Get Ready for the World of B2B

EXECUTIVE SUMMARY

SINCE NO ONE REALLY KNOWS when B2B exchanges will get their act together, now is a good time for CPAs to help their employers and clients take stock of their internal systems capabilities, the quality and quantity of their technical support staff and the technological literacy of their workforce. Without that, companies will not be ready to benefit from B2B. B2B EXCHANGES HAVE NOT DELIVERED the cost savings and expanded markets they’ve promised their customers, but that doesn’t mean they ultimately won’t. Emphasize to your client or employer that making gradual adjustments now is preferable to rushing through extensive changes in the future. UNDERSTANDING TECHNOLOGY often is more a matter of attitude than of complex abstractions. Ongoing technical education helps keep workers aware of what technology can offer them, as well as how to use it. SOME COMPANIES THAT DIDN’T GET WHAT THEY WANTED from B2B exchanges are at least partly to blame for not committing themselves to make the internal technological and cultural changes necessary to collaborate with external parties online. TAKING SHORTCUTS WITH TECHNOLOGY can be dangerous if a device or system is used in a way the designer didn’t intend. ESTABLISH AND MAINTAIN A POSITIVE COMPANY ATTITUDE toward the use of technology and give employees regular opportunities to share their views on what works, what doesn’t and why.

ROBERT TIE is a senior editor of the JofA . Mr. Tie is an employee of the American Institute of CPAs and his views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.

he word is out—the short-term prospect for cost savings and expanded markets from B2B exchanges is grim, overshadowed by a suddenly gloomy economy. At least that’s what some pundits would have you believe. Other observers, however, are more sanguine, believing good times are just ahead for B2B exchanges—the online marketplaces that seek to bring manufacturers, service providers and their customers together in maximum-efficiency virtual trading environments (See “The B-to-B Virtual Bazaar,” JofA, July00, page 26; www.aicpa.org/pubs/jofa/jul2000/banham.htm ). No one knows when the B2B tide will turn. But regardless of how long it takes for exchanges to begin delivering real value to customers, technologically savvy CPAs stand to profit.

B2B Volume Will Grow—But How Much, How Fast? Observers differ on when B2B will fulfill its potential. Source: eMarketer, Inc., 2001, www.emarketer.com .

That’s because of what they can do—during the current B2B shakeout—for the companies they advise on technology matters. While the surviving B2B exchanges regroup, organizations that develop the skills and infrastructure necessary to do business online will earn immediate dividends in the form of increased productivity, better interdepartmental coordination and more flexibility in dealing with external entities, including business partners. And that can only translate into a competitive advantage.

Any CPA employed by, or having as a client, a company with systems that don’t communicate with each other, limited technology staff or a technologically illiterate workforce should take the time to perform a thorough needs assessment and address any such shortcomings swiftly and decisively.

COVERING THE BASICS

CPAs guiding their clients or employers toward greater and more effective use of technology should emphasize the importance of careful and thorough planning. Since the CPA understands the organization’s business objectives and financial capabilities, he or she can help identify any new technologies it may require and which of them it can afford. But first, the CPA must help management determine whether new technology really is necessary and how it will interact with any existing systems. The following checklist explains how to accomplish that and points out other ways the CPA can help a company improve its use of technology.

The CPA can guide management through a needs assessment of its technology infrastructure (hardware, software and technology services, such as communications lines) and its workforce’s technological skills. Using reliable data about company operations, he or she can help prioritize contemplated improvements as “needed now,” “ultimately necessary” and “desirable.” The company then can use available funding to address these objectives in order, scheduling repeat assessments at regular intervals.

Wherever possible, the CPA should encourage the company to use the five major categories of applications software (word processing, spreadsheets, databases, communications and graphics) to automate business processes. He or she also should help it establish certain brands of applications and operating system software as company standards and ensure all employees use the same versions. The CPA should also encourage management not to upgrade to newer versions unless the additional features they offer are necessary.

To grow, companies need internal and external communications capabilities, and CPAs should encourage them to install local area networks (LANs) even if they have only a few PCs. Today’s “lite” versions of LAN operating systems and hardware make the cost and administration manageable. And a LAN enables multiple users to share expensive high-speed communications lines for Web access, spreading their benefits and lowering their per-unit cost.

A CPA’s relationship to other professionals, such as technology consultants, can be particularly valuable to a client or employer. Those connections can make it easier to engage one or more competent advisers to evaluate the company’s technology plan. The extra expense and effort will pay off in the form of a better, more swiftly implemented plan.

Once management selects a technology to support the company’s business objectives, the CPA should encourage it to follow through on its choice by resolving obstacles to employees’ consistent, effective use of that technology.

Since most CPAs belong to professional associations, they know the benefits of membership and should encourage their clients or employers to participate in a computer users association’s special interest groups (SIGs) that focus on applying technology to meet the business needs of the company, its clients and other business partners.

Perhaps most important, the CPA should stress to management the need to encourage a positive and constructive attitude toward technology. Holding regular staff meetings to discuss the effectiveness of installed technology is one way to accomplish this. To boost the usefulness of such meetings, designated employees—volunteers, if possible—can apprise management and their peers of recent developments in technology.

