This story started out to be quite simple. Ask high-level purchasing executives at two or three Fortune 500 companies how they’ve fared in implementing their e-procurement initiatives. The result? Add to our nation’s most-guarded secrets, excluding the instructions for making nuclear bombs, the e-procurement plans of some of America’s biggest brand-name companies. However, we weren’t entirely skunked. Another story emerged, one that illustrates the different personalities of old-and new-economy companies.
In their struggles to survive and earn some respect, Internet companies are building new types of organizations designed specifically to harness the Internet’s power to distribute information. Their tinkering may in time inspire changes in the way all organizations think and behave. This is the so-called “paradigm shift.” Net gurus have preached from the beginning; it’s not technology that actually powers the Internet, but the unfettered flow of information. Like the Biblical tree of knowledge, once you pluck off an apple, stuff happens, welcome or not.
The Internet is a state of mind, which conjures up a number of flaky images until the concept is seen in action. Dell Computer Corp., for one, is hardly flaky. In an e-mail message, spokesperson Venancio Figueroa III says, “One of the primary drivers of implementing the Internet in our direct business model is that we believe we can compress time and distance — we call this velocity — which gives us a competitive advantage over others. We’d rather be in the business of managing our intellectual assets (i.e., customer and supplier information) versus managing inventory.”
Dell is considered the prototypical Internet company, in that “Internet company” is losing relevance as a business category, just as having phones doesn’t make it a “phone company.” Rather, Dell demonstrates the adoption of the type of bedrock values that will make companies better able to cope with change, manage their knowledge resources, respond quickly to suppliers, customers, and partners, and operate more openly.
The Velocity of Change
Internet time is fast. The pace astonishes even people who work for and with Internet companies. Internet and tech companies are, for the most part, organized around the Internet because speed is of the essence in order to keep up with technological change. Their willingness to take risks makes them error prone, which is why we’re most familiar with their boo-boos. However, they also recover quickly and move on, and along this bumpy path a new company culture is being formed.
“The speed and urgency with which Internet companies work will creep into all companies,” says Amy Adair, a consultant and founder of The Table Group, an executive coaching and organization consulting firm that works with tech companies. But managing change at any speed can be difficult. Employees can suffer anxiety, as well as a sense of loss in a number of areas, which Adair’s firm identifies as control, turf, structure, personal attachments, meaning, identity and a vision of the future.
A buyer at one Fortune 500 company sees some of these issues surfacing at monthly meetings of a local chapter of the National Association of Purchasing Management. Automation can do that to a person. A wholesale slaughter of purchasing professionals is unlikely, as the strategic value of purchasing will always be important (and seen growing by some industry analysts), and no single technology is expected to take the place of experienced people to man the battlements.
The career threats may not be real, but the worries are, and they can be the cause of serious resistance to change, which in turn makes entertaining new ideas and implementing much-needed technologies difficult, if not impossible. Leadership is important in alleviating much of the stress change can cause.
“Executives need to convey a sense of urgency,” adds Adair. According to Adair, CEOs and executive teams need to make sure they’re crystal clear about the mission and then “over-communicate” with their employees. Employees need to know exactly what is about to change, why the change is necessary, how it will positively affect the company and what the benefits are. The message needs to be repeated over and over again until it reaches the company’s grassroots, where changes are so often the most profound.
We also tend to manage certain types of change better than others. “Americans don’t deal well with symbolic change, which is why many companies couldn’t grasp the Japanese management model,” says Christopher Taylor, Ph.D., a professor of industrial psychology at the University of Arizona.
In the 1980s, technology was concrete. There was a PC, a word processing program and a document to print, accompanied by a step-by-step learning process. In contrast, the Internet requires visualizing concepts and seeking out solutions from a universe of possibilities. It’s all very ethereal. According to Taylor, Americans are trained and educated from an early age to believe only what we see. One of the educational challenges posed by the Internet, e-business and ultimately e-procurement is to free our minds in order to think differently, and to accept that ideas have value.
This is no small challenge. “You’ve got this incredible glut of information, and you’ve got workers who have it or don’t know what to do with it, and have to sort through it,” Taylor says. Companies such as Xerox, Whirlpool and GE have implemented knowledge-management solutions that include internal technical databases created by employees, working groups composed of executives from different business units and regular executive team meetings. What most companies still struggle with is getting information to percolate up from the grassroots, organizing it and getting it where it’s needed.
