Managing conflict in B2B e-commerce

Rhetta L. Standifer
Doctoral candidate, University of Missouri-Columbia; formerly with New England Digital (standiferr@missouri.edu)

James A. Wall, Jr.

MU Distinguished Professor of Management, University of Missouri-Columbia (WallJA@missouri.edu)

t a dark 2AM, Sunnyside Manufacturing recognized that it needed 15 tons of fiber K for its Springborough Plant. Five of the suppliers in Sunnysides supplier network were contacted, and the lowest bidder was awarded the order. The selected supplier then sent its own invoice to Sunnyside, and funds were transferred to the suppliers account at the local bank. The entire process took seconds. Meanwhile, a restaurant manager had logged into an online marketplace for the food industry in which she was a qualified buyer. She scanned various offers from suppliers that responded to her recent bid request for a sanitary heat exchanger and accepted the best price. The supplier was instantly notified electronically. The speed of these transactions may be impressive, but the most daunting phenomenon is that hundreds of similar transactions were being conducted around the globe at the same hour. These are succinct examples of business-to-businessor B2Be-commerce. An impressive $336 billion in B2B transactions took place in 2000, and Forrester Research has speculated that this number will increase to $6 trillion by the year 2005 (Dembeck 2000). Firms are relying on B2B e-commerce extensively because of its accuracy, efficiency, and profitability. For instance, invoices can be electronically linked to the purchase rather than having someone record the order and post a bill to the supplier. Because computers and their linkages are generally faster than humans, B2B e-commerce is more efficient than its phone, fax, and invoice counterparts. Profitability comes from multiple sources. At times, the e-commerce arrangement allows firms to bypass some links in the value chain. And on occasion, the setup allows the buyer to shop electronically for the best prices among suppliers, or to conduct reverse auctions. Despite its accuracy, efficiency, and profitability, however, B2B e-commerce also has problems. In our Sunnyside example, the supplier could lose the electronic order, causing the Springborough Plant to stand idle for a day. Or our restaurant manager might accept a bid from a supplier and

Because of its efficiency and

profitability, B2B e-commerce is
a major asset to firms. Yet it can
create problems and conflicts for
the people charged with running it.
These must be solved if it is to meet its
full potential. Interviews conducted with
B2B managers across various industries in the US have yielded some ways for managers to avoid or resolve these problems, both in the technical and the social realm.

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later discover there were hidden fees not mentioned in the information she received online. In a different arena, a customer may demand an electronic link with a supplier, but the size of its orders does not merit the expense of a hookup. Still other large, valued customers may refuse to link electronically with a manufacturer, while some purchasers demand that the link have electronic characteristics that differ significantly from those of other clients. Problems and conflicts such as these must be solved if B2B e-commerce is to meet its full potential. Luckily, there are some approaches firms can take for their resolution. Along with a brief overview of the forms of B2B e-commerce, we report and describe some of the problems and conflicts B2B managers may encounter and offer some prescriptions for managers who face these challenges.

A good example of a buy-side B2B was established by Hilton. Its hotels are electronically linked to thousands of suppliers, thereby allowing the corporation to capitalize on its purchasing power and to select products and evaluate information from more than 21,000 companies.

Intermediary marketplaces
This second B2B form comprises electronic meeting places where buyers and sellers can conduct trades assisted by an e-com intermediary. An industry market leader might act as first mover to bring them together in cyberspace. Or third-party intermediaries might run their own sites, networking among companies within various industries. Avnet Electronics Marketings MarketSite is an example. It maintains a marketplace for a network of suppliers and buyers by acting as an intermediary between them.

