B2B: Where HR fits in

The research suggests e-commerce is about to take off in Canada and new ways of doing business mean new issues for managing people

Canadian businesses are poised to make the move into the virtual marketplace, they’re just not sure how to get there.

A study released last month by Forrester Research showed 80 per cent of Canadian firms expect online business-to-business (B2B) trade to be a critical component of their corporate plan by 2002, but just 16 per cent have formed a clear B2B strategy.

What does all of this mean for HR? A lot.

While B2B may seem like a concern for marketing or operations, it will also effect HR because new ways of doing business will raise new issues for managing people.

Until now e-commerce was a minor part of Canadian corporate strategy, but say the experts, the attraction of a better, more efficient supply chain, reduced transaction costs and the opening up of new markets will be too great to ignore. And those that balk are likely to find themselves dragged there by the competition.

Forrester predicts that by 2005 about 18 per cent of all trade between businesses in Canada will be done in the virtual marketplace up from just 3.5 by the end of this year. In 2000, $23.3 billion was spent on B2B — by 2005 that is expected to rise to $272 billion. (Business to customer markets will also grow, but the value of B2B commerce is already five times greater than B2C and is expected to grow to 10 times its value by 2003. For a closer look at B2B see box on page 18.)

Finding the technically skilled people requisite for e-business success, will of course continue to be a problem.

But implementing a B2B model will often call for some process re-engineering which raises all the basic change management challenges. Functions within the business are likely to change.

For example, one of the appeals of B2B is the reduction of incremental administration costs that add up as resources work their way through the supply chain. In that light, accounts payable and the purchasing departments will probably change considerably and could likely be merged, says Norm Archer, a professor with Michael G. DeGroote School of Business at McMaster University in Hamilton.

Businesses playing the B2B game will also be able to hold smaller inventories and so fewer warehouse staff will be necessary. And redefined value propositions mean companies will be far more likely to outsource non-core functions then they did in the past, says Archer.

Just like in any other change management scenario, HR will have to closely monitor the effects on the culture of the organization.

Though it’s been the case for a while, fostering innovation will be at least as important as ever, and assume a greater importance in old economy firms taking the first steps into the virtual marketplace. This could raise culture clash issues for old economy firms, says Jeffrey Gandz of the Richard Ivey school of business at the University of Western Ontario in London.

Most businesses haven’t had to hire the kinds of people who have been getting the big bucks and fancy perks that have characterized the new economy. Instead most staff were found locally and paid the going rate. But finding people to run a B2B operation is a different matter. Companies will have to offer performance and signing bonuses and higher salaries to find the innovative tech-savvy people that will drive B2B success. Employees with the traditional side of the business could resent this special treatment for new employees, he predicts. It could cause a lot of problems and be quite painful for companies.

Archer too suggests companies will have to be vigilant about the effects of introducing a B2B function to the mix. Organizations will have to closely study potential outcomes to determine whether or not it will be disruptive or not to the existing organization.

If it looks as though it could be detrimental, companies will have a number of options:

•they could spin off the new organization to implement the B2B operation;

•outsource it;

•take over an organization that can manage it; or

•forge an alliance with another firm with the capability to handle the new operation.

Gandz cites Bell as an example of an old economy firm that combined the legacy business with B2B operations. They’ve done it by forming separate units for each of the new businesses, he says.

There is a part of Bell that keeps grinding away at the costs of basic telephone service, little different from what they’ve done in the past. While other units, like Emergis or the newly launched B2B portal for small businesses Bellzinc.ca, will succeed only by creating an innovative culture. “They have a different orientation towards people, they have to recruit people and care and feed the talent.”

Beyond this, other issues never seen before could potentially emerge and HR will need to be ready to respond.

For instance, B2B is going to require a lot more interaction with other businesses, even competitors, says Nancy Langton, an associate professor of organizational behaviour at the University of British Columbia.

“You get this impression that as we move to more Internet linkages we are depersonalizing a lot of stuff but in fact there are a lot more personal issues going on behind the scenes,” she says.

Success in the virtual marketplace will depend upon forming new relationships with new business partners. “The alliances will change,” she says. Previous competitors could easily become partners in relationships built upon developing economies of scale, for example. Information and data exchanges with a far greater number of potential business partners ensue.

Businesses and employees will have to get used to sharing previously confidential sales information with old adversaries, for example.

Granted it will be interaction in a virtual environment but employees are going to need to be able to manage relationships to develop and maintain trust across companies.

Ultimately the expansion of B2B commerce will mean very different things to different companies in different sectors. But, the consensus is that it will impact virtually every business in some way. “The workforce is going to look very different,” says Sunny Marche an associate professor in the master of electronic commerce program at Dalhousie University in Halifax.

Implementing B2B models will have a big impact on Canadian businesses, it’s up to the HR department to figure out how they can help.

“When I talk to people about the new economy, I use the term ‘value proposition.’ Not only should the organization have a value proposition but you personally must have one,” he says.

This goes for HR departments too. “Every two weeks, you have to force yourself to figure out what you bring of value, because if you can’t do that then you really have to figure out what you are doing,” Marche says.

HR will need to understand what it means for employees as companies set off in new directions, and adjust strategies to meet needs.

To be B2B or not to be B2B is no longer a question
B2B is about to become a lot more than a buzzword for Canadian businesses — although a lot of people still don’t have a fully formed conception of what it is.

The Internet has created an electronic or virtual marketplace, explains Norm Archer of McMaster University, in a paper co-written with Judith Gebauer of the University of California Berkeley.

“Buyers and suppliers meet to exchange information about prices and product and service offerings and to negotiate and carry out business transactions.”

The benefits of conducting business-to-business online fall into two broad categories. First, businesses that develop B2B capability quickly and easily open themselves up to literally a global market. The value of which will only increase as more businesses become accustomed to conducting their business in the virtual market. Reverse auctions become possible where customers put in a request and suppliers from around the world bid to deliver, for example.

And second, B2B squeezes out inefficiencies that are inherent in extended supply chains, explains Sunny Marche of Dalhousie University. It’s all about disintermediation, a fancy word for cutting out the middleman.

Anytime a finished product is bought, hidden in the cost are all of the transactional and administration costs that are added by middlemen along the way. B2B eliminates a lot of those costs. A substantial fraction of transactions happen automatically. Think of the impact here on purchasing and accounts payable departments. Things will also happen faster and in a nearly seamless fashion.

Archer cites one industry study that revealed a five to 10 per-cent reduction in prices for goods and services through lower material and service costs. Acquisition and order fulfillment cycle times were reduced by 50 to 70 per cent and requisition processing costs were cut by 70 per cent per order.

B2B solutions generally come in one of three forms:

•Sell-side solutions are developed by major suppliers to support their selling processes. Aside from online catalogues, online ordering enhances customer relationships through cost-time savings and continuous availability.

•Buy-side solutions support purchasing processes. These systems streamline purchasing operations and a considerable number of transactions can be fully automated.

•The third type are basically reinvented middlemen. B2B hubs are springing up to co-ordinate all of the transactions online. They support the auctions, electronic catalogs, distributors and retailers, and provide additional value added benefits like industry news, online forums and so on.

According to James Sharp of Forrester Research, the auto industry has been and will continue to lead the way in adopting B2B trade, and computer and electronics will also likely quickly develop B2B opportunities. And Ontario and Quebec are expected to lead the way in adopting B2B models because these sectors represent significant portions of those economies.

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