Less than 50% of all interactions between business partners are performed electronically. While data flows at the speed of light between computers within the four walls of a corporation, the information flowing between the firewalls of business partners often moves at a snail’s pace. When data reaches the edge of the enterprise, it stops and waits for a person to convert the data from digital into analog format. Information shared between business partners is often exchanged via mail, fax phone or email. In some cases, the process is semi-automated with people keying data into a website.
On the other side, the recipient must convert the data back from analog to digital format, which usually involves rekeying the information into the company’s own applications. The inefficiencies resulting from this lack of automation create a tremendous drag on productivity throughout the world. In fact, many people have referred to the commercial activities that occur between companies—business-to-business (B2B)—as the most inefficient part of the global economy.
Over the past 20 years hundreds of technology vendors have tried to break down the barriers to B2B electronic commerce with innovative and disruptive technologies. During the dot-com era, venture capitalists invested billions in startups focused on B2B integration and e-commerce. The investments have come not just from Silicon Valley, but from big corporations as well. In the past 20 years, over 60% of the Fortune 50 has made direct investments in companies that provide B2B e-commerce technologies. But most of these investments have failed to meet expectations.
Consider the following statistics:
Retail—The UK retail industry has one of the most technologically advanced supply chains in the world with widespread use of B2B integration. The EDI standards introduced in the 1970s have gained adoption by all the major retail chains. A recent GS1 UK study found that 87% of purchase orders and 84% of electronic invoices are exchanged via EDI today. But a lot of work remains to be done. Only 38% of shipments have an electronic ship notice associated with them.
Automotive—The European automotive industry is also very advanced in its adoption of B2B integration technologies for the supply chain. However, only 40% of auto suppliers receive delivery instructions and delivery forecasts via EDI technologies that were introduced in the 1970s. And even fewer—less than 30%—receive purchase orders and invoices electronically. The remaining data exchange is conducted using semi-automated (analog) methods such as web portals, email and faxes.
Financial Services—The US securities industry has been a pioneer in adopting B2B integration standards such as FIX and SWIFT for trading of stocks in the past few decades. However, most of the trading of bonds, hedge funds and derivatives is not fully automated. Faxes, emails and phone calls are used to exchange information between investment managers, broker/dealers, custodians and depositories.
Service Sector—In 2001, the European Union passed its first directive authorizing the use of electronic invoicing. The EU requires strict controls on the invoices used as the basis for VAT collections. However, over 10 years later less than 10% of the invoices exchanged throughout Europe are electronic. While retailers and manufacturers in the supply chain have achieved relatively high levels of adoption the uptake amongst public sector and service sector organizations remains very low.
But what is that makes B2B integration so hard? There are lots of reasons, both technical and business-oriented in nature.
The purpose of B2B integration is to take the data out of one company’s systems and transfer it into another company’s systems. The process would be fairly straightforward if every company used the same business applications. However, they do not. Not only are there many different vendors—SAP, Oracle, IBM, Infor, Microsoft, JDA, QAD, SunGard, Sage and Intuit to name a few, but each of these companies offers multiple different applications.
So what’s the probability that the two companies wishing to exchange data both run the same applications behind their firewalls? Fairly low. In other words, the source is different than the target.
Suppose a purchase order was being sent from a large company using SAP to a small company using Intuit’s QuickBooks. The purchase order fields within SAP must be extracted into what SAP refers to as an Intermediate Document (IDoc). The fields in the IDoc must be mapped to the corresponding fields in the native format of the QuickBooks application QXML. Although this mapping process is not difficult, it is time consuming and error prone.
Suppose the large company had 1000 suppliers it needs to send electronic orders to. To do business electronically the company would need to map the format of its SAP application to the 1000 different systems of its suppliers. This would be extremely expensive and time consuming. So the industry came up with the idea to create “standards.” Using standards, every company could simply map to one, common XML format, greatly reducing the time and cost required to integrate.
But There Are Too Many Standards
The first of these standards was Electronic Data Interchange (EDI), which was introduced in the late 1960s. EDI was very successful as a universal standard that gained adoption across a wide range of industries from insurance, banking and health care to transportation, manufacturing and retail. However, different versions of EDI were created in each major country—American National Standards Institute (ANSI) in the US; Tradacoms in the UK; GENCOD in France; VDA in Germany; EAIJ in Japan.
In the late 1990s as globalization was becoming critical to success, representatives from various industries congregated to create global standards which would break down the barriers created by the various EDI standards. These organizations also desired to use a more flexible and modern technology approach based upon XML for the standards. So the industry began to create new XML standards–lots of them. RosettaNet XML for high tech; SPEC 2000 for aerospace; CIDX for chemicals; PIDX for oil and gas to name a few. Today there are over 100 XML based standards in use for B2B integration. Many apply only to a specific business process or a specialized group of companies in a particular industry.
Some companies use the newer XML standards, but many still use older standards such as EDI. Those that use an industry-specific XML standard such as RosettaNet will encounter obstacles when they attempt integrate with companies outside their immediate industry as these companies will use a different version of XML such as SPEC 2000.
B2B initiatives have very different adoption characteristics than technologies used by an individual company. For example, suppose that the CIO of a Fortune Global 500 company decides that he or she wants the whole business to standardize on using Windows-based PCs platform. The CIO only needs to gain the agreement of a handful of executives before issuing a mandate to the employee population about the initiative. Because everyone in the IT organization reports to the CIO they have no choice but to comply. A few Mac users within the company might put up roadblocks to delay the switch. However, ultimately these end users will have to convert to the PC as they all report up to the CEO, who is onboard with the plan. But the adoption process for new technologies changes radically once you extend beyond the four walls of a single company.
In the B2B scenario, one company must convince its business partners to embrace a new type of technology. The top 50 companies in the world have a great deal of influence on their business partners due to the billions of dollars they wield in purchasing spend. These very large organizations have the most success convincing their business partners to participate in B2B integration programs.
But what happens when a company that is not among the 50 largest in the world introduces a B2B e-commerce initiative? Larger business partners who already use B2B integration technologies will usually comply rapidly. The remaining 80% of the business partner community—the small and midsized businesses—may take years to onboard.
Small Businesses Struggle to Adopt B2B
Small businesses represent the majority of companies in the world. In industries such as health care, retail and manufacturing, small businesses outnumber large ones by a factor of 1000-to-1. These small businesses typically lack the budget, resources and expertise to implement sophisticated B2B technologies such as EDI and XML. To support B2B technologies these companies would need to purchase specialized integration software. Additionally, the suppliers may need to hire someone with B2B skills or send their IT staff to training courses. As a result, the adoption rates amongst small business are relatively low.
While technology initiatives within a single company typically occur over a period of months or years, B2B e-commerce programs are rolled out over a period of decades. If you want to determine how long a B2B program will take to be adopted follow these steps. First, calculate what you expect a technology rollout to take within the four walls of a single company. Then, multiply it by 10.