Business Networking Systems: Characteristics and Lessons ... · two evolutions paths, an interorganizational one which encompasses EDI, electronic markets, and an intraorganizational

Business Networking Systems:

Characteristics and Lessons Learned

Rainer Alt, Elgar Fleisch

Institute for Information Management, University of St. Gallen

Mueller-Friedberg-Str. 8, CH-9000 St. Gallen, Switzerland

Ph: +41 71 224 2420, Fax: +41 71 224 2777

Email: [email protected], [email protected]

Published in : International Journal of Electronic Commerce, 5(2000)2, pp. 7-27

Rainer Alt is project manager of the Competence Center Business Networking at the Institute for Informa-

tion Management, University of St. Gallen. He earned a master in business administration from the Uni-

versity of Erlangen-Nuremberg and a Ph.D. from the University of St. Gallen. Before assuming his cur-

rent position he worked for two years as Senior Consultant at Roland Berger & Partners in Germany.

Elgar Fleisch is project manager for Business Networking at the Institute for Information Management,

University of St. Gallen. He holds a Ph.D. from the Vienna University of Economics and Business Ad-

ministration. In 1996 he founded Philadelphia based consulting company IMG Americas. He left his CEO

position in October 1997 to finish his habilitation at the University of St. Gallen.

Business Networking Systems: Characteristics and Lessons Learned

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Business Networking Systems:

Characteristics and Lessons Learned

Abstract

Designing relationships among business units is of growing competitive relevance. The networking

among businesses is largely enabled by interorganizational information systems (IOS) which have

evolved since the 1960s. However, in many companies primary investments have been made in the area of

enterprise resource planning systems (ERP) and it is only recently that these systems are complemented

with networking capabilities. We refer to this specific development path towards IOS as Business Net-

working Systems (BNS). We will describe the major challenges for these systems, distinguish three main

types of BNS and present criteria for characterizing BNS. These classifications will be used in three case

studies which serve to identify techniques and lessons learned in designing BNS. We conclude that meth-

odologies for BNS-projects should consider these lessons as integral elements which sustain adoption

and business orientation.

Keywords: Business Networking (BN), Interorganizational Systems (IOS), Networkability, Enterprise

Resource Planning Systems (ERP), Electronic Commerce (EC), Supply Chain Management (SCM)


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Introduction

Networks among business units are gaining momentum in a broad variety of industries. Current manage-

ment literature (e.g. [5], [11], [24], [45], [52]) posits that this organizational form can best meet the re-

quirements of the ‘new economy’, such as customer-orientation, tailored solutions and minimized costs

and time. Many authors have elaborated on potentials in reducing transaction and coordination costs (e.g.

[6]). They conclude that this ‘strategic networking effect’ [51] compensates for the additional coordina-

tion requirements within networked environments and leads c.p. to increased networking among busi-

nesses. As described by Evans/Wurster [16], these economics of information newly define the trade-off

between richness and reach. An example is AvnetMarshall, an Internet-based broker for electronic com-

ponents. As El Sawy et al. [14] explain, Marshall’s advantage is built on developing sharp core compe-

tencies (i.e. brokering in the electronics industry) and on managing customer relationships. Networking

with their customers and suppliers is Marshall’s critical asset in the marketplace.

Shaping and managing relationships among (independent) business units, a concept we will refer to as

Business Networking, is a key strategic element in the ‘new economy’. The role of information technol-

ogy (IT) has been recognized early as main enabler (e.g. [26], [30], [37]) in Business Networking. How-

ever, analyzing the diffusion of IOS shows that many businesses have concentrated on implementing and

integrating internal information systems from vendors, such as SAP, Baan, J.D. Edwards and the like. In

fact, these so-called ERP systems (Enterprise Resource Planning) possess only restricted networking

capabilities, which are limited to EDI converters and direct links among ERP-systems. Modules for Sup-

ply Chain Planning, Electronic Commerce, and the like have only recently been added. This article fo-

cuses at this development path towards IOS and presents a specific perspective to IOS research. The term

Business Networking systems (BNS) will be used to denote systems which have evolved from enhancing

business software or ERP systems.

At the outset of the paper, we will develop the Business Networking perspective and explain in detail the

forms and specifics of BNS compared to (traditional) ERP systems. For each type of BNS a case study

will be undertaken in chapter three which will be used to propose major success factors and techniques


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governing the implementation of BNS. Finally, chapter five offers some conclusions concerning for

companies which aim at developing or enhancing BNS.

Characterization of Business Networking Systems

Development of Business Networking Systems

In the ‘new economy’ the ability to quickly and efficiently establish relationships with many business

partners and to support a broad set of transactions (procurement, replenishment, sales etc.) becomes a

strategic necessity which has been referred to as ‘networkability’ [1]. Since the 1960s the availability of

IOS promised to improve the networkability of companies [11]. The technological potentials were recog-

nized in certain industries which involved a frequent exchange of information (e.g. transportation, health

care, financial clearing) and/or a high information intensity (e.g. tourism, financial exchanges). In the

literature EDI systems, clearing centers and electronic markets have been discussed as examples of IOS

(cf. [29], [42], [26]). However, for a large number of companies, networking with business partners still

requires considerable effort. We recognize three factors that impeded high degrees of networkability in

the past:

• Slow adoption of IOS. As the figures on electronic business-to-business transactions underline [46],

IOS adoption has been slow in the past and is expected to increase rapidly only in the near future.

