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  • 1. Herman MillerHerman Miller, Inc. (HM) is the second-largest office furniture manufacturer in the worldby production volume and revenues. Historically, HM’s success and growth have beendriven by design excellence (including the Aeron chair and the Eames lounge chair) andinnovation (HM invented “systems furniture” or cubicles in 1968, revolutionizing officespaces worldwide). Products are manufactured and assembled for the large, medium,small, and home office (SOHO) markets from millions of products and productvariations. Despite the fact that office furniture is considered “low tech,” the companyhas firmly embraced technology, the Net, and organizational flexibility in pursuit offurther excellence.There is no doubt that HM is successful and revolutionary. Fiscal year 2000 revenueswere $1.9 billion and the average five-year growth was 13.2% in an industry that grew at7% over that same time period.1 HM’s 7% net profit is the highest in the industry. As ofFebruary 15, 2001, the company’s price/earnings ratio of 13.5 reflects success in themarket given the industry average ratio of 10.02. In the first six months of fiscal 2001 (toDecember 2000), sales and orders grew in excess of 23% compared to industry growth of8.8% and 7.0% for sales and orders respectively for the same period.3Business ContextThe traditional custom furniture industry targets 100+ seat (employee) firms withelaborate office design needs. Many customers view office furniture as a strategicpurchase that will increase productivity. Design and quality are the main buying criteria,with less emphasis on delivery time. By the mid 1990s this market segment was stagnant,and manufacturers were competing on price, turning what was previously a customproduct into a commodity.Industry consolidation characterized the 1990s. At the start of the decade the industry hadonly one manufacturer with sales over $1 billion. By 2000, through acquisitions andorganic growth, four companies clocked in over the $1.5 billion mark, with Steelcase (thelargest) realizing over $3 billion in revenue.4 These larger companies, HM among them,invested heavily in manufacturing and inventory management software to further exploiteconomies of scale in custom manufacturing. HM also created a second supply chaincalled SQA (simple, quick, and affordable) where suppliers provide semi-finishedproducts that are assembled by HM. Customers have less choice but products arrive muchfaster, in as little as 5-20 days.In 1999 and 2000 the market seesawed. According to the Business and InstitutionalFurniture Manufacturers Association (BIFMA), the office furniture market shrunk in1999 (-1%) but rebounded in 2000 (9%). The 2001 forecast is for a slowdown in growthto 5.6%. Market dynamics are also changing: “Much of the growth in the US economy is1 Herman Miller 2000 annual report http://www.hermanmiller.com/us/pdfs/investors/00ar.PDF.2 Hoovers http://www.hoovers.com/enterprise/landscape/6/0,3091,13676,00.html.3 Hoovers, Herman Miller Feb 5 press release http://www.hermanmiller.com/us/index.bbk/10422.4 1999 Herman Miller financial presentation, www.hermanmiller.com/investors/dlpresentations.html.1
  • 2. occurring in small and medium-sized companies. Many Fortune 500 companies aredownsizing and, as a result, are not requiring furniture for new employees.”5 The SOHO(small office home office) market segment has different product and service needs thanlarger customers, including more sensitivity to price and delivery time. HM’s SQA linewas created to address these needs.BIFMA states that competitors are concentrating on cost control and productionefficiency to keep prices down. Also, “differentiation…based on service is often the onlyway to distinguish oneself from competitors.”6Herman Miller responded to these business conditions by focusing on three strategicgoals: • Differentiate on superior customer service. HM focuses on providing the fastest, most accurate delivery in the industry. The on-time, accurate shipment rate is over 99%. The company’s 5-28 day delivery time leads the industry. 7 • Improve speed to market of new products. Drew Schramm (vice president, supply chain management) estimates that HM can bring new products to market 15%-20% faster than the competition.8 • Create new markets and increase the pace of innovation in the industry. For HM, creating a new market means one of two things: being first to attack a market segment like SOHO; or creating new systems that improve design efficiency.Challenges and OpportunitiesHM recognized that capitalizing on new opportunities, like the growing SOHO market,required new production and service skill-sets. To offer semi-customized office furnituresystems faster and cheaper, HM needed to operate with more speed and agility. Therewere also clear implications for HM’s relationships with suppliers and dealers. Businessprocesses—from supply and inventory management to ordering and design—had to bealigned and integrated with production in order to respond quickly and accurately tomarket demands.HM’s large, diverse supplier base presented an additional challenge. It involves over 600suppliers (125 of them “prime”), ranging from enormous conglomerates to tiny “momand pop” shops, each with different levels of technical sophistication, importance to HMoperations, and financial strength. HM’s goal is to empower and collaborate withsuppliers, so both parties realize greater value from the relationship. For example, HMwants suppliers to deliver higher value, semi-finished goods rather than commodities.5 BIFMA industry analysis: http://www.bifma.org/stats/stats_over2.html.6 BIFMA industry analysis: http://www.bifma.org/stats/stats_over2.html.7 Mark Schurman, director of corporate communications, Herman Miller Inc., interview by Dave Cosgraveand Terrence Hibbert, Digital 4Sight, 22 January 2001.8 Drew Schramm, vice president supply chain management, Herman Miller Inc., interview by DaveCosgrave and Terrence Hibbert, Digital 4Sight, 22 January 2001.2
  • 3. Gaining alignment with the dealer community (still responsible for 70% of HM’s sales)would also prove challenging. Though HM continues to view dealers as value-addingintermediaries, it acknowledges that the nature of their value is changing. By offeringnew integrated design, sales, and order management tools, HM helps dealers operatemore effectively and focus on higher value customer relationship management andservice activities.HM uses ICC to achieve speed to market and rapid innovation. Only by working moreclosely and collaboratively with suppliers and dealers can HM create and dominate newmarkets. Herman Miller was among the first in the industry to understand these changingrelationship dynamics. Says Schramm; “Our competitors thought that we were just doingrapid delivery.”9 In reality, HM reinvented the entire supply chain.ICC DeploymentHerman Miller’s ICC deployment strategies contribute to all three strategic goals shownin Figure 1 below. Technology and the Internet are used to deploy informationintelligently and distribute decision-making.Strategic Goals Deployment Strategy ResultSuperior customer  Supplier decisions based on  Accurate ordersservice complete access to demand and shipped on time. inventory information  Total cost reduction  Lower prices to customers  Supplier rationalization  Improved quality and speed due to increased collaboration  Z-Axis visual design  Faster time-to-order collaboration  eZconnect customer Web  Easier to re-order sitesSpeed to market with  Collaborative product and  Faster design processnew products process design  Commodity managers  Better information flow to all participants, better forecastingCreation of new  Collaborative product and  Faster design process.markets process design Easier to predict trends as input comes from multiple sources. Figure 19 Ibid.3
