-marketplace and chose imitation as a business strategy rather than innovation. This author argues that it is the lack of a combination of innovation and entrepreneurship capacity that has caused the demise of many imitators in the dotcom industry. The essence of innovation and entrepreneurship is taking a new idea to market, not imitating a new idea without taking into account the special needs of local markets, and being
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innovatively and proactively responsive to environmental changes by introducing a new product, process, service or implementing a distinctive business model as did the case companies studied in this chapter. In the early days of e-business, it was likely that most businesses could be applied differently online and off-line. “Irrational exuberance” was prevalent within the market and venture capitalists were prepared to take on much more risk. However, since the dotcom crash, the market appears to have reverted to traditional models and methods. More attention has been given to the fundamental structural components of e-business such as flow of revenue. Ebusiness, to many companies, is now just seen as another channel to market (rather than signaling the demise of off-line business as originally prophesized). Likewise, many senior managers interviewed for the present study indicated that there was no difference in the concepts of entrepreneurship online and offline. Traditional business models are here to stay. For new e-businesses to succeed, they need an innovative idea incorporated into a sound business model which is viable economically and which is facilitated by knowledgeable and experienced people. As such, those entrepreneurial and innovative e-business activities which genuinely have utility for the customer (e.g., e-banking) are more likely to be successful. For example, the difference between retailing and banking is that while one is seen as an emotive and/or social activity, the other is perceived to be a chore. Therefore, offering an electronic channel to facilitate the latter is more likely to succeed than the former — people want convenience and speed when they bank, but they are more likely to value other factors which an online channel may not necessarily be able to offer when they shop for goods and services. In this respect, dotcom companies should endeavor to enhance customer experience by offering tools on their Web sites which enable customers to personalize the shopping process and provide more personalized business services such as those offered by the bicycle company of Case Study 2 of this chapter. In summary, the issues facing e-business today, as demonstrated by the case studies, are first that entrepreneurship and innovation needs to respond closely to market needs and gain market credibility. Ideally, there should be credibility built within the marketplace before inception of the business as in Case Study 3 of the chapter suggests. In addition, the intangibility of an online service needs to be addressed in order to build brand awareness.
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Summary This chapter has explored the synergies between entrepreneurship and innovation in e-business and the role of e-partnership in achieving the goals of entrepreneurship and innovation, through a review of the principal literature in this field and four case studies of entrepreneurial and innovative companies. The study has found that: • • •
•
entrepreneurship and innovation need inter-firm partnerships to enhance their capacities and maximize their value; entrepreneurship and innovation are positively related to each other and interact to help an organization flourish; entrepreneurship and innovation are complementary, and a combination of the two is vital to organizational success and sustainability in today’s dynamic and changing environment; and organizational culture and management style are crucial factors affecting the development of entrepreneurial and innovation behavior in organizations.
The chapter also discusses key issues facing entrepreneurial and innovative organizations. Because entrepreneurship and innovation are systematic behaviors, systematic efforts are required to incorporate them into the operations of organizations regardless of whether they are dotcoms or brick-and-mortar entities. Entrepreneurship and innovation should be regarded as ongoing, everyday practice in organizations, and this chapter endeavors to contribute to the development of such an attitude.
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Anonymous. (2004). eBay and Google march on. Strategic Direction, 20(2), 16-19. Antoncic, B., & Hisrich, R. D. (2003). Clarifying the intrapreneurship concept. Journal of Small Business and Enterprise Development, 10(1), 7-24. Arora, A., Fosfuri, A., & Gambardella, A. (2002). Markets for technology: The economics of innovation and corporate strategy. Cambridge, MA: MIT Press. BBC News. (2004, April 29). Google plans $2.2 bn share auction. Retrieved May 22, 2005, from http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/ 3670951.stm Bright, J. R. (1969). Some management lessons from technological innovation research. Long Range Planning, 2(1), 36-41. Chell, E. (2001). Entrepreneurship: Globalisation, innovation and development. International Journal of Entrepreneurial Behaviour Research, 7(5), 206-206. Clarke, P. (2004, May 11). Google-eyed. BRW (Business Review Weekly) News. Cooper, R. J. (1998). A multidimensional approach to the adoption of innovation. Management Decision, 36(8), 493-502. Cornwall, R. J., & Perlman, B. (1990). Organizational entrepreneurship. Boston: Irwin. Dell. (2004a, February 12). Dell and Oracle expand strategic alliance to provide the industry-leading enterprise database, pre-installed on Dell servers. Retrieved May 22, 2005, from http://www.dell.com Dell. (2004b, February 12). Dell posts record operating results in fiscal fourth quarter. Retrieved May 22, 2005, from http://www.dell.com Doyle, T. C. (2003, October 13). Top 10 things you need to know: Highlights and insights from the 2003 annual report card. VARbusiness, p. 76. Drucker, P. F. (1994). Innovation and entrepreneurship: Practice and principles. London: Heinemann. Garland, J. W., Hoy, F., Boulton, W. R., & Garand, J. C. (1984). Differentiating entrepreneurs from small business owners: A conceptualisation. Academy of Management Review, 9(2), 354-359. Google. (2004). Google corporate information: Ten things. Retrieved May 22, 2005, from http://www.google.com/corporate/tenthings.html
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Green, S., Gavin, M., & Aiman-Smith, L. (1995). Assessing a multidimensional measure of radical technological innovation. IEEE Transactions on Engineering Management, 42(3), 203-214. Grupp, H. (2001). Managing new product development and innovation: A microeconomic toolbox. Cheltenham: Edward Elgar. Hamm, S. (2003, March 10). Startups may die, but not their bright ideas. Business Week, 52-53. Harrison, C. (2004, May 11). Dell lets other firms worry about research and development. Knight Ridder Tribune Business News, p. 1. Herbig, P., Golden, E. J., & Dunphy, A. (1994). The relationship of structure to entrepreneurial and innovative success. Marketing Intelligence & Planning, 12(9), 37-48. Hof, R. D. (2003, August 25). The eBay economy. Business Week, p. 89. Johnson, D. (2001). What is innovation and entrepreneurship? Lessons for large organizations. Industrial and Commercial Training, 33(4), 135140 Kanungo, R. N. (1999). Entrepreneurship and innovation: Models for development. London: Sage. Karpinski, R. (2001). Dell singles out public e-hub for procurement: PartMiner will aid computer giant’s sourcing. B to B, 86(2), 4-6. Katila, R. (2002). Measuring innovation performance. In A. Neely (Ed.), Business performance measurement: Theory and practice (pp. 304318). Cambridge, MA: Cambridge University Press. Lacy, S. (2003). Dell partners with Good on wireless product. Silicon Valley/ San Jose Business Journal, 20(51), 5. Legge, J., & Hindle, K. (1997). Entrepreneurship: How innovators create the future. Melbourne: MacMillan. Lumpkin, G. T., & Dess, G. G. (1996). Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review, 21(1), 135-172. Magretta, J. (1998). The power of virtual integration: An interview with Dell Computer’s Michael Dell. Harvard Business Review, 76(2), 72-85. Martin, L. M. (2004). E-innovation: Internet impacts on small UK hospitality firms. International Journal of Contemporary Hospitality Management, 16(2), 82-90.
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Mellahi, K., & Johnson, M. (2000). Does it pay to be a first mover in ecommerce? The case of Amazon.com. Management Decision, 38(7), 445-452. Miller, D. (1983). The correlates of entrepreneurship in three types of firms. Management Science, 29, 770-791. Miller, W., & Morris, L. (1999). Fourth generation R&D: Managing knowledge, technology, and innovation. Chichester, UK: John Wiley & Sons. Naman, J. L., & Slevin, D. P. (1993). Entrepreneurship and the concept of fit: A model and empirical tests. Strategic Management Journal, 14, 137154. Robbins, S. P., Bergman, R., Stagg, I., & Coulter, M. (2000). Management. Sydney: Pearson Education. Schumpeter, J. (1961). The theory of economic development. (Original work published 1934). New York: Transaction Publishers. Slevin, D. P., & Covin, J. G. (1990). Juggling entrepreneurial style and organizational structure: How to get your act together. Sloan Management Review, 43-53. Steinberg, A. (2003). The re-definition of expert knowledge in e-entrepreneurship: A study on the sense-making of success and decisionmaking amongst e-entrepreneurs in the wake of the dotcom crash. London: London School of Economics. Steinberg, A. (2004). Entrepreneurship and success in e-business: On changing meanings of expertise and community in e-entrepreneurship. London: London School of Economics and Political Science. Retrieved May 22, 2005, from http://www.mariecurie.org/annals/ volume3/steinberg.pdf Steward, W. H., Watson, W. E., Garland, J. C., & Garland, J. W. (1998). A proclivity for entrepreneurship: A comparison of entrepreneurs, small business owners, and corporate managers. Journal of Business Venturing, 14(2), 189-214. Stoneman, P. (1995). Handbook of the economics of innovation and technological change. Oxford: Blackwell. Sundbo, J. (1998). The theory of innovation: Entrepreneurs, technology and strategy. Northampton, MA: Edward Elgar.
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Sun Microsystems. (2000). Palm, Inc., Sun Microsystems and iPlanet plan to develop end-to-end enterprise wireless solution. Retrieved May 22, 2005, from http://www.sun.com/smi/Press/sunflash/2000-2/ sunflash.20000229.2html Winston, P. (2003, November 3). Cybersettle Inc. www.cybersettle.com. Business Insurance, 37(44), 12. Wood, D. B. (2004, August 23). Google’s debut in the stock markets sends a mixed signal; a weaker-than-expected pre-market auction, followed by two brisk days of trading, tell a tale of tech IPO market. Christian Science Monitor, p. 2. Zahra, S. A., & Covin, J. G. (1995). Contextual influences on the corporate entrepreneurship performance relationship: A longitudinal analysis. Journal of Business Venturing, 10(1), 43-58. Zahra, S. A., Kuratko, D. F., & Jennings, D. F. (1999). Guest editorial: Entrepreneurship and the acquisition of dynamic organisational capabilities. Entrepreneurship Theory and Practice, 23(3), 5-10. Zhao, F. (2004). Exploring the synergy between entrepreneurship and innovation. International Journal of Entrepreneurial Behaviour and Research, 10(5).