IOS were successful in certain industries and limited to a small number of (large volume) transaction

partners (e.g. [25], [36]). Many electronic markets, such as freight exchanges and online shopping

systems, have encountered adoption problems (cf. [2], [10]). Kalakota/Whinston [27] identified five

factors which determine the slow adoption of EDI: high costs, limited accessibility, rigid require-

ments, partial and closed solutions. Only recently have developments, such as open data standards

(XML etc.) and the standardized Internet-infrastructure, increased the acceptance of these solutions

in the business community.


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• Corporate ERP investments. During the past decade many businesses have concentrated on imple-

menting and integrating internal information systems. Compared to IOS which have exploited tech-

nological potentials, systems for enterprise resource planning (ERP) have been developed from the

business side. Since they evolved from a internal perspective, they possess only limited capabilities

for Business Networking (e.g. distribution of ERP modules, EDI converters) which usually involve

significant costs for application and customizing. Standardized modules for Supply Chain Planning,

Electronic Procurement, Electronic Catalogs, and Customer Relationship Management have just re-

cently being added [35].

• Alignment of IT and business issues. The history of electronic market systems indicates that cost

structures, functionality and connectivity to other partners failed to match the business requirements

([2], [8]). Based on a horizontal study from the Gartner Group ([19], [20]), Schnedl/Schweizer [44]

elaborated the main challenges for European CIOs from a historical (1995-1997) and a future (1998-

2002) perspective. They found that although technological trends have varied, aligning IT and busi-

ness strategy has always been attributed the highest relevance.

Figure 1 shows the development of BNS and classical IOS. We consider BNS as a specific form of IOS,

which has not been received broad attention in the literature. In enhancing the understanding of the devel-

opment and the forms of BNS we aim at complementing established IOS research and at recognizing that

the forecasted growth of business-to-business transactions (e.g. [18]) will only occur if it complies with

the transactional business systems. New strategies of ERP vendors (e.g. mySAP.com from SAP) show

that classical IOS and BNS are in the process of converging. They will eventually, through a fundamental

redesign of business, lead to ‘business portals‘, i.e. n:m connectivity platforms for a specific business

segment (see Figure 1). Business portals embody what many term the ‘networked economy’ and enable

high degrees of networkability by establishing standards for business communities. They combine classi-

cal IOS, such as electronic markets with BNS functionality, such as master data distribution and supply

chain management.

Figure 1 about here


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The difference between classical IOS and BNS may seem vague. Yet looking at the real world, we clearly

see two different development paths to business networking that companies follow. These paths sooner or

later converge, but they generate different types of information systems. Both differ concerning the de-

velopment path and the complexity of the supported transactions (see Table 1):

• Classical IOS, such as electronic markets, clearing centers or EDI systems, provide business func-

tions which are complementary to the functions of internal ERP systems. These systems are typically

developed by strong focal companies or neutral third parties (e.g. telcos like IBM or GE or an indus-

try association) [50] and their development started within external business networks. They are low

in transaction complexity, since they implement isolated market mechanisms or messages for busi-

ness transactions.

• BNS for supply chain management or electronic commerce on the other hand are “backpack” infor-

mation systems with the potential to substitute some ERP functionality. They are usually closely

linked to ERP systems, owned and managed by a focal company and perform more complex transac-

tions than classical IOS (e.g. the available-to-promise function). The development path of BNS starts

with internal integration via ERP systems and focuses on internal and stable business networks.

Table 1 about here

Types of Transaction-oriented Business Networking Systems

In the following, we will analyze the forms and characteristics of BNS. In general, transaction- and

knowledge-oriented BNS can be distinguished. The former concern the execution of individual business

transactions, such as purchasing of material, and include the selection of a product, order entry, delivery,

and payment. The latter focus on less structured and more subjective information and knowledge. Exam-

ples are customer preferences or FAQs (cf. [32]). Although we are aware that systems which monitor the

customer process (cf. [21], [35]), such as infomediaries, include a strong knowledge component, this

paper will concentrate on the first category, transaction-oriented BNS.