  • 4. Buy sideHerman Miller has gone beyond automating its supply re-order system; it lets suppliersactually manage component inventories. Information deployment empowers suppliers tomake strategic decisions in response to changes in demand, resulting in lower inventoryand production costs throughout the supply chain. Suppliers have access to real-timedemand and production information through one of two Web-based information systems—Supply-Net and SIGN. According to Bill Bundy, vice president of operations, “all thata supplier needs to access demand and inventory data in real-time is a PC, a Webbrowser, and a password.”10 Suppliers can also check electronic invoices for accuracy,ensuring prompt payment and maintaining cash flow. HM even has an automated alertsystem to warn suppliers of discrepancies in invoices or orders. This saves both HM andthe supplier wasted time and effort in chasing down problems.HM also collaborates closely with suppliers to reduce total component costs. Byanalyzing costs at any point in the supply chain, components and processes can besingled out and analyzed for cost reductions. This is very different from the traditionalmodel where manufacturers simply impose price reductions on helpless suppliers. Thejoint decision-making based on technology-enabled open information provides anexcellent case for intelligent collaborative commerce.Herman Miller enables further supply side agility by collaborating with a smaller numberof suppliers to create deeper, more flexible relationships. The goal is to transform tactical,reliability-focused relationships into strategic relationships rooted in informationtransparency and trust. HM uses a “bucket system” to rate suppliers along quantitativeand qualitative measures. Bucket one suppliers not only deliver over 99% accuracy butalso share complete costing information and can adapt quickly to change. Bucket two,three, and four suppliers share fewer and fewer of these qualities.The criteria are strict: of HM’s 600+ suppliers, only two are in bucket one. DrewSchramm indicates that the company has at least one major supplier who provides criticalparts but risks being replaced because of its policy of not sharing cost information. RoyalPlastics, a bucket one supplier, accesses SIGN and Supply-Net via the Net to get orders,inventory, forecasting, and payment info. “It helps us plan and keep better track ofinformation,”11 says Perry Franco, Royal’s HM relationship manager. Franco indicatesthat many manufacturers simply demand that suppliers reduce prices and lead times,whereas HM “puts the tools in place to make it happen.” The tools enable intelligentcollaboration between HM and Royal to achieve mutually important goals of leanerproduction. Similarly, Pent Assemblies shared cost breakdowns of a plastic part (labor,material, transportation charges, overhead attributed, cycle time of machinery). HM andPent then were able to target the cost of the plastic resin as the main variable for theentire cost of the part. Working together, the two companies came up with a solution that10 Bill Bundy, vice president of operations, Herman Miller, interview by Natalie Klym, Digital 4Sight, 11April 2000.11 Perry Franco, Royal Plastics Inc., interview by Terrence Hibbert, Digital 4Sight, 5 February 2001.4
  • 5. saves $50,000 annually. Schramm believes that there are many processes that can providesimilar (or greater) cost savings.12Make sideCollaborative design pushes design information to all relevant parties and solicits inputfrom all simultaneously, thus reducing the cycle time and increasing product quality. Thispractice allows HM to gain competitive advantage by increasing the pace of innovation inthe industry. The process can also be applied to manufacturing and sales processinnovation. As Schramm says, “our…suppliers literally have engineers sitting in our newproduct development teams adding to the value of the product as it’s coming down thepike.”13 He estimates that this collaboration allows HM to bring high quality newproducts to market 15%-20% faster than the competition. Franco indicates that hiscompany will sometimes get involved two years before a product launch. Royal Plasticscan lower costs by designing parts that it knows are less labor-intensive.HM intends to automate the design process by implementing software that enables virtualcollaboration, thus saving time and resources involved in physically co-locatingparticipants. Challenges may come from some suppliers who prefer to pay to sendengineers to HM to physically manipulate the product. “I am typically trying to get myengineers to [HM’s] site to reduce headaches further on [during production],” saysFranco. “They like to touch and feel the product, understand how it is used and itspurpose.”14 For HM to be successful at virtual collaboration, it will have to simulateproduct manipulation.At HM the commodity manager is responsible for collecting information on a particularcommodity (plastics, wood, raw steel, steel products, etc.) and disseminating itthroughout the supply chain. The objective is to improve product design and trendforecasting, both of which are necessary to increase speed to market and improveproduction quality.Sell sideHerman Miller shortens the sales cycle by embedding business and design process rulesinto customer-facing technology. Shorter sales cycles increase dealer revenues withoutincreasing resources, and enable the pursuit of new market opportunities. Z-Axis is avirtual room that allows dealers to collaborate with customers to design SQA systems inreal time. According to Lee Eilers “[Z-Axis] allows a customer to make better decisionson a more timely basis so it can meet its targets.”15 The software intelligently displaysonly the SQA furniture that can be delivered within the specified period andautomatically produces an accurate bill of materials. Traditionally, designing systems12 Drew Schramm, vice president supply chain management, Herman Miller Inc., interview by TerrenceHibbert, Digital 4Sight, 16 February 2001.13 Drew Schramm, op. cit., 22 January 2001.14 Perry Franco, op. cit.15 Lee Eilers, (()), Herman Miller Inc., interview by Dave Cosgrave and Terrence Hibbert, Digital 4Sight,22 January 2001.5
