Utilities and the Fourth Stage of E-Business

Cost savings through automation of business interactions has never been more
appealing. Re-thinking our approach to inter-business transactions and re-applying
existing and emerging technologies appropriately can realize such returns.
Web servers and browsers brought us supply-side automation. Suppliers could
automate dissemination of information about products and services through the
Web, and suppliers could accept orders through their Web interfaces for processing
by their back-end fulfillment systems. Nonetheless, this capability only satisfies
half of the equation.

With the latest initiatives in standards and development, Web services bring
us customer-side automation. Customers can automate acquisition, collation,
and processing of information from more potential suppliers through Web service
enabled B2B than any human Web user would have the patience or capability to
deal with in today’s rapid and accelerating business climate. This is a true
cost savings and optimization opportunity.

As Web services mature, businesses will be able to delegate routine transactions
to rules-based engines, dramatically reducing the cost of transaction processing
and facilitating complex transactions to take advantage of cost and availability
fluctuations that couldn’t reasonably be considered without such tools.

The utilities market is an excellent case in point. Companies in this sector
should carefully consider the positive implications of fourth-stage e-business,
including automated information gathering, and very low-cost transactions as
they make their investments for the future.

The current information technology market discourages speculative investments
in favor of a clear return on investment. Few companies can justify information
technology expenditures on a qualitative basis or for intangible benefits that
don’t clearly deliver value to the corporation. Nor can companies effectively
improve their competitive positioning simply by cutting costs without considering
where e-business automation and the latest technologies can take them. Tomorrow’s
successful corporations will be those that invest today in the technologies
that accelerate their business interactions, make them more appealing to their
customers, and reduce their operating costs. The winners will be those that
act now to be measurably faster, better, and cheaper than their competition.

New and emerging standards and technologies apply not only to the plumbing that
connects a company’s business processes with the processes of their customers,
suppliers, and partners, but also to the specific jargon and procedures associated
with their industry segment. For example, a gas company faced with moving gas
through a mesh of intermediaries to a set of customers shares industry-specific
knowledge about such processes with the intermediaries and customers. There
are efficiencies to be gained in any industry segment by capturing and codifying
this knowledge.

From a “plumbing” perspective, the potential cost savings associated with automating
all four stages of a business interaction has never been more appealing —
or more daunting. The tone of the market is an interesting amalgam: recognition
that the cost savings of e-business are real and necessary to remain competitive,
but mixed with well-founded skepticism that is in search of a real ROI model.
Infused through all of this is a tremendous sense of alphabet soup-induced FUD
(Fear, Uncertainty, and Doubt) associated with e-business technologies and standards
(e.g., XML, SOAP, UDDI, ebXML, PIPs, SOAs, etc.). On which should you bet your
business? Who will be around to stand behind the products? Which standards (and
proposed standards!) will win, and which will lose? May you live in interesting
times, indeed!

For any company, there are e-business opportunities associated with their core
business competencies and generic business functions. The aforementioned gas
company is not only an energy company, but also a consumer of, for example,
office supplies and financial services. As we consider the development of e-business
standards and technologies, we would be wise to consider not only the full potential
for automation, but also the implications of applying these standards to real
businesses that concurrently participate in multiple vertical segments.

In this discussion, we will consider the industry-specific challenges facing
energy companies attempting to move their products through distributors to prospective
customers, and how real solutions could be built by considering the four stages
of e-business and latest enabling technologies and standards.

The Four Stages of E-Business

The information technology industry is clearly going through a period of “creative
destruction” for e-business strategies. Companies are retrenching in their efforts
to implement short- and long-term e-business strategies that weather the current
economic storm and position them for more profitable times ahead. So, one useful
conceptual framework for e-business is to think about business transactions
as having four stages that are candidates for automation. In every business
transaction:
• Suppliers provide prospective customers with information about products
and services.
• Customers assimilate such information from potential suppliers.
• Customers arrive at a decision (e.g., place, modify, or cancel orders).
• Suppliers accept orders and feed them into fulfillment systems.

Of course, there are other aspects to business interactions. There are facilitators
providing advertising venues, financial institutions, billing and payment activities,
etc., yet these four stages of a business interaction are useful for understanding
automation opportunities.

For example, the first stage of e-business was the provision of information
about products and services through Web servers. These electronic brochures
let early adopters provide information faster, better, and cheaper than competitors
who are still relying on older methods, like catalog distribution or sales calls,
to keep prospective customers informed.