BNS invariably involve more than one organizational unit and often integrate business partners (custom-

ers, suppliers, etc.) with a company’s information infrastructure. As Figure 1 shows, we can distinguish


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two evolutions paths, an interorganizational one which encompasses EDI, electronic markets, and an

intraorganizational one which describes internal systems, also referred to as enterprise resource planning

(ERP) systems, that are enhanced with Business Networking capabilities. ERP-systems aim at providing

efficient transaction processing by using integrated applications and data. However, implementing con-

nections to other businesses in the same system offers only little flexibility and is bound to quickly reach

capacity limitations. This is the starting point for the three different types of transactional BNS that we

propose (see Figure 2):

• Data sharing systems have been the first step of BNS and have typically been implemented in dis-

tributed ERP environments. They support the consistency of data by linking individual applications

within large companies. For example, the Robert Bosch Group has over 30 SAP R/3 systems imple-

mented for different organizational units, such as manufacturing facilities, sales offices, financial de-

partments as well as for different geographical regions (e.g. Germany, USA, and Asia) [35]. Tech-

nologies for (master) data sharing are EDI-systems and proprietary systems, such as SAP’s applica-

tion link enabling (ALE), and intermediate documents (IDOCs) [23].

• Supply chain management systems or advanced planning systems (APS) offer functionalities for

supply network planning, demand planning and the like. They complement the planning functional-

ities of ERP systems, i.e. material requirements planning (MRP) and manufacturing resource plan-

ning (MRP II), by supporting sophisticated calculations and simulations based on the constraints of

an entire supply chain. SCM systems periodically pull transactional and resource information from

the ERP and perform planning operations offline from the ERP. Examples for SCM systems are

SAP’s APO, Manugistics6 from Manugistics and Rythm from i2 Technologies [35].

• Electronic commerce systems are applications which support the execution of transactions from in-

formation, contracting to settlement activities (cf. [43]). During the information phase, customers

make their choice among a variety of goods and vendors. This is followed by negotiation and deci-

sion-making concerning a specific product in the contracting phase. Finally, in the settlement phase,

the selected goods are delivered to the customer who, in turn, pays a consideration for them. For EC

to take place, it is necessary that at least one of these phases and order entry should rely on electronic

means. EC systems closely interact with SCM-systems, especially for delivery and payment pur-


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poses. Although ERP systems are now extended with EC functionalities, specific applications (e.g.

Open Market, Intershop, Broadvision) have emerged which have to be integrated with internal (ERP)

systems.

Figure 2 about here

Specifics of Business Networking Systems

To describe the characteristics of classical IOS an organizational and a technological perspective has been

used [24]. Following this distinction we will use the three dimensions of Business Engineering for de-

scribing BNS. Business Engineering represents an approach geared to the business-oriented conceptuali-

zation of information systems. It combines various theoretical disciplines and “structures the organiza-

tion, data and function dimensions at the business strategy, process and information systems levels” [34].

As to the organizational dimension, BNS by definition support relationships between multiple organiza-

tional units. From a juridical standpoint, these may be internal, e.g. within a large conglomerate, or exter-

nal, e.g. related to customers and suppliers. However, the blurring of organizational boundaries makes it

difficult to clearly distinguish between the qualities of internal and external business networks. We there-

fore concentrate on the major organizational difference of BNS and (traditional) ERP systems (see Table

2). As interorganizational theory posits (e.g. [15]), governance structures with authority, autonomy and

dependency patterns (cf. [48], [29]) are different in that interorganizational relationships permit less direct

influence and inherit higher conflict potentials than traditional hierarchical relationships. In addition,

there is usually only a lower level of knowledge about the business partner’s processes which is also a

result of the more frequent change in partners (lower stability).

Table 2 about here

In the data and function dimension, BNS – just like any other business information system – transform

business data (or objects) using some business functions (or methods). However, there are some specific

requirements in both dimensions (see Figure 3).


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Concerning the data dimension, Business Networking processes, such as collaborative forecasting, re-

quire single and homogeneous signals since multiple parties base their actions on them. This is well

known from the financial sector where time lags in updating stock prices heavily influence investment

decisions. An effect from the production field is the bullwhip effect.1 Since business partners make their

decisions upon the data they receive, e.g. an automotive supplier schedules his production depending on

the planning data he receives from the manufacturer, accountability is a second requirement. Finally,

information systems not only have to make sure that single, accountable data are available but also that

they are visible to all relevant actors, i.e. they must be accessible to partners without any major additional

effort.

In the functional dimension, we observe that BNS are built for real time execution since business partners

require immediate responses to keep their processes running without interruption and to maintain consis-

tent data (cf. [9], [28]). Real time execution requires the integration of BNS and ERP-systems among

internal (e.g. APS or master data servers) as well as among external (e.g. electronic markets) systems.

This n:m connectivity requires data and method standards that are accepted throughout a business net-

work. They also represent an important basis for the coordination processes and techniques [35] that

clearly have to be more sophisticated than in internal environments. Research on intelligent optimization

algorithms, which, for example, support the simultaneous coordination of multiple actors and given the

computational capacity, will continue to be an important issue for BNS (e.g. [40]). The degree of fulfill-

ment of these requirements of BNS, in terms of logic and capacity, is referred to as the performance.

Figure 3 about here

1 First described by Lee et al. [31], Fine [17] explains the bullwhip effect as a law of supply chain

dynamics. It describes a phenomenon whereby the volatility of demand and inventories in the supply

chain tend to be amplified as one looks further upstream.


