Utilities and the Fourth Stage of E-Business by mThink, January 14, 2002 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. Filed under: Article