The Implications of an Extranet on the Business Model
(graphics not available) Purpose of the Report
The purpose of this report is to provide the strategic implications of an Extranet on my company’s business model over the next three years. It is understood that the present business model utilizes an Intranet system.
Background of the Topic
When discussing Web-based technologies, we need to consider three distinct variations: the Internet, the Intranet and the Extranet.
The Internet is a public, global network of networks which is based on Internet Protocol (IP) and related standards (http://www.teleshuttle.com/media/extradef.htm). The Internet was designed to provide a standard means of interconnecting networks so that any system could communicate with any other system, regardless of physical location. It operates as a confederated network of networks (an “internet”), and offers universal accessibility (http://www.teleshuttle.com/media/extradef.htm).
An intranet is a private application of the same internetworking technology, software, and applications within a private network, for use within an enterprise. It may be entirely disconnected from the public Internet, but is usually linked to it and protected from unauthorized access by security firewall systems (http://www.teleshuttle.com/media/extradef.htm). An intranet provides access to data across all functional areas of an organization. These functional areas including Sales and Marketing, Manufacturing and Production, Finance and Accounting, and Human Resources. Addtionally, Intranet applications have been developed for each of the aforementioned functional areas (see Figure 1 Above).
While an intranet is private and is protected from public visits by firewalls, an organization can create an Extranet to allow authorized suppliers/distributors and customers/shareholders to have limited access to its internal intranet. An Extranet, or extended Internet, is a private business network of several cooperating organizations located outside the corporate firewall. An Extranet service uses existing Internet interactive infrastructure, including standard servers, email clients and Web browsers. This makes the extranet far more economical than the creation and maintenance of a proprietary networks. It enables trading partners, suppliers and customers with common interests to form a tight business relationship and a strong communication bond (see Figure 2).
A typical Extranet site is partitioned into open and secure segments. Access security is the corner stone of the Extranet concept. Secure connections using Virtual Private Networks (VPN) between computers create a virtual tunnel, using inexpensive and ubiquitous public lines (see Figure 3). (Management Information Systems, pg. 291) Tunnel technology can also be used to individualize the Extranet site, providing access only to the features that a particular user is entitled to.
A typical Extranet site also offers a private Discussion Area (Industry Network) and member feedback means, which permits the members to exchange ideas and to share information. The Discussion Area facilitates collaboration in solving joint problems and in continuous service improvements. Members are also able to provide valuable feedback though email links, questionnaires, surveys and guestbooks, and use patterns.
Close collaboration among Extranet members typically results in a better definition of a product or service, higher degree of cooperation and improved efficiency. An extranet extends a company’s network beyond its boundaries to predetermined business partners, customers, suppliers and others. Companies have the ability to leverage key information residing on their Extranet. In 2003 Aber determined that “Given the fact that the average small business deals with 35 to 45 vendors three to four times per month, efficiencies gained through online collaboration can cut costs and improve a business’s competitive position.” (http://www.entrepreneur.com/article/0,4621,305817,00.html)
Discussion of Current Issues
Today, extranets are becoming a popular means for business partners to exchange information (http://www.informationweek.com/657/srcult.htm). A distributor or salesperson can go to a manufacturer’s private extranet by entering a user name and password to access real-time information such as product availability, order status, and pricing. Other useful information also may be included on a manufacturer’s extranets. For the most part, manufacturers and distributors are on the same page when it comes to what distributors want and the type of information that can be accessed from manufacturer extranets.
Current Business Model
Extranets have forced many corporate executives to reexamine how they manage their business models. With a proper extranet, every person can communicate with every person or functional role in a project. You don’t have to know the names of the sub-contractors (http://www.cadinfo.net/editorial/extranet.htm). What’s more, invaluable business processes are preserved. All communications are archived, in a form that cannot be edited. Just think: How many lawsuits could be avoided by the mere existence of an indisputable record of all project communications? One large builder was told by their attorney that just being able to retrieve all the project documents would save, at a minimum, tens of thousands of dollars on any project that resulted in litigationjust on the document assembly for the discovery process (http://www.cadinfo.net/editorial/extranet.htm) Additionally, Picture having a single virtual location for all project documents, accessible from almost anywhere. No more questions about whether the concrete people got the latest version of the foundation drawings.
As associate editor of Information Week, Gregory Dalton, writes, “extranets are reshaping corporate culture as companies decentralize management, alter policies about publishing information, and redefine relationships with their business partners.” (http://www.informationweek.com/657/srcult.htm)
As another article in Information Week (1997) has rightfully stated “Ultimately, the success of extranets will depend on whether companies feel safe in allowing outsiders access to their network” (http://www.informationweek.com/657/intext.htm). Digital certificates, virtual private networks (VPNs), and smart cards are available today from dozens of vendors to assist companies in securing their extranet connections (http://www.informationweek.com/657/srsecu.htm).