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Designing Business Networking Systems in Three Cases

To analyze the various types and the specifics of BNS three cases studies will be presented which have

been undertaken at companies which implemented BNS. Each case has a different focus as it aims to

highlight each BNS type in a specific context, i.e. in interaction with internal and/or external business

partners (see Table 3). The description of each case will follow the same structure, i.e. company profile,

goals, benefits and challenges.

Table 3 about here

Shared Data Services at Commtech

Commtech (name has been changed) is a worldwide operating company in the communication industry.

Out of its North American Headquarters, it manages an internal network which consists of 4 business

units and 200 individual companies in 45 countries worldwide. Its 130'000 employees generate a revenue

of 23 billion USD. The main products are enterprise communication solutions, microelectronics for pro-

ducers of communication devices and consumer products.

As a new spin-off, Commtech was in the process of reshaping its internal business network. Top man-

agement opted for independent business units to increase the flexibility in the processes ‘time to market’

and ‘customer fulfillment’, as well as for central shared service centers for some common functions in

order to leverage economies of scale. The business units took responsibility for the business processes

sales, logistics, distribution, controlling, material management, quality management, production planning

and service management. Headquarters took responsibility for overhead processes such as financing,

treasury, real estate, taxing and purchasing.

The goal of Commtech was to define and standardize its internal process and IS network in order to im-

plement the shared services and thus reduce overhead costs significantly. Commtech based its IS network

on a cluster of distributed ERP (R/3) systems and linked them via data sharing systems which were built

upon standards for customer, vendor, material and accounting data. After implementing the BNS, signifi-

cant benefits were reported:


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• By implementing finance as a shared service center, the cost of finance dropped from 2% to 1% of

Commtech's revenue. Even greater savings were made due to the improved functionality in uncol-

lected receivables, internal hedging and netting.

• The redesign of real estate led to a better space utilization and a reduction of operating expenses from

6% down to 3.5% of revenue.

• Improved accountability, visibility and real-time drill-down-transactions save taxes which amounted

to 0.6% of Commtech's revenue. For example, the drill-down functionality permits to see all relevant

detailed entries stored in the systems of the business units in real time.

• Global purchasing cut 7.5% of the purchasing costs on a third of all purchased goods, or 0.6% of

Commtech's revenue.

The benefits which amounted to a total of 3.9% of Commtech's annual revenues, were used in win-win

scenarios to get the critical buy-in of the stakeholders, i.e. headquarters and all business units and regions.

For example, transfer payments and project budged changes were made.

The main challenge at Commtech was the design of a BNS which corresponded to the new organization

which consisted of implementing shared service centers. Homogenized master data, process standards and

integration scenarios were defined to ensure coordination among the participating units. The case shows

an internal business network with goals and challenges similar to external networks. The main differences

to external networks are: internal networks typically don’t have too many different classes of partners and

the integration within the network is rather deep, e.g. covers several functions (e.g. credit limit checks,

global contracts, drill-down in taxes) and data (e.g. master data on materials, vendors, customers). The

data sharing which have been established in pilot projects with some subsidiaries, have been rolled out to

all companies and are now the basis in projects for supply chain management and electronic commerce.

Supply Chain Management at Riverwood International

Riverwood International (RIW) is an integrated cardboard and packaging supplier located in Atlanta,

USA. With its three business units paperboard, packaging and packaging machinery RIW generated more

than 1 billion USD in 1998. RIW has approx. 5’000 employees and approx. 2’000 main customers.


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In 1996 management decided to improve the information on customer processes and customer feedback

on RIW’s products and services. Old service processes were largely manual and reactive and thus costly

and slow. Information on production processes was very scant. RIW’s service personnel received no

support in achieving sustainable customer loyalty and consequently morale sank. RIW management

aimed to create a new level of customer service within the industry by improving the flow of information

to and from the customers. The main focus was improved management of internal and extended supply

chain processes. The internal supply chain covers the collaboration between RIW’s business units pack-

aging and paperboard, and the extended supply chain RIW’s customer, such brewers and bottlers, and

vendors, such as graphic designers.

To build unique flows of information to each customer, RIW has developed capabilities that enable small

customers to process orders, inquire order status and monitor the global inventory position with direct

access to its ERP via an Internet solution. For large customers new global material management strate-

gies, negotiated delivery and production schedules were conceived in addition to sales and purchasing

forecasts [35].

The strategy to be implemented first was Vendor Managed Inventory (VMI) [22]. In order to obtain an

accurate demand signal, RIW is willing to insource some stock management tasks that have traditionally

been in the hands of the customer. The customer’s warehouses in plants and distribution centers are

automatically replenished by RIW. This means that product replenishment and purchase order creation

will become the responsibility of RIW and will be based on actual and forecasted demand. Therefore,

RIW has to be able to consider the customer’s inventory levels and demand forecasts during their plan-

ning process.