Taking steps such as these increases the odds that when B2B exchanges make a comeback, a company will be ready to work with them in a way that best capitalizes on whatever benefits they can deliver.

HELPING SMALL BUSINESSES MOVE AHEAD

Unlike their bigger counterparts, small businesses don’t have sizable technology budgets and often have to settle for no-frills products with little, if any, technical support. CPAs should be mindful of the effect this has on small business owners’ attitudes about technology.

“I work with small businesses,” says Orlando, Florida, CPA Judith E. Dacey, “and because of their size, they don’t have much influence over the external systems and standards they use. For example, if B2B exchanges require them to use XML, they will—because they don’t have a choice.” Dacey’s solo practice, Small Business Resources, Inc., counts among its clients many entrepreneurs who provide Internet-related products and services.

In many cases, she adds, because business owners are forced to use technologies and observe standards they didn’t choose, they want even more control over the other ways they employ technology.

For example, she points to the manner in which some of her clients have used QuickBooks, Intuit’s low-cost, do-it-yourself accounting software. “Accounting always was a mystery to them,” she says, “so when they found a package that enabled them to create visually attractive financial statements they thought they had control over the process.” That led some entrepreneurs to cut corners and use only a few of QuickBooks’ modules—although a company needs to use all of them to generate accurate reports. For companies that took such shortcuts, the results weren’t pretty—sometimes, liabilities and expenses were recorded on the accrual basis and income on the cash basis—and made it necessary to redo the financial statements.

In order to be technologically ready when the exchanges finally have something to offer, though, companies must avoid such mistakes and reach outside themselves. Dacey recommends they focus on employee training and electronic communications capability. The advantage of this becomes evident when workers effectively trained to use one system are less intimidated and resistant when their company introduces another.

Further, CPAs should ensure their employers and clients understand the importance of linking their operations to customers and business partners. “When you start doing business on the Internet,” Dacey says, “each of your systems should be able to communicate online. That’s what installing a local area network moves you towards. Many small businesses may have upgraded their ‘sneaker networks’ from floppy disks to zip disks and CDs.” But they still resist networking because they think it’s unnecessary. “They’re wrong,” she adds. “That isolates them.”

It’s also essential that CPAs communicate to their small business clients the importance of being open to new ways of doing business—for example, online. “They should be comfortable dealing with strangers on the Web—not just to sell to them or buy from them—but to collaborate with them on satisfying the needs of buyers who want to deal only with sellers who have multiple product lines, or to pool their purchasing volume and get discounts.”

But CPAs should balance such exhortations with practical information on managing these activities’ inherent risks. For example, the CPA can suggest prudent use of Dun & Bradstreet and other such reporting services to eliminate most of the risk in dealing with parties whom small business owners haven’t met personally.

“Small business owners don’t realize how much they can benefit from having an open mind about technology and the opportunities it offers them and their employees,” Dacey concludes, “but they need to—quickly.”

WHAT BIGGER CLIENTS NEED TO KNOW

While larger organizations have greater technological and economic resources than smaller organizations, they sometimes squander these advantages, and that can seriously interfere with their ability to profit from B2B e-commerce. Two senior managers from Deloitte Touche Consulting—John Bonno and Nick Handrinos—believe there is much that would-be exchange participants can do to make their B2B experience more productive and worthwhile. And the CPA plays a central role in each of the areas they discuss below.

Bonno, of Deloitte’s Atlanta office, believes many companies don’t pay enough attention to the internal changes they have to make to integrate their operations with those of an exchange and thus create efficiencies that drive down costs. Some companies join an exchange and then don’t mandate their employees use it for purchasing supplies, he says. So, the exchange’s presence in the company is that of “an unused icon on a purchasing agent’s desktop.” CPAs serving as CFOs in corporations or as advisers to companies can help by identifying such gaps between plan and actual practice and enlisting the support of top management to bring about the changes necessary to achieve B2B project goals.

Handrinos, of Deloitte’s Stamford, Connecticut, office, says exchanges have introduced translation and data-mapping software that establishes links between exchange and company systems to ensure that payroll costs, for example, decrease as planned and that more efficient and rapid transaction execution lowers processing costs. In helping their clients or employers select exchange(s) to join, CPAs should look for proof of the ability to deliver such productivity-boosting services and make certain they’re provided for in the exchange membership contract.

CPAs also can help a client decide whether membership in an exchange is worth the price of admission. Handrinos admits it’s not easy to determine whether or how soon a company will recoup exchange-related fees by lowering costs or increasing revenue. But CPAs should ensure companies have a reasonable awareness of how much they’re spending on, for example, office supplies, and which expenditures are made on contracted-for terms and which are “maverick” spending on credit or purchase cards.

In cases where a client or employer does not know how much the company is spending, the CPA can lead efforts to analyze accounts-payable data to estimate procurement volume. He or she also can extrapolate conclusions based on spending data from other companies of similar size in the same industry. Once those data have been gathered, the CPA can work with management to determine which transactions can be channeled through an exchange for the greatest savings.