The By-Product of Information is Responsiveness
A call to The Table Group was picked up on the first ring by a friendly woman named Karen Amador. Her e-mail address, along with the rest of the company’s contact information was easy to find on its user-friendly Web site. A request for an interview with one of the firm’s consultants was followed by a few seconds on hold and the voice of company founder Amy Adair.
Fast, responsive and open, The Table Group shares the same core values as the Internet and tech companies it counsels. Not so most of the old economy companies we contacted, who were slow as molasses, often unresponsive and overly secretive. Business travel and vacations interfered with a couple of interviews we’d hoped to do, and one can conceive of all sorts of excuses to explain the rest. Reasonable or not, depending on who’s on the other end of the phone, the Internet creates very high expectations, responsiveness chief among them.
Linda Lage, a buyer for C. R. Bard/Bard Medical Division, works at the company’s Nogales, Sonora plant in Mexico, where the lack of necessary infrastructure has so far prevented her division from doing business online. Lage finds both good and not-so-good in the value propositions posed by e-procurement. On one hand, supporting and improving her relationships with Bard’s suppliers is a good thing. So is streamlining transactions and creating cost efficiencies.
On the other hand, purchasing is multifaceted, and multiplying the number of suppliers she has to respond to could be a pain. Lage asks, “Do I want to deal with 50 suppliers that all produce the same thing?” Internet companies like to tout the ability to do business “with anyone, everywhere, all the time,” but in typical fashion the details get worked out on the fly, presumably to be left to buyers to manage.
The willingness to work out the details has to happen first. The old paradigm shift again. In Lage’s view it’s a matter of educating buyers because most, even at Fortune 500 Companies like hers, are still in the dark about e-procurement. “It’s still new. People are afraid that they don’t know enough and are self-conscious about not knowing,” Lage says.
Adair made the same comment. “People are hesitant to speak up when they don’t know the issue. There’s often a big disconnect between technical people and content people. There’s definitely a conflict between the two ways of thinking,” she says. In other words, technology has such an overwhelming presence in our lives that non-tech people, which includes most of us, are shamed into keeping silent the fact that we don’t know what the heck most of it is all about.
As kids, our teachers told us that there’s no such thing as a stupid question. We learned as adults that teacher was lying. However, one of the things you’ll hear often from Internet companies is, “I don’t know. I’ll get back to you on that, ASAP.” And they do. This is a far cry from “no comment” and “go look it up on our Web site.” The lesson to be learned is that it’s finally okay to be clueless, as long as you hop to it and get the answers.
We need information in order to do the hopping. One of the benefits of e-procurement, in combination with internal systems that facilitate communication, is that learning becomes one of a company’s core values. In fact, it’s almost putting the cart before the horse to implement e-procurement so that buyers and suppliers can interact without also enabling buyers to work with each other. Knowledge-management as a business process encourages buyers within their own departments and spread out in far-flung divisions to share experiences, solve problems and propose ideas in an open, less self-conscious environment.
What’s The Big Secret?
Having condemned the entire Fortune 500 through guilt by association, it’s time to concede that they face a real dilemma. Information is the king maker of every organization, but the Internet culture is a voracious spoiler. Once a company reaches past its organizational walls and engages the Web in any fashion the expectation is that it will offer more, not less information about itself, whether it’s requested by a customer, supplier or nosy writer. How does a company do business online and still protect its proprietary information?
In declining a request for an interview, Christine Ervin, director of corporate communications for Kellogg’s, said in an e-mail message, “Much of what you are asking for is considered internal company business/decision making/strategy, and we do not comment for competitive reasons.” That certainly covers about all the ground there is to cover. But, in a previous phone conversation Ervin explained that it’s all so new they don’t know what they might reveal to their competitors by talking publicly, so they choose to say nothing. Fair enough. Business doesn’t like uncertainty, and the Internet has a propensity for regularly dispensing unintended consequences.
Every company views the value of its internal business decisions differently. C. R. Bard manufactures highly engineered medical instruments, and its product specifications are closely held. Lage believes the risk that e-procurement can reveal too much about her company’s products is very real.