Endnote *
The case studies drew heavily on interviews with senior managers of the case companies which were conducted in 2004 primarily for the present study. Due to confidentiality reasons, some of the companies cannot be named in this book.
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Chapter VIII
A Balanced Scorecard Approach to Monitoring and Evaluating E-Partnerships
Introduction: Significance of Performance Measurement The ongoing success of e-partnership requires the constant monitoring and measuring of its progress and outcomes. Many companies rushed into epartnerships in order to exploit complementary resources that they lacked but knew little about how to make their partnerships work and how to effectively monitor and measure its performance. Even today, many partnerships are left to drift without a system in place to assess the quality of partnerships. So, how can the productivity and health of a partnership be monitored and measured? The biggest challenge relating to performance measurement for e-partnerships is that e-partners are often independent business firms and legal entities with different stakeholders and different business objectives and goals. In the supply Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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chain, for example, one firm can rarely control the entire supply chain’s performance. However, performance measures that can be extended across firm boundaries and processes are needed to measure inter-organizational epartnerships. The uncertainty and intangibility of e-business and information technology add more complexity and challenges to the measurement of epartnership performance. Looking at the current literature, it is not hard to find that the development and implementation of performance measurement systems for inter-firm collaboration is still in its infancy. Overall, traditional performance measures do not focus on key inter-firm activities to monitor extended enterprise performance. This chapter reviews and discusses various concepts, models and issues of performance measurement. On the basis of that, the chapter proposes, by taking a balanced scorecard approach, a new set of performance metrics for managers to assess the process and outcome of e-partnerships in a comprehensive manner. The chapter will also help e-partners to benchmark against best practices and determine future direction and priorities in their e-business partnerships.
Basic System and Process of Performance Measurement To ensure a healthy and productive inter-firm partnership, performance measurement should be integrated into the management of both internal business and inter-firm interfaces. This requires a performance measurement system in place and a corresponding process. The system may include formal procedures and information-based routines that a company uses to measure systematically how well it has performed and to what extent its partnership strategy and goals have been achieved. The process should contain three main phases: (1) developing business partnership objectives in alignment with a company’s overall strategy, (2) translating the objectives into key performance indicators developed on the basis of critical success factors in the achievement of the objectives and (3) implementing the performance measurement. Partners’ involvement in the entire process is crucial to the effectiveness and success of performance measurement. The development of business partnership objectives should take into account both the strategic and operational
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objectives of a company and those of its partners. The overall objective of an organization is determined by the primary need of its key stakeholders who are usually customers, investors, suppliers and employees. In other words, creating and delivering value to the stakeholders is the pillar of the objective. The second phase concerns designing performance measures, which should result in a balanced set of measures corresponding to the business partnership objectives agreed on by partners at phase one. The development of the performance measures in the form of key performance indicators should be undertaken after defining key success factors in achieving the objectives. The basic questions asked in designing the measures should include what the measure is, how it is calculated and analyzed, and why it is being measured. The performance measures should be tested, reviewed and improved after the initial formation to enhance their feasibility and quality. The last phase is the most challenging one because the developed and improved performance measures will be applied to the evaluation of e-partnership process and outcomes. The impact of measurement on partnership performance can be positive if the measures are effective and are implemented appropriately, leading to improvement of performance. In addition, metrics for tracking and measuring the performance of the partnership should be implemented at both field level and corporate level to gain a complete scenario of how a company is interacting with its partners.
Supply Chain Performance Measurement A review of the current literature indicates that performance measurement research has focused more on intra-organizations rather than on inter-organizations (Ackermann, 2003; Rounthwaite & Shell, 1995; Rura-Polley & Clegg, 1998). Performance management of inter-organizational partnerships is a relatively new art, and most of the work in this regard has been done in a supply chain context (Ellram & Feitzinger, 1997). As supply chain management involves the networking and integration of processes across functional, geographical and organizational interfaces, the research on performance measurement in the supply chain sheds light on performance measurement of inter-firm partnerships in e-business. Furthermore, as many e-partnerships operate in the
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supply chain, including e-supply chain, the extant studies in supply chain performance measurement are also relevant to e-partnership performance measurement. It has been suggested that many supply chain failures have resulted from a lack of information sharing capabilities and a lack of cooperation and trust between supply chain partners. Moreover, the lack of an appropriate performance measurement system for monitoring partnership in the supply chain is also to blame (Ackermann, 2003). Some researchers maintain that an integrated approach is needed to measure the cross-functional areas and the entire process of the supply chain. In today’s trend of globalization, control of the supply chain is no longer based on ownership only but rather on networking across interfaces. So, performance of the supply chain becomes even harder to measure; therefore, traditional measurement approaches where there are no measures addressing a combination of integrated (supply chain-wide) and nonintegrated (internally-focused) measures need to be replaced (van Hoek, 1998). There are largely two approaches to supply chain measurement. One is overall measurement that, as the name suggests, measures overall performance of a supply chain in a holistic way, including various layers of supply chain, for example, the OEM (original equipment manufacturer), the first tier supply and the second tier supplier or the third, if applicable. As such, the Supply Chain Council (SCC) designed supply chain operations reference (SCOR) metrics using such an approach (see more detail in the next section). Metrics such as total supply chain sales, shipments, stock-out, success of promotions, service call resolution, invoicing and payments, and ease of doing business are some examples of the supply chain measurement. The second approach is partial measurement which only measures certain aspects of supply chain performance. However, as today’s supply chain processes often run across functional, geographical and organizational interfaces, it is important to measure supply chain performance in a comprehensive and systematic way. Supply chain managers currently face five major challenges in the measurement of supply chain performance as identified by Khoo et al. (2004): (1) alignment between strategy and measurement, (2) balanced measurement, (3) effectiveness and efficiency of measurement, (4) system thinking and (5) information confidentiality and sharing. First, the alignment of performance measurement with the overall supply chain strategy ensures that the performance of every supply chain member meets the goals of the entire supply chain. It is therefore vital that supply chain members
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formulate and agree on an overall supply chain strategy. However, differences in corporate strategy, priority and objectives among supply chain members pose substantial challenges to the implementation of performance measurement. Second, a balanced performance measurement approach is necessary for effective supply chain measurement because financial measures alone are not sufficient to identify key issues and problems facing a company such as satisfaction of customers and employees, quality of products and services or responsiveness to environmental changes. A balanced approach to supply chain measurement requires a fairly complex measurement system and a comprehensive set of metrics for the entire supply chain in order to cover every aspect of the interfaces between supply chain members. The concept of the Balanced Scorecard (Kaplan & Norton, 1992) may provide such a solution and will be further discussed in the following sections of this chapter. Third, effectiveness and efficiency of performance measurement is crucial to the scorecard. It might be exaggerating to say that inappropriate performance metrics and measurement systems in the United States were partially to blame for the country’s decline in competitiveness in the early 1990s. However, the claim does raise the issue of effectiveness and efficiency in supply chain measurement. It is not uncommon to find from the current principal performance measurement literature that excessive or ineffective measures are often used by organizations, which causes failure in realizing the main benefits of performance measurement and leads to the waste of resources used for performance measurement. Therefore, how to define an appropriate number of metrics and what metrics should be used remain another significant challenge for performance measurement. Fourth, system thinking is a concept that reviews the supply chain as one whole entity. For instance, the overall measurement approach discussed previously is a good example of system thinking. By system thinking, the overall performance of the entire supply chain is examined, rather than one layer or one aspect of the supply chain. The problem of local optimization can be avoided (Khoo et al., 2004). Finally, information confidentiality and sharing remains critical for supply chain management and performance measurement as the measurement relies heavily on information and data collected from supply chain members. Accurate and genuine information and data helps identify strengths, weaknesses and problems in the supply chain. However, many companies have concerns about the possibility of misuse of the confidential company information; therefore, Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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information confidentiality and sharing will always be an important and tough issue in inter-firm partnerships. To resolve the key issues discussed, Khoo et al. (2004) proposed a supply chain scorecard to measure supply chain performance in the car industry which is balanced, embodies system thinking and aligns with overall supply chain strategy. The scorecard consists of four measurement categories: synchronization measures; responsiveness measures; reliability measures; and cost measures. The synchronization measures focus on a synchronization index and the bullwhip measure to assess the synchronization level. The responsiveness measures include supply chain cycle times, pipeline inventory and value adding ratio, while reliability is measured by the number of stock-out incidents and backorders. The cost measures include the supply chain transportation costs and the total inventory costs. The scorecard was designed to address the key operational and tactical issues of the supply chain in the car industry, by measuring the overall performance of the entire supply chain including that of first, second and third tier suppliers. However, the scorecard is not comprehensive as it does not directly measure strategic and/or non-system aspects such as the satisfaction rates of customers, employees and supply chain partners. Lack of practical and action-oriented research in the area calls for the attention of researchers to make more efforts in the development of metrics in the supply chain. The remaining sections of the chapter present a comprehensive discussion of issues relating to performance measurement within inter-firm partnerships, including e-partnerships.
SCOR Model E-partnership is often embedded in the e-business process of the supply chain and specifically in the interactions between supply chain members. It is important to understand the role that SCOR can play in monitoring the performance of supply chain partnerships and generating value to e-business process networks. The supply chain operations reference (SCOR) model has been developed and endorsed by the Supply Chain Council, an independent not-for-profit organization in the United States. The SCOR is a business process reference model which is so comprehensive that it actually covers all customer interactions from order entry through to paid invoice; all product
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transactions, including equipment, suppliers, spare parts, bulk product and software; and all market interaction from the understanding of the aggregate demand to the fulfillment of each order. As such, the process reference model provides a language for communicating among supply chain partners (SCC, 2004). Moreover, SCOR contains a methodology that helps companies improve their supply chains through the following procedures: 1. 2. 3. 4.
Analyzing the basis of competition; Configuring the supply chain; Aligning performance levels, practices and systems; and Producing a plan for supply chain improvement backed up with projected return on investment (Kirchmer, 2004).
