Strategic Use of Technology in Buying: Intranets and Extranets
by
Charles Lamson
Internet communications are of key importance to marketers. Two innovations have been organizational intranets and extranets. The creation of an intranet, using Windows XP or another platform such as Lotus Notes, allows authorized personnel to gain access to database records which are stored on a central server from their desktop computer. The creation of an extranet involves hooking up authorized suppliers and distributors to the intranet to allow them access to data. The creation of intranets and extranets is an important strategic choice for a firm as this often involves changes in organizational culture and procedures for the different partners in addition to the resolution of issues concerned with network and data access.
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The appeal of extranets lies in their ability to provide cheaper, more effective and, most important, faster means of communicating with others. The pressure for increased effectiveness and speed is due to increasing competition in many markets, decreasing product development times and lucrative rewards for those who get to the market first. Sometimes a matter of weeks can make the difference between achieving this.
Some organizations use extranets for ordering. For example, PC wholesaler Merisel has found that it is 70 percent cheaper to process a customer order through its extranet than to have one of its telesales personnel handle it over the phone. Another example concerns computer chip manufacturer LSI, which was looking for an efficient way to transmit design information among its design team, its subcontractors and its customers. Since 1996 LSI has been working with twelve of of its top 100 customers over the extranet. The time to get a new product to market was the main motivating force behind the move to establish the extranet. LSI is better known as the company which designed the chip used in the Sony Playstation, a 32 bit game machine from Sony Computer Entertainment America that hit the market for Christmas 1994, six weeks before its competitors. Time is of the essence in providing competitive advantage.
However, one should not underestimate the difficulties involved in implementing extranet systems. As it takes two or more organizations to make up an extranet, each must seek to achieve the same high standard of quality of network addressing systems. Difficulties can arise with accusations that 'It's not my network problem, it's yours.' This means that the implementation must be handled sensitively and should involve all the parties concerned.
General electric uses its extranet for bids for parts ordering for its Lighting Division (GELS). This is a highly complex process costing millions of dollars per year. In order to implement the extranet which would enable potential suppliers to access information through the Web. GELS first worked with a cross-section of suppliers on work flow and technical issues, then it held focus groups. GELS helped those suppliers that bought new PCs to support the extranet system by configuring Windows for them. It assisted others with posting purchasing information electronically and pulling that data into their costing systems. GELS also held a four-hour training session for its fifty-five suppliers. Despite all this hard effort, not everyone was happy with the system. One supplier claimed that the extranet had created more work because now he had to pull a GELS engineering drawing off the extranet, print it, analyze it and reply with a quote. He claimed that it took him three hours to extract, analyze and respond to thirteen drawings from GELS extranet- an hour longer than it used to take him using the fax. As this example demonstrates, bringing business partners together online can take considerable effort.
Another difficulty of extranets is that whereas other 'sharing' technologies such as EDI use a set of standards between companies and their customers or suppliers to facilitate B-to-B transactions, uniform technologies are not guaranteed in electronic commerce. Often this extends beyond ordering and fulfillment processes. In addition, with a company's mission-critical databases a needed part of almost any extranet, access privileges and security become massive concerns.
Despite this there can be advantages, particularly for smaller organizations which may wish to create strong electronic bonds to confront large competitors. One such supplier in the US called Monitor Medical found that in confronting huge equipment companies like Baxter International it needed every source of competitive advantage available. Monitor developed an extranet which may provide that advantage by enabling customers to check inventories online, helping sales representatives to respond more quickly to activity in their accounts. One day it might enable customers to check inventories online, helping sales representatives to respond more quickly to activity in their accounts. One day it might enable customers to check inventories online, helping sales representatives to respond more quickly to activity in their accounts and develop a national distribution network of other small suppliers. Ideally, if the extranet works out, large hospital chains might place orders with Monitor Medical rather than with one of the big chains, if it is successful at establishing a network of local distributors.
*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 108-109^
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