  • 6. with CAD (computer-aided design) is a long and arduous process, particularly wherechanges are required. It could take months to complete sales to large customers. The costfor sales to smaller customers was prohibitive. Z-Axis allows dealers to reduce the sellcycle to weeks or even days and pursue the previously unfeasible medium-sized officemarket.eZconnect is a Web-enabled tool HM created for large customers to re-order, or makechanges to its order, online. Through eZconnect, dealers progress from a traditionaltransactional relationship with the customer to a permanent contextual relationship thatkeeps the dealer, and HM, permanently in the customer’s mind. It enhances the customerexperience by intelligently displaying only the furniture systems ordered and embeddingthe order processing rules.eZconnect was originally intended as a way for HM to connect directly with customers,to increase speed and efficiency. Unfortunately it displaced dealers in the process.“Literally, the product had to be enhanced or scrapped,”16 says Lee Eilers, who is incharge of the product for HM. By collaborating with dealers (who felt they were beingdisintermediated) and customers (who weren’t knowledgeable enough to order directly),the tool was recast into its current form. Intelligent collaboration in technology redesigncreates the ongoing learning process that will help HM to “increase the clockspeed of theindustry.”17Herman Miller’s technology is the glue that links all strategic goals. There is a veryexperimental culture around technology. “It’s not a bad thing if technology doesn’t workif we gain some intelligence about it”18 Drew Schramm says of the supply side softwarehe has used. The team applies the learning from the implementation of technology, evenfailed technology, to be able to implement the next technology faster and moreefficiently. This organizational learning extends to technology that is used by suppliersand customers.16 Ibid.17 Mark Schurman, op. cit. Clockspeed refers to the work of Dr. Charles Fine wherein he describes the paceof innovation in an industry.18 Drew Schramm, op. cit. Which interview date?6
  • 7. FIGURE 2 – COLLABORATION ACTIVITIES & SUPPORTING TECHNOLOGIES SELL SIDE COLLABORATION Focus on reduced time-to-order Z-Axis Fast-accurate delivery and installation eZconnect Collaborative design Oasis order entry system Supply chain optimization hmstore.com Flex supply chain SQA (simple quick affordable) Complete demand and supply chain inventory information E N ID IO CO M ERP (JD Edwards, Baan) Total cost reduction Y S AT L L AK I2 Rhythm Factory Planner Supplier rationalization BU BOR AB E S A OR IDE Manufacturing Execution System Collaborative design LL AT Supply chain optimization CO IO Menlo Logistics SIGN N Supply-Net Menlo Logistics Collaborative design Commodity managers Workflow planning LEGEND COLLABORATION ACTIVITIES ENABLING TECHNOLOGIES Source – Digital 4Sight Research Figure 2On the sell side, Z-Axis and Oasis Order Entry System provide the interface for dealerorders. Customers, on the other hand, enter purchase information directly on eZconnector hmstore.com. The next generation of software will be completely Web-based anddesigned to maximize customer usability.On the buy side, HM and Menlo Logistics send information to suppliers via SIGN andSupply-Net. This information is critical in the decision-making processes of suppliers andthey have input into any updates to the technology.The make-side software feeds SIGN and Supply-Net through enterprise software likemanufacturing resource planners, execution systems, and ERP systems. The companycurrently uses two ERP systems but have plans to reduce it to one. HM creates acollaborative learning environment where programmers and users can share experiencesand leverage the lessons learned over multiple technologies.Measures of SuccessHerman Miller’s reliability score (a measure of on-time and complete shipments) is ameasure of ICC success. Everyone in the value chain understands that 100% reliabilitymeans that the ordering, production, and fulfillment processes are running effectively.This measure of effectiveness is complemented by measures of efficiency that are theresult of collaborative processes. Efficiency is measured by the time it takes for newproducts to get to market or for changes in design to be implemented in production, andalso includes cost reduction through better design and production methods. The companyview is that effectiveness brings new customers, while efficiency improves the bottom7
  • 8. line. HM’s high growth and industry leading 48.7% return on equity, 15.1% return onassets, and 36.7% return on invested capital all indicate success in effectiveness andefficiency.Herman Miller also values its ability to create new markets and its ability to innovate atany point in the value chain. To do so, HM relies on economic value-added19 (EVA)metrics to push information and authority to innovate or make decisions out to the mostappropriate organizational level. Schramm’s technology team uses EVA to decidewhether or not it should implement a new technology: “If my group says it wants tospend $25,000 on a new piece of software, and it’s going to be EVA positive, there isn’t aperson that stops us, we just go out and do it.”20 Achievement of EVA targets also drivescorporate bonuses, which creates further incentive to use it as a decision-making tool.A telling metric for evaluating how well HM is working with its suppliers is how manyare in the bucket one category. As more suppliers progress into bucket one, HM willbenefit from having better collaboration and opportunities to increase effectiveness andefficiency.Future VisionHerman Miller will face challenges in deploying its ICC strategy internationally. Face-to-face collaborations are more expensive, and HM must rely on embedded business andprocess rules in software to collaborate virtually and maintain effective distributeddecision-making. Success will lead to furniture systems tailored to local tastes, rapidgrowth in market share, and continued flexibility. There may also be new cultural barriersto face around the principle of open information. The benefits of information sharing fortotal cost reduction and rapid innovation must be communicated and the bucket systemexpanded.The company also wants to gather and harness more customer knowledge to enhance thepurchase experience and design of future systems. According to Mark Schurman, HM is“implementing collaborative, remote interactive technology in our design process that webelieve will add speed and reliability to our new product commercialization processgoing forward, including a ‘virtual’ development lab.”21 To begin with, the company willcreate a “customer team” to solicit feedback from customers directly. Conversations willyield valuable information and be disseminated throughout the value chain. HM plans toreap information on preferences and dislikes directly from dealer software and Web tools.If a certain office layout is never chosen, it may need more focus. If, however, the layoutis seen by many customers but never chosen then it can be eliminated. This level ofunbiased detail is difficult to obtain from conversations and illustrates the importance ofthe ICC principle of capturing business information at the source of creation.19 EVA is a measure designed to give companies a more accurate way of estimating real economic profitthan traditional financial metrics. It calculates after-tax net operating profit for a given period, less the totalcost of capital over the period.20 Drew Schramm, op. cit. Which interview date?21 Mark Schurman, Herman Miller Inc., interview by Terrence Hibbert, Digital 4Sight, 16 February 2001.8
