Consider plumage.
If Mother Nature hired some consultants I know, the male peacock would lose its tail feathers; likewise the bird of paradise. Even the cardinal’s crest would go, re-engineered in the interest of efficiency. As for ungulates, their antlers, along with the contests they engage in to compete for territory and mates would be replaced with efficient resource allocation algorithms. Alas, poor Bullwinkle.
Mother nature is fine. It’s consulting theory that needs more sophistication. Evolution results in optimization, certainly, but it isn’t always efficiency that’s optimized. In both business and nature there’s a place for efficiency and a place for plumage, but what there isn’t a place for is deference to a group. Neither ecosystems nor marketplaces enjoy optimization except as an accidental byproduct.
Which is just one reason most digital exchanges were doomed from the start: Their goal was to create a more efficient market. The problem: Sellers don’t benefit from increased marketplace efficiency, and while buyers might, they face two huge hurdles: The cost of re-engineering internal processes to use an exchange, and the need for critical mass before value appears — until, that is, enough suppliers participate that it makes sense to buy there.
The benefit to buyers is, in most circumstances, questionable, too. It’s been at least four decades since the quality movement first pointed out the importance of stable vendor relationships. Sure, digital exchanges get the best price for each batch of merchandise. When you’re buying scrap metal, that’s what you want. But when quality and special services matter, a long-term relationship provides benefits far in excess of the small price advantages a business might get from an exchange.
Exchanges are trying to overcome these barriers by adding value-added services, such as collaborative design and product information services. The overall impact of this strategy is to require process re-engineering in entire value chains, raising the adoption barrier even more. If you’ve ever re-engineered a process within a company, you know how hard that is. I lived through the EDI wars fifteen years ago and I can tell you firsthand that just getting an industry to adopt a common technical standard is hard enough. Require all participants to re-engineer their processes in common and only in special circumstances (like the auto industry, in which a few huge buyers can dictate terms to a vast array of relatively small suppliers) is there even a chance of success.
In this, the first year after the end of the New Economy (the Newer Economy?), e-commerce is still an important priority, but IT leaders need to help their companies take a fresh look at where to invest. Digital exchanges — expensive to enter and with a high risk of failure — just aren’t good bets.
For better alternatives, get a copy of Capturing Customers.com by George Colombo. George understands the importance of plumage (you should see his tie collection!) and that understanding is reflected in his book. Instead of digital exchanges you’ll find a dozen or so practical, achievable ideas that can give your company an immediate competitive advantage.
I like this book, not because George is a good friend (he is) and not because an interview with yours truly occupies a small place in it (it does), but because George, a former salesman, never loses sight of the goal: Persuading non-customers to become customers, and existing customers to become better ones.