SECOND INTERNATIONAL HARVARD CONFERENCE ON INTERNET & SOCIETY  may 26-29, 1998
 
Building Strategic Intranets
by John Mennel and Mary Teichert

Cambridge, april 24, 1998—"A review of the benefits of intranets reads like a wish list from any executive suite: increased productivity, streamlined processes, team work, 24-hour global information access, efficient workflow, and empowered employees. Can a technology really have such impact?" wonder William P. Marino and Rainer Schelp of The Intranet Journal. Many would argue that it can. This page is designed to outline some of the basic issues surrounding intranet development and implementation, and to offer links to additional web-based resources for further study.

The term "intranet" in essence refers to a corporate network architecture that uses TCP/IP protocol (as does the Internet) and a browser-based user interface. Typically the business applications that run on this infrastructure are included under the "intranet" umbrella as well. The beauty of an intranet lies in several factors:

  • Intranet applications can take advantage of the world-wide Internet backbone, thus giving a company relatively low-cost global connectivity.
  • Intranet applications are platform independent, meaning that they can run on virtually any type of hardware that would support an Internet application.
  • The deployment and maintenance of Intranet applications is relatively cheap and easy in comparison with traditional applications.
  • Intranet-enabled companies have an infrastructure that in many cases serves as a basis for developing extranets, Virtual Private Networks (VPNs), and other supply chain solutions that extend the network to selected external business partners.

Intranets are increasingly common: Forrester Research Inc. has found that "one in eight large U.S. companies had an intranet installed," and IDC "estimates that by 2000, server licenses for intranet use will outnumber those for Internet use by two to one." (Cited in Electronic Buyers News: "Information overload—Study finds intranet users overwhelmed with data.") Sun Microsystems was one of the first companies to develop an active intranet and is still at the forefront of intranet advances: it currently has 1,800 servers supporting 14,000 employees in 44 countries on the Intranet, and is using "smart card" technology to give employees access to that Intranet. (See "At Sun, It's Really All in the Cards.")

An introduction to the different elements of an intranet can be found in the Netscape White Paper "Intranets Redefine Corporate Information Systems." This page will address several topics related to the issues of "Building Strategic Intranets for Competitive Advantage":

  1. An Intranet's role in solving business problems: qualitative benefits
  2. Quantifiable results of intranet implementations: measuring Intranet ROI
  3. Externalization of the Intranet: Extranets
  4. The Extended Enterprise

1. Qualitative Benefits

One of the most common initial goals of an Intranet implementation is improved information access. Ryan Bernard of Wordmark Associates discusses the "problems involved in authoring, processing, and delivering information within large organizations" in his white paper on "Building the Corporate Intranet." Intranets can offer a solution to information management problems in several ways.

First, the technology itself supports a much wider range of information delivery and access approaches than does a paper document. For example, data on the Intranet can have the same characteristics it does on the Internet. Multimedia documents or those with full-color graphics can be supported, and hyperlinks and "search" capabilities can provide users with multiple ways to find a document that would formerly have been filed in exactly one place.

Second, the actual delivery of information can be tailored to meet the needs of the user accessing it. Based on user profile, one subset of employees may need (and get) their information presented in one way while another subset gets a different presentation. As Business Week noted in a cover story on 2/26/98 ("Here Comes the Intranet"—note that access requires registration), executives "crave technology that finally gets information out of the arcane world of databases into a format anyone can use."

Third, because updates are so easy on an Intranet there is a reduced need to produce "final" documents for production and distribution. Rather, content can be made available over the Intranet and updated as the need arises. This not only saves the time formerly spent in revisions, but also reduces costs by eliminating the need to have each final document be produced and distributed. An intranet white paper by Process Software Corporation elaborates further on this benefit.

Beyond information delivery, initial Intranet applications tend to be those that can support iterative process reengineering, workflow improvements and reduced cycle time. These goals are achievable because the Intranet environment is so easy to work within that line-of-business (LOB) employees can post and edit content or work rules "on the fly": no longer do these tasks belong exclusively to the IT department. Jesse Boudreau, President and CEO of Pictorius Incorporated and former Director of Information Systems at Northern Telecom, reinforces the need for those LOB employees to do just that. He calls an intranet "more of a community effort than just an IS project," and going further to state that "if the Intranet isn't used or updated frequently, it really defeats the purpose." (Cited in Mr. Boudreau's "10 Hot Points for Intranet Success.") The involvement of LOB personnel not only saves time for IT staff, but also increases the likelihood that content will reflect the current state of affairs. Even in cases where the complexity of the operation dictates that the IT staff must be involved, the users can see their comments instantly reflected in the system and thus can iteratively suggest changes.

