Making Extranets Work

Of the many figures bandied about
on the potential of ecommerce, this is another. Electronic business-to-business commerce
will top $200 million by the year 2001 in transactions processed annually. Be that as it
may, the technology that will play a key role in shaping its growth and development will
be extranets. Extranets enable companies in any industry to work faster and smarter by
sharing mission-critical information with their business partners. They also enable them
to cut costs by optimizing business processes by, for example, eliminating overhead and
operating expenses.

What are extranets?
Extranets are semi-private networks located outside the corporate firewall which provide
selected internal information to business partners such as clients/customers and suppliers
as well as to remote employees. Extranets support activities such as sales and marketing,
supply chain management, customer/product support, employee support, office equipment and
supply procurement.

Extranets are an important business tool that take advantage of internet technology to
achieve real cost savings and faster responses to changing business conditions. There are
many reasons that make extranets an important business tool. Some of them are:

* They are the future of IP-based business-to-business ecommerce, which is expected to
touch $200 billion in transactions processed annually by the year 2001, an amount eight
times greater than the much publicized business-to-consumer transactions such as buying
books and cars over the internet.

Thus far, electronic business-to-business commerce has been limited to companies with the
ability and resources to pay for expensive proprietary EDI systems. IP-based
business-to-business ecommerce eliminates the need for expensive proprietary software and
network infrastructures. As a result, companies which install extranets can do business
with a larger number of partners at significantly lower cost.

* They lower costs by eliminating costly overhead and operational costs. In addition to
eliminating the costs of proprietary EDI systems, extranets reduce the time and resources
that go into activities like order processing. Thus, many companies have achieved major
cost savings by using extranets. In the case of one insurer, business partners too
realized cost savings due to the simplified communications which extranets permit.

* They enable companies to form stronger relationships with their business partners by
allowing them to share mission-critical information with each other. A company’s success
is deeply intertwined with that of its business partners. And so by forming mutually
beneficial relationships with their partners, companies increase their chances of success.

* They can provide instantaneous feedback on market trends. By allowing monitoring of the
information accessed on the site, extranets provide instantaneous feedback on product
sales and customer/supplier requirements, giving companies the ability to keep their
fingers on the pulse of their businesses on a day-to-day basis and respond quickly and
appropriately.

Developing an effective extranet
Extranets can have a profound-and profitable-impact on how a company does business and how
it appears to its customers and suppliers. However, developing a successful extranet
requires companies to make business decisions they may not have had to make before, and
extranets bring together organizations with divergent interests. Therefore, to develop an
effective extranet, companies need a well-defined extranet strategy, a plan of attack for
using this technology. Companies should use a three-stage extranet strategy development
process. They should first identify the technology constraints which limit possible
solutions (5% of the strategy development effort); then focus on business issues (60%);
and then, and only then, turn to specific technology needs (35%).

Therefore, in order to realize maximum benefits from an extranet, the strategy developed
must:

* 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 by consulting a large
cross-section of them.

* 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 wide range of trusted business partners to participate in the pilot program.

* Analyze major competitors’ strategies.

A well-defined extranet strategy will pay for itself many times over. Strategy development
makes up for only 3-10% of total extranet development costs. Therefore, investing in
getting the strategy right can ensure that a company gets the right system up quickly and
cost-effectively rather than spending money and wasting time on redesign or too much
technology.
Benefiting from extranet strategies
Extranet strategies, like other business strategies, are a clear definition of a company’s
goals and the means by which it will achieve them. Thus, an extranet strategy is a plan of
attack that defines the goals for an extranet and the plans for realizing them. Companies
must develop a well-defined strategy for their extranets because only a well-defined
strategy can bring the desired results. In contrast, a firm that implements an extranet
with an ill-defined strategy will end up redesigning and re-implementing the system,
costing the company time, money, and lost opportunities.

A well-defined extranet strategy will simplify the complex task of implementing an
extranet. Extranets combine the difficulties of changing the way a company does business
with the challenges of implementing new technology. Developing an extranet strategy forces
firms to break the problem into specific, manageable stages while staying focused on the
larger, more important goal.

A well-defined extranet strategy will enable companies to anticipate problems. Creating
new business practices is not simple. Developing an extranet strategy forces firms to
think about the issues, particularly those involving business solutions, that will come up
before they actually implement a system. Identifying these potential problems ahead of
time allows companies to develop solutions for them before they arise.

The extranet strategy must focus on business issues. It is true that technology constrains
any business solution, and as a result makes it impossible to completely separate extranet
technology from business development goals. However, technology only sets some limits on
business solutions and should never determine the business issues that any strategy
addresses. Thus, in the case of extranets, while choosing the right web browsers, web
servers, directory servers and authentication systems are important. Decision makers
should make these technology-specific choices after they have defined their business
strategy.

Indeed, a focus on technology can distract attention from more important business issues.
Since technology is seldom a company’s core competency, many firms, perhaps to compensate,
tend to over-emphasize on it when developing strategies which involve IT. However, doing
so may result in an extranet strategy that does not address key business issues or that
requires the purchase of unnecessary technology.

Excerpted from a White Paper
from New World Ventures,
a management consulting firm.

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