The relationship between the supplier of information and communications technology and the user has become basic to success, and a prime example of how the two sides in a supply partnership benefit each other. To ride the revolution, companies need far more than telecom products from the supplier: both sides need to commit themselves permanently to the state-of-the-art.
Given that need, it makes no sense to proceed by one-off deals with one-off suppliers. The two sides need to become not only partners, but learning partners, feeding off each other's experience and capabilities. From the supplier's viewpoint, it's even more than that: a collaborative relationship may be the only way of keeping the customer's business. As Business Week has said:
'The virtual distinction between the producers and their ultimate customers has collapsed, sometimes to near-zero. All of a sudden relationships among producers, wholesalers, distributors and retailers, once virtually sacrosanct, are up for grabs'.
That's for two reasons. First, the advent of 'infomediary' Websites, databases which list all available suppliers and supplies, spells death for most traditional purchasing relationships. It also threatens to make the goods and services involved into commodities. This was already happening to telecoms, anyway. The large telcos have perforce become wholesalers of airtime whose customers are on-selling the service at profits - taken, of course, from the telco's hide.
Second, large corporations are using IP technology to pool orders across all business units. Like the infomediary sites, these internal operations will seek out the lowest bidder. That potentially reduces a vast range of suppliers to nothing but order-takers. The large users of telephone time have long wielded their bargaining power to win reduced rates. As that power expands across affiliated businesses and across the globe, it will unquestionably add to the commodity pressures.
The sale of services that add undoubted value is the only available escape from the consequent price squeeze. Partnership, though, goes further along the value adding route. It binds supplier and customer by involving both at all stages of the business cycle and in a continuous process of change, designed to bring down costs and increase speed of supply. IT and telecoms companies have the model of the automotive industry to follow; there former component suppliers now design and build whole sub-assemblies. In the more advanced examples, the supplier actually makes and fits the sub-assembly on the customer's site.
The novel nature of such relationships changes attitudes profoundly. The difference can be tasted from a real-life exchange at an industry symposium. The parties were a supplier of wing mirrors and his customer. The car firm's executives complained in strong terms about the mirrors supplied for a recent model. The supplier counter-attacked in force. He berated the car manufacturer for persistent, obstinate refusal to provide him with windscreen designs. Working in the dark, the mirror-maker had produced a product with excessive drag - which, of course, was the customer's complaint.
The mirror men publicly blamed the drag on the car men's failure to cooperate, comparing this with the total collaboration with Toyota (whose executives, no doubt, sat there smiling smugly). Listeners unfamiliar with the new supplier relationships were astonished at the mirror firm's bluntness. That is no way to keep a customer - unless, that is, the customer has nowhere else to go. In most markets today (especially in IT and telecoms) that exclusivity sounds most unlikely. But it may be perfectly true,
A design-and-build supplier partnership shuts off the customer's escape route - at least until a new model demands a new contract. So you can afford to be outspoken rather than servile. In an effective partnership, neither course should be necessary. Yet most supply relationships are not between partners in any meaningful sense. They are still fundamentally adversarial, and still give rise to supplier complaints like 'We could do so much more for them if they would only let us'.
INTERLOCKING THE SYSTEMS
Doing more follows automatically when the two sides go the final mile and actually interlock their systems, including all their information technology. The idea of sharing confidential information would once have been total anathema, and in many companies still is. But how else can you operate just-in-time supply systems, or share equally the benefits of cost-reduction programmes? The supplier in effect becomes an extension of the customer's business. When IT and telecoms are vital to the latter, suppliers and customer can scarcely be disentangled.
The two sides may also be competitors. IBM, for instance, in early 1999 signed a $2 billion long-term contract to supply Dell Computer with PC components. The two are deadly rivals in the PC market which IBM once created and dominated, but where Dell has been setting the pace. In earlier times the rivalry would have made cooperation impossible. Today, it is hardly an exaggeration to say that companies are only as strong as their partners.