  • 9. General Electric “[Through the use of collaboration software, suppliers] will be working as if they’re part of our team. We think it will change the whole paradigm of how we work with suppliers.”22 Chris Fuselier, general manager of technology, GE Industrial SystemsGeneral Electric is an expansive global corporation whose offerings range from jetengines to financial services to the television show “Will and Grace.” Not only is thecompany in the Fortune 500 (it’s #5), but 13 of its business units are big enough toqualify individually. Business processes and markets vary widely from one business unitto another—consider the difference in innovation strategies between nuclear reactors andequipment leases.Despite its size and varied mix of offerings, General Electric eschews the sluggishbehavior typical of a behemoth conglomerate. GE is an early adopter of innovativebusiness practices: the company was quick to embrace Economic Value Added23 as a keybusiness metric and passionately pursued Six Sigma excellence.24 During the 1980s,when most companies divested assets and outsourced down to core competencies, GE,under legendary CEO Jack Welch, constantly revamped its portfolio of businesses.Retaining only business units that could consistently be ranked #1 or #2 in their markets,the company sold $10 billion and purchased $19 billion worth of businesses. By 2000,the traditional manufacturing company that Thomas Edison started in 1878 wasgenerating more than 60% of its revenue through services. This revenue is not justrealized by prized assets like GE Capital and NBC, but also through after-sales servicecontracts on the company’s equipment business.Business ContextUnlike many other global firms, GE did not react to dot-coms with panic or studiedindifference, but instead saw them as a challenge and opportunity. Welch announced thatthe company’s e-commerce strategy would “change the DNA of GE forever byenergizing and revitalizing every corner of this company.”25 Welch imparted a sense ofurgency: “One cannot be tentative about this. Delay and you risk being cut out of yourown market, perhaps not by traditional competitors but by companies you never heard oftwenty-four months ago.”26 Simply adopting Internet technology and streamlining22 David Drucker, “Virtual Teams Light Up GE,” Internet Week, April 6, 2000. 23 EVA is a measure designed to give companies a more accurate way of estimating real economic profit than traditional financial metrics. It calculates after-tax net operating profit for a given period, less the total cost of capital over the period.24 Adapted from the 18th letter in the Greek alphabet, the term “sigma” is used in statistics as a measure ofvariation. Each sigma represents a standard deviation. Within a set of random data, one sigma means 68%of goods are acceptable and two sigma means 95% are acceptable. Six sigma means 99.999997% of goodsare acceptable (or 3.4 defects per million).25 Howard Rudnitsky, op. cit.26 Ibid.9
  • 10. operations will not generate a competitive advantage—all of GE’s competitors could dothat. To succeed, GE needed to leverage Internet technology faster with more focus.Then, in the aftermath of the 2000 NASDAQ correction, many large companies let out arelieved sigh, engaged in a little schadenfreude27 at the expense of some former dot-combillionaires, and sent e-commerce to lower priority status. Not so General Electric. Welchpromises that e-business will realize $10 billion in savings between 2000 and 2002.These savings will, in large part, result from GE’s aggressive adoption of collaborativepractices across business units and with customers and suppliers.Challenges and OpportunitiesGE’s corporate mission is to completely transform the company through effective use oftechnology. Jack Welch set a clear direction that the entire company be digitized. In fact,the company now tracks the number of computer printers and fax machines “retired” fora given period, as proof that digitally captured data had replaced paper. This simplemetric understates GE’s challenge. Going ‘digital’ means patching together numerouslegacy systems, coordinating multiple data models and enabling more and bettercommunication between them.GE’s overall corporate strategy has four components: continued globalization, furtherpursuit of Sigma Six quality, increased revenue from services, and the pursuit of e-business. Intelligent collaborative commerce, aided by corporate level investments intechnology, supports each of these initiatives.ICC DeploymentIn only four years GE’s Sigma Six quality initiative, a relentless commitment to reducingproduction and performance errors to fewer than four per million, has become deeplyingrained in corporate culture. For example, only those employees who fully ‘buy in’ toSigma Six qualify for senior positions in the organization. Thus far, the initiative hasyielded better than $4 billion in savings.With the emergence of the Internet as a collaborative platform, GE now employs a newset of tools in pursuit of ultra-high quality and speed. Lonnie Edelheit, a seniortechnology and research advisor to GE, points to a number of Internet based collaborativeefforts the company now employs, including e-engineering and customer configuration.Historically, GE operated with basic engineering tools, and relied on “intuition” topredict customer demands. Its internal and external co-engineering efforts were highlyinefficient. Ram Matta, a senior GE research engineer, recounts a recent project where histeam was building jet engine wheel disks. At multiple stages of the project, an actual 10ton wheel was shipped around the globe as engineers worked on interacting parts. Otherengineering activities were put on hold until the wheel was returned. According to Matta,“it added 12 months to my cycle time and left me hostage to one supplier.”27 A German term referring to the malicious enjoyment of another’s misfortune.10
  • 11. Utilizing an Internet based e-engineering backbone, GE now ‘ships’ knowledge andinformation, not physical prototypes, to its global engineering teams. Information, fromprecision design specs to extensive test data, is deployed to the right people at the righttime. In the process, the e-engineering platform administers a complex system of workand information flows, approvals, change management and multi-layered data access toensure product quality. Matta expects it will reduce cycle times from years to months.GE also deploys mission critical information to customers (and dealers) via the Internet.Each of GE’s manufacturing businesses offers ‘wizard’ software tools to facilitateintelligent product configuration. For example, customers can select product types andcolors, receive cost estimates, and view digital representations of custom-made productson line. GE captures these customer preferences digitally and in real time.Doing so required that much tacit organizational knowledge, including important designand business rules, be captured and embedded in the software. According to Joe Hogan,vice president of e-business, GE Medical Systems, “Some of these pieces of equipmentcan be pretty complicated. That information used to be in a person’s head, and the onlyway you could get it was to make a phone call or send a fax, and someone would take alook at it and