For this purpose the application landscape was redesigned. This involved the migration from existing

ERP legacy applications to an integrated SAP R/3 system and the implementation of SAP’s supply chain

management tool advanced planner and optimizer (APO). RIW set up a VMI pilot project with its cus-

tomer Universal Packaging. The pilot project includes some five RIW plants and distribution centers, plus

ten Universal locations in New England [35]. The sustainable goals for the entire supply chain optimiza-

tion are [35]:

• Reduced order to cash cycle by 60 days and order fulfillment cycle times from 14 days to 2 hours,


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• Reduced stock levels from 8 weeks of finished inventory to 2.5 weeks,

• Reduced cost to serve by 50%,

• Increased accuracy of invoices sent out, and

• A minimum customer service rate of 95%.

Some of the key challenges RIW found itself confronted with during this BNS project were how to ap-

proach customers and how to arrive at a true win-win scenario with their customers. For this purpose

RIW offered price reductions for goods planned and purchased via the new BNS as well as free hard- and

software for small customers, such as microbreweries.

Electronic Commerce at ETA SA

ETA SA Fabriques d’Ebauches is a member of ‘The Swatch Group’, a globally operating producer of

watches such as Blancpain, Omega, Rado, Longines, Tissot, Certina and the Swatch watches. The group

consists of a number of individual companies, which among others focus on finished watch movements

and component production and research and development. ETA SA supplies the movements for watches

to all Swatch brands that organize production and distribution. As the world’s third largest manufacturer

of movements, ETA SA has over 15 production sites in Switzerland, Germany, France, Thailand, Malay-

sia and China. In 1997, ETA’s revenues exceeded CHF 1 billion with more than 10.000 employees.

The main goal of the project (cf. [3], [7]) was improving information management from ETA SA to its

customers, i.e. the individual brands. At the outset of the project neither standardized product data nor

standardized order processes were in place. Finding out what parts were ordered was a cumbersome and

labor-intensive matching process. Therefore, ETA SA conceived an Internet-based EC solution

(http://products.eta.ch) that encompasses an electronic catalogue which enables customers to get specific

information about (new) products, prices, discounts, etc. After the desired components are put into the

shopping basket the EC solution will calculate taxes, discounts, etc. After the completion of the order the

customer chooses a payment method and the order is sent.

The EC solution enables customers to obtain all relevant information on existing and new products

(prices, technical descriptions, sales conditions, interchangeability) via one channel. Since the site is


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maintained centrally, ETA-CS can easily assure that information is up-to-date and benefits from cost

savings in producing and distributing catalogues, price lists and technical documents. Finally, the EC

solution introduced new functionalities, such as a individualized shopping basket, credit card payment,

technical document download, and electronic order tracking into the buying process. Additional function-

alities are currently conceived and will include customer profiling, individual customer homepages, cus-

tomer communities, frequently-asked-questions databases (FAQ), online complaint management as well

as auctions for old parts. Although not all of the identified potentials have already been reached, ETA-CS

profits from the following results:

• Once orders are entered via the ETA Online Shop, matching efforts and misunderstandings decreased

by more than 90% which allows ETA-CS to cope with an increased order volume and enables the

personnel to intensify customer relationships (e.g. acquisition of new customers, answering individ-

ual questions).

• The combination of the new order and warehouse processes lead to a significant reduction of order

cycle time. ETA SA is now close to the above mentioned guaranteed delivery times of three days for

electronic orders. There will also be a significant decrease in wrong article deliveries. When all arti-

cles master data are homogenized and available via the Web, ETA will even perform beyond three

days deliveries.

The ETA case brought out several insights for implementing an EC solution. First, achieving master data

harmonization was a critical prerequisite for the electronic catalog and enabled an efficient order entry

process. Second, pilot partners were involved from the beginning in designing the business network and

the order process. A series of so-called change requests ensured to obtain a ‘buy in’ from future custom-

ers. The pilot involved customers in Switzerland and focused on a selection of spare parts. Starting with

global availability on December 6th, 1999, the EC solution was offered to all customers worldwide and

included all spare parts products. Third, creating a win-win scenario with it’s customers was key in con-

vincing the individual brands to participate in the EC-system. Instead of offering price reductions, cus-

tomers using the EC solution enjoy shorter and guaranteed delivery times. ETA SA expects that 30-40%

of all orders will be using the electronic channel in the next three years.


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Lessons Learned for Designing Business Networking Systems

From the project work in the three BNS cases several lessons for designing these BNS emerged. We will

group these lessons along the steps which have been undertaken in the individual projects (see Table 4).

At the start of each project, the main problems were identified and the project goal was formulated. This

input helped to derive the type of BNS that appeared to be a most likely solution to start with. This initial

system design was verified and elaborated in more detail with partner profiling. Based on the partner

profile a reciprocity scenario was developed since convincing partners is more prevalent in relationships

with independent partners (see Table 2). As a next step, standardization of data, processes and functions

was discussed among the partners. The specifics, which have been developed above, provided an impor-

tant structuring for this activity.