Business-to-business ecommerce formations

Alliances
This B2B form differs somewhat in that alliances involve firms that collaboratively pool resources to achieve faster service, lower costs, and greater logistical efficiencies. An intriguing aspect of alliances is that competitorswho remain competitors in all other respectsoften form cooperative partnerships to purchase inputs, transport produced goods, and so on. An example of such an alliance is the online partnership announced in February 2000 by Ford, General Motors, and DaimlerChrysler, creating an independent, global B2B supplier exchange called Covisint. One objective of this alliance is to decrease the costs of the auto makers purchasing activities. Because Covisint represents a unified system of supply chain transactions for all companies using the system, it can potentially cut transaction costs. For example, a brake-assembly supplier working with alliance members can use the same ordering procedures with all firms rather than having to maintain company-specific procedures.

2B electronic commerce entails the technological sharing of information among suppliers, retailers, distributors, and other interested parties to create electronic relationships along the supply chain. The key players usually include selling and buying companies, deliverers, and often some type of electronic intermediaries, or third-party service providers. The technological infrastructure for such relationships can include application servers that connect your server(s) and database, back-end integration that ties in information about inventory and shipping, and knowledge management software that links databases across companies. Using such components, the key players create a wide spectrum of B2B e-commerce associations to increase efficiency, decrease supply chain costs, and respond faster to the demands of business partners and end-users. These associations can take myriad forms, yet most fall into four: (a) buyer- or supplier-oriented marketplaces, (b) intermediary marketplaces, (c) alliances, and (d) online open marketplace portals.

Open marketplaces
Often called portals, this type of B2B exchange is rapidly gaining support in a variety of industries. An independent party creates a website on which suppliers and buyers can place and respond to bids for goods and services in an auction (or reverse auction) environment. Plastics.net is a B2B portal where buyers and suppliers of plastics meet to conduct transactions.

Buyer- or supplier-oriented marketplaces

Of all the B2B forms, the buyer- or supplier-oriented marketplaces are the most common. The dominant force behind a supplier orientation is manufacturers who create a network of buyers, both consumers and business customers. The markets can involve proprietary auctions, bid systems, and exchanges. Buyer-oriented or buy-side marketplaces are similar in nature to those run by suppliers, except that large buyers are typically the driving force behind the relationships. These major buyers often prefer to open their own marketplaces, creating a network of targeted suppliers.

B2B problems and conflicts

hese electronic associationsbuyer or supplier marketplaces, intermediary alliances, and open marketplacesmay seem like electronic Edens. Computerized interaction decreases or eliminates former mistakes. Firms use intermediaries to assist them in buying from and

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selling to a host of e-linked firms. And former competitors with dovetailed electronic systems purchase jointly, ship their products on shared semis, and store their goods in commonly rented warehouses. But venture into any B2B center and ask the managers how its going. Their comments are more apt to describe purgatory than electronic bliss. Of course, you are also likely to hear how they are solving the problems and conflicts they encounter.

The second kind of social conflict involves interplays between people and the technology. A customer might insist on using five-digit data when buying from a supplier firms system, but the industry standard calls for only four digits. Or a buyer might want to abruptly change some aspect of the e-com interfaceperhaps wanting a pallet number or production-run order added to the invoice. Or a supplier refuses to upload new product information from its catalog to the intermediarys website.

Venture into any B2B center and ask the managers how its going. Their comments are more apt to describe purgatory than electronic bliss.
With an eye toward solutions to such problems, we interviewed 100 managers about their firms e-commerce operations. All were involved with specific B2B relationships on behalf of their firms; some worked entirely within the realm of B2B e-commerce, while others duties included both traditional and B2B-oriented supply chain management. Specifically, we asked each manager to recall the most recent B2B e-commerce problem or conflict and to discuss how it was handled. The responses we received enable us to offer some prescriptions for managing these challenges, which fall roughly into two categories: technical and social.

Conflict catalysts

s we discussed these technical and social problems with the managers we interviewed, we noted an important general phenomenon: Some of the reported problems did not become conflicts at all, whereas others escalated to conflict level and became very difficult to manage. The factors or catalysts that seemed to catapult the problems into conflicts were high costs, recurrence of the problem, uncertainty, and lack of cooperation.

