In-Depth
Data Warehousing Special Report: Let's share -- extending CRM with collaborative technology
- By Julie Hahnke, Dan Sullivan
- May 1, 2002
At first glance, collaboration -- also referred to by research firm Gartner
Inc. as collaborative commerce or c-commerce -- seems at odds with the Darwinian
survival tactics normally associated with successful business strategy. However,
when viewed as a natural progression in the evolution of the customer, the value
of collaboration becomes strikingly evident.
Collaboration extends the concept of the customer and customer relationship
management (CRM) by providing service and value to all of a company's value
chain members. In business-to-business relationships, the concept of a customer
is less clearly defined and there is tremendous value in treating all of a company's
value chain members -- whether channel partners, suppliers, dealers or influencers
-- as customers. By evolving the definition of customer to include the entire
value chain, collaboration creates a solid consortium of businesses, each contributing
to the mutual benefit and success of the entire group.
Awareness of the value of customers and customer relationships grew throughout
the 1990s aided by the writings of Michael Hammer and James Champy, Don Peppers
and Martha Rogers, and, later, Patricia Seybold. Today, few would question the
importance of the customer, and the need to provide customers with value-added
information and services for mutual benefit.
But much of the early writing and customer focus assumed customers were consumers.
Consumers are perhaps the easiest customers for us to imagine; we can see ourselves
filling the customer role. However, when considering business-to-business (B2B)
markets and transactions, the customer is much more difficult to identify.
For example, who is the customer of an insurance company? Is it the broker
who actually sells the policies, the business that purchases the group coverage,
or is it the employee of that business who subscribes to the plan and receives
the insurance coverage? Who is the customer of a textbook publisher? Is it the
bookstore that orders the textbooks, the professor who selects which texts to
use for a given course, or is it the student who buys the book and is ultimately
up all night studying from it?
These examples demonstrate the demand side of a supply chain -- that is, the
downstream customers of a company's product or service. In some cases this chain
is linear, as when a consumer packaged-goods manufacturer sells a product to
a supermarket chain that in turn sells to the consumer. In other cases, it can
be more complex, like when a party outside the direct chain influences what
will be sold down the chain (as the professor does in the text book example
above). In either case, the customers, suppliers and partners with whom businesses
deal are collectively referred to as their value chain -- those individuals
or organizations that supply either quantitative or qualitative value to a business.
Old and new collaborative technologies
Collaborative applications can be categorized into three primary groups: product
management and supply-chain management applications, Internet trading exchanges
and marketplaces, and information exchange applications.
Product management and supply-chain management applications are probably
the best known examples of collaborative technology because they have been around
the longest, typically 10 to 15 years. These applications support the traditional
supply-chain activities of product development, planning, sourcing, manufacturing
and fulfillment.
Product management applications provide a rigorous change-control environment
for the complex Bills of Material (BOM) associated with the production of large
equipment and machinery.
The BOM specifies all of the raw materials and semi-finished parts used in
the manufacturing of products, often identifying approved sources for these
materials and parts. The management of BOMs can be Herculean, particularly when
specifying something as complex as a jet aircraft or a nuclear power plant.
Throughout the life of the product, as changes occur to the parts listed in
the BOM, product management software ensures that those changes are controlled
and communicated to the hundreds of engineers, suppliers and builders involved
in the design, testing and manufacturing process. Agile Software, San Jose,
Calif., is one of the leading vendors of product management applications.
Supply-chain management (SCM) functionality ranges from planning -- which in
SCM-speak means understanding demand trends and consumption patterns, as well
as supply lead times to optimize production scheduling -- to sourcing and the
RFQ process, to manufacturing and ultimately fulfillment. Along the way, order
status, partial fills, backorders and substituted products, warehousing, transportation
and delivery scheduling all need to be managed and optimized.
While SCM products once specialized in a particular function within the supply
chain, vendors are now broadening their functionality to provide SCM one-stop-shopping.
Major SCM vendors include i2 Technologies, Dallas, Manugistics Inc., Rockville,
Md., and MatrixOne Inc., Westford, Mass., but the ERP giants cannot be overlooked.
SAP AG, Walldorf, Germany, PeopleSoft Inc., Pleasanton, Calif., and Oracle Corp.,
Redwood Shores, Calif., have been busily adding SCM functionality to their product
suites, touting the need to feed SCM application platforms with enterprise data.