Finally, in addition to supporting strong applications, the flexibility and scalability of Intranet architecture allows companies to prepare for needs they can't yet anticipate. Over time they can select applications that meet their business needs without needing to restructure the architecture itself.


2. Quantifiable Results

IDC has done a number of case studies indicating that the typical ROI for Netscape intranets is "well over 1000%" and has "payback periods ranging from six to twelve weeks." Their findings are summarized at http://home.hetscape.com/comprod/announce/idc/summary.html, and the underlying case studies on various companies can be found as follows:

There are several sources of quantifiable benefits in an intranet implementation. First of all, the eliminated costs of printing and production are almost universally the first to be recognized. Second, open standards can reduce costs by allowing companies to choose between a range of systems rather than being limited to a proprietary system. For example, a white paper by Process Software Corporation states that: "according to a recent research study, the average corporate investment in a Lotus Notes implementation is $245,000, with an average payback period of more than two years" whereas "WWW applications can be fully developed and deployed for $10K or less." (Source: International Data Corporation). Open standards can also simplify the upgrade process and reduce the time spent searching for new applications.

Platform independence is another source of cost savings. Rather than developing or deploying the same application for multiple hardware configurations, organizations using Intranets can create one application that uses a common browser interface and that can thus be accessed on any machine. The total cost of ownership is reduced by a lower level of required IT support as well as (in some cases) fewer application purchases to make.

Returns can be generated through increased productivity and wise application selection: the Meta Group found that "[i]n general, the closer the application came to supporting mission-critical, value added [Line-of-Business] applications...the greater was the return." (A downloadable executive summary of their report on Intranet ROI can be found at http://www.metagroup.com/publicat.nsf/web+pages/roihome.) Productivity advances can be even greater than companies expect: a study by KPMG Peat Marwick found that "a large number of companies were taken by surprise by the advantages of an intranet, including: 'reduced time spent traveling' (expected by 13% but realized by 23%), 'less time spent in meetings' (expected by 17% but realized by 25%), and 'improved research and development' (expected by 13% but realized by 25%)." While these types of savings are difficult to quantify in many companies, those that are able to do so find very positive results.

3. Extranets
An extranet is an extension of a company's intranet that allows limited, controlled, secure access between a company's internal network and designated, authenticated users from remote locations, usually through the backbone of the Internet or through a VPN. The most common business applications give suppliers, customers, partners and remote employees access to internal corporate applications and live relational databases for safe communication, collaboration, and commerce.

Although a relatively new concept, the use of extranets seems to be taking off. According to Computerworld, 20-30% of Fortune 1000 companies currently uses extranets (See "Staying Focused on the Extranet", 9/29/97). Gartner Group analysts project extranets will overtake electronic data interchange (EDI) in the next five years. By the year 2002, they say, extranets will replace 40% of existing business-to-business systems and 80% of new business-to-business operations will be implemented using extranets. (Referenced in Network World, "Take Charge" - access requires registration.)

Extranets have the same advantages of intranets in terms of platform independence, scalability, and low cost of set-up and ownership. This is a big boon, especially for smaller companies, which often could not justify the cost of proprietary value-added networks (VANs) run over dedicated lines. As Network World comments, "While many businesses have embraced Internet technologies such as Web sites and e-mail, some—particularly small-to-midsize firms—have not seen any return on the investment, other than the status of having their own Web site. The growing use of extranets, especially for electronic commerce, is changing that situation. (See "This Year, Extranets Become Practical for Everyone" - access requires registration.)

Just as intranet maintenance is begin farmed out to large ISPs, outsourcing of extranet maintenance helps to drive down costs of maintaining external networks even further. In one example, electronic data interchange (EDI) service provided Loren Data Corp. allows small contractors to filter and obtain federal government RFPs for as little as $50 per month. (See "EDI and the Net.")

There are, of course, problems associated with implementation of an extranet. The use of the Internet backbone raises concerns over security, reliability, and bandwidth management. However, the most commonly sited pitfalls are not technical. Summarizing the consensus of panelists at Gartner Group's Extranet Conference, Computerworld notes: "Extranets are just too important to completely trust to the IT department -not on technical grounds, but because of cultural issues. [...]" The panel members agreed that the "legacy" mind-set of some IT departments just won't map to extranet requirements. Those include business process re-engineering and dealing with business partners and customers who have complex organizational and technology issues of their own. (See "Panel: Don't Let Extranet Fall to IT," 10/13/97.)

