B2B exchanges not delivering – yet

According to a joint study by Giga Information Group and Booz Allen Hamilton, most companies are disappointed with the performance of business-to-business exchanges.

According to a joint study by Giga Information Group and Booz Allen Hamilton, most companies are disappointed with the performance of business-to-business (B2B) exchanges, yet still expect to use them for a greater portion of their future business spending.

Nearly half of the respondents to the survey reported that exchanges have ‘mostly’ or ‘absolutely’ failed to meet their expectations, and only ten percent of the respondents felt exchanges met expectations. Those surveyed agreed that organisational changes, such as standardising and developing new procedures, improving and introducing technology systems and introducing integration technology, are needed to capture benefits from exchanges.

The role of CEOs in developing an exchange also can contribute to disappointing results. Chief executives have been driving exchange activities, the study found, which has limited the autonomy of business units. CEOs’ choices often have been driven by strategic purpose (i.e., our competitors have joined so we have to keep up, we can’t afford to not participate in a consortia, etc.), and the operational managers who could make more informed evaluations of the benefits and limits of exchanges often have been involved later in the decision-making process.

However, the Booz Allen/Giga survey also found that, in spite of the challenges, companies expect to conduct the bulk of their direct materials and indirect materials spending through exchanges within three years. ‘We found while companies are disappointed with the benefits they’ve gotten from e-marketplaces, they still see great potential for these intermediaries to make inter-business transactions and collaboration easier and more effective,’ said Giga Vice President Andrew Bartels.

The greatest potential benefit companies envision is saving money – both in the price of goods they buy and in the cost of the processes for buying and selling. Companies also anticipate savings by collaboratively developing products, planning and forecasting demand, production and logistics with partners and managing their relationships with their customers.

Three principal types of exchanges – private exchanges, consortia public exchanges and independent public exchanges – will divide most of the transaction flow. Creating a portfolio of exchanges – as opposed to finding or building one exchange that meets all needs – appears to be the best strategic choice to satisfy all business demands.

However, Booz Allen Vice President Tim Laseter noted that ‘the survey results indicate a growing degree of realism on the part of companies, both in terms of the benefits they can – and can’t – achieve through exchanges, and in terms of the work that is required to achieve these benefits. Companies now realise that exchanges are not panaceas and that hooking up to them is not exactly ‘plug and play.’ Still, it’s clear that companies believe the benefits outweigh the challenges.’

While the survey was conducted prior to the September 11th events and downturn in the economy, Bartels expects the general trends in the survey to still hold true, though probably with some delays.

‘Companies in the near term are focusing on very tactical solutions to help them survive this environment,’ said Bartels.