The SCOR model is not only a standard language for effective communication among supply chain partners but also can be used to describe, measure and evaluate supply chain performance and support continuous improvement and strategic planning. The performance metrics in the SCOR model focus on customer-facing metrics, including reliability, responsiveness and flexibility, and internal-facing metrics, including cost and assets. The key performance indicators (KPIs) defined by the SCOR model are: • • • • • • • • • • •
Delivery performance; Fill rate; Perfect order fulfillment; Order fulfillment lead time; Supply chain response time; Production flexibility; Supply chain management cost; Cost of goods sold; Value-added productivity; Warranty cost or returns processing cost; Cash-to-cash cycle time;
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• •
Inventory days of supply; and Asset turns (SCC, 2004).
These KPIs measure the overall supply chain performance and are outcomeoriented. If implemented properly, they can help management to focus on key issues and identify problems in the supply chain. However, critically, the KPIs do not touch on a number of important elements of supply chain performance such as information sharing and quality of supply chain partnership.
Various Issues and Elements Affecting Partnership Measurement A review of the literature regarding inter-firm partnerships has found that empirical research has focused mostly on the identification of benefits and advantages of the partnerships rather than the attributes of partnership itself. A general vagueness exists over measures of partnerships because the measures should mirror the attributes and reflect the extent of closeness to the attributes. Traditionally, three metrics have been widely used to measure buyer-supplier partnerships: price (unit price), delivery (speed of delivery) and quality (conformance with national or international quality standards). These classical measures provide managers with straightforward and basic indicators of partners’ performance. They are important and serve as essential criteria for traditional purchasing and the selection of supplier partners. However, in today’s complex and volatile business operational environment, traditional performance measures are insufficient in addressing the considerable complexity of partnering activities. A more comprehensive set of metrics are needed, which include measures for the strategic and technological capabilities of potential suppliers to contribute to new product development and product design, flexibility, guarantees, technical support, financial stability and environmental sustainability. Trust, commitment and mutual dependency are also important factors that have been frequently emphasized by the partnership literature, although the extent of requirement for them varies in terms of the nature of partnerships and business activities. Lemke et al.’s study shows that personal business relationship developed on a personal level is also one of the top ranked attributes to an effective partnership (Lemke, Goffin, &
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Szwejczewski, 2003). As partnerships between organizations are often mediated by individuals, social relationship becomes the important glue for interorganizational partnerships. Therefore, partnership metrics should take into account all the above attributes. The degree of importance of the key partnership attributes discussed may of course vary considerably for partners from different ethical cultures. As a result, the metrics developed from the attributes cannot be universal. Gill and Butler (2003) conducted an empirical study of cross-cultural alliances and found that there was a significant difference between managers from different cultural background in their perception of what constituted critical factors affecting the stability of partnerships. For instance, the Japanese and Chinese Malaysian managers viewed trust as a critical factor. A breakdown in trust and personal relations was more likely to end a partnership. For the British managers, however, financial and strategic dependencies were the critical factors. Cultural differences should therefore be considered in the formulation and implementation of performance metrics for inter-firm partnerships. Moreover, different cultures and perceptions in different industry sectors exist that may affect the values, criteria and standards in judging the performance and productivity of their partnering activities. Given the diversity and innovativeness of e-partnerships, it may be even more difficult to establish performance measures acceptable by all parties and applicable to specific situations. It is sad to see that some organizations that introduce new e-business and epartnering strategies and innovative operational processes continue to use the old and traditional measures without questioning their relevance to the new initiatives. Financial measures should not be the only leading indicators of business performance. Return on investment (ROI) as an essential metric is still useful to e-partnership. However, it is not wholly sufficient. Other metrics should be adopted such as image development, market recognition and opportunities targeted as a result of e-partnering (Fox, 1999). Moreover, customer satisfaction, innovation, market share and the like complement financial indicators and are better metrics that reflect the economic health and growth prospect of an organization (Eccles, 1998). Thus, non-financial performance measurement is increasingly important to the competitiveness and sustainability of an organization in today’s business environment. Employee satisfaction and management satisfaction are also effective non-financial measures for partnerships. Employee satisfaction is a general indicator of employees’ overall perception of their organization’s performance relevant to their work and life. Employee satisfaction affects employee turnover and their
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productivity. Satisfied employees are likely to commit to partnerships in a positive way to help achieve the goals of partnership. Management satisfaction, on the other hand, reflects the perception of the top management on the performance of inter-organizational partnerships such as the relationship with other partners and joint problem-solving ability. Employee and management satisfaction derived from favorable outcomes of their organizational partnerships with others are likely to beget more commitment to the partnership. Equally, the increased level of commitment of employees and management will further enhance their satisfaction (Cheng et al., 2004). Furthermore, partner satisfaction and contribution should be a central theme of performance measurement for e-partnerships. Marr and Neely (2002) conducted an empirical study to investigate the usage and requirements of business performance measurement in various types of companies. They included 75 companies in the UK, of which 25 were brick-and-mortar, 25 were clicks-and-mortar and 25 were dotcoms, in the study. Companies that did not generate any revenue through the Internet were classified as brick-andmortar companies and those that generated more than 10%, but less than 80%, of their revenue from the Internet as clicks-and-mortar. Companies that generated over 80% revenue from the Internet were categorized as dotcoms. The findings showed that more than 70% of companies surveyed did not measure business partner satisfaction. Based upon the study, dotcoms had a stronger need to form alliances and enter partnerships than other types of companies because they operated in cyberspace and needed partners to deliver and generate demand. The findings of Marr and Neely also indicated that there was a significant gap between what dotcoms wanted and what they actually measured. When asked if the companies surveyed should measure business partner satisfaction, there were significantly more dotcoms (85%) who felt they should measure partner satisfaction, compared to 63% of clicksand-mortar and 67% of brick-and-mortar. The findings indicated both the problems with, and the importance of, partner satisfaction performance measurement. Given the special features and complexity of inter-organizational partnerships, priority should be given to the most crucial factors affecting both short- and long-term effectiveness and efficiency of the partnership in developing key performance indicators (KPIs). As KPIs are measures of an organization’s performance in key areas of its operational life, they should be directly linked to the strategic and operational goals that an organization determines to achieve in both the long- and short-term. They should reflect what is crucial to the
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success of an organization (Tovey, 2001). As a result of the enormous pressure for efficiency and effectiveness on all types of organizations in both public and private sectors, KPIs have been widely accepted and employed by managers to help organizations use resources to their fullest capacity. Thus, effective KPIs should be able to drive the desired values and behaviors of participating organizations to achieve their common business goals. As shown previously, performance measurement is a vital management tool which has evolved in response to business environmental changes and the varying needs of supply chain management. In the context of the new e-business landscape and e-partnerships, particular performance measures are required to address their complexity and dynamics discussed throughout the book. As e-partnerships often operate worldwide, crossing boundaries of functions and organizations, metrics for e-partnerships should be balanced and comprehensive, comprising both technology-related measures and human and cultural measures. A balanced approach is required to define and develop KPIs that include both financial and operational measures and are both process and result focused.
A Balanced Scorecard for E-Partnerships The concept of the balanced scorecard (BSC) was created and introduced by Kaplan and Norton (1992) more than a decade ago. The BSC aims to provide a clear picture of the overall performance of a company in a single snapshot. In the knowledge-based economy, competitive advantage lies in an organization’s intangible assets which include core competency; knowledge and skills; employee motivation; information technologies and databases; efficient and responsive operating processes; innovation in products and services; customer loyalty and relationships; and political, regulatory and societal approval (Kaplan, 2001). Financial measurements are however unlikely to capture the value-creating activities from an organization’s intangible assets. The BSC combines four different perspectives — financial, customer, internal business processes and innovation and learning — of enterprise performance rather than emphasizing one perspective at the expense of the others. In other words, the BSC intends to evaluate the company’s performance in a more balanced, comprehensive and holistic way. The underlying Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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assumption is that there are inherit synergies between financial measures and non-financial measures. For example, customer satisfaction, as a non-financial measure, contributes significantly to the long-term profitability of a company. Therefore, improvements made on non-financial measures will positively impact on the financial results of a company. The BSC requires that all measures are linked and applicable to top management as well as shop floor workers. A strong advantage of the BSC is that it presents a clear view of a company’s strategic plan and the links between all strategic objectives developed from the four perspectives. The value of the BSC has been widely recognized by many companies. However, the BSC requires the definition and formulation of a chain of scorecards throughout a company, and some have experienced difficulties in implementing this principle at the lower levels of the company, especially in areas where performance is more qualitative than quantitative (Cochran & Duda, 2001). Another important development of the BSC concept is a shift from focusing on measurement itself to aligning performance measurement with an organization’s vision and strategy (Kaplan, 2001). However, the BSC was designed for measuring various aspects of performance inside an organization only. Research efforts have been made to tackle the complexity of applying the concept of BSC to inter-firm supply chains. For example, Brewer and Speh (2000) proposed a conceptual framework for the use of BSC for supply chain management which incorporated integrated measures from each of the perspectives of the BSC but also included inter-functional and partnership perspectives, thus linking the BSC to supply chain performance. The basic principles underlining supply chain performance measurement were (1) measuring overall supply chain performance rather than only the performance of the individual chain member, (2) continual improvement of end-customer service being the central and overriding focus and (3) allowing managers not only to identify but also to eliminate causes of supply chain operational problems through the exercise of performance measurement (Handfield & Nichols, 1999 cited in Schmitz & Platts, 2002). Ackermann (2003) also tried to modify the BSC in order that it could be applied in the context of supply chain management. His proposed supply chain balanced scorecard consists of four perspectives which are consistent with Kaplan and Norton’s BSC, as follows: 1.
Financial perspective: Case-to-cash cycle is a critical supply chain performance indicator because it measures the effectiveness and efficiency of product and information flows among supply chain partners.
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3.
4.
