In last issue we spoke of the six
key steps through which companies can develop a suc-cessful Extranet strategy. We will
quickly touch upon them here. They are:
* Define specific company needs, goals and problems that an extranet is going to address
in the short- and long-term;
* Determine business partners’ needs and long-term strategies and do it by consulting a
large cross-section of users;
* Get the business unit and functional managers who best understand the business issues
and will benefit most from the extranet involved in the strategy development process from
the very beginning;
* Adapt business strategies to meet smaller business partners’ needs;
* Select a broad cross section of most trusted business partners to participate in the
* Analyze major competitors’ strategies.
We now discuss each one in detail, with reference to the examples in the Table below: In
the table, we look at different industry segments and their specific business functions
and how in each case, the extranets have helped.
Define specific company needs, goals, and problems that an extranet is going to address in
the short- and long-term.
The most important part of a strategic planning process is determining goals. And research
shows that extranets developed to meet very specific objectives are the most successful.
For example, Insurer A’s extranet focused exclusively on reducing paperwork for office
supply purchases. As a result, decision makers were able to easily set-and achieve-goals
for the extranet. Buoyed by this success, the company now plans to expand the extranet to
include office furniture and computers.
In contrast, although Insurer B says that it developed its extranet to add value to its
services, it charges customers separately to use it. As a result, clients who have been
reluctant to pay for the service may not immediately consider purchasing insurance from
the company when they are assessing risks. Insurer B should have decided from the
beginning if it needed to add value to its products or gain a revenue stream. By doing so,
its extranet would have capitalized on business opportunities better.
Similarly, the electronics component manufacturer approached its extranet development with
two purposes. The first was to provide distributors with updated product information and
the ability to place orders, and the second was to develop an extranet-in-a-box that it
could sell. Having two different goals delayed the full implementation of the extranet.
Determine business partners’ needs and long-term strategies and do it by consulting a
large cross-section of users.
Buyers and sellers will always have different opinions on the type and quantity of
information they need to work together most effectively. Through careful consultation with
users, companies can achieve the best compromise between their own and their partners’
For example, Insurer A worked closely with its business partners to understand their needs
when developing the extranet. As a result, the company was able to limit the number of
items sold over the extranet and extend cost savings to the suppliers by having them
invoiced once per month.
By contrast, the diversified manufacturer designed its extranet with an open bidding
process because that benefited it most. Its suppliers, however, were upset that this
allowed competitors to undercut their bids and demanded that the company redesign the
extranet, which it did. Had the company consulted its suppliers closely at the beginning
of its development process, it would not have had to incur the cost of a redesign.
Similarly, the aerospace manufacturer implemented its extranet before consulting its
customers. It discovered only after it had put its extranet in place that some of them had
committed to EDI systems and would probably not use the extranet much. By working closely
with its business partners early on, the company could have limited the scope of the
extranet to those functions not addressed by EDI systems or worked with its partners to
enable the EDI systems to work with the internet.
Get the business unit and functional managers who best understand the business issues and
will benefit most from the extranet involved in the strategy development process from the
very beginning. Understanding user needs and incorporating that knowledge into system
design is critical to the success of any IT project. The business unit and functional
managers who will benefit most from the system will have the best understanding of user
needs on the company side. They will also have the best internal knowledge of the needs of
the firm’s business partners since they have the closest relationships with them.
ADAPT STRATEGIES TO MEET SMALLER BUSINESS PARTNERS’ NEEDS: By broadcasting
opportunities over an open network, companies will attract smaller firms they may have not
dealt with in the past whose needs and products can be very different from their usual
large suppliers and customers. As a result, the pilot program should include
representative companies of all sizes.
For example, the diversified manufacturer discovered that smaller firms with which it had
not done business in the past were willing to use its extranet because they did not have
to incur the cost of proprietary EDI systems which they could not afford anyway. The
company, seeing that it benefited from the increased competition for its business, then
learned how to work with these smaller suppliers.
Select a broad cross-section of the most trusted business partners to participate in the
The initial trial will not be perfect. Therefore, the extranet developer should select
firms with which it has a strong relationship because long-time customers and suppliers
are less likely to project any of the pilot program’s problems onto the developer’s whole
way of doing business. For example, the diversified manufacturer’s business partners
complained about the extranet’s open bidding process, but they did not stop doing business
with the company.
ANALYZE MAJOR COMPETITORS’ STRATEGIES: Extranet strategy development should not be
done in a vacuum. Companies can increase the advantages they realize from extranets if
they understand competitors’ offerings. Therefore, as extranets become more widespread,
competitive intelligence and analysis will prove increasingly important, as they are in
any strategic planning effort.
In conclusion, it can be said that Extranets are an important new business tool that take
advantage of Internet technology to achieve real cost savings and faster responses to
changing business conditions.
Because they can have a major impact on a company’s way of doing business, prospective
extranet developers should carefully craft a strategy for their extranets, focus on
business issues in particular, and involve the functional and business unit managers who
best understand the business issues and will benefit most from the extranet.
Excerpted from a White Paper
from New World Ventures, a management consulting firm which provides full range of
extranet development services, ranging from extranet business strategy development through