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When government can't, private sector will

by Richard Bray

Two fast-moving trends in electronic commerce have the potential to change government procurement in fundamental ways.

A major e-commerce trend is the "infomediary," a term that describes a new kind of information broker. Two consultants with the A.T. McKinsey consulting company, John Hagel and Marc Singer, literally wrote the book on the subject, Net Worth: Shaping Markets When Customers Make the Rules. They say, "Simply defined, infomediaries are agents that leverage the Internet to unite buyers and sellers in a single, efficient, virtual marketplace. Because infomediaries can build extraordinarily deep and complex customer profiles, they can provide consumers with the best of both worlds: lower online interaction costs and increased privacy."

Hagel believes markets that could benefit from infomediation probably show one or more of these traits:

  • high research costs, where customers spend a lot of effort to get the information they need to make a decision;

  • pricing distortions, where there is vendor price discrimination;

  • information-sensitive purchasing, where customers can compare products without actually seeing or holding them;

  • intangibles, like software, education and online banking; and

  • private products, like prescriptions or tax returns which involve confidential information.

The Internet allows better access to greater amounts of more accurate information. Infomediaries organize that information in ways that customers can understand and use. One of the most prominent business examples is Amazon.com, the leading Internet bookseller. For a quick look at what infomediaries can do in government, point your browser to www.govworks.com  or www.ezgov.com .

If infomediaries empower the individual consumer of goods and services, then e-exchanges exist to serve the corporate customer. The activity in big business procurement has been nothing short of phenomenal, featuring billion-dollar investments, previously unthinkable alliances between bitter rivals and much fundamental reengineering of long-standing purchasing processes.

Nortel Networks is joining IBM and other big technology companies to create www.e2open.com, a global business-to-business Internet exchange. Expected to have begun operations by mid-summer and become fully operational later in the year, Nortel will be using e2open.com and other initiatives to buy goods and services worth US$5 billion a year by the end of 2001. More savings will come from lower inventory costs and improved supply chain processes.

Even more radical was the announcement by General Motors and Ford that they are merging their individual trading hubs and inviting other carmakers to join what they confidently described as the world's biggest virtual market. DaimlerChrysler of Germany promptly announced it would join the venture. Each of the three competitors will take an equal share of the new business.

For its part, Boeing has been buying and selling goods and services electronically for years, but now it is sending its customers to its competitors. Boeing is joining up Lockheed Martin, BAE Systems and Raytheon with almost 40,000 suppliers and customers in an online marketplace. Aimed at reducing costs and speeding transactions, the Internet-based exchange will assemble a global marketplace worth more than US$400 billion.

The Internet revolution means buyers and sellers can find each other, negotiate a price and hammer out a contract, complete the transaction and settle payment easier, cheaper and faster than ever before. And that should apply to public sector procurement.

In the public sphere, infomediaries are stepping in to do governments' jobs better than they can, charging them, the taxpayer, or both, transaction fees for the service they provide.

Electronic exchanges are grouping buyers and sellers in interesting new ways, making more information available more quickly to anyone interested in a transaction.

Both these phenomena are gathering speed and size at an accelerating rate, traveling at the vaunted Internet speed. How fast are public sector procurement agencies moving to take advantage of the opportunities they represent?

Deidre A. Lee, administrator of US Federal Procurement Policy, recently set out the goals of online procurement: streamline and eliminate transaction steps to increase productivity and reduce transaction costs; minimize unnecessary paperwork; facilitate access to resource materials; and improve buyer visibility of products and services under contract.

Perhaps more importantly, she said, "Further, we recognize that an SPE [single, government-wide point of electronic entry] must do more than simply electrify existing processes. It must facilitate reengineering."

If it doesn't shake up the system, in other words, then public sector electronic procurement will never reach its full potential.

Richard Bray is a Nepean-based freelance writer specializing in the IT sector. He has been published in magazines and newspapers in Australia, the US and Canada and is now editor of Ottawa Computes. Before freelancing, he worked as a producer, reporter and senior writer for CBC in Toronto.

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