Table 4 about here

Focus Project: Create Business and Adoption Perspective

At the outset of each project customers workshops were organized with senior management to identify the

main problems in their relationship with customers. With this information the goal of the business net-

working project was formulated and several scenarios for attaining this goal were discussed. Using a

scoring model which included the expected degree of goal attainment, the investments necessary, and the

estimated time-to-market, the appropriate BNS was selected. Once the BNS decision has been made, the

project focus was elaborated.

An important aspect in the workshops was developing a business perspective on BNS which recognizes

that BNS enable new business processes and business strategies. In order to use them correctly, the busi-

ness must understand the essence of technical networking and, conversely, information management must

understand the business. From an organizational point of view, the strategies and processes of a BNS are

closely linked with other processes and strategies. At RIW, a project for reorganizing the sales process

affected the processes of distribution, inventory management, production planning, production, mainte-

nance, procurement, controlling and accounts payable. The integration of these processes and the associ-


16

ated strategies, organizational structures, such as departments and above all human resources, took up

significant management time. Examples are the definition of new processes (procurement or sales) and/or

strategic business areas (product/market mix), the coordination of marketing, sales, production and inven-

tory strategies or communication of the solution to the partners affected. While information management

can encourage networking projects and make major contributions to their success, the most effective

dimensions of a network must, however, be evolved by the business for the business.

Following Shapiro/Varian [45], securing a fast growth in the number of users was regarded as a critical

objective. Examples of how to achieve rapid diffusion are provided by Netscape, Hotmail or Compaq. In

the initial phase they would make their software, services or hardware available free of charge and thus

generate a fast growing customer base [28]. In order to accelerate growth, they would design services that

operate according to the rules of increasing economies of scale [4], i.e. marginal return and customer

benefits tend to grow as the customer base expands.2 All projects were sized following the nucleus ap-

proach which addresses the design of ‘nuclei’ that are conducive to rapid growth.3 Among the critical

success factors for sizing were to start with:

• a small pilot project which yields specific information on benefits early on, and

• a distinct focus regarding product, customer, and regional segmentation.

Profile Partners: Establish partner perspective

Once a specific type of BNS had been identified as a starting solution, the partner setting was analyzed.

To ensure networkability among a large number of partners and to limit the complexities of establishing

2 Further hints on the rapid diffusion of EC solutions are provided by Kelly [28]. The most impor-

tant of these are ‘touch as many nets as you can’, ‘maximize the opportunities of others’, ‘don't pam-

per with commodities; let them flow’ and ‘avoid proprietary systems’.

3 ‘Grow by Chunking’ is one of the nine principles for managing complex adaptive systems (see

[28], [47]).


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and managing relationships, detailed partner profiles were designed at ETA and RIW for partner classifi-

cation. For a small number of partners (as in the Commtech case) a qualitative description proved more

efficient. Since business processes only communicate via business process outputs [34], partner profiles

aim at defining standardized outputs for coordination processes. These standard patterns are then tailored

to specific partner requirements. Each individual profile contains the expected requirements in the organ-

izational, functional and data dimensions. They can be represented as tables (see Figure 4) containing four

components:

1. Business relationship drivers are generic factors influencing the design of business relationships. In

terms of business engineering, a distinction is made between strategic, business process and informa-

tion system drivers [34]. Figure 4 shows a customer profile as used in the RIW case. Detailed drivers

were formulated which customers or sales reps were asked to simply mark them ‘applicable’ or ‘not

applicable’.

Figure 4 about here

2. A catalog of standardized coordination outputs shows the possible components of a business rela-

tionship on the strategy, business process and information system level. Examples of coordination

outputs are ‘advance shipment notice’ or ‘order acknowledgement’. As Figure 4 shows for the three

cases, outputs vary in scope and content. In addition, the catalog may also list some technical integra-

tion forms [38], such as a partner accessing internal ERP data via the Internet.

3. Partner-specific business relationship requirements are the outcome, if partner profiles are used as

structured questionnaires. They reflect the specific needs of specific partners in respect of their rela-

tionship, support active partner management, and serve as the basis for individualized coordination.

In the ETA and RIW cases, modular and standardized types of customer relationships were defined

for different customer segments.

4. Once business relationship drivers and standardized coordination outputs have been defined, the

partner-specific requirements can be translated into a partner-specific set of coordination outputs.

Both partners would implement the processes and systems needed to obtain the partner-specific set of

coordination outputs. The processes and systems implemented by RIW and ETA were designed to


18

produce such outputs as advance shipment notice, vendor replenishment, vendor managed inventory,

ordering and order tracking via the Internet.

Create Reciprocity (Win-Win Scenarios)

In all three cases, it took a great persuasion effort to achieve adoption among the partners. Creating a

balance of costs and/or benefits was an important change management effort in these cases. A crucial

element in creating win-win scenario was to establish reciprocity and trust which are known to be essen-

tial enablers in implementing business networks [29]. As a first step, the impact on setup and running

costs and the benefits was explored for the networking partners. Following the concept of life cycle costs

[41], we distinguished between setup and ongoing costs and benefits. A partner’s setup costs encom-

passed his total project costs and the costs due to integration effects with other projects:

• Project costs were divided into costs for designing new processes, change management, training of

employees, data standardization and costs for implementing IT based relationships.