High costs
When B2B personnel detect costly problems with a linked firm, they often engage in competitive or defensive behaviors rather than taking a more collaborative or problemsolving stance. We learned of one manager in an alliance who had discovered that an important shipment to a customer was delayed because it was too large to fit into the optimal freight space allocated by a transportation member firm. Because this delay was very costly, the manager became very aggressive toward the carrier representative, who retaliated in kind, and the escalation began.

Recurrence
While some problems evolve into conflicts because they are costly or serious, others do so because they are tenacious, taking on Bermuda-grass status. Not only do the recurrences (repeatedly lost orders, items sent again and again to the wrong location) try the patience of the linked firms, they can also prove embarrassing. Moreover, the continued lapses generate the fear that the linked firm and its B2B partners might fail in a future major transaction.

Technical problems/conflicts
These exist principally within the firms own technical system or at the interface between that system and those of other linked firms. A buyer might be cut off while placing a large order, or a buyers numerical identification of an ordered product might not correspond to the suppliers internal inventory number, causing a computer misread. Another problem might be a suppliers system handling order verification and invoicing too slowly.

Uncertainty
Uncertainty has a somewhat parallel effect in that it generates irritation among B2B personnel and simultaneously raises the fear that major disasters lurk in the future. Decision theory holds that most individuals, within limits, actually prefer to know they are going to incur a loss rather than face uncertainty. A parallel preference seems to hold for B2B managers. Many of those we interviewed indicated they would rather know a major problem is going to surface or has occurred

Social problems/conflicts
The first kind of social problem we found exists entirely between individuals. An example of such interpersonal problems is a salesmans refusal to assist one of his own e-com specialists in handling an order that was lost in the system. Or lets say a supplier subscribes to an intermediary marketplace, then demands to pay lower transaction fees than originally contracted.

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than to operate under the shadow of uncertainty. Time and again, managers told us that a problem evolved into a conflict because no one knew for sure whether it would surface again. At times there was also a nagging uncertainty about the causes of problems, or how costly the next predicament would be.

communication and joint problem solving, but the essence of the initial statement is that the manager unequivocally commits to cooperation.

Solving technical problems

A simple technical problem we foundand probably the most obviouswas that some firms ventured into the B2B e-commerce arena before their own information system (IS) was up and running smoothly. One production firm created its own, somewhat unique or homegrown internal IS that did not adhere to the standards of a suppliers setup. When attempting to order parts, the system continually created error messages for the supplier. In another instance, a heavy equipment company forced all of its suppliers to use B2B e-commerce in their transactions. However, the company did not provide a sufficient number of electronic channels within its own IS for them, with the result that supplier orders and verifications were constantly interrupted. This same manufacturer carried two or three identification numbers for ordered items in its internal IS; however, only one of them could be recognized by each suppliers system, which meant that the suppliers often could not recognize what was being ordered. The prescription for these issues is the old A stitch in time saves nine: Ensure that your own IS is up and running smoothly before you attempt to link it to another system via e-commerce. Perhaps as a second step, link your system to one or two other firms systems as a trial run. Work out the bugs and then you can link into a more complex B2B system.

Lack of cooperation
Probably the major cause of conflict was one partys failure to cooperate with the other in solving problems. Many managers were quick to note that minor problemseven those with obvious causesbecame conflicts simply because individuals in the linked firms were uncooperative. In contrast, other managers reported major problems that did not escalate because their partners worked together in addressing them. One supplier sent a large order to the wrong plant, forcing the intended plant to stand idle for a day. This problem did not become a conflict because a B2B manager of the supplier, when notified of the problem, addressed it promptly via phone and FedEx and then worked to fix the computer glitch responsible for the costly, misdirected shipment.