The second stage of e-business was the Web site that could accept an order directly
from a customer and post the order to a fulfillment system. Again, the supplier’s
cost savings and appeal to the customer have been discussed in-depth in many
venues. Not every application made sense, and many ‘dot-bombs’ have closed their
(virtual) doors, but there is no doubt that the Web server and “shopping cart”
will endure.

The Web server, by automating the supplier’s side of a business interaction,
saved effective implementers significant sums of money and provided their browser-oriented
customers a great convenience. But what have we done to automate the customer’s
side of a business interaction?

Consider the customer’s perspective when selecting a product/service and supplier.
It takes time — and therefore money — for customers to wade through
supplier information about products and services, especially when the information
is provided in an inconsistent (i.e., supplier-specific) format. How many prospective
suppliers does an average purchasing agent consider? How much time and energy
is spent maintaining (formally or informally) preferred-supplier lists with
information about past performance, relative pricing, etc.?

The first automation opportunity for the customer’s side of a business interaction
— and the third stage of e-business automation — is part of the transition
from Web servers to Web services, or service-oriented architectures. Information
about current pricing and availability can be in a format that can be integrated
directly into an application. Consider, for example, an application such as
a spreadsheet for decision support, whose cells contain references to services
that acquire or receive current pricing and availability information. Such a
spreadsheet could easily integrate information from many sources and be used
to compare past performance data for potential suppliers and present, from hundreds
of potential suppliers, the current 10-best for final consideration by a prospective
customer. Businesses using such tools would make better purchasing decisions
than their competition, and would be able to make those decisions faster, and
with lower overhead. Further, the suppliers providing such information would
be able to get the latest pricing and availability information to their customers
more effectively than their competition, be able to rapidly incorporate information
from their suppliers into the updates they provide to their customers, and can
earn better customer loyalty by providing their customers with the means to
make less expansive purchases.

Another automation opportunity for the customer’s side of a business interaction,
the fourth stage of e-business, is automated decision-making. These applications
would need to be event-driven automation systems to operate with direct human
supervision. Events might be from internal systems (e.g., an event triggered
by an inventory level dropping to a specified threshold, resulting in orders
placed to suppliers) or external systems (e.g., transaction request from a customer
or announcement of a significant price reduction from a supplier, resulting
in price reductions passed to prospective customers).

In either case, the application responds to the events and conducts transactions
at a fraction of their usual human-intensive cost. Furthermore, the complexity
of the transaction can increase dramatically due to the comparative patience
of humans and machines. An application responding to an inventory event might
consider hundreds of potential suppliers and iteratively compare thousands of
potential combinations of purchases over time before determining that a set
of, say, 15 or 20 purchases from a dozen or so suppliers over the next few days
— each with a potentially different shipping route and carrier — would
satisfy the inventory requirement at the best possible net price.

Standards-based fourth-stage e-business solutions are not yet available in commercial
markets, but such solutions are now being developed and will be ready for launch
very soon. Interim solutions have recently started to reach the market (by the
time this is published, the author’s company will have announced a set of business
services that would qualify as fourth stage solutions), and with the advent
of some of the latest standards and technologies, more mature capabilities will
soon be obtainable. The bottom line is to ensure that the solutions your company
builds take full advantage of Web services and associated technologies and standards,
with attention paid to positioning for the very exciting future.

Fourth Stage E-Business for Utilities

Let us consider a typical e-business challenge for the utilities sector. In
this case, energy suppliers (e.g., gas producers) need to move their product
through a set of distributors en route to their ultimate customers (Figure 1).
The supplier does not have the means to connect directly with their customers.
Distributors, with their interconnecting pipelines, are in the business of moving
product through their systems to other distributors and ultimately to customers.

Figure 1 – Energy Company Supply Chain Model

The selection of distributors is partly driven by geographies. The rest of the
decision process is a function of available capacity, because competitors are
attempting to move their product through the same distributor network (Figure
2). On a daily basis, each supplier must rapidly conduct what-if analysis to
determine viable (and hopefully optimal) pathways for their product. Distributors
must track their available capacity, dynamically accounting for committed capacity
and change orders received. This is a fascinating e-business challenge.

