A significant problem is that of mindset. In the NHS a mad scramble to use up budgets in the fear that departments will be short-changed next time round meant it was almost impossible to get the attention of buyers who will be directly affected by the recent announcement that the NHS intends installing e-procurement systems.
A project to reduce pricing errors at a major truck manufacturer stalled because sales and manufacturing managers had to figure out how they relate to one another. The delay cost six months of management time. But it isn’t just users that have to re-think business practices.
Packaged application vendors have long made it near impossible to connect with one another by creating proprietary codes. This, together with the vendors’ ‘definition’ of individual business processes, translates into an expensive integration headache. The situation is so complex that one expert recently suggested that laying down the foundational integration work to proliferate e-business would take five to 10 years.
Integration accounts for significant amounts of IT expenditure among large organisations. In the US, the move towards straight through processing (STP) in the equity trading market is expected to cost around $8bn (#5.6bn) up to 2005 – much of which will go on developing interfaces needed to make STP a working reality.
Industry-specific initiatives like those occurring in chemicals, construction and retail, combined with the encouragement of global brands like Pirelli is helping. Pirelli created a simple solution for its many smaller tyre distributors that allows them to place orders online and review stock positions so they can provide a better service to customers. Pirelli bore the cost because it was worthwhile. But examples are rare and it all adds up to one simple truth – e-business is not (yet) delivering the efficiencies that people expected to drive e-business investments.
While organisations happily apply Pareto techniques to integrating the top 80% of their suppliers by transaction values, it is the remaining 20% of value that account for 80% of the transaction costs they incur.
Most of these are small businesses for which integration is a non-starter.
I won’t pretend that integrating the many smaller business will be easy and it may not happen in my lifetime. But if organisations are looking for ways to use e-business to radically reduce cost, then this seems a good place to start looking.