The Emergence of the Full Solution Partner

As buyers begin to demand a one-stop shopping experience, these different models will most likely converge into a new model: the full solution partner.

[From iSource Business, December 2000] The Internet e-conomy is replacing the traditional, linear supply chains made up of suppliers, manufacturers, distributors and customers with non-linear value networks. Businesses are responding by distributing portions of their operations beyond the four walls of their organization, resulting in intricate ecosystems of interconnected business partners. Entirely new classes of intermediaries, with unique business models that enable e-business ecosystems, can now be sustained. The new entrants' business models are rapidly evolving, and their capabilities are still maturing. Effectively using the services of these intermediaries remains quite a challenge.

Let's take a quick look at why each of these new intermediaries is emerging, what role they perform and how they are likely to evolve.

Application Service Providers offer application hosting and managed IT services on a subscription basis over the Web. These services ease resource shortages, lower total cost of ownership, allow small- and mid-sized businesses to access tier-one solutions and increase flexibility and salability. However, key challenges remain: Few ASPs offer fully integrated, multi-application services, traditional client-server applications are poorly designed for Web delivery and pricing structures and service-level agreements are immature. Over time, ASPs will strive to rent out entire business infrastructures and may add implementation consulting or process outsourcing services.

Unlike contracting, with Business Process Outsourcing the ownership for an entire business process or function is transferred to the supplier. Historically, transaction-intensive, non-core functions such as payroll have been outsourced. Today, strategic and core functions such as contract manufacturing are also being outsourced. However, BPO is not a panacea; the scope of services and performance levels must be clearly defined up front. To achieve radical economies of scale, suppliers must also re-engineer processes with the help of their technology or domain expertise. Backing out of a failing or poorly structured BPO relationship can be painful. As BPOs mature, they may become a synergistic extension to the exchange or ASP.

More than 100 e-business integrators are competing for e-business strategy and implementation work. A recent Forrester Research report states that none of them offer a full solution. To compete, these firms are consolidating via acquisitions, partnering, adding ASP capabilities, contemplating BPO services and incubating exchanges.

Being early in their life cycles, B2B exchanges are primarily focused on acquiring a critical mass of buyers and sellers in the race to liquidity. Today, most exchanges offer only basic order matching services, suitable for indirect materials or easy-to-catalog-and-compare commodities. To capture the flow of direct materials and complex services, e-marketplaces must support multi-party, multi-attribute iterative negotiations and dynamic pricing; and they must integrate value-added logistics, financing, settlement, insurance, assurance, community and business analysis services.

The Full Solution Partner

Today, no provider can offer the full range of services a buyer needs. This forces buyers to shop for components piecemeal and to assemble the overall solution themselves. Small- and mid-size businesses do not have the resources necessary to transact on multiple exchanges, integrate the offerings of multiple ASPs and BPOs and project-manage several e-business integrators. They want to focus on running their core business. Hence, current providers' business models are likely to evolve, overlap, collide and converge into a new model: the full solution partner.

No full solution partner will provide the entire solution by itself. It will most likely manage a syndicate of carefully selected business partners, integrate all aspects of the full solution and present one face to the customer. Ultimately, only a handful of market-leading FSPs will emerge, capable of assisting in strategy, implementation and operation of e-businesses.