CURRENT CHALLENGESPROBLEMS FACING THE ORGANIZATION

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

Given the trends of the B2B segment, GXS management was exploring strategic decisions, such as creating a variation in its B2B Internet-based marketplace model. The biggest challenge for GXS was to decide how to differentiate itself from its competition and so achieve a winning edge over competitors within intensely competitive, rapidly changing intermediate and long-term time frames based on its B2B model.

One manager proposed a first alternative that GXS center on growth in the intermediate future by focusing on its B2B model. In this alternative, GXS would continue to act as a B2B e-commerce facilitator with its existing B2B model and the same type of exchange—a private eMarketplace model.

The benefits of this alternative included maintaining market share and awareness by attracting more large businesses with a well-known model, being able to create standard technology to run a high-performance network for different industries to different requirements, and being able to reduce costs for marketing, research and development through an existing model. A further benefit would be the ability to access growing markets worldwide (where an early base could be planted) with a well-know, strongly backed exchange. This benefit could enable GXS to establish a presence in Asia which had overtaken Europe as the No. 2 region for B2B transactions behind North America (eMarketer, 2001). Asia jumped from generating a mere $5 billion in B2B transactions in 1998 to more than $68 billion in 2000. The long-term mass adoption of this type of technology throughout Asia was tied to how quickly China and India (Asia's most populated countries) embraced new technologies. For example, China did not want to see India's fabric industry embrace B2B and use the technology to get cheaper raw materials and therefore hold the market.

Such an alternative was feasible since GXS would have the financial backing of GE to continue its long survivability. The idea of a private exchange model was possible through a system where buyers and sellers of GE could enjoy privileges to a ring of allied businesses. This ring would be formed with businesses that were attracted to GXS's strengths with its B2B model, customers, services provided, industry functions, sales and promotion, technology, employees, and industry standards. GXS would be able to win against competition due to the brand recognition of the General Electric name. Also, by using its strength in the proposed alliances, industry standards, horizontal industry functions, and employees, GXS would be better than its competitors, by offering an established, reputed streamline channel to businesses before its competitors did.

There were some drawbacks to this alternative. The drawback to this alternative was that GXS would continue to use its existing business model of a private exchange. The problem with this was that buyers and sellers may perceive GXS as having a comfortable status as an industry leader and competitors would copy and improve on the existing model—thereby stealing potential GXS customers. Another drawback was the risk of being a private B2B model. An example of this was Dell, who tried but failed at establishing an independent B2B model. From a global standpoint, the threat of political instability, corruption, economic uncertainty, and cultural barriers in developing countries (where growth opportunities were the strongest) were other issues associated with this alternative. A further concern that could impede profitability for GXS was the inadequacy of infrastructure in many of these countries to enable high tech business.

The ways around these drawbacks, however, could be overcome with the assistance of GE, the Corporation. With GE being the largest company in the world by market capitalization, GXS could use its large trading community and Research and Development capabilities to implement innovative models to keep ahead of new technology and customer needs. With the global aspect, GXS could encourage overseas governments to lower entry barriers for companies to establish the basic foundation to support such technologies and to get involved in worldwide standards discussions to investigate ways to make B2B systems usable for all industries.

Another manager proposed a second alternative that GXS create a variation to its B2B model. With the business model, GXS would commence and focus on a lease model as a subset of its existing private eMarketplace or exchange model which was strong in transaction size, suppliers, services, security, and cost-savings. A lease model was explained as a form of allowing buyers and sellers to use B2B applications and services on a lease basis. This would allow other companies to use the applications that GXS would host for a monthly fee. It would also allow companies to trade with their suppliers.

One of the benefits of this alternative was that it would allow GXS to take advantage of gaining larger market share and awareness by attracting small- and medium-sized. Other benefits of the lease model included creating a first time service where companies would lease valuable applications without the risk, enabling small- and medium-sized businesses to compete in the B2B economy, and possible decisions by companies to bring the software in-house at the end of rental contracts. Another benefit would be the ability for GXS to gain global access into other countries and increase the number of markets in which services would be provided by attracting businesses that wanted to "taste" B2B through a leasing system. For instance, eMarketer predicted that, as Western economies improved, Europe would regain its foothold in the technical gear (eMarketer, 20001).

This alternative was feasible since GXS would have the financial backing of GE to introduce a "new" concept of leasing. Its existing private exchange model would allow GXS to focus on establishing the lease model and implement fees for leasing and for use of partner or divisions' services. Also, this was possible due to GXS's strengths in its customers, services provided, industry functions, sales and promotion, technology, employees and industry standards. GXS would be better than its competitors with this alternative of a lease model since GXS would be able to build and maintain a larger customer knowledge management system which suppliers would choose over the competition. Also, with GXS initiating a lease model such as this, and by using its strength in alliances, industry standards, horizontal industry functions, and employees, GXS will win against competition.

The drawbacks to this alternative of a lease model focus included inability to predict the type of eMarketplaces or exchanges customers would lease, complications if customers wanted to lease the system for multiple purposes, inability to predict how end-users perceive value in a system (size of inventory, geographic location, personal sales calls or amount of buyers and sellers), and loss of customer-controlled data (Kelly, 2000). Another drawback included slow progress for companies to move their buying onto the Internet. A report from Jupiter Research indicated that many procurement managers saw so little advantage on moving online and found that their sellers were not selling online, that they intended to do less than 20% of their business buying online until 2003 at least. Also, it was difficult to measure the success of better established eMarketplaces since published revenues and third-party audits of earnings were difficult to obtain while the establishment of profitable B2B eMarketplaces was taking longer than forecast (Cyber Business Centre, 2001).

The ways around these drawbacks, for the lease model included determining the size of the system to affordably lease for differently sized customers, determining what information was required for various customers, creating a shell that all customers could use with slight variations, and customizing customer data (Kelly, 2000). Another way around the drawback of the lease model was creating a service that offered to house or manage hardware for Internet companies and technology-dependent firms to quicken e-commerce progress.

With the combined talent of the two CEOs, Jack Welch and Harvey Seegers needed to decide which strategic decision to implement. GXS had to modify its current strategy within the B2B segment for increased internal company growth and expected external trends. As an e-commerce service provider and network operator, GXS was focusing on strategic decisions, such as creating new B2B Internet-based marketplaces. But to be the "hub of hubs", GXS had to consider possible competitor moves and customer needs while the transformation of business processes from paper to electronic was rapidly occurring.