Figure 2 – Multiple Suppliers Competing to Route Energy

The links between suppliers and distributors are EDI links that have largely
migrated from VANs to Internet connections. The investment required to establish
such links represents a barrier to entry for new companies deemed unacceptable
by the Department of Energy, which has mandated migration to standards-based
B2B transactions.

This scenario, incidentally, is not unique to the gas industry. Consider, for
example, electricity generators and the power grids between them and their customers.
Consider, also, the telecommunications sector, with local exchanges, cellular
providers, etc., connecting customers through various long-haul carriers.

Technologies and Standards

Web services could enhance efficiencies across the utility industry, from back-office
supply chains to the actual distribution and transmission of natural gas and/or
electricity.

There are a number of technical requirements for enabling the third and fourth
stages of e-business. The first is recognition that Web servers and browsers,
while powerful and worthwhile, are no longer enough. Your business should be
actively investigating Web services and planning for the first business solutions
that will use them.

A Web services solution starts with a service-oriented architecture — a
set of applications that present and/or consume Web services on the Internet.
Leading suppliers of service-oriented architectures include in no particular
order: Sun, Microsoft, Oracle, IBM, and BEA. In each case, whether Java or .Net,
tools are available or planned to build applications that can send and receive
XML formatted service requests and/or method invocations.

Using XML to format a service request is the next level of agreement required
to build third- and fourth-stage e-business solutions. The leading contender
for standardization is SOAP. With the recent agreement by ebXML to adopt SOAP,
it seems a safe bet for building business solutions.

More agreement than service-request formatting is needed to effectively conduct
business. A number of vertical industries are in various stages of defining
common electronic jargon sets. The semiconductor industry’s RosettaNet is one
of the most mature. An interesting challenge looms, however, that has seen little
press attention. Companies’ e-business interests are not limited to their vertical
industry partners. Utility companies buy office suppliers, for example; will
this require utilities to adopt the jargon set(s) associated with office supplies?
Or, will there be metadata services that facilitate participation in all the
vertical industries relevant to an e-business?

To build third-and fourth-stage e-business solutions, companies need to be able
to send and receive SOAP events and requests. That, in turn, implies a means
of determining where to send them. IPs solve this problem through a directory
service. Applications (e.g., a browser) can refer to a service by an abstracted
name (e.g., www.fourthstage.com) and
the infrastructure will ensure that the service is found. An analogous method
is required to be able to reference a business service by an abstracted name,
and an analogous directory service is the most promising means to achieve this.
As of this writing, UDDI is the leading contender for such a service. A third-stage
e-business application should soon be able to reference a UDDI service to discover
providers of relevant events (e.g., currently available capacity for distributors)
that would facilitate faster, better, and cheaper decision making for moving
product through distributors to customers (Figure 2).

Fourth-stage solutions require the ability to automatically build multi-business
transactions. It is possible to do this with applications that have predetermined
linkages (e.g., EDI links) but required standards are not yet in place or even
far enough along to predict a winner for ad-hoc transaction building across
the Internet.

However, the potential to run a business faster, better, and cheaper through
fourth-stage e-business is too compelling to ignore, and such technologies and
standards will reach the market. Will your company be ready?

Summary

The Web brought us supply-side automation. Suppliers could automate dissemination
of information about products and services through the Web, and suppliers could
accept orders through their Web interfaces for processing by their fulfillment
systems.
Web services bring us customer-side automation. Customers can automate acquisition,
collation, and processing of information from more potential suppliers through
Web service enabled B2B than any human Web user would have the patience to deal
with, a true cost savings and optimization oppor tunity. As Web services mature,
businesses will be able to delegate routine transactions to rules based engines,
dramatically reducing the cost of transaction processing and facilitating complex
transactions that take advantage of cost and availability fluctuations that
couldn’t reasonably be considered without such tools.

The utilities market is an excellent case in point. Companies in this sector
should carefully consider the implications of fourth-stage e-business, including
automated information gathering and very low-cost transactions, as they make
their investments for the future.

Conclusion

Utilities should be actively investigating current and emerging e-business
standards associated with third- and fourth-stage solutions because the opportunities
to run their business faster, better, and cheaper cannot be ignored. Utilities
should actively participate in definition of vertically-associated jargon sets,
but also remember that they will need to participate in multiple verticals.
This sector should also be active in driving the standards they need to adopt
third- and fourth-stage solutions. Finally, utilities should evaluate current
standards and technologies to determine what solutions they can currently build
to improve their competitive positioning without compromising their ability
to move forward.