Expert Voice: Lynne Markus on Integrating with Business Partners - ' The Golden Rule of '

Your message in the report for SIM's Advanced Practices Council is very simple: Maximizing your benefits from EDI requires maximizing your partners' benefits as well. What do you mean by that?
We need to think about benefits in systems-dynamics terms. Most organizations think about how they will exchange information with their partners from their own perspective. The notion is, "If I can improve matters for me, using some sort of EDI, it will be better for our partners as well."

But what they often don't see is how each organization makes choices individually may add up to something that is collectively less than optimal. If I am imposing my way of doing things on my partners, that's going to be good for me, but it will not work for them, because they will not be using the same interfaces, transaction formats, data formats, etc., to communicate with all their partners. Because of this, electronic communication has not spread all the way through the network. We see pockets of electronic interactivity. And generally speaking, the organizations that tend to be left out the most are the small and medium-size enterprises, which we know account for a very significant part of economic activity.

Is the failure to maximize partner benefits why so many companies still haven't achieved real-time collaboration with partners?
Yes. Companies are focusing on their individual benefits. And when they do that, they impose costs on their partners. Many companies are saying to their smaller partners, "Well, you don't have to use EDI to communicate with us, but we do want you to communicate electronically. Therefore, you should use a Web interface." But the Web interfaces are not integrated with the partner's back-end systems, and as a result, the partners have to enter data twice. When they do that, they have additional costs, and they introduce the probability of errors. So the system-level costs go up, even though it appears that the costs are going down for the initiating organization.

What are the most important decisions that must be made when companies pursue their integration strategies?
The first thing is that you need to decide where you need partnerships, and where you can have more casual, short-term or arm's-length relationships. Essentially, companies have to decide whether they can afford to have a very limited integration strategy, with either a few customers or partners, or whether they should automate the vast majority of their relationships. Basically, it depends on the business model. Some organizations have only a few major suppliers, but many customers. Others have many suppliers but very few customers. It's particularly complicated where you're trying to manage several tiers of the supply chain simultaneously.

To make such integration decisions, you need to understand developments within your industry. Some industries have made a much greater effort than others to build infrastructure for interorganizational collaboration. For example, the New England Healthcare EDI Network is a peer-to-peer platform for exchanging information on a many-to-many basis between healthcare providers and insurers. That kind of infrastructure, built upon HIPAA data standards, really supports using a shared solution.

When should companies focus on creating a private network, and when should they join a shared network with others?
The main driver for proprietary networks is the desire to gain competitive advantage. And I think that strategy works well for the very largest organizations and for the ones that are among the first in their industry to do it. Another factor favoring proprietary networks is the creation of dedicated sets of relationships. For example, if I have a supplier that supplies just me, and not other companies like me, then it makes no sense to have a shared infrastructure. It's only when you have relatively dense networks of interactions across organizations that you start seeing the value of shared infrastructures. Another reason to consider shared infrastructures is the presence of many small players. Large companies may be extremely well-automated with their large partners, but many of their transactions with small players are handled through phone, fax, e-mail and so forth, and these transactions are very costly to automate.

Next page: Bringing Partners On Board

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