Some companies grasp the logic of these methods more readily than others, Bonno says. “The proactive ones understand membership in a B2B exchange is only a means—not an end in itself.” With the aid of their CPAs, these companies will have a better idea of what they spend and where to look for additional savings. “They analyze 50 items, pick 20 on which they could do better and look for an exchange to supply those products,” he says.

Other companies, that just “don’t get it,” join exchanges primarily because their competitors have. “In such organizations, there’s no real push to consolidate spending,” he adds, “and without it they won’t cut costs.”

So CPAs can serve as agents of productive change, promoting ongoing analysis that reveals how companies can increase the value of their procurement dollars by joining, or preparing to become members of, an exchange.

Whether or not such analysis indicates that an exchange could help a company achieve its goals, the client or an employer can always benefit from the CPA’s ongoing evaluation of its technological prowess and capabilities. A careful assessment can detect inconsistencies that are particularly wasteful if a company does make the effort to join an exchange. “You don’t want to do that and rely on ‘swivel chair’ systems integration,” Bonno says, “where you use a Web browser to order products from a B2B site and then spin your chair around to key that transaction into your internal system. That makes the whole exercise futile.”

For additional tips on how to optimize technology, see “Technology for the New Millennium” ( JofA, Apr.00, page 22; www.aicpa.org/pubs/jofa/apr2000/zarowin.htm ), “Launch a Web Site—Now” JofA, Jun.00, page 22; www.aicpa.org/pubs/jofa/jun2000/zarowin.htm ) and “Facing the Future” ( JofA, Apr.01, page 26; www.aicpa.org/pubs/jofa/apr2001/zarowin.htm ).

BACK WHEN B2B WAS COOL

In February 2000, General Motors, Ford and DaimlerChrysler formed Covisint LLC, a B2B exchange made in their own image. Its purpose was simple: to drive down their procurement costs by forcing suppliers to use the Covisint Web site.

Yet, more than a year later, with all the purchasing power of the Big Three auto makers behind it, Covisint’s future is uncertain, mainly because no one has yet figured out how the giant site can make enough money to support itself and, at the same time, satisfy participants’ needs. Experts say this is true of every B2B exchange and companies of all sizes interested in participating in them.

The challenge is familiar to Ravi Kalakota. As former CEO of hsupply.com, a B2B exchange that served hotels and their suppliers until it recently shut down, he lived through the B2B sector’s ups and downs.

An exchange’s evolution consists of three phases, he says. First, buyers and sellers have to be connected to each other. Next, their business processes have to be integrated with those of the B2B exchanges they use. And third, all these systems’ inefficiencies have to be eliminated. “We’re only in the very beginning of phase one,” he emphasizes.

Kalakota knows B2B exchanges can be their own worst enemies. “They talk [as if they’re delivering the optimal efficiency of] phase three, but their rhetoric doesn’t match what they actually offer,” he says. Nevertheless, he is convinced that the exchanges one day will offer their customers great cost savings and expanded market reach. He now pursues that vision as CEO of e-Business Strategies, an intellectual property company that creates B2B strategies and looks for investment partners to implement them.

When venture capital dried up earlier, the exchange he had founded failed. “Like everyone else, hSupply.com ran out of money,” he says. “We had built our own technology to connect buyers and suppliers, and integrating their systems was next on our list. But the financial markets don’t give you time to build these things in an orderly fashion; they want everything done today.” And that leaves unmet the needs of many would-be participant companies—of all sizes—deterring them from joining an exchange.

That doesn’t surprise Glen L. Gray, CPA, a professor of accounting and information systems at the California State University, Northridge, who says Covisint proves the theory that a B2B exchange needs more than capital to succeed. For example, Gray finds it enlightening to evaluate exchanges from a supplier’s point of view. “Their gross margin probably will go down if they join an exchange and bid in a public forum,” he says. Add to that the high fees to install the software necessary to communicate with the exchange, the transaction fees and the one-time or annual membership fees.

On the upside, Gray says, is the potential for increased sales and reduced payroll expenses if automation savings materialize. But these are just possibilities while the expenses are quite real. In his eyes, the exchanges now present a less than compelling value proposition.

If the exchanges create better links to participants’ systems and, in the process, increase efficiency and help lower expenses, he thinks more companies will join and some of the ballyhooed cost savings and expanded marketing reach will materialize.

Gray points to eBay to illustrate his meaning. Even though it’s a consumer-oriented Web site, the same challenges and solutions apply. “When eBay began doing business, only people with a high-risk tolerance par-
ticipated. But now millions feel comfortable with the process of bidding and selling to strangers online. People still sue eBay once in awhile over transactions that went awry. But overall, the company has worked those problems out and moved ahead.” Gray thinks B2B exchanges could produce the same good result if they met their participants’ needs as well as eBay has.

Articulating such B2B concepts and helping clients convert them into practical benefits is the CPA’s stock in trade. Whether a company is implementing basic or advanced technology, it needs the CPA’s expertise to align its technology plans and resources with its business needs and goals. Without his or her objective analysis, the employer or client often is trapped between its own lack of knowledge and vendors’ often biased recommendations. But companies’ dire need for help in this area reflects the richness of the professional opportunities the world of B2B holds for CPAs.