In Their Orbit

What drives business-technology innovation? Look to large companies' supply chains, not just tech vendors.
It's a common lament among suppliers and distributors: As new technologies get adopted by the influencers, their partners end up supporting multiple platforms. McKesson faces that challenge in its pharm- aceutical-distribution business, where it has to interact with large drugmakers on one side and smaller retailers and health-care organizations on the other. "Because we're in the middle, we have to maintain a lot of different standards," CIO Mallonee says.

One way large market influencers can be beneficial is in speeding the adoption cycle of particular technologies. But it doesn't always work. Three years ago, Cisco tried to use its own version of RosettaNet to manage its supply chain, but suppliers balked and forced Cisco to retreat, AMR Research analyst Bob Parker says.

That pushback isn't uncommon, and it means the suppliers to industry heavyweights can't always pass on demands they face to their suppliers. Top-tier automotive component maker Dana sometimes requires that its suppliers use the same CAD software the automakers require Dana to use. But Dana only does so on a project-by-project basis, recognizing that buying and maintaining expensive CAD systems can be a burden for second- and third-tier suppliers, says Brad Knauf, IT director for the Dana Automotive Systems Group.

EDI is another example. Automakers and their suppliers have relied on EDI ever since the 1970s when GM began using the standard. GM uses EDI and its derivatives such as Automotive Network Exchange, known as ANX, to communicate orders, invoices, and other material. That's percolated down the supply chain, and Dana uses EDI to send procurement forecasts and schedules to most of its suppliers, Knauf says. But get too far down the chain and companies rely more on fax machines rather than ERP systems to process orders.

GM is backing the ebXML standard for conducting E-business, and its suppliers are likely to follow. ArvinMeritor already uses ebXML in its commercial-vehicle business and for some internal applications. "GM sets the pattern, and we follow," says Perry Lipe, senior VP and CIO at ArvinMeritor. "They will dictate the methods of communication if you want to do business with them."

Technology vendors themselves are dependent on these market influencers to help them shape software products. As companies stop doing "technology for technology's sake," and the value of IT comes from its alignment with business processes, vendors need help from those who best understand those business processes. But market influencers increasingly ask to share in the intellectual-property value they create in that process. So when Procter & Gamble, which knows a bit about global product development, customized MatrixOne Inc.'s product-life-cycle-management software for specification management, it patented its contribution and licensed it back to MatrixOne. Yet revenue wasn't the main goal: If MatrixOne can help get this approach broadly adopted in the consumer packaged-goods industry, that would benefit P&G.

Another way companies influence technology vendors is through application consolidation. GM, for example, has consolidated its strategic business applications from 7,000 to 3,000, replacing a patchwork approach in which GM facilities around the world used many different apps for the same process. That gives GM leverage with IT vendors, and CTO Scott says the company wields that influence by demanding higher-quality software that provides better performance and is easier to upgrade. "We've had to raise the bar," Scott says.

That could be a boon for IT users everywhere. There's plenty of reason to grumble about the influence of major companies such as Wal-Mart, GM, and Intel. But in setting the pace for industries, heavyweight business-technology users can bring progress with the pain.

Illustration by Brian Stauffer

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