suggest what the configuration should be.”28 Both GE and its customersbenefit from reduced sales cycles and better product matches.General Electric considers its size and diversity of business activities a tremendousstrength. Adopting best practices from other business units or outside the company isencouraged—competitive intelligence-gathering is required of all managers. Internally,executives consider GE to be a “boundaryless” organization. A commitment tocollaborating with suppliers and customers is nothing new. In 1993, Welch wrote in aletter to shareholders: “We involve suppliers as participants in our design andmanufacturing processes rather than treat them as vendors, left to cool their heels inwaiting rooms. It means having major launch customers like British Airways, TokyoElectric Power, or CSX in the room and involved in the design of a new jet engine, arevolutionary gas turbine, or a new AC locomotive, or a panel of doctors helping usdevelop a new ultrasound system.”29By 2001, this collaboration was fortified by effective use of collaborative Internetapplications. GE targeted conventional workflow pitfalls, like data hoarding, informationbottlenecks, rework, and long cycle times, for improvement using the Internet.As a key part of the solution, GE has mandated the use of Matrix One collaborationsoftware, eMatrix, for all new product introductions. Consider the case of GE Appliances.This division launched a program to enable the participation of Indian suppliers veryearly in the design process. Using eMatrix, India based companies Tata and Satyem co-design new products with GE engineers located in Kentucky. Workflows, approvals, andinformation access levels are managed over the Internet. Design cycle times and costs areslashed. Moreover, intense collaboration with suppliers results in better manufacturingcost models, and ultimately higher margins.28 “GE’s E-Biz Turnaround Proves that Big Is Back,” InternetWeek, date?29 Robert Slater, Jack Welch and the GE Way (New York: McGraw-Hill, 1999), p. 131.11
  • 12. The GE Power Systems group realized $40-60 million in yearly savings after migratingproduct and service data to the Internet. It has built powerful Web portals, integratingmore than 50 disparate legacy systems, to service its large power plant customers. Linkedto real time performance data from a global install base of power generation equipment,GE is better positioned to offer higher value proactive services to customers.Within the GE Industrial Systems business unit, technology enables deep relationshipswith customers. Product engineering is highly collaborative, which strengthensrelationships between the company and its clients and increases the customers’ cost ofswitching suppliers. According to Chris Fuselier, general manager of technology, GEIndustrial Systems, “[Collaboration] gets us a lot closer to our customers. They’re goingto be more involved, more frequently. We’ll be much better able to meet their needs, andwe think it will result in great customer loyalty.” 30Co-engineering is common practice within GE’s Aircraft Engines business, wheresupplier engineers have full access to data and participate in system design. The enginetest data system is moving off an IBM mainframe and onto an Internet platform. The datais reliably and securely stored in an organized fashion and is available to both GE andBoeing engineers.Enabling TechnologyFigure 3 illustrates the three main branches of GE’s collaborative activity. For each ofsell side, buy side, and make side, the main activities and supporting technologies areshown. Note that the same players and technologies often operate in multiple branches.MatrixOne is present in all three segments, as it serve as a universal integrator of varioustechnologies. For example, Web City, an internal collaboration system, helps to manageprojects and creates virtual folders that allow GE industrial systems to capture bestpractices and expedite repetitive tasks. Also, Web Methods software works with eMatrixto enable GE Power system’s transformation from legacy systems to Web technology.30 David Drucker, op. cit.12
  • 13. FIGURE B – COLLABORATION ACTIVITIES & SUPPORTING TECHNOLOGIES SELL SIDE COLLABORATION Dynamic price discovery Customer satisfaction metrics MatrixOne Customer experience optimization Part Edge Product customization Commerce One Co-engineering GE Global VMR Supply chain optimization Span MatrixOne Dynamic price discover i Center Product customization Microsoft Exchange Co-engineering E N CO M Lotus (Notes, Domino, Raven) ID IO Supply chain optimization Y S AT LL AKE BU BOR AB S A OR IDE LL AT CO IO MatrixOne N Web City Commerce One GE Global VMR Workflow plan Quality control Documentation Co-engineering Testing results LEGEND COLLABORATION ACTIVITIES ENABLING TECHNOLOGIES Source – Digital 4Sight ResearchGE has also increased collaboration in supply chain management. In October 2000, GEOperations Services implemented GE Global VMI (vendor managed inventory), acollaborative supply chain software product that supports inventory management,forecasting, and logistics. According to Steve Pittman, General Manager, GE OperationsServices, “excessive inventories are often the hidden costs associated with inefficientsupply chain management. The GE Global VMI service allows for supply chainmonitoring and control 24 hours a day, seven days a week. Its inventory managementsystem can deliver up to a 50% inventory reduction of returned orders, leading to a 5:1return on investment. This opens up new opportunities in supply chain efficiency forsuppliers and customers.”31 The results of this initiative, however, go beyond increasedefficiency and actually make the relationship between GE and its customers moresynergistic. Improved communication and transparency increase responsiveness andreduce inventory costs. Products can change rapidly to adapt to market conditions andinventory obsolescence is reduced or eliminated.Measures of SuccessGE’s commitment to e-commerce and intelligent collaborative commerce has beenunqualified. Although a great deal of work remains to be done to meet Welch’saggressive goals, the company has seen some promising early results (Figure 4).These include baseline cost improvements resulting from transactional efficiency, tohigher order collaborative benefits such as shorter product development cycles.31 “GE Launches Collaborative Supply Chain System,” Quality Today, October 26, 2000.13