“If I put items out to bid, instead of working with two suppliers, I’m working with many. They can’t all keep secrets, and you don’t want people to know what you’re interested in,” Lage says. By this, Lage means that the process of sourcing suppliers has to be done carefully so as not to leave a trail of too many clues that tip-off a company’s competitors to what it’s doing.
The word “many” is important. The “one-to-many” e-procurement concept, about which you’re sure to hear a lot, seeks to put buyers in touch with suppliers they never knew existed. This is fine for some businesses, but as in the case of C. R. Bard, it’s not so hot for others.
This argues in favor of collaborative technology decisions that bring buyers into the process. There’s no such thing as a one-size-fits-all e-procurement solution. Large, complex buying organizations with a variety of purchasing requirements may need customized systems. Other companies may choose a combination of solutions targeted at specific products or functions, or may put only a portion of their buying online and keep certain activities out of sight.
Still, e-procurement software and solution providers have gone far in safe-guarding proprietary information. For example, buyers at Chemdex operate within their own private, password-protected areas within the company’s online marketplace. FreeMarkets works closely with buyers to set up careful rules that pre-qualify suppliers, which enables companies to both limit auction participants to a manageable number and screen out any with whom they don’t want to do business.
The truth, however, shall set you free. And the truth is that the Internet makes it awfully hard to keep secrets. It’s not possible to uphold the corporate tight-lipped tradition and at the same time embrace the Internet as a way of doing business. It’s a force to be reckoned with, driven by people who want to know things. Who are these people? They’re customers, suppliers, business partners, shareholders and investors, all of whom are financial partners owed no small amount of gratitude in the form of information.
Transparency has long been a hallmark of American business. But the Internet has revealed that U.S. corporations aren’t nearly as transparent as they should be. This revelation has come about in large part because of the huge number of average Joes and Janes that have poured into financial markets as a direct result of their excitement over technology. Individuals now have more invested in the stock market than traditional institutional investors. They keep investment Web sites like Raging Bull’s very busy by making it their business to know what’s going on inside the companies into which they’ve poured money.
On any given night, company insiders are all over the Web, sharing fascinating insights into their companies on the discussion boards. (Corporate spies, too.) Once taboo subjects such as executive pay and perks, directors’ honorariums, employee problems, bad investments and research and development on new products are all fair game for the online enjoyment of millions. Think Nike and sweat shops. Microsoft and internal e-mails. Oracle and dumpsters.
The Internet tips the scales in favor of the public’s right to know versus a company’s need to keep its internal workings secret. It’s too darn late to pull the plug, but the timing couldn’t be better for purchasing and supply chain management professionals to leverage their knowledge about what is and isn’t truly proprietary within their sphere of influence. Purchasing as a strategic function will change, and getting up to speed on e-procurement technology will go far in keeping the right cats in the bag while satisfying business’s numerous and frenzied stakeholders.
A Vision of The Present
Idealists minimize difficulty, while optimists overcome it. The Internet was invented by optimists to get information from here to there. Pretty simple. People are the most complex component. For the Net to serve its purpose, people need to be free to use it, and to be free, the organizations they work for have to lighten up. Any loss of competitive advantages that now reside in proprietary information and other strategic competencies need to be compared to the benefits of speed, responsiveness and better knowledge management. Openness doesn’t require giving away the store, or even the keys, just dusting off the shelves and opening up the windows.
We leave you with a concrete example provided by Venancio Figueroa at Dell: “On the back-end of the web-enabled supply chain, we have a portal called valuechain.dell.com (password protected) where we share information such as product quality and inventory with our suppliers. We are extending the use of the Internet to also provide more real-time views to suppliers so they can see the demand we’re getting from customers and, from a Dell standpoint, we can see the suppliers’ availability. Given that we have deep relationships with suppliers - about 30 to 35 different suppliers provide Dell with about 90 percent of our materials - we need this visibility. Using the Internet in procurement gives us the immediacy and the flexibility to focus on collaboration, inventory management, seeing the “work in progress” from suppliers, and having them see the dynamic changes in our schedule...”
He closes with, “I hope this helps you.” Now there’s a breath of fresh air.