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Customer perspective: Suggested measures include the number of customer contact points, the relative customer order response time and the customer value ratio. (Internal and) process perspective: It is crucial that optimization of intra-organizational processes is expanded to the entire supply chain. The processes of information flow, financial resource flow and product and service flow must be achieved. Internal process measures include the cost of supply chain ownership and efficiency of the supply chain cycle. Learning and growth perspective: Suggested measures include the number of shared data sets and the product finalization point.
However, the development of inter-firm performance measurement system is still in its infancy, and much research is needed to provide empirical evidence about the effectiveness of these metrics for supply chain partnering performance. While little research has been published regarding performance measurement for e-partnerships, the basic concepts and guiding principles of BSC and the research regarding performance measurement for the supply chain have helped this author shape a framework of a balanced scorecard for e-partnerships comprising four fundamental perspectives. 1.
2. 3.
Financial perspective: Refers to financial revenue and costs, cash-tocash cycle time (e.g., time spent on converting a dollar spent on raw materials into a dollar gained from finished product along the supply chain), return on assets, profit margins, improved cash flows and so forth; Partnership perspective: Refers to resource commitment, trust and communications; Customer perspective: Refers to either buyer or supplier perspective in a trading partnership: a.
b.
Buyer (trading partner or customer) perspective: Measures include order fulfillment, delivery performance, price and quality of products and/or services; Supplier perspective: Measures include number and quality of orders, inventory level, supply base, satisfaction rate and technical assistance; and
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4.
Innovation and learning perspective: Referring to staff development, R&D investment, new product development and so forth.
Based upon these four overarching perspectives and the discussion of the literature in this chapter, the following framework (Table 1) is proposed for a balanced scorecard for evaluating the performance of e-partnerships: While the complexity of e-partnership requires a fairly complex measurement system and a comprehensive set of metrics, the KPIs chosen must be easy to use, manageable and discernable in real-time given the nature of electronic partnership. Metrics that are hard to measure and totally qualitative will ultimately be obsolete in the demanding and rapid pace of the e-world.
Benchmarking and Best Practices in Partnerships Benchmarking and the search for best practice has become a significant global trend within business management over the past decade. As Camp (1998) said, “Once the organization understands what the benchmark data reveal about where it stands and what the magnitude of the gap is, then the resulting intense interest is identifying what the best practices are that will close the gap” (p. 1). A review of the current literature finds that most of the publications on best practice in business have adopted a quality management approach using the European Business Excellence Model and the like (Camp, 1998; Davies, 2000; EFQM, 1996; Mann, Adebajo, & Kehoe, 1999; Nath & Mirinalini, 2000). The model assesses how an organization manages its business in terms of leadership, people management, policy and strategy, processes, resources, people satisfaction, customer satisfaction, impact on society and business results. Based upon the model, many benchmarking tools have been developed to enable organizations to build on their strengths and address their weaknesses by benchmarking against their peer industries. The International Business Profile Benchmarking Index (IBPBI) is one of the many tools developed for the purpose, enabling companies to improve their competitiveness by evaluating their performance in key areas in relation to other companies in their sector or region. It is a simple, computer-based system that, through a series of questions, allows companies to measure their performance
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Table 1. A balanced scorecard for e-partnerships Critical Success Factor Collaboration and Integration
KPIs* (Example) § § § §
Co mmit ment
§ §
Co mmunicat ion Sharing
§ § § §
Core Co mpetencies
§ §
Trust
§ §
Profitability/ Economic Value Added (EVA)**
§ § § § § § §
Productivity
Market Share
§
Corporate Social Responsibility and Business Ethics
§
Emp loyee attitude
§ § § § § §
Innovation and Improvement Overall customer service level
§
The degree of key business process synchronization and complementation across the e-supply chain Co mpatibility of software and IT systems that span the chain Consistency of partner selection processes across the chain Collaboration in developing business plan, goals and objectives, etc. Management commit ment to strategic e-partnerships Time and nature of contribution by partners (e.g., cash contribution and/or in-kind contribution, human resource contribution, personal commit ment of participants, etc.) Effectiveness of the communication network Frequency, openness/honesty in commun ication Mode and nature of commun ications between partners Frequency, amount and type of info/data exchanges between partners Sharing of physical infrastructure and/or e-infrastructure Ability to acquire and leverage the core competencies of each partner Actual trust between partners Frequency of meet ing one’s expectation about another party’s behavior and/or having confidence in another party Profit marg ins realized fro m collaborative projects Cash-to-cash cycle time across the e-supply chain Equitable d ivision of profits across the chain Total return on assets across the chain Adherence to pre-agreed objectives Projects that meet all defined milestones Nu mber/percentage of collaborative projects finished within t ime and budget Percentage of market share obtained through partnerships Speed and nature of partner’s responsiveness to environmental issues Level of co mpliance with business codes of conduct (ethics) Emp loyee turnover rate Emp loyee satisfaction Nu mber of new init iatives for improvement introduced Nu mber and scale of new product/service development Nu mber and hours of staff participating in skill training Customer/client satisfaction rate
*The order of the KPIs in the Table is not subject to importance ranking. The author considers that a holistic and balanced view should be taken in introducing the KPIs for partnerships. ** EVA is calculated thus: EVA = profit – cost of capital where profit = sales – operating expenses.
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against others in various aspects of finance, business excellence and management. The IBPBI is a service designed to raise awareness and encourage greater use of benchmarking by small companies while bringing high quality benchmarking information within easy reach of SMEs (Dalrymple, 2001). As far as e-business partnership is concerned, there is a need for a benchmarking and best practice assessment tool which incorporates the key principles of the EFQM Business Excellence Model to address the specific process and context of e-partnership management. In addition to the business excellence model discussed above, there are specific partnering best practices identified by researchers which apply, as a framework, to any kind of partnerships including e-partnerships: • •
• • • • •
Clear partnership goals are mutually identified and communicated; The due diligence process begins with an accurate assessment of partnership needs and followed by partner selection using a transparent and structured approach; A single senior management sponsor speaks for the company both before and after the partnership; Partnerships are analyzed to determine which functions should be integrated and which should remain separate; Potential conflicts among the partners’ operational functions are identified and controlled prior to partnership formation; Partners create a network of interpersonal relationships from executives through middle management; and Partnerships are managed to be seamless from the customer perspective (Chiasson, 2001).
These partnering best practices have been verified using a survey which involved 80 wireless enterprises in the United States. Most companies surveyed used some of the best practices listed above and took some sort of structured approach to determining whether a partnership was warranted, selecting the best partner and then building and managing an effective partnership. The study also found that the most commonly used best practices were a due diligence process, senor management sponsorship and clear identification of common goals. Critically, the study also indicated that there was a correlation between the implementation of partnering best practices and the success Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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of partnership and higher profit margins. “Mastering of the art of partnering is overwhelmingly tied to greater revenue and profit growth” (Chiasson, 2001, p. 4).
Online Performance Measurement Technologies Performance measurement instrumentation has been developed and used online by many organizations to support intra-organizational measurement and improvement. The Internet and other advanced information systems have increasingly become an efficient vehicle for benchmarking and other related performance improvement for organizations. The Centre for Organizational Excellence Research (COER) at Massey University in New Zealand developed an online Benchmarking and Performance Improvement Resource (BPIR), a Web site for performance measurement. The Web site collected continuously around 1,000 generic measures for member organizations to evaluate and benchmark their performance. The majority of the measures are leading and non-financial indicators. The Web site also provided other tools by which organizations are able to benchmark against peers, track industry trends and understand performance measurement through case studies and surveys of best practices provided by the Web site (Welch, 2002). The BPIR Improvement Cycle consists of a set of tools and has developed nine steps for organizations to self-assess and benchmark their performance against organizations around the world and provide an honest view of their organizations without the need for outside support or verification. The nine steps include: 1.
2. 3. 4.
Identifying or selecting an area for improvement (the areas of measurement are in line with those areas identified by the Business Excellence Model); Measuring performance (measures and commentaries are provided); Benchmarking performance (company benchmarks, competitor analysis and industry surveys and trends are provided); Identifying a relevant improvement approach or strategy (strategies, tools and techniques are provided which are developed based upon competitor analysis and industry surveys results);
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5. 6.
7.
8. 9.
Learning about implementation (expert opinion and examples of best practice in implementation are provided); Identifying best practice organizations (Business Excellence Award winners’ successful stories and other best practice case studies are provided); Researching further information (resources are provided for the research such as business periodicals, research register, forums and partner product spotlights); Implementing a best practice approach (implementation strategies, tools or techniques are provided); and Reviewing and calibrating what has been achieved through benchmarking and improvement activities (measures and commentaries are provided).
The set of tools are designed in a way by which an organization can fast-track their performance and the extent of improvement and access the world best practice databases easily and at a cyber-speed. However, the online performance measurement resource focuses on intra-organization measurement rather than inter-organizational. Nevertheless, the methodology can be contextualized to suit the needs of e-partnership performance measurement. In other words, the online technologies of measurement can be adapted for the purpose of measuring e-partnership using the KPIs in Table 1 to enhance efficiency and reduce operational costs of performance measurement. It is good to see that with the rapid development of information technologies and solutions some IT companies have already succeeded in creating online supply chain-wide metric technologies to measure supply chain partnership performance. The metrics most frequently chosen are fill rates, percentage of complete orders, turnaround time, order level costing, forecast accuracy, customer service level and stock levels at each site. The measurement outcomes can be used by the system to benchmark against best practices in the industry and can also be used to alert supply chain partners to problems. Another key benefit of the metric technology is the reduction of paperwork and administrative/distribution costs (Lee & Whang, 2002). SeeCommerce, a California-based IT company, has been successful in providing supply chain performance management software and solutions. The supply chain performance management (SCPM) system designed by SeeCommerce has key functions which correlate data from throughout the supply chain, quickly
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identifying specific performance issues and exceptions, helping to understand the causes and act on the information, and helping rectify and validate the action. It is reported that large manufacturing companies have embraced the performance measurement technologies of SeeCommerce and achieved significant bottom-line results. For example, DaimlerChrysler has used SeeCommerce’s SeeChain, a suite of supply chain performance management applications, to manage its global manufacturers, distributors and over 3,000 supplier partners. It is claimed that the supply chain performance applications help managers quickly identify problems, understand them and take action in real-time to resolve them. The greatest advantage of the applications, however, lies in its increased visibility of supply chain performance from customer service through supplier partners’ performance. Since the implementation of the supply chain performance management applications, DaimlerChrysler has reportedly gained tremendous financial value, amounting to a 50:1 return on investment (SeeCommerce, 2004).