Internet trading exchanges and marketplaces are a relatively new phenomenon,
having only developed during the past two to three years, but immediately capturing
corporate mindshare with the Siren's lure of a new Web-based business model
generating countless profits. Early vertical industry exchanges attracted big
headlines and billions of dollars in backing in 1999 and 2000, with exchange
names like Chemdex (chemicals), Covisint (automotive) and Transora (consumer
packaged goods) leading spectacular IPOs. However, the exchanges drove down
per-transaction margins to a hair's breadth, requiring huge transaction volumes
for exchange viability. The failure to attract the critical mass of suppliers
required to generate these transaction volumes has forced the vertical exchanges
to explore alternate business models to maintain viability. Reality has once
again shattered myth and dreams.
But while public industry exchanges have struggled, private exchanges are flourishing
and may point to the future of online B2B exchanges. The leading exchange technology
provider, Ariba Inc., Sunnyvale, Calif., is seeing strong growth in private
exchanges. These private exchanges enable online procurement between a business
and its supply-chain partners. Private exchanges are typically built on market
platforms provided by vendors such as Ariba, Commerce One, Pleasanton, Calif.,
i2, Oracle and SAP. These platforms provide online procurement through a range
of purchase-related functionality:
Commerce servers enable buy-side commerce (where a single buyer wants
to purchase from multiple suppliers), sell-side commerce (for single sellers
managing their transactions with multiple buyers) and market-making platforms
(which match orders between multiple buyers and sellers). Additionally, auctions
support the purchase of more specialized, less liquid items where prices can
vary greatly.
Content management is often supported through acquired technology and
third-party products; it provides the online catalogs through which products
are sourced and selected.
Workflow technology is also often supported through acquisition technology
or third-party products; it manages the routing and approval process required
for orders.
Information exchange applications are the newest class of collaborative
applications and are only just emerging. They can be difficult to identify based
on the technologies they use because they sit directly in the middle of a convergence
of business intelligence (BI), portal, content management, CRM and knowledge
management technologies. While these information exchange applications often
borrow from several of these technologies, and the technologies themselves do
not readily distinguish this class of application, the business function that
is provided clearly identifies them. Information exchange applications provide
a Web-enabled platform through which value chain members can share critical
business information with each other for mutual benefit.
Two early leaders in this collaborative space are InStranet Inc., New York
City, and OpenText Corp., Waterloo, Ontario. InStranet's products hybridize
business intelligence and content management technologies, while OpenText's
have developed out of search engine and knowledge management technologies.
Three different industry-leading organizations provide good examples of how
collaborative applications -- specifically, information exchange applications
-- have helped these companies strengthen their value chain relationships and
ultimately achieve greater customer loyalty and market dominance.
Penske Logistics: Penske Logistics, a subsidiary of Penske Truck Leasing
(a joint venture of Penske Corp. and GE Capital), provides transportation and
logistics services and is the one of the largest logistics providers in North
America with a fleet of more than 3,000 trucks. In October 2000, Penske rolled
out an extranet-based analytic application (built on Business Objects' WebIntelligence)
to its value chain partners through which they could share Penske's internal
performance and efficiency analysis with these partners. Penske determined that
for its business to maintain market dominance, it had to partner with its customers
and help them succeed in their businesses -- collaboratively they could develop
ways to improve the transportation and logistics process for mutual benefit.
For example, customer ABC needs Penske to deliver a shipment to its distributor
XYZ. XYZ tries to schedule all incoming shipments to arrive on a given day of
the week, for convenience. But XYZ's loading dock gets congested, trucks back
up and Penske cannot unload as soon as they arrive; they are now late for both
this delivery and subsequent ones. By Penske's sharing this data with customer
ABC, ABC can go back to distributor XYZ and work with them to correct the source
of Penske's delay.
Penske is currently managing more than $300 million of business through its
extranet application, which has become a strategic differentiator for Penske
in the transportation and logistics services market. Penske's customers rely
on the supply chain -- and Penske's management of it -- to move their goods
to their customers as efficiently and cost-effectively as possible. Reliable,
on-time performance with their own customers, faster inventory turns, fewer
empty loads and improved load consolidation mean improved profitability for
everyone. While harder to measure and quantify, the intangible benefits Penske
has enjoyed are of even greater strategic importance. Penske is now seen as
a technology leader within its market. Through its extranet application and
the open sharing of performance data, customers see Penske partnering with them
to best serve their interests. This sharing and open collaboration has fostered
a deep trust among Penske's value chain that is unassailable by competitive
attack. They have raised the bar for the competition and the extranet application
has eased the sales cycle for prospective customers.
Heritage Environmental: Heritage Environmental is the largest privately
held environmental company in North America, with more than 30 years experience
applying technical innovation and sound business practices to waste disposal
management. Wastes, in their business, are primarily liquid industrial wastes
that can include corrosive oils, waste water and lab chemicals.