Extranets offer organizations a power tool for transferring information between the offices of their suppliers and distributors. For example, VHA Inc., a health-care cooperative, found that deploying its extranet rapidly increased the flow of business information among its 1,400 members, compressing purchasing cycles. “We knew it was going to move fast,” says Scott Decker, director of research and development. “But you just can’t respond fast enough [now].” Adds Thomas Koulopoulos, president of Delphi Consulting, an IT consulting firm in Boston: “The rhythm of work is altered incredibly by extranets.” (http://www.informationweek.com/657/srcult.htm)
Recommendations for Managers of IT
In the company’s present business model, having a bright idea for a new or improved product is rarely enough on its own. Though there are a number of information-sharing options, such as Asymmetric Digital Subscriber Line (ADSL) and broad band providers, the most economical, given the company’s present intranet system and Internet accessibility would be Extranets. Extranets would possess the capability of ehancing the technology and supply chain relationships with customers and suppliers. It has been shown that “Design and development are all about close, collaborative teamwork – both internally with project team members, and externally with your customers and suppliers.” (http://www.is4profit.com/businessadvice/supplychain/supplychain3.htm).
While the company’s present Intranet system enables information-sharing applications within its borders, an extranet system would extend these applications to select third parties. These applications include collaboration content (e.g., technical and business related publications, including product catalogues, price lists, product bulletins, and Human Resource benefits), Transactional content (e.g., reports and forms pertaining to insurance, benefits, and 401(k) enrollment), process-related content(e.g., workflow procedures, project-management tools, schedules and order status), company directions (e.g., company phone directories and resource management tools), and utility content (e.g., Information backups, security tools, network development, management and technical support knowledge) (http://www.entrepreneur.com/article/0,4621,305817,00.html).
Ultimately, these collaborative application systems can vastly improve the way the company operates and communicates both internally and externally. As a result, extranets have the ability to encourage better executive and managerial decision making, the ability to enable a Just-in-Time (JIT) supply chain method, the ability to encourage distributed decision-making and virtual organizations, and the ability to dramatically reduce the costs of routine tasks and of producing/accessing/distributing information (http://www.entrepreneur.com/article/0,4621,305817,00.html).
With regards to cost, the company must consider both fixed and variable. Mark Femal (2000) writes “Fixed costs include the server, Internet connection speed, data storage, and amount of data retrieved. The variable cost included the amount of change to a web site. The latter could represent a 20 to 30 percent cost increase”. (http://www.beantree.com/PDF/extranets.pdf#search=’extranets’)
There’s no doubt that the Internet, intranets, and extranets are remaking the workplace by bringing about new levels in efficiency, productivity and global reach. Extranets will provide the company with the ability to share documents with authorized business partners, the ability to schedule meetings and share calendars with colleagues and remote workers, the ability to conduct discussions on everything from product ideas to employee suggestions, the ability to create and share access to information database-driven applications, the ability to manage and delegate action items and project tasks, and the ability to post announcements and share web links among all the company’s business partners (http://www.eisemangrp.com/IntraExtra.html).
Aber, R. (2003, January). Internet, Intranets, Extranets; What’s What?
By understanding the difference, you can find the best solution for your business [Online].
Dalton, G. (1997, November). Extranets Make An Impact; Net technology transforms the way companies conduct business [Online]. Available: (http://www.informationweek.com/657/srcult.htm)
Eiseman Consulting Group, Inc. (2003). Intranets/Extranets [Online]. Available: http://www.eisemangrp.com/IntraExtra.html).
Femal, M. (2000, June). Extranets [Online]. Available: http://www.beantree.com/PDF/extranets.pdf#search=’extranets’)
Is4profit (2004). Technology & Supply Chain Relationships with Customers and Suppliers [Online]. Available: http://www.is4profit.com/businessadvice/supplychain/supplychain3.htm).
Laudon, K. C. & J. P. (2006). Management Information Systems Managing the Digital Firm (9th ed.). New Jersey: Pearson Prentice Hall.
Orr, J. Dr. (2005, November). Extranets: Killer App or Overblown Fluff? [Online]. Available: http://www.cadinfo.net/editorial/extranet.htm).
Reisman, R. R. (1997, May). What’s an Extranet? and other key terms [Online]. Available: (http://www.teleshuttle.com/media/extradef.htm)
The Implications of an Extranet on the Business Model