A Study in Collaboration

NerveWire finds that tight integration leads to better customer retention

Newton, MA  April 15, 2002  The business impact of integrating a company's business processes and information systems with those of its customers, suppliers and business partners can be substantial, according to a recent study by NerveWire Inc., a management consulting and systems integration firm. Companies that were the most tightly integrated with their trading partners said their initiatives generated, on average, a 40 percent revenue increase, 30 percent cost reduction and 35 percent customer retention rate increase.

However, 14 percent of companies surveyed are very highly integrated with their trading partners in four key business processes: new product development, manufacturing/operations, customer acquisition and retention, and order fulfillment/service delivery. The study showed that the biggest barriers to collaborative commerce for these companies have less to do with the technical complexities of linking different companies' systems and more do to with the organizational complexities of getting companies to work together. For example, the obstacle in which survey respondents reported the least success in addressing was overcoming distrust in sharing proprietary information with other companies.

These were just some of the findings of a NerveWire survey of 162 business and IT executives of North American companies conducted between January and March 2002.  The survey asked respondents to rate on one of four levels the degree to which their operations and systems were integrated with those of outside parties. In most cases, companies at the highest level of collaborative commerce said their initiatives generated substantially greater cost reductions, revenue increases, cycle-time reductions, quality improvements and customer retention rates than did companies at lower levels. For example, comparing companies at the highest level of external integration against those at the second lowest level of integration found 40 percent versus 12 percent average revenue increases; 30 percent versus 14 percent cost reductions; 35 percent versus 14 percent in improving customer retention rates; and 37 percent versus 26 percent cycle-time reductions.

Despite the advantages to integrating tightly with customers, suppliers and business partners, few companies have attained high levels of integration with outside parties and reaped significant benefits. The survey found that only a small minority of companies have reached the highest level of external integration in any of the core functions we asked about:

·      Product development (engineering, design, development and testing)  only 2 percent of companies are very highly integrated with external parties

·      Manufacturing/operations (in-bound logistics, procurement, and production in manufacturing companies, operations in financial services and other service industries)  only 3 percent said they have very high external integration

·      Customer acquisition and retention (marketing, sales, and customer service)  only 4 percent claim to have very high external integration

·      Order fulfillment (distribution, order management, service delivery in financial services)  only 5% have very high external integration

In fact, the survey found that the average level of external integration across all industries and core functions within companies is less than "moderate" (a score of 1.82 on a scale of 1­ to 4, where 1 = minimal and 4 = very high). This means most companies are conducting the majority of their interactions with outside parties through online viewing and electronic exchange of information, but with limited ability for parties to change each other's databases through automated transactions or to link each other's business processes.

Certain industries have far greater levels of collaborative commerce than others, including telecommunications services, high-tech manufacturing and financial services. Industries with low levels of collaborative commerce included industrial manufacturing, energy and public agencies (government and higher education).

"There has been a lot of hype about the business value of collaborative commerce, and our research suggests that it isn't misplaced," said Brian Bouren, a NerveWire vice president who led the research. "Yet it is also clear that most companies are struggling with collaborative commerce. While there surely are great rewards, the obstacles to getting them are formidable."

The survey also asked companies to rate their success in addressing 13 common obstacles to collaborative commerce. The barriers that companies had the least success in overcoming were primarily organizational in nature, not technological. Additionally, the ability to overcome key obstacles separated the those companies that were more integrated from those that were less integrated externally. Those that were more integrated were most successful in addressing five key obstacles:

·      Overcoming internal functional "stovepipes"

·      Creating a business and technology integration "blueprint" to guide the initiative

·      Focusing on customers

·      Integrating technology

·      Gaining executive sponsorship

On average, companies had the least success in overcoming distrust in sharing proprietary information with external parties.

The study also found that companies with high levels of collaborative commerce also have significantly greater levels of internal integration than companies with low levels of collaborative commerce. Companies that reach the fourth and highest level of external integration on average have close to "extensive" internal integration (3.70 on a scale of 1 to 5, 1 = none, 5 = very extensive). In contrast, companies with the lowest level of external integration, on average, have less than "minimal" levels of internal integration (1.86).

"It's much more difficult to link your business operations and systems with customers, suppliers and business partners if you haven't integrated your own operations internally," said Dr. Sanjiv Gossain, NerveWire's chief technology officer. "Most companies that want to participate in this New World of collaborative commerce have a considerable amount of work to do in getting their houses in order."

The extreme sensitivity around sharing proprietary information with trading partners also showed up in respondents' ratings of critical technologies for external integration. Leaders in external integration rated security tools as the most important technology for collaborative commerce over the next two years. Design collaboration software finished second and was followed closely in descending order by supply chain management software, Internet portals and Internet content management systems. Telephone and fax finished at the bottom of the list.

To request a copy of NerveWire's survey report Collaborative Commerce: Compelling Benefits, Significant Obstacles  How e-Business is Becoming THE Business," visit http://www.nervewire.com/thought_leaders/white_papers.htm. The report will be available in May.