Some CIOs Go to the Marketplace, More CIOs Want to Stay Home

Some CIOs Go to the Marketplace, More CIOs Want to Stay Home

When did people stop talking about B2B e-commerce and start talking about marketplaces and exchanges? My guess is September, because by November most CIOs I spoke to were expressing their take this latest Internet permutation. At the same time, it seemed everywhere I read there was some prophet of doom warning CIOs of the dangers of not participating in a virtual marketplace.

In general, I found CIOs sceptical about the concept, questioning whether the cost savings potential is all it is cracked up to be. While they acknow-ledge there is value in streamlining the acquisition of basic commodities, these products are sold with low margins because price is usually the major differentiator. CIOs wonder just how much more they can save from automating their procurement process.

Another reason CIOs are wary of exchanges is that certain suppliers are critical to their business, for example, a textile supplier to a clothing manufacturer. CIOs believe the last thing their companies should do is eliminate the buyer-supplier human interaction. They say there is much more to this association than the cheapest price. Reliability, quality and responsiveness are all intrinsic var-iables in the success of the relationship and these are cultivated through regular dialogue. CIOs fear much could be lost if the source of supply was reduced to an online auction.

But CIOs have another fear: there may be other forces at work which could override their views - the "old boys club". The CEO meets his or her mate at the club or the corporate box at the football and before long they hatch a plan to commit their organisation to joining an exchange. The CEO finds the logic compelling, and the executive-level relationship is strong. It's another story for the troops who have to make it work. The exchange might usurp long-standing successful associations and garner no buy-in from people at the coalface. Moreover, any problem, especially for critical supplies, could seriously jeopardise the well-being of the business.

A Computerworld article in early November highlighted security concerns CIOs have with exchanges. These environments consolidate trading information and participants want to keep their data private. The article quoted a Forrester Research report which revealed that more than half the companies it surveyed "had reduced online trading volumes as a result of fears about confidentiality".

This is probably the key issue that a marketplace needs to address if it is to be successful. All commercial arrangements are built around trust. The parties in an online exchange need to establish rules that guard the trading secrets of participants and the temptation for others to price-fix. Typically, that requires regular communication between those involved and some monitoring bureaucracy. The challenge then is to ensure that these overheads do not eliminate any potential cost savings. Time will tell whether this is possible or if the marketplace/exchange model ends up on the technology buzz-word trash heap.

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