The Costs of e.business

In the later 1990's it was fashionable to say that the Internet would be much cheaper than Electronic Data Interchange, and indeed than any other form of computer networking, for business communications - B to B. This was based on the belief that everyone would have access to the Internet in any case, at home and in the office, and that, therefore, they would not have to buy special purpose hardware and software to communicate with their key customers and suppliers via a Value Added Network.

In our new decade, we have learned that it can take rather a long time for everyone you want to do business with to be connected to the Internet in a high speed, low cost way. Integration with internal computer applications has turned out to be, unsurprisingly, much more complex than e.mail. Many companies who were told to "get on the Internet or die" have discovered that an amateurish or irrelevant web site is an expensive way to fail to attract customers. Many e.exchanges have turned out to be unprofitable, at least in the near term. When a customer is not prepared to buy your offering on-line, you may have to talk persuasively to them face-to-face! When you want longer term service and quality, you cannot e.auction your requirements every few months. Achieving necessary levels of security and dependability may be time-consuming.

This is in no way to deny the great benefits of the Internet in terms of global reach and exciting new facilities. The potential is immense in terms of bringing together all buyers, sellers, co-workers, citizens and communities of interest. Many firms have gained profitable access to new markets for their sales and for their supplies.

However, all forms of linking businesses are hard work unless the basic groundwork has been thoroughly done. A key issue for many business and administrative organisations are that if you do not have agreed, joint effective processes with your customers and suppliers, standard identities for products and your trading locations, agreed definitions for your data and messages, as well as structured master data which has been pre-aligned with that of your trading partners, then no type of network, Internet or VAN, and no new technology is going to make much difference.

A recent study by McKinsey (McKinsey Quarterly 2003) has suggested that businesses have "little to gain by replacing EDI by XML quickly". An XML message carries much more data than EDI since it cannot assume that there is a well-structured business process and known data relationships among value chain participants. It has been calculated by McKinsey that setting up a new document in XML can cost 10 times as much as in EDI. The more complex the data, the greater this discrepancy becomes. On average, implementation costs for XML are estimated to exceed those for EDI by 50%. Operational costs are said to be similar although varying within a wide range. However, where organisations do agree more simple and standard business processes, shared unique identities for traded products and for value chain locations, technology independent data and message definitions, and well structured master data for products, etc, which are pre-aligned prior to trading, the costs of both business and e.business can be brought down substantially. More data can then be automatically generated, communicated, processed and actioned. This is what true EDI is, although much of it has failed to live up to this vision, because of data incompatibilities resulting in messages needing to be printed out and then re-keyed, or resulting in cross-reference tables which are difficult to maintain.

Perhaps we should call this vision of process and data compatibility "ADI" - automatic data interchange. This type of e.business will be the lowest cost of all for large volumes of structured business and administrative communications. It will be able to use cost-effectively any appropriate syntax (following Simpl.e.business principles) and network, both via the Internet and via other cost-effective networks and data links. Of course, organisations will need to undertake substantial preparatory work; but this will be less expensive in the longer term, both as a way of doing business and also as a way of containing the costs of computing and communication.

It may be that the use of Internet protocols (IP) will become the only way of communicating across computer networks if that is the only basis on which the required software is supplied. But if so, that will be some long time away.

e.business is evolving fast. Therefore organisations need to look carefully at both current and future requirements, potential benefits and associated costs. Do not assume the answers. Do your own sums.

Costs of e.business include -

1. business process re-development costs ( and the desired benefits)
2. design costs - e.g. for web sites
3. data definition and cleansing
4. costs of hardware and software, both capital and ongoing maintenance and support costs
5. network costs - installation and running
6. people skills and training, and/or outside support
7. security - protection from unauthorised access and viruses, back-up in case of loss of use or of data

The UKPeb Partners can advise on the best approach to e.business for your type of company in your industry. Benchmarking tools are available, as are standards and best practice experience which will help to improve the way you do business, as well as to select the most economic way to e.enable your business.