Increasing Interest in Interfacing Technologies

Transaction management market (TMM) technologies automate machine-to-machine information exchange between organizations. The share of IT budget dedicated to solutions that interface with customers, suppliers, and service providers is increasing. This trend is evidenced by continued demand for CRM, order management, demand forecasting, sourcing, and procurement solutions despite difficult economic conditions. And, Web services market hype provides an almost deafening statement about the value of interfacing technologies. Therefore, as economic conditions improve and as eXtensible Markup Language (XML) standards begin to reduce intersystems integration costs, there will be an increased demand for transaction management technologies.

Nevertheless, although interfacing technology demand is consistent across most industry segments, the business conditions generating interest vary considerably. Ever-tightening electronic relationships between consumer packaged goods (CPG) manufacturers and larger retailers are driven by the need to accurately track and forecast demand for billions of fast-moving products through a low-margin, geographically dispersed network. High-tech manufacturers continue to invest in interfacing technologies to regain some of the control relinquished with business process outsourcing contracts. Cash-strapped wholesalers invest in any technology, including TMM solutions, that can reduce the order to cash cycle. Despite differing business concerns, interest in technologies that improve interbusiness process efficiency is high.

TMM Business Benefits

TMM solutions provide organizations with the ability to effectively process heavy order volumes and with the ability to better manage very close, codependent partner relations. Most TMM deployments address one or both of these business objectives.

Now, let’s look at how companies can use TMM technology to process millions of orders a week with just a few support staff. Others may move a few files a day, but the information in those files affects millions of dollars of production costs.

The Service Provider Advantage

Value added network (VAN) service charges have gained an onerous reputation since the emergence of the Internet as a corporate communications tool. The idea of charging per-transaction fees to move data across a network (which is how VAN service charges accrue) riles free-spirited Internet enthusiasts. But the Internet’s greatest strength (ubiquity) is also its fatal flaw.

The last thing a company wants is ubiquitous access to its data traffic, nor are companies interested in the lack of control inherent in a ubiquitously managed network. Absent the addition of robust technology, the Internet is insecure, unreliable, and unworthy of mission-critical corporate data. VAN service providers offer subscription-based technology services that meet corporate data communication needs. VANs ensure that data gets from point A to point B securely, reliably, and with an audit trail. Companies pay usage-based subscription charges for access to VAN bandwidth.

Accessing network QoS functionality from a third party also helps separate business objectives from technology plumbing. Companies interested in deepening partner collaboration or automating more complex business processes are faced with a myriad of business challenges. One-time partners become next-project competitors. Partners are contracted to ship to a production plan, regardless of the status provided by a real-time system. Processes, which vary by both company and division, need to be reviewed and aligned. Obstacles abound in a value chain integration scenario. VAN and electronic trading network service providers remove the interenterprise communication obstacle, allowing staff to focus on business, not technology problems.

TMM Costs

It is expensive to build and maintain a TMM system. The business benefits can be impressive.

Ongoing costs are more easily captured and measured. The average annual cost to operate a TMM solution is a hefty $2.05 million. Average annual VAN cost is approximately $650,000 per year, and the average annual internal operational cost (business and IT support and management labor) totals $2.5 million. These figures capture the bulk of ongoing costs associated with operating a TMM solution. Software maintenance costs, which were difficult to capture, are not usually included in this costs assessment.

As the $2 million per year in operational costs indicate, TMM systems are expensive to run. When considered as a percentage of IT budget or total revenue, the figures are much less daunting. When considering the business strategies TMM systems support, operational costs are well within acceptable ROI and total cost of ownership (TCO) calculation boundaries.

Finally, let’s look at possible roadblocks to e-commerce. Is e-commerce alive and well and feeling fine? Recently, e-commerce has been associated with some fairly humiliating phrases: “dot gone” and “dot bomb” being just two of them. At times, e-commerce has become almost worthy of a snicker when the term comes up in conversation, and lately it’s hard to open a newspaper without reading about “pink slip parties,” which former dot-com employees attend to network, write resumes (which they didn’t need during the venture capital boom), learn that flip-flops and cutoff jeans are not appropriate work attire in the real world and, finally, come to accept that the fairy-tale employment they have experienced in recent years has disappeared as spectacularly as Cinderella’s royal ball accessories at midnight.

Roadblocks to E-Commerce

From the sounds of the media, you would think that e-commerce was a landscape of post-Armageddon. That must be why eBay experienced a 260% growth in 2002.

