In Their Orbit - InformationWeek

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8/1/2003
10:42 AM
Rick Whiting
Rick Whiting
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In Their Orbit

What drives business-technology innovation? Look to large companies' supply chains, not just tech vendors.

Dealing with market influencers, such as Wal-Mart or GM, can be difficult for rivals and suppliers, but there's a downside to not having this kind of driving force in an industry as well. The fragmented nature of health care, for example, makes it more difficult to create information-sharing systems that could save big money—and lives. The process of adoption is slowed by the fact that there isn't a dominant health-care provider driving standards around emerging technologies.

Industry giants can be most influential in emerging technology, by getting widespread experimentation started. Leaders of those companies realize they don't necessarily know the business obstacles and technology hurdles that await with the use of unproven tools. When Wal-Mart first broached the January 2005 deadline in private meetings with suppliers in February, it asked those suppliers to develop the RFID technology along with the retailer. "To be honest, in February, we didn't know what the definition of 'live in January 2005' meant," CIO Dillman said when announcing the deadline. "But it at least got some activity going."

One of those suppliers, Gillette Co., didn't need any prompting. The razor maker has been among the leaders pursuing RFID and was one of the first sponsors of the Auto-ID Center for research at MIT. But Wal-Mart's plan provided focus: Shortly after the retailer said it would pursue pallet-level tracking, Wal-Mart and Gillette canceled a previously announced joint experiment to test shelf-level tracking in a Massachusetts Wal-Mart store.

Procter & Gamble Co. CIO Steve David predicts the impact of Wal-Mart's initiative will be felt largely in terms of speed, with companies embracing RFID technology much more quickly than past supply-chain innovations. He contrasts that with bar-coding, where retailers took 15 years after its debut to widely adopt it.

Tom Dubay has been doing business with Wal-Mart for about 25 years as president of Sulyn Industries Inc., which makes glitter, sequins, and other craft-supply products that Wal-Mart sells. He knows RFID will become a requirement for doing business with Wal-Mart at some point, and he expects little difficulty in meeting Wal-Mart's demands for RFID adoption. And he plans to apply what he learns. "My experience is, when you work with Wal-Mart, your business improves, not just with them, but with all accounts," Dubay says. "They make you better."

RFID is only the latest example of this kind of market influence. McKesson is working with its major retail customers to adopt a standard for EDI called Electronic Data Interchange-Internet Integration Applicability Statement 2 (EDIINT AS2). Last year, Wal-Mart asked its nearly 10,000 suppliers to begin using the standard as an alternative to expensive value-added networks.

Wal-Mart's actions even influence its big-retailer competitors, says Eric Peters, senior VP of products and strategy at Manhattan Associates Inc. Manhattan Associates develops applications for supply-chain and trading-partner management that companies such as Sulyn Industries use in their relationships with big customers such as Wal-Mart to comply with their technical requirements, including RFID and EDIINT AS2. Peters says Wal-Mart's competitors with which he works say they can't let Wal-Mart get more than six months ahead in adopting new business-technology practices. They're comfortable letting Wal-Mart take a lead in adopting technology such as RFID, as long as they can be close followers. "As competitors to Wal-Mart, they can't let them gain too much of a competitive edge," Peters says.

With its relentless chip innovation, Intel has done as much as any company to explore what's possible with IT. But as a major market influencer, Intel also leverages its sway with its suppliers to try to modify how businesses use technology.

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