  • 14. Buy-side ICC  More than $15 billion worth of commodity products were bought online in 2000. According to senior vice president and chief information officer Gary Reiner, “if all of the [4 million per year] transactions went to the Web, transactions costs would drop from an average of $75 each to as low as $5 per transaction.”32  Internet transactions are already important, accounting for more than $5 billion of GE’s $112 billion of worldwide revenue33Sell-side ICC  Customer service costs decrease. For example, a customer call answered by a phone operator costs $5; a Web interaction costs 20¢. According to Reiner, “You’re talking about a more than 90% reduction in costs. [In fleet services] telephone order inaccuracies run at about 45%. The same transactions done over the Web, with software that helps get and give the right information, drives down the error rate to one tenth of one percent.”34  The use of eMatrix within GE Power Systems alone will result in yearly savings of $40-60 millionMake-side ICC  Administrative costs decrease. GE management believes that through Internet-enabled cross-functional collaboration the company can save from 20% to 50% of selling, general, and administrative expenses. This saving would increase operating profits by almost 50%. 35  Innovation cycles decrease. Web City has cut 30-40% out of innovation cycle times; more is expected when suppliers are fully integrated.36  Using predictive modeling, GE reduced the time needed to make a product modification for Seagate from over 100 weeks to 42 weeks. With full ICC, this time should be further reduced to 8 weeks.Infrastructure  Global Exchange handles $1 billion transactions per year (2000)development totaling $1 trillion in volume.37 Figure 4Future VisionWhen Jack Welch was asked to imagine GE in 2020, he replied, “I hope it will be thegreatest learning institution in the world. I hope it will always look outside. I want it tohave curiosity.”38 The fact that Welch endorsed Jeffrey Immelt, the head of GE’smedical-systems business, as his successor makes a lot of sense—Immelt’s career at GEhas been exclusively within business units that depend on high-tech engineering and thatare most likely to benefit from successful ICC deployment.32 Howard Rudnitsky, op. cit.33 Ibid.34 Ibid.35 Ibid.36 David Drucker, op. cit.37 “GE’s E-Biz Turnaround Proves that Big Is Back,” op. cit.38 Robert Slater, op. cit.14
  • 15. The next step is to utilize advanced tools—Web collaboration, digital prototyping,advanced systems engineering—to completely transform the way GE interacts withcustomers: “GE and the customer are seamless partners in the design process, like astrand of DNA.” says Edelheit (See Figure 5). His main goal for GE is to expand theinnovation process beyond the boundary of the organization. Figure E illustrates theevolution to true customer collaboration. Historical Present FutureTools Basic engineering DFSS 39and predictive Web collaboration tools models Digital prototyping Iterative guesswork Global resourcesOutcome Hard to satisfy wants Identify/meet CTQs40 Delighting the customerDevelopment Time Years Months Customized products within weeksSource: Lonnie Edelheit, Senior Technology and Research Advisor, General Electric Figure 5The GE corporate R&D team plans to enrich its collaborative activities through deeperuse of technology such as eMatrix. Ram Matta believes that when GE achieves his vision,it will leverage digital design and optimization to reduce manufacturing costs by a factorof two.39 Design for Six Sigma.40 Critical to quality.15
  • 16. ON Semiconductor “Our knowledge management and its integration within our business process will be a significant differentiator for our company. We have customers and we have partners that say we are far ahead in this area of understanding, in terms of driving the knowledge management side of our business.”1 Colum O’Neill, director of e-business, ON SemiconductorOne of the world’s leading suppliers of performance chips for power management inelectronic systems, ON Semiconductor is an employer of 14,000 worldwide. ONseparated from Motorola in 1998 and went public within a year. In 1999, its annualrevenues reached $1.6 billion.ON Semiconductor’s products include integrated circuits for high-bandwidth dataapplications, analog integrated circuits for power management, and low-voltage powertransistors. Though relatively inexpensive, semi conductors are a key driver oftechnology in the new economy. ON collaborates with leading edge customers such asLucent, Cisco, Ericcson, and Nortel on a variety of products, including portableelectronic devices, networking equipment, and high-speed modems. Its participation inpioneering ventures such as RosettaNet has made it a leader of product collaborationwithin the semiconductor industry.Business ContextON operates in a crowded market, with many of its competitors producing similar – if notidentical products. In this intensely competitive industry, differentiation is critical tosuccess. Many of ON’s competitors compete on shipping, price, delivery, and service,and margins in this business are becoming tougher and tougher to sustain.ON ships approximately 22 billion units per year at an average price of 7.5¢ per unit.60% of its revenue – approximately $1 billion, is generated from what it considerscommodity products. ON also designs customized solutions, developed collaborativelywith its customers. Due largely to a doubled R&D budget, ON also doubled its newproduct introductions from 200 in 1998 to 400 in 1999. Integrating its business processesand enabling greater product collaboration with customers are key elements of ON’sstrategy for dominating emerging product segments.ON’s customers operate in fast-paced industries with extremely short product lifecycles.Some of their products (cell phones and computers, for example) may have only 6-9months of shelf life before becoming obsolete. Short product lifecycles are sustainedthrough rapid product development. ON’s OEM customers face relentless pressure tocome to market faster with products that have considerable advantages over existingones, and/or to target new customer segments. Product engineers are challenged toinnovate at an accelerated pace. ON’s peer suppliers must match their pace. Intense,16
  • 17. intelligent collaboration, from the conception of new components through theirmanufacturing and delivery, is the key to speed. “There has always been collaboration in this industry, but up to this time it has beenpaper-based and labor-intensive,”2 says Colum O’Neill, ON’s director of e-business. Theevolution of the Internet as a collaborative platform, and the emergence of powerfulenabling applications are driving the widespread adoption of digital collaboration.ON is turning to Internet technologies to create efficiencies. According to Jim Thorburn,ON’s COO, “Shifts in our business model are customer-driven, and to remaincompetitive, we must change the way we interact with its customers.”3 Integration withkey customer business processes, information sharing, and new technical platforms aredriving ON’s e-commerce activities. Changing customer relationships are driving internalchange as well, affecting processes, people, and technology, and their interactions withone another.ON is strategically repositioning itself from efficient manufacturer to a collaborativeinnovation driver, to meet the competitive challenges of its industry. The goal is to leadthe industry in anticipating the customer needs, and to build the infrastructure to deliveragainst them.Challenges and OpportunitiesON’s business partners—customers, suppliers, and employees—need information: theright information at the right time. Information-driven interaction with its customers isan ongoing challenge; the collaborative infrastructure necessary to compete in emergingsegments is more complex than ever before.According to Thorburn, ON needs to improve its understanding of three key elements ofits business: how ON builds its products; how ON sells its products and how customersuse these products. ON is transitioning its perspective on business practices, from havingbeen primarily internally focused, to becoming shared externally. Traditional New Use Use Build Process Sell Process Build Sell Design Design Time Figure 6 Time17