Summary Today’s managers are increasingly using the term “partnerships” to refer to their buyer-supplier relationships (Campbell, 1997). Both the Malcolm Baldridge National Quality Award and the Canada Award for Excellence use supplier partnership as one of the key criteria for quality management (Laszlo, 1997). However, research regarding partnership performance measurement in an inter-organizational context is still a relatively new art, and little empirical research has been reported in the field, although efforts have been made to tackle the complexities of managing strategic alliances and to develop alliance management skills (Daussauge & Garrentte, 1999; Sierra, 1994). The wellacknowledged Balanced Scorecard of Kaplan and Norton (1998) allows CEOs to view an organization from several perspectives simultaneously because it includes both financial measures that indicate the results of actions already taken and the operational measures that drive future financial performance of an organization. But, the BSC is still internally focused. The development of metrics that focus on individual functions and departments should be expanded to that of metrics of cross-functional and inter-organizational capabilities needed for supply chain management and e-partnerships.
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More research on performance measures is needed to enhance e-business partnership and address the considerable complexity in the management and judgment of the performance of the partnership. Given the degree of complexity when several organizations engage in collaborative business, performance measurement should address not only short-term outcomes and results but also collaborative quality processes and long-term social and environmental benefits. It is commonly recognized that successful partnerships offer many kinds of competitive advantage through the generation of added value from collaboration. Mutuality is crucial to the success of partnerships. Therefore, performance measures for partnerships should highlight the key points of mutuality such as mutual understanding through communications, mutual trust, mutual benefits, mutual evaluation and sharing. Sustainability in the competitive business environment of the twenty-first century requires that performance measures should also address issues of innovation, continuous improvement to enhance customer satisfaction and include performance measures in relation to corporate social responsibility. The present study and the KPI index developed in this chapter are one of the few attempts to tackle the complexity of the performance measurement of e-partnerships.
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Cheng, E. W. L., Li, H., Love, P. E. D., & Irani, Z. (2004). Strategic alliances: A model for establishing long-term commitment to inter-organizational relations in construction. Building and Environment, 39, 459-468. Chiasson, G. (2001, October 15). Who’s on first? Retrieved May 22, 2005, from http://www.telephonyonline.com Cochran, D., & Duda, J. (2001). Using axiomatic design to support the development of a balanced scorecard. International Journal of Business Performance Management, 3(2/3/4), 154-166. Dalrymple, J. F. (2001). Improvement through international business profile benchmarking: Case studies from Melbourne, Australia. In M. Terziovski (Ed.), Proceedings of the 5 th International and 8th National Research Conference on Quality and Innovation Management (pp. 167-181). Melbourne: The University of Melbourne Press. Daussauge, P., & Garrentte, B. (1999). Cooperative strategy. Chichester, UK: John Wiley & Sons. Davies, A. J. (2000). A framework for the selection of best practices. International Journal of Operations & Production Management, 20(10), 1203-1217. Eccles, G. R. (1998). The performance measurement manifesto. Harvard Business Review on Measuring Corporate Performance. Ellram, L. M., & Feitzinger, E. (1997). Using total profit analysis to model supply chain decisions. Journal of Cost Management, 11, 12-21. European Foundation for Quality Management (EFQM). (1996). Self-assessment guidelines for companies. Belgium: Author. Fox, R. (1999). The rules of e-business: Partnering tips for securing e-success. VARbusiness, 1520, 26. Gill, J., & Butler, R. J. (2003). Managing instability in cross-cultural alliances. Long Range Planning, 36, 543-563. Kaplan, R. S. (2001). The strategy-focused organization: How balanced scorecard companies thrive in the new business environment. Boston: Harvard Business School Press. Kaplan, S. R., & Norton, P. D. (1992, January). The balanced scorecard: Measures that drive performance. Harvard Business Review, 00, 7179.
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Kaplan, S. R., & Norton, P. D. (1998). The balanced scorecard: Measures that drive performance. Harvard Business Review on Measuring Corporate Performance. Khoo, C. W., Mondragon, A. C., Lyons, A., & Kehoe, D. (2004). Supply chain performance measurement for the automotive industry. Proceedings of Supply Chain Management and Information Systems 2004 (pp. 1-8), Hong Kong, China. Kirchmer, M. (2004). E-business process networks: Successful value chains through standards. The Journal of Enterprise Information Management, 17(1), 20-30. Laszlo, P. G. (1997). US and Canadian national quality awards: Increased emphasis on business results. The TQM Magazine, 9(5), 381-383. Lee, H. L., & Whang, S. (2002). Supply chain integration over the Internet. In J. Genunes et al. (Eds.), Supply chain management: Models, applications, and research directions (pp. 3-18). Bordrecht: Kluwer Academic. Lemke, F., Goffin, K., & Szwejczewski, W. (2003). Investigating the meaning of supplier-manufacturer partnerships: An exploratory study. International Journal of Physical Distribution & Logistics, 33(1), 12-35. Mann, R., Adebanjo, O., & Kehoe, D. (1998). Best practices in the food and drinks industry. British Food Journal, 101(3), 238-253. Marr, B., & Neely, A. (2002). Organizational performance measurement in the emerging digital age. International Journal of Business Performance Management, 3(2/3/4), 191-215. Nath, P., & Mirinalini, N. (2000). Benchmarking the best practices of noncorporate R & D organizations. Benchmarking: An International Journal, 7(2), 86-97. Rounthwaite, T., & Shell, I. (1995). Techniques designing quality partnerships. The TQM Magazine, 7(1), 54-58. Rura-Polley, T., & Clegg, R. S. (1998). Managing quality in partnerships: Challenging researchers and practitioners. Proceedings of the 3rd International and 6th National Research on Quality Management. Schmitz, J., & Platts, K. W. (2002). Supplier performance measurement indicators from a study in the automotive industry. In A. Neely, & A Walters (Eds.), Performance measurement and management: Re-
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search and action (pp. 517-524). Cranfield: Cranfield School of Management. SeeCommerce. (2004). DaimlerChrysler Corporation’s Motor Parts Group revs up supply chain velocity with SeeCommerce applications. Retrieved May 22, 2005, from http://www.seecommerce.com Sierra, M. C. D. L. (1994). Managing global alliances: Key steps for successful collaboration. Wokingham, England, UK: Addison-Wesley. Supply Chain Council (SCC). (2004). Supply chain operations reference model: Overview of SCOR version 5.0. Pittsburgh: Author. Tovey, D. M. (2001). Managing performance improvement. Sydney: Pearson Education. van Hoek, I. R. (1998). Measuring the unmeasurable: Measuring and improving performance in the supply chain. Supply Chain Management, 3(4), 187-192. Welch, S. (2002). The development of an online performance measurement resource. In A Neely, & A. Walters (Eds.), Performance measurement and management: Research and action (pp. 795-797). Cranfield: Cranfield School of Management.
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Chapter IX
The Future of E-Business and E-Partnerships
Introduction As demonstrated in this book, e-partnerships have significantly improved the efficiency of e-businesses and the supply chain. The collaboration between epartners has reduced operating costs, shortened lead time of the supply chain, enhanced customer service levels and helped eliminate transaction errors in the entire supply chain, thus adding significant value to the supply chain and other businesses. Kafka et al. (2000) predicted that in spite of the misfortunes of emarketplaces over the past few years, from an international perspective, the demand for e-marketplaces worldwide will grow steadily from US$2.5 billion in 1999 to US$15 billion in 2004. The overall improvement of economic conditions worldwide in 2003 and 2004 and the recovery of investors’ confidence in high-tech and e-business industries have refueled the growth of e-businesses, including e-marketplaces. Indeed, the public interest in Google’s IPO launched in August 2004 is an indicator of the recovery. After two days trading, Google’s share price jumped 27%, and the company’s value (around
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US$29 billion) now equals that of the Ford Motor Company. According to the projection made by Forrester Research, online sales will grow at a year-overyear pace of 19% to US$225.9 billion in 2008 in the United States. Further, the number of online shoppers will also increase significantly, and nearly 5 million new United States households will shop online every year (TechWeb News, 2003). The mega-economic environment entails a positive and promising future for e-business, although there are many challenges and hurdles that need to be surmounted. So, what will be the landscape of tomorrow’s ebusiness and e-partnership? This chapter attempts to answer this question. This chapter is bifurcated, speculating the future trends of e-business and epartnership extrapolated from current development and formulating overall conclusions based upon the research of the book.