There is an analogy with PCs. These are 'Mickey Mouse' products, using identical components from identical suppliers, and differing only in external appearance and/or in detail. They operate on the same software, which means that the 'manufacturers' (really, no more than assemblers and marketers) have parallel relationships with Microsoft, which in turn has parallel relationships with both Intel and the latter's competitors in microprocessors.
Similar conditions exist in cyberspace. Cisco routers are common to most suppliers, for just one example among thousands. Interdependence between suppliers has become inescapable both in the manufacture and the operation of communication systems. As in so many aspects of management, though, the developments in micro-electronics are reflected everywhere else. Probably supplier partnerships are not being formed so thick or so fast or being operated so intensively. But the trend is ineluctable.
More and more firms are seeking economies of scale, not by taking all manufacture in-house (as IBM and Ford used to do), but by out-sourcing to specialised, often near-monopoly suppliers of components and sub-assemblies - or even of whole products. Apple, for example, has decided to hand over assembly of its Macintosh PCs. The equivalent in applications is for companies to hand over the management of their entire communications and computer networks to an outsourcing supplier.
The world is being criss-crossed by such relationships, and the lattice gets more and more complicated by the hour. The Internet is becoming indispensable as the means for partners to conduct their relationships at all levels - from information on the status of performance, orders and deliveries, to exchanging technical information, to chit-chat between colleagues in the different but allied companies.
The Web has become a focus for collaboration in its own right. Warner Brothers, for example, has a joint venture with FortuneCity, an 'online community' which houses fans of Warner's cartoon characters. The big attraction of communities for a company is access to the customers. Another form of Net collaboration links search companies with firms that operate in the area where the search is being made. Joint Websites are certain to proliferate both in number and traffic.
A collaborative area offering still bigger pay-offs arises when two companies that might have competed pool their resources and venture forth together. Both benefit from sharing costs which they would otherwise have to duplicate. Both gain from whatever economies of scale are on offer. All these considerable advantages, however, may be small compared to those of combining brainpower and know-how.
For all the advantages of partnership, there's nothing to stop companies from following the traditional route, choosing their suppliers independently and putting together the components to provide whatever serves their needs. IT specialists naturally find this a challenging use of their talents. That at least is positive. Some information systems managers, though, are motivated by negative factors. These can even lead to blacklisting suppliers who talk direct to corporate management or who offer solutions unasked.
THE STANDARD SOLUTION
Whether the driving force is positive or negative, it heads off in the wrong direction. The whole trend of the technology has been away from bespoke, proprietary solutions towards standard, open systems. Personal computing's take-off and boom resulted from the fortuitous establishment of an industry standard by IBM. Its use of Intel microprocessors and Microsoft operating systems, both made freely (if weirdly) available to IBM's competitors, opened the floodgates.
There is no turning back from standardisation. The user wants a seamless system that can be readily adapted and enlarged as new technologies and new corporate needs demand. That is only part of the case for alliance between the company and a single systems contractor. Another part of the argument rests on finding the optimum route through an increasingly crowded jungle.
The process of convergence is bringing more and more players into the information and communications game. Some are information providers, like Dow Jones, Reuters or Bloomberg. Others make hardware and/or software; like Microsoft, Cisco, Intel and IBM. Others supply communications by telephone, cable and satellite, ranging from 'telcos' like British Telecom to cable groups like TCI.
All these powerful players are jockeying for position in a new world where the old divisions will cease to exist. Computer companies will also provide information and communications. Telcos will supply information and communications and systems that combine hardware and software. Managements thus need to resolve a confusing choice between rival claimants for their information and communications business.
This isn't a small matter like ordering a new private branch exchange (PBX). The whole future of the enterprise may depend on the technological option. Partnership must be even more important when the technology and the options are evolving so fast. The wireless infrastructure, for example, will have to move data much faster. The last year of the old Millennium saw the debut of the first 64-kilobit networks: that's over six times faster than most existing nets.