  • 18. Figure 6 illustrates both the traditional and new approaches to sequencing the “design,”“build,” and “sell” phases. The new model enables greater interaction, earlier, whilefurther integrating the design and sell phases. Customers become more active in theproduct development cycle through collaborative product design, resulting in better,higher value relationships. To build these new relationships with its customers and topromote efficient collaboration, ON is working to develop seamless internal processesand knowledge management solutions.Although ON is a “new” company, it operates on legacy systems inherited fromMotorola. While these systems are adequate, they lack the functionality for morecomplex workflow planning, information deployment and process integration, accordingto Rebecca Glenn, CIO4. Access to accurate, real-time data, which legacy systems can’teasily accommodate, is essential to doing business internally.As ON strives to become more collaborative, system inflexibility becomes more than justan internal obstacle. ON must be able to effectively ‘plug’ its business processes intothose of customers, and ensure the integrity of data exchanged. Consider the implicationsfor collaborative product development, a key element of ON’s strategy, where severalhundred people from various organizations might access product information throughdesign to manufacturing. Inaccurate, incomplete or out-of-date information has widereaching, negative effects.In addition to structuring activities and disseminating information, business systemscontribute greatly to the culture of an organization. ON’s evolution from manufacturingsupplier to value added collaborator requires a new set of cultural norms aroundinformation transparency and sharing, inter firm co-operation and decentralized decisionmaking. ON’s emerging Internet based business systems are built around these norms,and are helping enact cultural change through the organization.ICC DeploymentOne of ON’s early e-business initiatives was to develop a Web presence with functionallinkages back to business processes. Though small, this initial step has unleashed amultitude of future opportunities. “We did not want to build a façade, we wanted toensure that our Web site had product information that was linked back to our business,”5states Colum O’Neill.The dissemination of product information to customers is a core collaborative functionthat has been migrated to the Web. Don Lambert, ON’s product information manager,indicates that 700,000 documents are downloaded from its Web site, and half a millionproduct summary pages accessed, every month. These documents are linked directly tointernal product information management systems (PIMs), rather than managed as aseparate catalogue function, which preserves ON resources, and more importantlyensures that the information is correct and up to date.18
  • 19. ON will ultimately render all relevant business information accessible, via the Internet, toall its b-web partners. By deploying a new set of capabilities and porting to the Internet,static data will form the input to more dynamic, rich information. (Figure 7) Static Dynamic Changes Changes Infrequently Frequently Reported Managed & Analyzed Manufacturing Result of Processes Processes Figure 7Clearly, there are implications to such information transparency: “Before we can begin toshare our data with our suppliers or customers, we must ensure that the data is correct,that it is able to flow through our organization, and that it is the data our customers arelooking for,”5 says O’Neill. To this end, ON is developing a single data model to captureinformation and codify complex information relationships between business processes.The single data model ensures that whenever information is accessed, it is the best andlatest available.Moreover, where information is modified, changes must instantly be deployed whereverthey are relevant. “Dynamic documents must be integrated back to the business or therewill be misinformation floating around your customers’ organizations,”6 in Lambert’swords. This implies the need for a seamless, secure network capable of pushinginformation into multiple functional contexts. The same network must also be capable ofenforcing multiple business rules – from information access control to dynamic pricingschedules. When ON’s engineers alter a design parameter, for example, the change mustinstantly be reflected in ON’s manufacturing and ERP systems, as well as its CRM andPIM systems. If the change is mission critical to a customer, then it must instantly flowthrough to its planning and production systems. These data exchanges are the foundationof efficient collaboration.Utilizing Matrix One’s Web-based software eMatrix, ON was able to build this singledata model, or what Colum O’Neill refers to as the “hub middleware.” This layer ofarchitecture allows ON’s processes and content to flow through to its customer-facingapplications. Key customer information is gathered through the same hub. The singlesource of information is the “engine” that feeds ON’s customer-facing applications suchas its product catalogue on the Web site and B2B market involvement.19
  • 20. According to O’Neill, “ON has only just begun.” The company will continue to offercustomers new collaborative, Internet based-services with real-time functionality andlinks back to business processes. One example involves product numbers. ON currentlyassigns every product an internal product number. Customers, after purchasing ONcomponents, assign their own numbers, creating certain inefficiencies when productengineers re-order parts. ON maintains a separate cross-reference database so customerscan re-order components using their own numbers, but the system is imperfect. Thedatabase lacks true process linkages.In the next six months, ON will migrate this database into the eMatrix environment and,through embedded business rules, fully automate the product number translation process.Both ON and its customers benefit from new efficiencies. The creation of seamlessbusiness process intersections supports ON’s mission to become the easiest company todo business with in the industry.There are also plans to improve linkages between product information systems and itsSiebel Systems CRM applications that aid the sales process. Ultimately, the systems willbe capable of automatically ‘recognizing’ customers and making intelligentrecommendations regarding product compatibility, business decisions and design. Thesystem will rely heavily on design and business logic embedded in software. Forexample, ON could recognize an incompatibility between a low-voltage transistor and apower management chip in a customer design and suggest an alternative. Or, it mightsuggest an entirely different chip configuration to improve performance or lower costs.There are also plans to make the system ‘smart’ enough to recommend ON’s componentsover those of competitors, based on functionality or price advantages.ON also collaborates with customers via RosettaNet, an industry initiative