Future Trends of E-Business As the key premise of e-partnerships lies in a thriving e-business environment, the future of e-partnership development is tightly bound with, and determined by, the future of e-business. The author speculates possible development trends in e-commerce and e-business in the near future on the basis of current development patterns, which contribute directly to the viability of e-partnerships. E-commerce and e-business practices will continue to grow. Industry analysts and renowned research groups, such as Gartner Group, have projected a strong growth in e-commerce and e-business, estimating the market will be worth US$7.3 trillion worldwide in 2004 and will continue to grow in the next few years. However, unlike some of the present examples, e-business will be more mature (rather than experimental) in nature, in terms of the scope, quality and credibility of online customer services and products. Participating in ebusiness will be part of every executive’s job in the near future. Despite its success, the recent initial public offering (IPO) of Google’s shares saw them fall below the price range set by its executives, suggesting that many investors are still very cautious about e-business in the wake of the disastrous dotcom crash in which millions of shareholders around the world were badly burned. The response to Google’s IPO indicates that the public expectation for high-tech ebusiness ROI tends to be normal now and views e-business and e-commerce as the same as other businesses. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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In terms of supply chain network integration, McCormack et al.’s study shows that most industry supply chains today have not reached the stage at which information and system integration is in place to build a supply chain network (McCormack, Johnson, & Walker, 2003). Full network integration, that is, all key business processes online and aligned within the network, will be the next step that organizations need to take to gain competitive advantage over other supply chain networks. E-supply chains or virtual supply chains will become a critical part of the future supply chain landscape. Virtual manufacturers, virtual distributors, virtual retailers and virtual service providers will dominate the virtual supply chains. E-business cybermediaries that do not need to own physical inventories or products will be a prominent force in the future supply chain. They will leverage the Internet to perform matching of products and buyers or coordinate marketing and transaction processes among network trading partners (Ross, 2003). The collaboration of e-businesses is, and will continue to be, the key to sustained business success. An e-business strategy will be ineffective without an integrated e-partnership strategy because the ability to leverage collaborative relationships becomes essential in today’s competitive e-business world. Consumer/purchaser power will dominate the e-business world and propel smaller e-businesses to bind together to provide customers with an everwidening array of products and services, real-time and rich information, and speedy and quality transactions. Moreover, collaborative e-partnerships help to streamline the product-to-market process through collaborative planning and design, improve efficiency from the channel network by reducing inventories and ultimately generate profitability. Lee and Whang (2002) maintain that the future of e-business lies in intelligence. They believe that the next trend of e-business is intelligence at the supply chain level. Intelligence refers to the capacity for processing, accessing, controlling and managing information and knowledge. If this view holds true, the implications for future e-partnership are profound, as intelligence is crucial in the selection of e-partners, information exchange among e-partners, performance measurement of outcomes of e-partnerships and the detection problems in the e-supply chain. In terms of e-marketplaces, it would appear that a trend has developed whereby the current highly successful mega-e-marketplaces, such as Amazon.com, eBay and the like, increasingly drive smaller players out of markets and limit competition, thus turning e-marketplaces into oligopolies
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(Murtaza, Gupta, & Carroll, 2004). However, the ubiquity of the Internet is and will continue to be a strong counter-force to the formation of oligopolies as there are actually no barriers to market entry in the cyber-world, and the Internet provides constant opportunities to engineer new types of trading partner relationships. Future e-marketplaces will require a whole range of quality services and products from e-business partnerships and alliances to deliver supreme value to customers. Thus, partnerships and deals based only on price will be obsolete in future e-marketplaces because price cannot be the sole criterion for selection of partners. Although the concept is as old as the manufacturing process, quality management will gain momentum in e-business management. The failure of many ebusinesses and the dotcom crash have on the whole been caused by poor quality customer services and support, problems with Web site security and technologies, and weaker change management (Janenko, 2003). The key principles of quality management will be the fundamental cornerstone to ebusiness success, including: • • • • • • • • • • • • • •
Customer focus; Continuous improvement and measurement to achieve customer satisfaction; Acquiring customer and market knowledge; Mutual respect, mutual trust and mutual benefit of all stakeholders; Consistent and precise performance to high standards in all areas of the organization; Striving for excellence through benchmarking and so forth; Measurement of quality using data and tools; Improving quality and efficiency of decision making; Better use of resources to achieve effectiveness and efficiency; Results focus; Management by facts and processes; Effective leadership and team commitment; Team building and collaboration; Valuing employees, human and intellectual capital;
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• • •
Employee training/education/development; Empowerment and involvement; and Opening channels of communication.
These familiar components of quality management undoubtedly offer an essential guide for the quality operations of e-business. It is a widespread fallacy that a good quality Web site design and a high volume of hits or traffic are good indicators of quality and will lead automatically to e-business success (Janenko, 2003; Ross, 2003). Indeed, it is this misconception that turned the “dotcom boom” into “dotcom doom”. The primary fundamental quality management constructs therefore still have appeal in current and future e-business management.
Future Trends of E-Partnerships “The world has finally become a Global Village, not just in rhetoric, but in reality” (Hennessey, 2000, p. 34). In this new millennium, it is even more difficult for businesses to survive without e-partnering or participate in the Internet economy. The fast growth of the successful e-business cases through e-partnerships and e-networks discussed in Chapters VI and VII reinforce the importance of online strategic alliances in today’s business world. Corporate e-partnerships and network-based organizations will be a crucial factor in the future success of online business activities. Corporate success will depend largely on the effectiveness and efficiency of internal processes as well as their seamless integration and alignment with e-supply chain networks and customers. The concept of e-SCM will be better embraced and employed by more companies, in particular manufacturing companies that are perhaps the slowest in terms of e-business practices. The rapid advance of Web technologies will further enhance the real-time connectivity and instantaneous visibility of the decision-making process across the entire supply chain network. E-SCM provides managers with an effective tool to develop true collaborative relationships and synchronize and unite a seamless supply chain network to maximize the profits of all supply chain members. In summary, the future trends of epartnership will be characterized by:
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•
•
•
•
•
•
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The increasing dominance of e-partnering in corporate strategy for growth and market development in e-business, given that the number of companies engaged in online trading partner collaboration initiatives is steadily increasing. The concept of selling with partners becoming an increasingly popular business model. The concept is fundamentally different from selling to partners as it emphasizes the integration of the network, and operational and strategic coordination with partners. For example, the marketing plan needs to be tuned with partners. Greater and closer electronic business-to-business integration and synchronization to address the challenge of a required seamless response to the customer and the trend of continued migration from vertical to virtually integrated enterprises (Ross, 2003). Higher level of interrelations and cooperation between partners to the extent that the interrelation in the network is so high that all partners make investments to ensure the functionality of the network. Longtime commitment to partners increases the flexibility inside the network and decreases the incentive to leave the network. Higher level of integration of communication systems to enable interactive, multiple and continuous communication between e-partners by means of portals and communities. Continued expansion to global markets which will push more international dotcoms to form strategic alliances in e-business. Yahoo!, Google, eBay and E*trade provide good examples of global expansion using alliances with local e-businesses worldwide for smaller players who will follow the trend to go global. More emphasis on networking with the dual objectives of finding a market niche and building clusters of e-partnerships around one’s business, which will allow smaller companies to bid for bigger and more complex ebusiness projects than they otherwise would. Greater need for devising and popularizing e-supply chains and webs of channel partners due to the requirement for integrating the flow of information with the flow of goods (van Hoek, 1998). Future market leadership tending to be based heavily upon seamless coalitions of partners that leverage the core competency of each other to achieve the agility and critical mass necessary for competitive advantage.
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•
•
• • •
Less exclusivity in e-partnership structure and contracts because of the fast-moving e-business environment which requires flexibility and creativity to deal with the increasing bargaining power of various partners. Greater monopoly of the flow of e-commerce and e-business by online syndicates such as Amazon.com through building extensive online alliances with online retailers and suppliers. Greater reliance on joint efforts across nations in online legislation to protect IP, security and privacy of e-commerce and e-business. A shift in competition from competing among individual companies to that between supply chain networks or trading partner networks. Greater challenges for dotcom industries to achieve sustainability due to a more uncertain economic environment and the increasing complexities of new technologies and a more globalized economy.
Overall Conclusions The concept of e-partnership is still in its formative stage. Although there is increasingly more overlap between conventional partnership and e-partnership, the latter operates in the e-business environment, which is more volatile and much less predictable than that of conventional business. More empirical and theoretical research is needed to tackle the management and technology complexities of e-partnership. The author strongly believes that e-partnership represents the future of e-business, which no organization can afford to ignore. In order to reap the real benefits of collaborative relationships, companies must undertake complete paradigm shifts. In the first instance, companies must undertake a focus shift from inward and vertical thinking to outward, horizontal, virtual and system-wide thinking. As no company can compete and win on its own in today’s and tomorrow’s marketplaces, companies that rely on business strategies and activities that focus on internal process and/or dependence on their own industry sector are doomed to fail. Inward focused management models and closed business systems result in a narrow range of products and customer services, mass production with little customer configuration and less agility and flexibility of organizations, which inevitably leads to a loss in competitiveness. The “proprietary, linear supply chain systems of the past simply cannot provide the
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bandwidth necessary to enable the new world of electronic marketplaces and the explosion in products, dotcom cybermediaries, and facilitators, the way the Internet can and the world of e-business demands” (Ross, 2003, p. 68). Second, successful e-partnership is embedded in a financially viable e-business model. A good e-partnership is a means but not an end. It is futile if the ebusiness does not make money. For example, Garden.com, an e-commerce Web site for gardeners, was an ideal site for customers and partners. Its Web site was well-designed and interactive, providing sufficient information for planning gardens in different climates in the United States and personalized services including e-mail reminders with tips on cultivating a dream garden, but its business model did not work well. Garden.com had lost US$75 million since its launch in 1995 and was forced to close down in 2001 (Mullaney, 2001). A sound e-business model is the foundation for e-partnership, and it is only by developing a financially sustainable e-business model that the great potential of benefits from e-partnership can be maximized Third, there should be a fundamental shift from conventional ways of building business relationships with partners to innovative approaches to developing and managing e-partnerships. As illustrated in Chapter I of the book, the ubiquity of the Internet provides a wide range of opportunities for innovative approaches to the design, structure, form and even nature of inter-firm partnerships. Innovative and breakthrough modes of management of multiple supply chain networks with multiple levels of e-partnerships will become the future trend of e-business and supply chain management. Fourth, companies need to develop and foster an e-partnership culture and mentality internally and externally. Partnership should be an ongoing working agenda and requires sufficient resources and management attention including monitoring its progress. Vantage Partners in the United States conducted a 3year study of 130 companies which involved interviews of more than 150 alliance managers in the United States. The study found that inter-firm partnership failures were largely caused by a breakdown in trust, accumulation of partisan perceptions, suspicion of each other’s motives, festering conflicts and strong feelings of disrespect and coercion. Sixty-four percent of respondents believed that poor or damaged relationships between partners was the foremost cause of partnership failure, while 30% of them said that poor strategy and business planning were the key causes. Only 6% of respondents viewed bad legal and financial terms and conditions as the main reason for the failure (Ertel, Weiss, & Laura, 2001), indicating the importance of relationship management and building an e-partnership culture across organizations. Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Finally, supply chain-wide and/or network-wide performance measurement systems and management methodologies need to be a key agenda of companies and partnerships to accommodate the trend of extended enterprises. The performance measurement and management systems should be automated and synchronized, allowing real-time visibility and transparency across partnering organizations. For instance, GlobalNetXchange (GNX) provides global B2B retailers not only with an online open exchange platform but also with a comprehensive suite of supply chain e-business collaboration software and solutions, including GNX Supplier Performance Management. This tool enables an automated and collaborative process for managing supplier relationships. The key features include the use of a standard definition of KPIs to produce performance reports and standard processes that can be applied across trading partners simultaneously. It is reported that large global retailers, such as Carrefour, Sears and Coles Myer, have improved their supplier service levels by 10% to 30% by using the supplier performance management tool (GNX, 2004). However, many issues remain unanswered within the area of performance measurement. For example, the standardization and centralization of performance measurement and systems may not be able to accurately monitor every aspect of performance given the diversity of the global context and suppliers. Moreover, supplier partnerships are only one form of epartnerships as defined in Chapter I. Different measurement methodologies and performance measurement systems are required for various types of epartnerships. Nevertheless, the future of performance measurement and management will be a technology-intensive and collaborative process between epartners. This book offers a broad perspective on the motivation and formation of epartnership, its typology, strategy, structure, governance, management and performance measurement. It also examines the impact of e-business innovation and entrepreneurship on the process and outcomes of e-partnership, imparting new perspectives in understanding and appreciating the crucial role of innovation and entrepreneurship in driving and managing e-business and epartnership. In addition, this book opens up a new field of future research in the area by identifying additional research needs which might be addressed through theoretical and empirical research. The very newness of inter-firm e-partnerships is fertile ground for rich and thorough applied and explorative research. Future research could focus on:
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The complex, dynamic (opportunistic and unstable) and sophisticated structures (often with confusing nomenclature) under which e-partnerships operate; The specific nature and characteristics of the operations of each typology of e-partnerships in different industry sectors and in different country settings; The impact of specific e-business technological innovations on specific functional areas of e-partnering interfaces and/or e-supply chains; The effectiveness of the current technological trend of “one size fits all” ebusiness solutions built on “industry best practices” for inter-firm partnerships; Identification of the e-business networks and relationships that are most likely to change and how they change, and; Investigation of the projected differences in developing e-partnerships between developing and developed countries, in terms of business nature, size, typology, dimension, governance structure and management, international regulations and so forth.
