B2B: Business to bust?

Digital Consulting Institute dubbed this week’s eB2B World Conference and Expo in Atlanta “Back to Basics,” which attendees agree is the mantra for most businesses during these tough economic times.

As the U.S. economy enters what some attendees have difficulty saying – a recession – businesses are putting freezes on IT spending and other expenses such as travel. In addition, the beginning stages of this recession were compounded by the terrorist attacks on Sept. 11, and businesses and consumers are still grappling with fear and uncertainty about the economy and international affairs.

Attendees and analysts at the show say all of these factors are combining to force today’s businesses to retrench and rethink new initiatives, such as B2B marketplaces.

“There will be a continued slowdown over the next six months, and many companies are going to shut off the IT spigot, especially for the rest of this year,” says Knerko Burney, an analyst at Cahners In-Stat Group. “Sept. 11 was a terrible thing, and people are afraid and depressed. When they feel this way they don’t buy as much and don’t work as well.”

Burney says the early months of 2002 are fairly uncertain, but the perception is that they will be “awful,” improving only by midyear.

The National Association of Purchasing Management’s manufacturing business survey seems to back up this assessment. The results for the September manufacturing economy survey posted a purchasing managers index of 47 per cent, down from 47.9 per cent in August. PMI measures such factors as inventory, new orders and employment, and 50 per cent or higher means growth. September marks the 14th consecutive month of decline.

Businesses that actually do spend money on IT will make pragmatic decisions, trying to solve problems such as connecting remote workers, Burney says. Businesses will only spend money on software, such as customer relationship management, if it allows them to stay even with their competitors and know their customers’ behaviour and buying patterns better. They won’t spend money on projects that don’t show immediate benefits, such as marketplaces, she says.

Collaborative commerce will likely get a “kick in the arm,” says Bruce Tempkin, an analyst at Forrester Research BV. “Risk has now been added to the business model and manufacturers who have inventory all over the world will have to be more flexible,” he says. After Sept. 11, the U.S. borders were closed, forcing companies to scramble for direct materials to build products. Now, they have to rethink where and how they find these components.

Analysts also say businesses will likely spend money on data warehousing, online real-time analysis, logistics and supply chain visibility.

Businesses that shut down their IT spending now have the time and opportunity to look over their business strategy, says Larry Lucker, chief services officer of Clarkston Group. When businesses start spending on IT again, they’ll know exactly where to target their dollars. “They have time and they know their competitors won’t be spending money either,” he says.

Businesses putting off pilot projects and other expenditures can still position themselves for the future by looking at some low-cost or no-cost alternatives, Lucker says. For example, buyers could use simple Excel spreadsheets to get a handle on sourcing, rather than purchasing full-blown packages. They could then find out who their best suppliers are, track contracts and create business rules. Then, when money is available, they could move to the next stage and implement analysis tools.

More importantly, businesses will look at vendors with a more critical eye and won’t tolerate any “bait and switch” marketing techniques, says Harry Tse, an analyst at Yankee Group Inc.

“The game is to force software packages onto customers, and the majority have spoken. It takes time” for software functionality such as procurement, marketplaces and even business intelligence to get accepted, Tse says. It’s taken over 30 years for supply chain management, human resources and manufacturing software to be accepted and implemented into companies. Businesses aren’t ready for new packaged software, but will they implement sourcing, say, as modules. “Businesses aren’t going to be in a rush to buy software if they don’t feel they have a reason to.”