Waste management is a highly commoditized business where margins are tight
and companies are constantly looking for a competitive edge. While exploring
how to best serve its customers by leveraging Web-based technologies, Heritage
evaluated Internet markets that would enable exchange-based bidding for requests
for proposal (RFPs). Following a pilot study, the firm was not satisfied with
the returns predicted for such an investment, but soon afterward it found how
an extranet-based information exchange application could be a huge win-win for
both itself and a major client.
A major U.S. automotive manufacturer -- a producer of vast amounts of liquid
industrial waste -- had, in the past, handled its waste disposal across the
country by outsourcing locally at each of its many sites. Waste disposal is
a very paperwork-intensive industry where volumes of data must be maintained,
and lengthy reports must be routinely submitted to the U.S. EPA on both disposal
and recycling compliance. While this auto manufacturer was able to outsource
its disposal, it was spending millions of dollars each year in compliance reporting,
and lacked any centralized analysis or management of disposal and recycling
activities across the enterprise.
Heritage saw this as an opportunity to differentiate itself from its environmental
competitors -- and to offer a tremendous value-added service to this client
-- and decided to team up with CRM strategy and technology experts, Braun Consulting.
Together, Heritage and Braun designed and implemented an extranet-based information
exchange application that centrally managed all disposal and recycling data,
and generated the required compliance reports. With this application, the auto
giant saved $40 million in the first year by reducing the manual processing
necessary to maintain disposal data and produce compliance reports. Heritage
now provides an important value-added service -- a shared information service
-- to its customer that has greatly strengthened customer loyalty and retention.
Zurich North America: As one of the leading property and casualty insurers
in the U.S., with more than $10 billion in premiums in 2001, Zurich North America
embarked on a corporate directive in the fall of 2000 to offer exemplary value-added
service to customers, in the hopes of deepening their loyalty to the company.
After meeting with leading customers, the company identified a shared desire
to better understand interactions and communications between itself and its
customers.
In response, Zurich implemented an information exchange application using InStranet,
a Web-based, collaborative application platform. This application takes advantage
of InStranet's secure repository to store insurance policy documents and other
unstructured data critical to Zurich's dealings with its value chain members
-- customers, brokers and co-insurers. Because InStranet is built on a multidimensional
engine that manages the classification taxonomy for documents and a fine-grained
security model, users can easily roll-up to view an aggregate of their business
with Zurich, or drill-down to view specific policy details. This enables multidirectional
communications between all of Zurich's value chain members.
The early response from Zurich's customers has been very positive. According
to Jackie Hair, director of global risk management at Cisco Systems (one of
Zurich's corporate accounts), "We'll want to place more business with Zurich
in response to their bringing us this information exchange application and its
leading-edge technology and innovative concepts."
Zurich's use of collaborative technology and the deployment of its information
exchange application to its value chain members serves not only as a best-practice
example within the insurance industry, but also to other business sectors looking
to strengthen their value chain relationships.
Best practice tips
Like most application development initiatives, a successful collaborative application
development project will balance vision with practical, good sense. The following
suggestions are some of the more common success factors among many of the industry-leading
collaborative applications that have deployed so far.
Not all information is created equal. Before you begin designing
an information exchange application, understand the needs and pain points, not
just of your own organization, but also those of your different value chain
members. You do not need to share all possible information to achieve benefit
from a collaborative application. In fact, if you try to, you will probably
design a behemoth that will likely fail to live up to its objectives.
Identify the subset of information that would most benefit specific value chain
members, if they could share that data with your business. Strive for quality,
not quantity. Well-contained scope with clearly defined business requirements
and project objectives is the best way to ensure an application will deliver
business benefit in your lifetime.
Initially design and test with a friend. Unlike most of the business
applications we design and deploy, collaborative applications extend beyond
the walls of our own organizations. That means that during the design, development
and deployment stages, you will be working closely with your value chain members.
Select the initial companies to team with carefully. You want to work with a
partner with whom you already have a good relationship, and who will not mind
the occasional bumps and glitches that occur in any development effort. The
last thing you want is for the project to jeopardize your relationship with
your value chain members.
Tie the business process into the solution. Shared information
is ultimately meaningless if we do not learn from it and adjust and optimize
the way we do business. Work closely with your value chain members to understand
how each of you can use this shared information to improve both internal processes
and interactions throughout the value chain for mutual benefit. Do not forget
that the ultimate solution should offer value to everyone, not just your own
organization.
If you want to thrive in today's punishing economy and fiercely competitive
markets, the most important lesson to remember is to work and play well with
others. Collaborative information exchange applications can provide mutual benefit
to your business and your value chain members, and can create a solid consortium
of companies working together for shared success.