References Ertel, D., Weiss, J., & Laura, J. (2001). Managing alliance relationships: Ten key corporate capabilities. Boston: Vantage Partners. GlobalNetXchange (GNX). (2004). GNX supplier performance management. Retrieved May 22, 2005, from http://www.gnx.com Hennessey, A. (2000). Online bookselling. Publishing Research Quarterly, 16(i2), 43-61. Janenko, P. M. (2003). E-business: The illusion of automated success. The TQM Magazine, 15(3), 180-186. Lee, H. L., & Whang, S. (2002). Supply chain integration over the Internet. In J. Genunes et al. (Eds.), Supply chain management: Models, applications, and research directions (pp. 3-18). Bordrecht: Kluwer Academic.
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McCormack, K. P., Johnson, W. C., & Walker, W. (2003). Supply chain networks and business process orientation: Advanced strategies and best practices. New York: St. Lucie Press. Mullaney, T. J. (2001, January 22). Gone but not forgotten; the dot-com dropped class of 2000 tells a lot about what won’t work online. Business Week, 3716, EB14. Murtaza, M. B., Gupta, V., & Carroll, R. C. (2004). E-marketplaces and the future of supply chain management: Opportunities and challenges. Business Process Management Journal, 10(3), 325-335. Ross, D. F. (2003). Introduction to e-supply chain management: Engaging technology to build market-winning business partnerships. Boca Raton, FL: St. Lucie Press. TechWeb News. (2003, August 5). Steady growth projected for online retail. InformationWeek. van Hoek, R. I. (1998). Logistics and virtual integration. International Journal of Physical Distribution and Logistics Management, 28(7), 508-523.
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Appendices
Appendix 1 E-Partnership Questionnaire 1.
2. 3. 4. 5.
Does your company have an (formal or informal) e-business partnership strategy? If yes, what is its focus and how does it relate to your overall e-business strategy? What would you suggest are the main purposes of e-partnerships for your company? When did you first enter into an e-partnership, and how many epartnerships have you established since then? Can you describe the decision-making process relating to the formation of e-partnerships? What are the key criteria your company uses to select e-partners? a. Reputation/market credibility/brand name b. Speed with which partners can develop and upgrade their products/ services and Web sites c. Complementary offerings
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d. Strategic, organizational and cultural fit e. Other 6.
What types of e-partnerships has your company entered into? a. b. c. d. e. f.
7. 8.
Supplier partnership (Exclusive/non-exclusive) Distribution partnership (Exclusive/non-exclusive) Joint venture partnership (Exclusive/non-exclusive) Dealer network (Exclusive/non-exclusive) Insurance and/or financial partnership (Exclusive/non-exclusive) Other
Please give an example of how an existing e-partnership with your company works. What is the governance structure of these partnerships? (Describe variations in other e-partnerships, if possible.) a. Supervisory board (compilation) b. Advisory committee (compilation) c Other
9.
What are the metrics/KPIs you use to assess the effectiveness of your epartnerships? a. What control systems or mechanisms does your company have for epartnerships in order that they comply with company policy and your overall strategy? b. What do you believe are the key elements of a successful epartnership? c. What do you see as the factors which might make for an unsuccessful e-partnership? d. Do you believe that e-partnerships can be useful to all e-businesses? If so, how can we foster an environment which will encourage them?
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Appendix 2 E-Entrepreneurship and E-Innovation Questionnaire 1. 2.
What does entrepreneurship mean to you? Can you give an example of this within your business? What does innovation mean to you? Can you give an example of this within your business?
3. 4.
How do you believe these concepts differ and/or are similar? Do you believe there is a difference between these concepts in the context of the off-line and online environments? For example, what is the “edimension” of entrepreneurship and innovation? Is it necessary to take a different approach in order to achieve them? 5. To what extent do you believe entrepreneurship and innovation contribute to your business success? 6. What do you believe are the key success factors in entrepreneurial/ innovative activity in an e-commerce environment? Can you give an example? 7. What do you believe are the main factors which will contribute to a failed entrepreneurial/innovative activity? Can you give an example? 8. Do you have any organizational mechanisms in place which are designed to encourage entrepreneurship and innovation? For example, infrastructure, capital, entrepreneurial capacity, managerial behavior and so forth. 9. How do you believe we can foster an entrepreneurial and innovative eenvironment generally? 10. Was your organization involved in e-commerce around the time of the “dot-com” crash? What do you think separated the e-business successes from the failures? 11. Do you believe the concept of entrepreneurship and innovation changed within the e-commerce environment after the dotcom crash? If so, how?
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Glossary
Balanced Scorecard (BSC) The concept of the balanced scorecard (BSC) was created and introduced by Kaplan and Norton (1992) more than a decade ago. The BSC combines four different perspectives—financial, customer, internal business processes and innovation and learning—of enterprise performance rather than emphasizing one perspective at the expense of the others. In other words, the BSC intends to evaluate the company’s performance in a more balanced, comprehensive and holistic way. Boundaryless Organization The term boundaryless organization was coined by Jack Welch, former chairman of General Electric (GE), who was determined to break down the external barriers between GE and its customers and eliminate vertical and horizontal boundaries within GE. The boundaryless organization is hence “an organisation whose design is not defined by, or limited to, the horizontal, vertical or external boundaries imposed by a predefined structure” (Robbins et al., 2003, p. 292).
