Collaborative commerce to "dramatically alter industrial economics"There is a $2 trillion pool of profits to be had if every organisation participates in collaborative commerce. That was one of a string of headline grabbing messages delivered by Paul Strassmann, the renowned IT economist, business author, and visionary, at the Information Age Collaborative Commerce Conference in London this week.
Strassmann, a former information technology chief at Xerox and the US Department of Defense, whose special interest is the return on investment of technology, focused on transaction costs - usually a major component of the sales, general and administrative costs (SG &A) on the profit and loss account - as an area where huge savings will ultimately be made. These savings, however, will take years to realise and will be built up incrementally and aggregated through the supply chain.
Strassmann pointed out that transaction costs, regardless of IT investment, now account for 34% of a typical manufacturing company's purchasing costs - a figure that has steadily risen over the past two decades. Collaborative commerce can slice that figure down to 24%, he said.
But technology, despite suppliers' claims that it can streamline the supply chain, fine-tune inventory and bring about a revolution in the way manufacturing and distribution is approached, is not, in itself, the answer, he stressed. "Losers always ask for more IT but there's no relation between money spent on technology and profits. IT executives need to look at transaction costs, data centre efficiencies, and product, service and marketing cost at the very least. They need to be strategists," he says.
IT plays a crucial role in a collaborative infrastructure, he conceded. But it has to be capable of accelerating the real-time processing required to compete in the new business environment. That means junking many existing investments. "Dismantle batch processing in data centres," Strassmann told conference delegates, a move that "could mean $4 trillion in software write-offs." He advised IT directors to prepare their boards to accept these write-offs are necessary.
Strassmann, drawing on historical experience, said the impact of the information revolution would be made gradually, over the course of a century, and in the process there would be political and industrial upheaval. The elimination of large bodies of entrenched interests, such as lawyers, tax collectors and purchasing departments, can reduce transaction costs, he said, but he warned that these groups have an economic interest preventing the commodisation of economic transactions.
Author: Krishna Roy