• Integration costs incurred by integration effects reflect the networking character of networking pro-

jects. Interdependencies between networking projects and other internal projects were closely moni-

tored since they tended to be a source of delays.

• New process costs, especially costs for designing and implementing the new coordination tasks, were

part of the running costs (for detailed process cost drivers cf. [49]).

Win-win scenarios can be designed for any individual partner or any type of partner. The partner profile

provided the basis of a win-win scenario by specifying the partner-specific requirements and included

further specifics, such as feasible coordination scenarios or investment power. In the cases success was

owed to two facts:

• Partner-specific profiles kept transaction and investment costs low and generated networking benefits

which it was possible to quantify.


19

• Compensation for investment costs, costs due to interdependencies with other projects and protection

against opportunism was achieved in the cases under review by providing transfer payments. Exam-

ples include price reductions for the new services, hardware and software offered for free, or shorter

and guaranteed delivery times. In networks with hierarchical elements, such as Commtech, extra

budgets and schedule concessions granted for other projects proved effective in maintaining the pri-

ority of networking projects.

Win-win scenarios are easy to communicate when real-life examples can be cited to illustrate them. For

each BNS project, the case study companies defined a project nucleus permitting the benefits of the net-

working project to be assessed by the project partners within a limited time and cost effort.

Standardize Exchange Processes And Data

By providing external access to what were previously internal functions and information, BNS ultimately

go a long way towards achieving the vision of the extended enterprise (cf. [5], [52]). Examples of such

information are inventory levels, delivery dates, special terms of sale or order status which can be called

up by external partners. Typically, internal ERP/legacy-systems are responsible for this information and

BNS can be regarded as a new front end to existing systems. BNS process the information provided by

other information systems and pass it on to partners without any human intervention. This leads to impor-

tant requirements on the standardization of data and functions (see Table 5). All the information which a

business unit wants to make available to its partners must be known to the business unit. This is contin-

gent on a properly functioning internal organization and/or the internal integration of the information

systems. The integration of new applications with internal and external information systems represents

the greatest challenge for networking projects.

Table 5 about here

BNS place a greater emphasis on interorganizational process standards. Networking calls for the various

processes of various independent business units to be synchronized. Today, business units operate indi-


20

vidual processes with a wide range of information systems and data models with different business se-

mantics. A purchasing process, for instance, has to be synchronized with the supplier’s sales process, the

credit card institution’s payment transaction process, the authentication process of the trusted third party

and various processes within the business unit itself (authorization, accounts, etc.). For many companies,

the emphasis is on harmonizing and homogenizing master data, e.g. reorganizing the master data for

products, customers and outline agreements. Table 5 summarizes the main standardization aspects:

• Scope of standardized data specifies what data is being exchanged among the partners. In the cases

master, material and planning data were relevant.

• Standardization tool specifies how the standardization was achieved. In the cases harmonization and

mapping mechanisms were used. Obviously, the former reflects closer coupling among partners.

• Degree of data standardization reflects the standardization tool and is higher for harmonized data

with identical syntactical and semantical structures.

• Standardization of processes specifies the extend of standardized processes. The cases differed from

globally standardized processes to standardization of selected processes.

Summary and Conclusions

This paper aimed at describing the role and nature of Business Networking systems, BNS. These systems

are critical for establishing networkability, which is a necessity for achieving and sustaining competitive

advantage. We have shown that classical IOS were faced with adoption problems, and that aligning busi-

ness and IT strategies is of foremost importance in practice. In addition it was observed that many com-

panies made investments in enhancing their internal information infrastructure. These ERP systems are

now being enhanced with interorganizational modules which we referred to as BNS. Three types of BNS

were presented that encompass supply chain management as well as electronic commerce systems. In

doing so, the isolated perspective on one specific concept which is widespread in literature and practice

can be overcome. All three BNS types were illustrated in three case studies. Based on the project work in

these cases four lessons were formulated.


21

First, during the definition of the project focus, establishing a business and adoption perspective was

important. This takes into account that BNS are not primarily technological but business projects which

rely on the participation of users. Second, BNS have to be configured and tailored to the relationships.

Partner profiling was presented as a successful technique to reach these goals. Profiles provide a transpar-

ent view of the current partner situation and form the basis for broad and systematic partner integration.

As customer profiles, they are valuable marketing and customer retention tools. Especially, the modular

design of coordination outputs and standard relationships reduced the time for setting up new relation-

ships. In providing a technique for collecting information on partners, processes and systems, partner

profiling supported the alignment of business and IT issues.

Third, all cases dealt with creating win-win scenarios to attain a buy-in from the stakeholders. Costs and

benefits were calculated on the basis of quick wins that were derived from a first pilot implementation. As

the Commtech case suggests, this is a major success factor for data sharing systems, such as EDI, and an

important element in explaining the adoption lag of IOS. Finally, when designing a BNS, the objects

exchanged as well as the exchange processes need to be clearly specified.

