As Stan Lepeak, an analyst with Meta Group, looks at electronic commerce, he sees an extremely lucrative area for outsourcing, with a high percentage of applications being turned over to providers. That fact, said Lepeak, means that relationship management will play a key role in success or failure.
“I think a message would be to remember everything you’ve already learned about outsourcing but look to become even more proactive and more intelligent about your outsourcing decisions as you move into electronic commerce,” he said. “Success or failure related to electronic commerce will, to a large part, be based on how successfully you select and manage outsourcing relationships.”
The future of outsourcing relationships in e-commerce is far-reaching, according to Lepeak.
“Virtually all organizations will be outsourcing some component of e-commerce,” he said. “As times goes by, that component will become even larger.”
The Future of E-Commerce
The more advanced and futuristic the e-commerce scenarios, the more they lend themselves to outsourcing.
“When e-commerce is viewed from the context of ‘let’s sell stuff,’ that may not require an extensive use of outsourcing partners,” said Lepeak, “but if you get into business-to-business commerce, the construction of communities of interest or dynamic trading networks where multiple organizations are conducting commerce amongst themselves, that really demands a third party group to come in and manage. The scope of those commercial efforts is too great for any single organization to be able to manage.”
He cites the Automotive Network Exchange as an example of a complex business-to-business scenario. The exchange is an initiative for the Big Three automobile manufacturers — GM, Ford and Chrysler. Through the exchange, the three companies are tied together with their suppliers and have the benefit of using this large network to conduct all of their business.
“The scope and complexity of that is much to great for GM to run on its own,” said Lepeak. “If you look at it as an environment where GM, Ford and Chrysler all will be interacting, no one of them could run it on their own, just for political reasons.”
The Impact on Business Processes
As companies approach e-commerce, they should look at how the opportunities presented by technology will cause business processes to change. “From that, they need to look at the technology demands to support those business processes, then do a gap analysis between what is being delivered today and what can be delivered, ” said Lepeak. “When you define your technology needs more narrowly, then you can identify the service companies.”
Another step in the process is identifying weaknesses. Lepeak said that some companies may discover such a weakness in the important area of developing creative content. Because the companies will be serving customers directly, the applications developed should be very intuitive and user friendly. That need may send companies to boutiques that specialize in that piece of the puzzle. Later, people with skills in extracting data from legacy systems will be needed. The analysis of transactions requires yet another set of skills.
Trial by Management
Therein lies a management challenge. Companies that work with teams of vendors must be certain that they work well together.
“How can you ensure that they work together where necessary,” said Lepeak. “How can you ensure consistent handoff between outsourcers when appropriate? You may be throwing together boutiques from Madison with some of your EDS folks. Can you manage those different, disparate types of providers?”
The firms that can do that well will be much more successful than those who can’t, said Lepeak. That fact leads many companies to question whether they want to manage outsourcers on their own or turn to an outsourcer for management and use a subcontractor approach. Outsourcing management can leave the company free to pursue its core business.
Lepeak recalled a conversation with one of his clients. “When asked if they wanted to manage their own web site, he said, ‘when I do a TV commercial, I don’t buy a TV station and a production company. Why would I want to do that with the internet?'”
Some people have misconceptions about e-commerce, according to Lepeak. Because it runs on a computer, they view it as a computer application and think it should be run by their IT group. “The fact that it happens to run o a computer is secondary,” he said. “It’s really a new way of doing business.”
That new way of business allows companies to focus on their core competencies rather than trying to create the infrastructure and manage it. That freedom is important, said Lepeak, “especially given the fast paced nature of electronic commerce technology.”
Lessons from the Outsourcing Primer:
- Prepare to become more proactive about outsourcing decisions.
- Understand how business processes will be changed.
- Define your technical needs.
- Identify your weaknesses.
- Be aware of the management challenges.