Want to know a secret? Total e-commerce sales have been predicted to grow somewhere in the area of 60% in 2003. A study by the National Association of Purchasing Management and Forrester Research indicates that business-to-business e-commerce is still in its infancy, with nearly unlimited potential to grow. A recent survey conducted by both organizations revealed that 95 percent of companies polled indicated they would be moving forward to implement e-procurement sometime in 2003. This growth is modest compared to what’s happening offshore. Boston Consulting Group recently reported that Asian e-commerce continues to triple annually.

With the preceding in mind, e-business has taken a major hit to the collective solar plexus. Amazon seems to be hanging on moderately well, though probably not flourishing. It is generally acknowledged that the implosion of many players on the e-commerce stage, most notably the ones headed by 24-year-old CEOs, has enabled the companies left standing to reap more profits due to Web-enabled natural selection.

Old Dogs Have Learned New Tricks

Research firm McKinsey & Company recently unearthed a fascinating statistic: 86 percent of the most successful e-tailers are online channels of existing, established brick-and-mortar companies. Someone a long time ago put forth the radical theory that a company needs a business plan to survive in the long-term. Web-based companies slapped together on a Saturday afternoon in someone’s home office are not likely to have as sound business plans as a company such as Eddie Bauer that has been around for generations. In 1998, the retail giants were laughed at for their hesitant and puny efforts to join the e-commerce party. Today, they are the ones left standing. It’s obvious that there’s a lesson to be learned from that.

Here’s another interesting trend. In the days of yore (1999 to 2000), many Internet-savvy consumers indicated that when it came to shopping for larger ticket items, such as audio, video, and computers, they would do their research online before heading down to a large electronics superstore such as Circuit City to make a purchase. Today, many people have taken to wandering the aisles of the large electronics stores to see and touch items, and then return home to make their purchases from online electronics e-tailers. Why not? Online return policies have improved about 2,000 percent since the early days of e-commerce and in many instances, there is no sales tax on items purchased from e-tailers. Not to mention the fact that buying online enables you to spend the time you would have dedicated to getting to the mall on some vital task such as sleeping late or reminding yourself what your family looks like.

Trying Not to Antagonize Your Customers Helps Immensely

E-commerce companies that continue to grow seem to be the ones that better understand CRM and what it means to their firms. There’s no question, purchasing over the Internet is as popular as ever and will continue to grow. What many e-tailers didn’t foresee is that the Internet business model enables customers to be fantastically fickle, and all it takes is one misstep to lose a customer forever. Good self-service is worth its weight in diamonds, but it should never entirely replace human interaction. As a result, it becomes fairly safe to conclude that the e-businesses still standing today are the ones that screwed up CRM the least.

The survivors have another thing in common: easily navigable Web sites. Remember some of the disastrous Web sites that first appeared in 1997 and 1998? The designers sacrificed ease-of-use for art and profundity, with the result that many potential buyers arrived on the site, admiringly commented, “Ooooh, pretty” and logged off to find a site that was easier to use. Part and parcel of ease-of-use is a friendly and comprehensive search engine, and this is another element you will find on the sites of the little e-tailers who could. Search engines driven by natural language processing are rapidly gaining in popularity as they allow shoppers to pose questions in much the same manner they would to a live store representative. For instance, compare brands of digital cameras in the mid-price range. Not only do searches conducted with natural language processing help the customer, but the technology can also help the e-tailer understand what its customers want and how they want it.

Privacy, Please

Yet another element that has helped some e-tailers remain strong is the issue of privacy. Many companies with Web channels have had some decisions to make recently: collect customer data and e-mail addresses and sell the information for a price to boost sagging profits, or prominently reassure customers that their information is private and will remain so in the future? The former choice represents a short-term fix and the latter choice is the ticket to the long-term payoff. Many companies that sold customer data from the get-go or made a decision later to sell information seemed to think that their activities would not be noticed, or that the average consumer wouldn’t care if they received a few extra spams brought on by the sale of their personal information. This was a serious miscalculation. In a crowded information age of little free time and space to breathe, most consumers are becoming rabidly protective of the little privacy they have. More importantly, e-tailers and Web marketers that chose to collect information from children not only earned the ire of parents, they began to draw fire from federal and state regulators.

Finally, the vast majority of companies that made a go at succeeding in e-commerce only to fail a year or two later are like kids who begin playing with a complex toy and give up in a huff when they can’t operate the toy based on the fact that they didn’t read the instructions. All’s well and it ends well. The toy becomes available to the kid who values it and knows how to use it.