This research has focused on transaction-oriented BNS and excluded knowledge-oriented BNS as well as

the most recent developments towards enterprise or industry portals. These areas as well as the conver-

gence of BNS and classical IOS towards what we called business portals are important areas for future

research.


22

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26

Inter-business

Intra-business

00s90s80s

DistributedERP-Systems

Supply Chain Manage-ment and ElectronicCommerce Modules

PortalsEDI ElectronicMarkets

Time

Scope of Business

Networking

BNS development path

“Classical” IOS development path

Figure 1: Evolution of Business Networking Systems


27

Internal system(ERP-system)

Internal system(ERP-system)

Data Sharing systems

Supply Chain Management systems

Electronic Commerce systems

Business Networking systems1

3

2

Figure 2: Types of Transaction-oriented Business Networking Systems


28

FunctionData

Visibility

Accountability

Single Signal Performance

Real time

n:m connectivity

Figure 3: Business Networking Requirements for Data and Functions


29

2. Standardizedcoordination outputs

Profile of partner X

4. Partner specific set ofcoordination outputs

3. Partner specificbusiness relationshiprequirements

1. Business relationshipdrivers

Business Relationship Drivers partner X

StrategyImportance of customerSmall Customer ClusterCustomer TiersStructure of customer internal business networkDependency of entityMarket SegmentOpportunities and Threats for customer in partnershipOpportunities and Threats for Supplier in partnershipGuess for WinWin Situation for further partneringPartneringCooperation StrategyProducts

ProcessRelevant Customer ProcessesNew allocation of tasksProcess outputs

Information Systems (IS)Relevant Customer IS ArchitectureIS Integration with Supplier

Figure 4: Partner Profile Components and Example for Relationship Drivers


30

Classical Interorganizational Systems (IOS)

Business Networking Systems (BNS)

System types Electronic Data Interchange

Clearing Centers

Electronic Markets

Data Sharing (Distributed ERP) Systems

Supply Chain Management Systems

Electronic Commerce Systems

Development path Starting within external business networks, implementation of market mechanisms,

low integration

Starting with internal integration, expands within intern and stable business networks,

high integration

Transaction complexity Low High

Table 1: Interorganizational and Business Networking Systems


31

Internal Business Systems (e.g. traditional ERP)

Business Networking Systems

Stability High Medium to low

Authority and control High Medium to low

Autonomy of partners Low Medium to high

Dependence High Medium

Conflict potential Low to medium Medium to high

Process knowledge High Medium to low

Table 2: Specifics of Business Networking Systems


32

Partners

Type of System Internal Mixed

(internal and external) External

Electronic Commerce ETA SA

Supply Chain Management

Riverwood International

Data Sharing / Distributed ERP

Commtech

Table 3: Positioning of BNS Cases


33

Commtech ETA SA Riverwood International

Step 1: Focus Project

Goal: Improvement of

Availability of internal proc-ess information

Information management in order process

Information on customer pro-cesses and customer service

Type of BNS Data Sharing Electronic commerce Supply chain management

Step 2: Profile Partners

Partner setting Internal / few partners (5) Mixed / few partners (15 represent majority of reve-nues); many small partners (approx. 1500)

External / many partners (approx. 2000)

Type of partner pro-file

Not used Used in the form of customer workshops

Used for all small customers, for large customers in the form of customer workshops

Step 3: Create Reciprocity (Win-Win Scenarios)

Transfer payments New project due dates, new project budgets

Shorter and guaranteed de-livery times

Price reductions, free hard-ware and software

Step 4: Standardize Exchange Processes and Data

Scope of standardized data

Broad (multiple master data)

Low (material data only)

Medium (material, forecasting and planning data)

Standardization tool Harmonization Mapping Mixed (harmonization of material and mapping of forecasting and planning data)

Degree of data standardization

High (same syntax, same seman-tics)

Low (different syntax, same se-mantics)

Medium (high for material, low for forecasts and plans)

Standardization of processes

High (global processes)

Low (ordering processes only)

Medium (supply chain processes only)

Table 4: Design Issues in BNS Cases


34

Commtech ETA SA Riverwood International

Data

Accountability Material, vendor, customer, … Material Material, forecasts, plans

Visibility Credit limits, head counts, costs, taxes, …

Inventory, order status Production plans, sales fore-casts, inventories

Single signal Master data Inventory Demand signals

Functions

Real Time Credit limit check, One bill to customer, Global contracts, drill-down in taxes

Delivery dates, order status ATP, vendor managed inven-tories

N:m connectivity Master data management Delivery dates ATP

Performance Performance of distributed transactions

Interfaces to ERP systems Performance of ATP server

Table 5: Specification of Data and Function in BNS Cases

Documents

Business Networking Systems: Characteristics and Lessons ... · two evolutions paths, an interorganizational one which encompasses EDI, electronic markets, and an intraorganizational