The specific applications to which corporate extranets are put vary according to the external constituency on which they are focused. InformationWeek offers a list of the 25 most innovative extranets of 1997 in their Intranet/Extranet 100 ranking.

Customer-focused extranets typically aim to:

  • Drive revenues by selling products or services;
  • Improve customer service through added-value features and accessibility;
  • Squeeze costs by automating sales, customer service, and help desk functions;
  • Improve asset management by giving core customers access to forecasting and production scheduling applications.

Companies in the financial service, software, and information industries are also using extranets to deliver product electronically. Supplier and partner-focused extranets aim to:

  • Reduce the cost of collaboration with core suppliers and partners by providing access to design and manufacturing applications and databases;
  • Increase the productivity and lower the cost per transaction of the purchasing function;
  • Increase the size of the supplier pool by allowing a larger number of companies to receive and bid on RFPs.

Some of these goals contradict and, in fact, represent two models of what extranets can mean for the supply chain. Some foresee the deepening of links between small stable groups of suppliers, which use extranets to tightly integrate core manufacturing and logistics functions. Others predict the development of fluid, opportunistic networks as large customers and suppliers use economic leverage to extract value through auction-style bidding.

Other companies use extranets to reduce the cost and hassle of dealing with remote employees. In their white paper, New Oak estimates a cost savings of $1000 per remote user per year, or $5,000,000 for a large corporation, by connecting remote employees via an extranet.

4. The Extended Enterprise
Some argue that intranet/extranet technology is leading to a new form of "extended enterprise," in which the company is one point in a network of suppliers, customers, and partners. Cisco describes the core assumptions of this model in their white paper on the "global networked business":

  • The relationships a company maintains with its key constituencies can be as much of a competitive differentiator as its core products or services.
  • The manner in which a company shares information and systems is a critical element in the strength of its relationships.
  • Being "connected" is no longer adequate. Business relationships and the communications that support them must exist in a "networked fabric."

    What is clear is that the widespread implementation of intranets and extranets is having an effect on the strategic dynamic in many industries by shifting focus away from the company to the network of organizations in which it operates. "Strategic-minded intranet users are looking to realize the vision of the electronic enterprise," says Robin Palmer, a partner in charge of e-commerce at KPMG Peat Marwick LLP in New York. "Many see the opportunity not just to change the way their enterprise works, but participate in a leadership way in transforming how their industry operates." (Referenced in Network World, "Take Charge" - access requires registration.)

    One massive example is the Automobile Network Exchange (ANX), an extranet organized by the Big 3 automakers, which will eventually include over 10,000 first and second tier suppliers. Another is the Federal Acquisition Network, which links 7000 suppliers of the federal government.

    In many cases, where industry players fail to take advantage of new technologies to change industry dynamics, intermediaries have done so. Notable examples are PCOrder.com, which is seeking to become the platform through which PC manufacturers sell to corporate IT departments, and FastParts, which organizes anonymous auction and delivery of spare parts between electronics OEMs.

    John Mennel is a 1998 MBA candidate at Harvard Business School. In the summer of 1998, he will assume the position of Market Manager with Austin-based Dazel Corporation. Dazel is the leading provider of output management solutions for the reliable delivery of business-critical information throughout the enterprise, and beyond. Prior to HBS, John was a manager for Deloitte & Touche Consulting Group, where he helped clients make and integrate acquisitions in the former Soviet Union. In 1995 and 1996, he was country manager for Deloitte & Touche in several of the former Soviet Asian republics. He holds a B.A. from Brown University in History and Spanish.

    Mary Teichert will be receiving a Masters degree of Business Administration from Harvard Business School in June 1998. Previously, she was a systems analyst for American Management Systems, Inc. Ms. Teichert spent three years consulting with clients about automation of back-office functions. After returning to HBS in the fall of 1996, she has been involved in several projects related to the Internet's role in reshaping traditional businesses. Ms. Teichert worked for The Washington Post in 1997, and for the USA Today Information Network, and helped Professor Lynda Applegate of the Harvard Business School conduct a faculty-sponsored research project focusing on how managers make decisions to implement intranets.