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C-Commerce Collaborative commerce (c-commerce) has some common features with ecollaboration; however, it is restricted to partnership in e-commerce activities. It is an e-business strategy designed to take advantage of Web technologies to strengthen collaboration between channel network partners. E-Collaboration Generally speaking, e-collaboration (electronic collaboration) refers to the use of the Internet and/or Internet-based tools among business partners beyond market transactions. The term is often used in the context of supply chain, in particular, in supply-buyer relationships. Electronic Data Interchange (EDI) One of the most popular IOS is the Electronic Data Interchange (EDI) which exchanges business documentation from computer to computer among partners. EDI carries out standard business transactions in a standard format that permits the receiver to perform the intended transaction. EDI can replace most of the clerical and intermediate business processes with direct electronic communication between system applications. EDI is also one of the earliest forms of e-commerce and has been used by many large companies for over three decades (Sweet, 1999; Wojtkowski & Walker, 2001). E-Entrepreneurship E-entrepreneurship describes entrepreneurship in e-business. The e-dimension of entrepreneurship incorporates all the key elements of entrepreneurship including risk-taking, proactivity and innovation in building, running and managing e-business. However, e-entrepreneurship exceeds the traditional concepts of entrepreneurship. For example, the traditional notion of entrepreneurship of being or becoming an expert or finding and protecting a unique knowledge in a niche market clashes with the fact that e-business knowledge is often short-lived and available to everyone, anytime and anywhere (Steinberg, 2003, 2004). E-Innovation Technological e-innovation is only one aspect of e-innovation. E-innovation can be broadly defined as innovation that is related to e-business. It may include Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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establishing and/or implementing innovative processes, operations, service, strategy, structure, technology and so forth in relation to e-business. E-Marketplaces E-marketplaces refer to Internet based intermediaries aiming to create new efficiencies in the supply chain, including new ways of buying, selling and brokering products and services (Monastero, 2001). They are designed to support all the business activities associated with transactions and interactions between its participants including design, development, production and distribution of final products in a supply chain. Entrepreneurship “Entrepreneurship, in its narrowest sense, involves capturing ideas, converting them into products and, or services and then building a venture to take the product to market” (Johnson, 2001, p. 138). Entrepreneurship requires organizational behavior related to change and innovation, which centers around both external and internal environmental elements and structures for fostering entrepreneurship and innovation. The key elements of entrepreneurship include risk-taking, proactivity and innovation (Miller, 1983). E-Partnering Ecosystem E-partnering ecosystem is defined as a complex network of partners that operates as an interconnected whole, sustaining mutual growth, creating future options and locking in advantages for the entire group (Siebel, 2000). The application of the concept of ecosystem to e-partnership is innovative and represents a holistic and transformative way of partnering, and building and developing partnerships. By taking an ecosystem view, e-managers can develop the network-thinking mindset and attitude needed to grow and succeed in, and add value to, the e-partnering ecosystem. E-Partnership Theoretically, e-partnership refers to a business partnership relying on electronic (information) technologies to communicate and interact among partners. As e-business has become an integral part of most business practices where consumers, suppliers and buyers are connected by information technologies,
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Glossary 245
the term e-partnership is mostly associated with electronic commerce partnerships and, in a broader sense, electronic business partnerships. E-Procurement In most cases, electronic procurement (e-procurement) refers to business-tobusiness electronic trade. It is a central function of e-businesses and plays a key role in the e-supply chain, as purchasing goods and services is always an integral part of the supply chain. E-SCM (e-supply chain management) E-SCM, as the latest advance of SCM, has two pillars: the emerging strategic capabilities of SCM and the Web technologies that empower SCM. E-SCM aims to foster agile organizations and supply-buyer partnerships. “E-SCM is a tactical and strategic management philosophy that seeks to network the collective productive capacities and resources of intersecting supply chain systems through the application of Internet technologies in the search for innovative solutions and the synchronization of channel capabilities dedicated to the creation of unique, individualized sources of customer value” (Ross, 2003, p. 18). E-Supply Chains E-supply chains refer to electronic supply chains in general and e-business and e-commerce supply chains in particular. They are the Internet’s value-added chains which cover both the upstream and downstream business through which a product travels—from raw materials to manufacturing and from manufacturing to marketing and after-sales service. In this regard, e-business is the marriage between the Internet and supply chain integration, and it plays a crucial role in the e-supply chain. eXtensible Markup Language (XML) and HTML Extensible markup language (XML), a relatively new development of IT for supply chain applications, was invented in 1996 “to provide a simple and affordable solution for secure exchange of transactional business data between firms” (Neef, 2001, p. 102). XML is similar in nature to hypertext markup language (HTML) used in Web pages. Both contain markup symbols to
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246 Zhao
describe the content of a page or file. HTML describes the content of a Web page (e.g., text and graphic images) in terms of how it is to be displayed and interacted with. However, unlike HTML, XML is extensible as its markup symbols are unlimited and self-defining (Drews & Wesseler, 2003). Infomediary In recent years, another e-partnership entity, dubbed infomediary, has emerged and is gaining more attention in the information era. As the name suggests, infomediaries specialize in information management, collecting and storing customer information and controlling the flow of commerce on the Web. Yahoo! is actually one of the most popular and powerful infomediaries in the world. Integration Integration refers to collaborative planning and control, decision integration, information integration and business process integration between inter-firm partners, using information technologies and systems. Inter-Organizational Information Systems (IOS) Inter-Organizational Information Systems (IOS) are networks of company systems that allow organizations to share information and interact electronically across organizational boundaries (Kaufman, 1966 in Warkentin et al., 2001). IOS are one of the most important technologies used in creating and sustaining e-partnerships. Since their inception several decades ago, these systems have been used to share information in inter-organizational cooperation. They link buyers, sellers and business partners together in key business processes and create new channels of business. Partner Relationship Management (PRM) Partner relationship management (PRM) is a subset of e-CRM (electronic customer relationship management). Like CRM, it is defined as a business strategy as well as a set of application tools designed to increase the long-term value of a company’s network of partnerships. PRM is able to assist companies (1) to select the right partners through the formation of a partner profile database; (2) to provide partners with information and knowledge needed to
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Glossary 247
deal satisfactorily with channel customers; (3) to collectively search for ways to improve sales, productivity and competitiveness; and (4) to ensure that each trading partner contributes to customer satisfaction. RosettaNet Standards RosettaNet standards prescribe how networked applications interoperate to execute collaborative business process. They provide a common language for B2B transactions and assist in building integrative e-business processes among partners. RosettaNet standards consist of a three-level business process architecture for interaction between inter-firm e-partners: (1) partner interface processes, (2) RosettaNet dictionaries, including the Master Dictionary which contains over 6,000 common terms and processes, and grammar that describes how systems communicate and (3) RosettaNet implementation framework (RNIF). SCOR Model The supply chain operations reference (SCOR) model has been developed and endorsed by the Supply Chain Council, an independent not-for-profit organization in the United States. The SCOR is a business process reference model which is so comprehensive that it actually covers all customer interactions from order entry to paid invoice, all product transactions including equipment, suppliers, spare parts, bulk product and software, and all market interaction from the understanding of the aggregate demand to the fulfillment of each order. As such, the process reference model provides a language for communicating among supply chain partners (SCC, 2004). It plays a key role in monitoring the performance of supply chain partnerships and generating value to e-business process networks. Web Services Web services are a set of capabilities that transmit data from one application to another over the Internet. They do not require a direct connection between the two applications or the operating systems that the individual applications are run on but are provided from a Web server for Web users or other Webconnected programs.
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248 About the Author
About the Author
Fang Zhao (PhD) is lecturer and senior supervisor of PhD, Doctor of Business Administration (DBA) and MBA in the School of Management, Royal Melbourne Institute of Technology University, Australia. She is principal editor of the forthcoming book, Entrepreneurship and Innovation in E-Business: An Integrative Perspective which is scheduled to be published in late 2005. She has also published internationally in the past few years around 40 refereed research works mainly in the areas of e-business management, innovation and entrepreneurship, performance measurement, and TQM.
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Index 249
Index
A
C
acquisition 148 administrative innovation 180 advertising 150, 164 Alamo Car Rental 146 Amazon.com 146, 176, 185, 230 AOL 146 auction 149, 162 Australia 153, 184 AutoCAD 159 automotive 152
c-commerce 243 Canon 146 change management 165 Cisco Systems, Inc. 146, 154 clicks-and-mortar 214 collaborative commerce 243 communication 188, 232 comparison-shopping 185 competition 148, 211 confidentiality 209 corporate entrepreneurship 177 cost measures 210 culture 240 customer 231 customer ownership 167 customer service 163 cyber-world 231
B balanced scorecard (BSC) 205, 215, 242 Beanie Baby 148, 184 book keeping 189 boundaryless organization 242 brand name 168, 239 brick-and-mortar 155, 162, 183, 189, 214 BSC 215, 242 business partnership 206 business-to-business 233, 245 buyer 149 buyer-supplier partnership 212
D decision-making 239 Dell Computer Corporation 186 Destra 184 digital rights 153 digital technology 179 direct model 186
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250 Index
direct-selling 189 Disney 146 dot-com 241 dotcom bubble 151 dotcom crash 175
E e-business 145, 175, 228, 239, 243 e-collaboration 243 e-commerce 176, 229, 241 e-dimension 241 e-entrepreneurship 178, 186, 241 e-Innovation 176, 180, 186, 241 e-mail 158 e-marketplace 162, 228, 244 e-partner 206, 233 e-partnering 145, 163, 175, 186 e-partnering ecosystem 244 e-partners 149 e-partnership 155, 176, 205, 228, 239, 244 e-procurement 245 E-SCM 245 e-supply chain management 245 e-supply chains 245 e-transformation 158 eBay 148, 176, 184, 230 economy 182 EDI 243 efficiency 209 electronic collaboration 243 electronic data interchange (EDI) 243 electronic procurement 245 electronic trade 245 employee 231 enterprise resource planning (ERP) 155 entrepreneur paradigm 182 entrepreneurship 175, 244 eXtensible Markup Language (XML) 245
G G-mail 185 Gartner Group 229 General Electric (GE) 242 General Motors 146 global economy 151 global sales channels 187 globalization 159, 208 GlobalNetxchange (GNX) 161 Google 145, 175, 184, 228
H HTML 245 human capital 231
I incremental innovation 179 infomediary 246 information sharing 209 initial public offering (IPO) 185, 229 innovation 175, 179, 183 integration 246 intellectual capital 231 inter-organizational information systems (IOS) 246 inter-organizational partnership 207 Internet 214, 243 intrapreneurship 177 IOS 246 IPO 185
K key performance indicators (KPIs) 214 KPI 214
L loyalty 215
F
M
Forbes.com 146 Ford Motor Company 229 Froogle 185
manager 157, 189 My Yahoo! 152
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Index 251
N
S
non-exclusive 153
sales strategy 186 SCC 208 SCOR 208, 247 SCOR Model 210, 247 search engine 153, 164, 184 Sears 161 security 234 shop front 189 small business owner 177 SME 153 Sony 146 stakeholder 207, 231 strategic paradigm 182 Sun Microsystems 146 supply chain 157, 207, 228, 243 Supply Chain Council (SCC) 208 supply chain operations reference (SCOR) 208 supply chain scorecard 210 synchronization measures 210 system thinking 209
O online advertising 150, 164 online auction 149, 162 online legislation 234 Oracle Corporation 152
P partial measurement 208 partner relationship management (PRM) 246 partner satisfaction 214 partnering ecosystem 156 partnership 168 partnership attributes 213 partnership metrics 213 partnership scheme 155 PayPal 149 performance measurement 205, 206 performance metrics 211 personalized 189 priceline.com 176 privacy 234 proactivity 177, 244 process innovation 179 product innovation 179 public relations 191
T
Q
technological innovation 180 technology-economics paradigm 182 third-party supplier 155 trademark 168 traffic 147 travel.com 176 trust 231
quality management 231
U
R
USATODAY.com 146 user 247
radical innovation 179 reliability measures 210 reputation 239 responsiveness measures 210 return on investment (ROI) 213 risk 244 RosettaNet Standards 247
V vendor 149 vertical-specific information 155 virtual distributors 230 virtual manufacturers 230 virtual retailers 230
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252 Index
virtual service providers 230 Volvo 146
W Washingtonpost.com 146 Web page 245 Web services 247 Web site 175, 189, 239 Webmail 185
X Xerox 146 XML 245
Y Yahoo! 145, 146, 150, 233
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