There’s No Business Like E-Business

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The Internet and the World Wide Web have provided a wealth of new opportunities for companies¹ eager to do business electronically, and Electronic Business XML (or ebXML) provides an open standard to help make those opportunities possible. Our book discusses the ebXML initiative, but to understand the reasons for ebXML and why it has attracted support from such a wide variety of industry groups, we need to first look at the basic and dramatic changes in business environment brought about by the Internet and the web.

When companies begin sharing information to improve service and product quality, they are truly conducting electronic business. This concept of electronic business, with its benefits in improved business processes and lower costs, is the goal of ebXML.

Relationships among business partners have changed, and now go beyond the common idea of just buying and selling. A few years ago, one of the authors established a database to track paper inventories in the publishing industry—known for secrecy among its companies. After about 18 months of rumored but nonexistent paper shortages resulting from hoarding, and wild gyrations in price levels that hurt both suppliers and customers, leaders in the industry agreed that they needed to share information on inventory levels to prevent further destructive swings. Printing companies agreed to furnish their inventory data in electronic form to a central database that would generate monthly summary statistics so everyone would be working from the same base of solid data on inventories.

Is this an example of electronic business? You bet it is. Were any goods bought or sold as part of this project? No.

This example also shows how businesses in recent years have found business climates becoming much more complex. They need to respond more quickly to changes in business conditions, a more fickle customer base, and demands by customers and stockholder to jump on new opportunities, even in new lines of business, as they become available. Companies have discovered that they need to use their information systems as strategic assets to move with more speed and agility in this environment. ebXML's specifications encourage the development of systems that address these kinds of business scenarios.

The ebXML technology (explained more fully later in the book) is built specifically for meeting these conditions, because ebXML:

Organizes business content around business processes rather than fixed documents, and interchangeable core components rather than hard-coded, predefined data elements, companies can relate their current practices and terminology more easily to changing conditions.

• Automates many aspects of business trading agreements, companies can engage in new and innovative relationships with partners—even competitors—more easily.

• Lists industry processes, messages, core components, and other business objects needed to conduct e-business in distributed registries and repositories, rather than in either a central store or in each user's system, the software needed to run ebXML applications can be made less complex and less expensive.

• Takes advantage of existing Internet technical standards to develop its message structure and electronic envelopes, almost any means of Internet transport, such as the web or email, can carry ebXML messages. Thus, even the smallest companies already have much of the technology needed to begin running ebXML.

So what is this thing we call electronic business or e-business? The popular concept of electronic business is retail sales over the web—with Amazon.com perhaps the most well-known example. In the late 1990s, the success of these "e-tailers" triggered a headlong charge by established brands to secure their own web presence.

But any businessperson can tell you that doing business between companies is more than just selling consumer goods. It covers the entire panoply of interactions with suppliers, distributors, investors, staff, and customers—all of the entities that have a stake in the performance of the company. ebXML is designed to extend the benefits of e-business to a much wider audience than ever before, covering the entire potential spectrum of this panoply of interactions.

Of course, a good deal of important business activity goes on inside a company, not just between business partners. Because ebXML concentrates on the interactions among companies, this article also discusses those kinds of business conditions.

This article reviews electronic business in business terms. E-business indeed depends on technology, but until very recently the "business" side of e-business has gotten less attention than the highly visible technology that has mesmerized normally skeptical businesspeople. The ebXML initiative addresses these business issues, which are the focus of this article. The article also explores how ebXML encourages development of real business solutions by making technology just a simple enabler.

In Case You Hadn't Noticed, Doing Business Is Different Now

The way companies do business is changing—and quickly. The roles of supplier, customer, and distributor have blurred. Competition is increasing and the nature of that competition is changing. Customers are becoming more demanding and simultaneously less loyal. And the pace of change has picked up to what is now called Internet time. The scale, scope, _and potential payoff have also grown, along with _the complexity and risk.

Being open has become a big win for companies. Businesses that interact with more suppliers, more customers, and a larger segment of industry often see increases to the bottom line. This has resulted in a paradigm shift in corporate philosophy. Any e-business solution needs to address these metrics and conditions.

Let's start with some basic principles and some real-life examples of how e-business has changed business.

The first realization is that the amount of information available to customers has increased to such an extent that the relationship of supplier to customer has changed markedly in the customer's favor. During most of the 20th century, suppliers controlled the delivery of goods and services, and particularly the information associated with those goods and services. Except for highly regulated industries such as the utility industry, suppliers controlled pricing and managed expectations. Suppliers had one way of doing business, and while they often talked a good game about meeting customer needs, if you were the customer you did business the suppliers' way.

For companies, this meant higher overheads from teams of intermediaries, either independent of the suppliers or in the suppliers' employ. These intermediaries—distributors, wholesalers, jobbers, account executives, customer service representatives, or just salespeople—acted as the conduits of information between the creators of the goods or services and _the customers. In many cases, these intermediaries provided important distribution services—getting the physical product into a store and on the shelves, for example. But they also served as the agents of the customers in their dealings with suppliers, and would go to bat for the customers if they had problems.