dedicated tothe development and deployment of standard e-commerce interfaces to align theprocesses of global supply chain partners. As O’Neill explains, “RosettaNet is truecollaboration that leads to efficiencies.”11 Through RosettaNet, Lucent product engineersconduct complex, cross-vendor parametric searches from their own operatingenvironments. ON is the first semiconductor company to participate in this venture. Thecollaboration offers both cost and revenue benefits for ON and Lucent; the integration ofprocesses and the sharing of information allow the two organizations to communicate andcollaborate in real-time.Measures of SuccessON is committed to measuring the results of its collaborative efforts, to ensure a healthyreturn on investment. Early results from performance scorecards, used to monitor theprogress of key metrics over the last 6 months (March-December 2000), indicate thatimprovements are being made.The company set aggressive targets for percentage of their product portfolio available todesigners via the Internet, and are on their way to meeting them. The number ofcustomers requesting product samples online, for example, has increased ten-fold. ONhas also instituted an effective email notification program to inform customers of new20
  • 21. products. Indications are that that ON’s customers are finding value in their collaborativestrategy. On time delivery has improved, delivery time of internet sample orders hasdecreased, and they now have more channels available to them for tracking orders.ON has also improved internal quoting mechanisms and hence its ability to respondquickly to market opportunities. The company both increased the number of quotes andexpedited their delivery over the measurement period. There has been a dramatic increasein new orders being acknowledged internally within 24 hours. In addition, customers nowhave the option of receiving quotes through the telephone, or the internet (pilot project)and there are plans to expand this to include more B2B marketplaces (XML) beyondRosettaNet.Finally, ON has realigned compensation policy for product engineers, in order to promotecollaboration. This new program includes bonuses for new projects won, as well as newpatents registered. The intent of the program is to urge product developers to utilize thenew tools and technology available to drive innovation and interaction with customers.Future VisionMoving fast and managing change are key to ON’s future. “Collaboration at its best willbe measured by time to market,”12 states O’Neill. With a solid foundation in place, ONwill continue to roll out applications that enable further integration with customers. Thiswill culminate in the creation of a single, Internet based environment where ONemployees and customers can easily and efficiently work together. Collaborative productdevelopment will continue to be the focus of ON’s strategyCollaborative forecasting will also come to the forefront as ON continues to develop itsICC strategy. Forecasting models, focused on the supply side of their business, will allowfor more efficient production. To date, ON’s focus has been on the customer side of thebusiness, though sustained advantage will come from promoting efficiency andcollaboration across the value chain.21
  • 22. products. Indications are that that ON’s customers are finding value in their collaborativestrategy. On time delivery has improved, delivery time of internet sample orders hasdecreased, and they now have more channels available to them for tracking orders.ON has also improved internal quoting mechanisms and hence its ability to respondquickly to market opportunities. The company both increased the number of quotes andexpedited their delivery over the measurement period. There has been a dramatic increasein new orders being acknowledged internally within 24 hours. In addition, customers nowhave the option of receiving quotes through the telephone, or the internet (pilot project)and there are plans to expand this to include more B2B marketplaces (XML) beyondRosettaNet.Finally, ON has realigned compensation policy for product engineers, in order to promotecollaboration. This new program includes bonuses for new projects won, as well as newpatents registered. The intent of the program is to urge product developers to utilize thenew tools and technology available to drive innovation and interaction with customers.Future VisionMoving fast and managing change are key to ON’s future. “Collaboration at its best willbe measured by time to market,”12 states O’Neill. With a solid foundation in place, ONwill continue to roll out applications that enable further integration with customers. Thiswill culminate in the creation of a single, Internet based environment where ONemployees and customers can easily and efficiently work together. Collaborative productdevelopment will continue to be the focus of ON’s strategyCollaborative forecasting will also come to the forefront as ON continues to develop itsICC strategy. Forecasting models, focused on the supply side of their business, will allowfor more efficient production. To date, ON’s focus has been on the customer side of thebusiness, though sustained advantage will come from promoting efficiency andcollaboration across the value chain.21
  • 23. products. Indications are that that ON’s customers are finding value in their collaborativestrategy. On time delivery has improved, delivery time of internet sample orders hasdecreased, and they now have more channels available to them for tracking orders.ON has also improved internal quoting mechanisms and hence its ability to respondquickly to market opportunities. The company both increased the number of quotes andexpedited their delivery over the measurement period. There has been a dramatic increasein new orders being acknowledged internally within 24 hours. In addition, customers nowhave the option of receiving quotes through the telephone, or the internet (pilot project)and there are plans to expand this to include more B2B marketplaces (XML) beyondRosettaNet.Finally, ON has realigned compensation policy for product engineers, in order to promotecollaboration. This new program includes bonuses for new projects won, as well as newpatents registered. The intent of the program is to urge product developers to utilize thenew tools and technology available to drive innovation and interaction with customers.Future VisionMoving fast and managing change are key to ON’s future. “Collaboration at its best willbe measured by time to market,”12 states O’Neill. With a solid foundation in place, ONwill continue to roll out applications that enable further integration with customers. Thiswill culminate in the creation of a single, Internet based environment where ONemployees and customers can easily and efficiently work together. Collaborative productdevelopment will continue to be the focus of ON’s strategyCollaborative forecasting will also come to the forefront as ON continues to develop itsICC strategy. Forecasting models, focused on the supply side of their business, will allowfor more efficient production. To date, ON’s focus has been on the customer side of thebusiness, though sustained advantage will come from promoting efficiency andcollaboration across the value chain.21