Integration with trading partners brings significant benefits, but few companies do it to any degree. Why not? Read on…
Companies that are the most tightly integrated with their trading partners (i.e. practise Collaborative Commerce) say that their initiatives generate on average 40% increases in revenue, 30% reductions in cost, and 35% increases in customer retention rates. This is revealed in a recent study by NerveWire, a management consulting and systems integration firm. However, only one in seven of the companies surveyed was very highly integrated with their trading partners in four key business processes: new product development, manufacturing and operations, customer acquisition and retention, and order fulfilment and service delivery.
Why so few?
With such significant gains at stake, why are so few adopting Collaborative Commerce? While it might be tempting to blame the complexities of the technology required to link different companies together, that wouldn’t be true. According to the NerveWire study, the obstacle that survey respondents were least successful in addressing was overcoming distrust in sharing proprietary information with other companies. With this in mind, it’s not surprising that in functions that are most sensitive (like product development) only very few companies (2%) integrated externally. This rose to 5% for less sensitive order fulfilment.
The number of companies integrating varied from industry to industry: telecommunications services, high-tech manufacturing, and financial services has higher levels than, say, industrial manufacturing, energy, and public agencies (government and higher education).
Companies that are highly integrated internally are more likely to integrate externally – presumably because the culture is already there and they have already experienced some of the benefits of integration.
Improved customer retention
In most cases, companies with the highest level of integration said their initiatives generated substantially greater cost reductions, revenue increases, cycle-time reductions, quality improvements, and customer retention rates than did companies at lower levels. For example, comparing companies at the highest level of external integration against those at the second lowest level of integration found 40% vs 12% average revenue increases; 30% vs 14% cost reductions; 35% vs 14% in improving customer retention rates; and 37% vs 26% cycle-time reductions.
Five key obstacles
The barriers that companies had the least success in overcoming were primarily organisational in nature, not technological. In addition, the ability to overcome key obstacles separated the leaders from the laggards in external integration. The leaders were most successful in addressing five key obstacles:
- Overcoming internal functional “stovepipes”
- Creating a business and technology integration “blueprint” to guide the initiative
- Focusing on customers
- Integrating technology
- Gaining executive sponsorship
As far as the technology goes, leaders in external integration rated security tools as the most important technology for Collaborative Integration over the next two years. This was followed by design collaboration software, supply chain management software, internet portals, and internet management systems.
Some 162 business and IT executives of North American companies were surveyed between January and March 2002. They were asked to rate on one of four levels the degree to which their operations and systems were integrated with those of outside parties. To request a copy of the survey report Collaborative Commerce: Compelling Benefits, Significant Obstacles – How e-business is Becoming THE Business, click here. The report will be available in May.