In the late 1980s, for example, one of this book's authors founded a technology export service that represented American software companies overseas, providing marketing and logistics as well as licensing, and in some cases end-user technical assistance. The clients for this service were smaller developers, often one or two persons, who couldn't afford marketing or customer support outside the United States. The export company acted as a reseller; the American suppliers sold their products to the export company, which in turn resold the software to customers (mainly dealers) overseas. The export company handled all shipping, delivery, and financial terms, such as letters of credit. The client software vendors made sales that they otherwise wouldn't have been able to handle, the dealers overseas got access to software products they wouldn't otherwise have even known about, and the export company made a little money in the process.

Today, the export company would serve little if any useful purpose.² American software vendors can and do sell their products to business or end-user customers in most countries in the world directly over the web—except for software with sophisticated encryption or potential military use (an increasingly rare occurrence). Other vendors of physical goods utilize package-delivery services that can handle shipments to most places on the globe and provide online access to their shipping status. More U.S. banks now operate internationally and can deal with most major currencies, likewise giving almost real-time status of funds transfers. Repeat this scenario for stockbrokers and travel agents, who essentially once provided information to customers, many of whom can now get this information without the need for intermediaries.

What has happened in 15 years that made these services largely redundant? The end of the Cold War and the triumph of Western capitalism as the world's dominant business model happened, of course, which opened new markets for trade and investment worldwide. For the information technology industry, it meant a loosening of the restrictions on exporting Western (especially American) technology. All of these conditions contributed to a worldwide market for information technology, which contributed directly to the development of the World Wide Web.

In his book The Lexus and the Olive Tree, Thomas Friedman calls this process the democratization of technology,³ which he credits to the accumulated innovations in computer systems, telecommunications, chip design, miniaturization, compression technologies, increasing bandwidth, and the dramatic drop in the price for storage capacity. He describes it this way:

So when I say that the innovations in computerization, miniaturization, telecommunication, and digitization have democratized technology, what I mean is that they have made it possible for hundreds of millions of people around the world to get connected and exchange information, news, knowledge, money, family photos, financial trades, music or television shows in ways, and to a degree, never witnessed before.

With the web and its associated client/server technology, customers can now plug right into manufacturers' internal systems and get the kinds of information for which they formerly depended on intermediaries such as brokers or clients. The ability of manufacturers to provide this level of information directly to customers changed the expectations of customers and demands on suppliers. Manufacturers could now deal directly with the end customers, lower many of the costs, and provide a higher level _of customer service. Intermediaries would need to find new ways to serve their customers—or face extinction.

With the Internet and web, customers also discover that they share many of the same information needs of other customers. Online email lists and message boards enable customers with similar questions to share their questions and concerns, and compare notes on solutions. Smart companies set up their own email lists and message boards to encourage customers to share their experiences, rather than paying for extra customer support staff. These kinds of facilities free the customer support staff to solve the really difficult problems, not the routine questions.

Even where suppliers already dealt directly with their customers, the nature of business has changed drastically. Paper companies serving the graphic arts market, for example, used to rely almost exclusively on direct sales forces for their major clients, the printing companies that produced long-run magazines and catalogs, and sometimes even the publishers of those books who purchased the paper. Most paper salespeople were (and still are) as knowledgeable about graphic arts processes as the printers themselves, and could help the publishers or printers select the appropriate paper grades for the jobs they had planned. The salespeople also knew the production people in the paper mills and could track the status of production or shipping for the customer.

With the web, however, many paper mills now put their catalogs online, as well as provide real-time access to production orders. The more enterprising paper mills help manage the customers' paper inventories, cutting down the need for per-job procurement and reducing overall inventory levels.⁴ As with third-party services, the job of direct salespeople changed and in many cases became more specialized, reducing the need for frequent direct contacts, and thus reducing the need for a large sales force.

These examples illustrate the changing nature of supplier/customer interactions resulting from more and better (more accurate and timely) information available to customers. This change provides customers with greater power, and the businesses that provide more of this information demanded by customers are more likely to succeed than those that try to operate in the earlier, more traditional mode.

The result of the process is a higher level of service—certainly to the customer, but in many cases with benefits to the supplier as well. Here is another example from the paper industry: The practice of some paper companies to manage their customers' inventories is based on the ability to track consumption of individual units of inventory, in this instance the large rolls of paper mounted on printing presses. By tracking the individual units, suppliers and customers can watch inventory levels more closely and with more precision. The result is less need for expensive inventory cushions and potentially lower costs to the customer.

But this same practice of tracking individual rolls of paper also lets the printing company report on the performance of the paper more precisely. The paper mill can now capture data on the amount of waste from the roll; if the roll breaks on the press, the paper mill can trace those data items directly back to its own internal production processes. With this information, paper mills can answer questions such as whether higher waste numbers of paper-break happen because of a different kind of pulp or more _acidity in the water during production. Most of the publication paper mills now have statistical process-control techniques, for which this kind of performance feedback is golden.⁵ Once companies start collecting these kinds of data, new statistical tools make it possible to find patterns or inter-relationships in the data that may not have been obvious before, a practice called data mining.⁶

These scenarios show that with the web, modern information systems, and a more collaborative business model, you can have better service, lower cost, and at least the potential for a higher-quality product. Yes, business is different from just a few short years ago—and, in many respects, better.

One other point about these first scenarios. Look at the many and varied kinds of electronic interactions available between trading partners; they now go beyond the common idea of electronic commerce that entails just buying and selling. When companies begin sharing more information to improve service and product quality, they are truly conducting electronic business. This concept of electronic business, with its benefits in improved business processes and lower costs, is the goal of ebXML.