The speed-up brings into the frame a new wonder-product: the combined cellphone, pager and personal digital assistant (PDA). So-called 'smart phones' are certain to become universal. Their smartness will reside in connecting users to the Internet and to any other computers. This is one field where Microsoft will not have an unopposed home run. Motorola, Ericsson and Nokia (the three giants of mobile telephony) are in a consortium with PDA supplier Psion that aims to steal the mobile software market from the Gates empire.
Whoever wins the battle, the user will have the planet in his or her palm. Computing and communication power will accompany people wherever they go. The machines will achieve miracles of miniaturisation to make tiny keyboards more easily workable by human fingers. As always, new companies have popped up to turn problems into solutions. Teg Connections of Seattle, for example, provides software that in effect makes a keypad into a keyboard.
These tiny devices are by no means the only examples of a crucially important trend. IP telephony - making phone calls over the Internet - will not be supplement the existing networks. It will replace them. By 2003, on one prediction, international calls over the Internet will grow from 1% of all traffic in 1997 to 25%, and rising. Comparing IP with a conventional switched phone network produces cost discrepancies of the same general order as the one cent to $ disparity between Internet banking costs and branch costs.
In this new IP world, corporations will enjoy the benefits of Virtual Private Networks (VPN), which replace the costly leased lines that connect employees and networks, or customers with suppliers. Then there's IP faxes, costing maybe a fifteenth of the amount of conventional fax. Beyond the business market, moreover, lie the millions upon millions of consumers. As telcos squeeze more and more information into their lines, Internet speeds will rise dramatically. That can only expand the market for Internet purchasing and other services, further enhancing an already exhilarating growth rate.
TELECOMS IN FLUX
Without collaborative working, users and suppliers of telecomms will both lose out. The supply industry is in violent flux as mobile networks expand globally, telcos merge with each other and with computer networks, broadcasting and telephony converge - and new types of supplier emerge from the upheaval. According to Global Turf Wars, by Tim Hills and David Cleevely, business users will face a different world in which a very few global suppliers concentrate on the low cost transmission of voice and (mostly) data.
Another small group will consist of global full-service providers. These companies will have made the transition from communications to information. Their profits will come from adding value to the networks by enabling the customers to accomplish all their business purposes. Whether their roots are in telephony or the Internet (or possibly other industries), these companies will depend on the strength of their alliances with customers - on their ability to exploit IP technology to the benefit of both sides.
As global leaders like British Telecom position themselves for this future, they will have plenty of competition to keep them working hard. Hills and Cleevely foresee numbers of specialists who will aim to cream off key market areas, operating at lower costs than the global suppliers, but aiming for the top end of the available business. The telcos thus face the same challenge as their customers. The technology will undermine the old business model.
That always faces companies with a stark choice: either you let newcomers impose a new model, or you remodel yourself. As Heather Green put it, writing in Business Week, 'toss out the dusty old business plan, think weird, and try the unexpected'. An example of the unexpected is the arrival of the giveaway PC. In March 1999, unveiling a $1 billion loss on IBM's PC business, CEO Lou Gerstner pronounced the end of the PC era. But even as he spoke, the revenues of eMachines, selling its PCs for under $500, were zooming upwards.
Fortune magazine speculated that Internet service providers (ISPs), who already paid eMachines $50-100 for the privilege of connecting its customers to the Net, would 'pay for the PC and just give it away'. The company's CEO, Stephen Dukker, told the magazine: 'I'd be very surprised if we don't see that' before the Millennium. In fact, he saw it in February 1999: a month later, a second provider was offering free PCs; then a third appeared.
There was a rich and superbly successful precedent in the giveaway mobile phone, a business model which more ISPs will plainly contemplate. That will bring much nearer what is plainly going to emerge: a world in which every individual, household and organisation is permanently on-line, and in which the Internet is not part of a market, but is to all intents and purposes the market, full stop.
That must mean outsourcing on a scale enormously beyond anything seen so far. Businesses will use their suppliers of information and communications technology (ICT) to install their networks, enable their applications, manage their systems, handle the interconnections with the outside world, and organise their internal information flows. The more intimate and pervasive these relationships are, the more effective they will be. The prizes offered on both sides of the equation are enormous - and somebody is going to win them.
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