Solutions

he managers reports of their difficulties simultaneously indicated some solutions. They knew they could not always avoid costly problems, but they could reduce the recurrence and uncertainties surrounding them, as well as increase cooperation with their B2B links for both large and small glitches. The general prescription here is: Do sweat the small stuff, so that it doesnt become the big stuff. More specifically, sweat the recurrence of problems. Keep track of them for each e-commerce link and use some sort of occurrence meter as a major criterion for problem-solving activities. If sending router bits to the wrong factory location occurs five times in a month, it must be given higher priority than a problem that has occurred twice. Uncertainty is best solved with two-way communication. Obviously, partners like to hear that a problem has been identified and will soon be resolved. Somewhat ironically, they are also soothed by an acknowledgement that the other manager is as stumped as they are. In other words, there is some comfort in knowing that both sides are uncertain and can admit it. Two-way communication also allows the victim of uncertainty to vent and then settle down to engage in some joint problem solving. In contrast to uncertainty, cooperation can best be addressed with one-way communication. When a problem occurs, the B2B manager should simply say Well fix it, Well help you fix it, or Lets work together to fix this. No doubt such a statement will often generate two-way
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The general prescription here is: Do sweat the small stuff, so that it doesnt become the big stuff. More specifically, sweat the recurrence of problems.
A second technical problem was persistent paper fixes. For many technical problems, such as a server going down, the B2B managers came up with a solution by identifying the cause and addressing it within the technical system. At other times, paper or phone fixes were used as immediate, temporary solutions until the central technical problem could be addressed. One manager realized that a buyer had attempted to order some parts but the order was not processed. The manager called the buyer, recorded what the product was, entered it into his computer, and faxed

Business Horizons / March-April 2003

the buyer an invoice verification. In too many cases, managers became somewhat addicted to such low-tech fixes. Instead of solving the problem with the linked party, they continually relied on a low-tech approach for each individual incident. This generated several other problems. First, the managers became overloaded with the slower low-tech demands, especially as volume increased in the electronic system. Second, although the low-tech solutions pleased the customers, they simultaneously generated low-tech mistakes that the computer could not identify. Third, the B2B set-up did not reach its full potential. And fourth, we suspect that low-tech solutions have a tendency to metastasize throughout the B2B system. If a powerful buyer finds one supplier that will provide immediate low-tech solutions to ordering errors, it pressures other suppliers to provide the same service, thereby creating low-tech solution pockets throughout the supplier network. Based on this set of observations, we suggest that once an e-com system is up and running, do not become overly reliant on paper fixes for high-tech problems. The lack of electronic symmetry across the B2B associations was another technical problem. When two linked firms had roughly the same level of electronic sophistication and experience in IT, they seemed to encounter fewer predicaments. In contrast, when there was a significant difference in experience or technological sophistication, many more problems and conflicts seemed to surface. The higher-tech firms were quick to attribute the cause of problems to the linked partners inexperience and embryonic e-com system. At times, those partners were viewed as electronic free riders or leeches. In turn, many of them seemed very sensitive to these accusations and were irritated by such a second-class status. The solution here is not a simple one, but as a first step it is worthwhile to consider that very few firms have experience or electronic sophistication identical to their partners. Differences will always exist. The more experienced B2B partners will have to be patient. Perhaps they can negotiate time frames and specific benchmarks at which the trailing partners will meet certain e-com objectivessay, a 20 percent reduction in transmission errors in six months. Even better, the asymmetry can be converted to the benefit of the experienced company if the company uses it as leverage to link solidly with the weaker party. If a plate glass producer has an internal IT system and B2B linkage capability superior to that of a window manufacturer, instead of railing about the resulting problems it might offer to bring the manufacturer up to speed in exchange for the right to be the sole supplier of its glass.

an e-com link with a supplier, the manager in the suppliers B2B unit was not allowed to decide whether or not to open the link. Instead, she had to refer the decision to a higher authority. This she did repeatedly as new buyers attempted to set up e-links. Consequently, there were delays, potential customers were lost, and upper-level managers became overloaded and irritated with the unit. A related social problem was overload. Many if not most technical problems tend to seep down to the technical staff, who may then become overburdened. Demands may be simple but are too numerous. At other times, the demands seem simple to the functional people who are making them, but compliance is difficult. And occasionally the demands create more problems than they solve. An example of this last circumstance involved a supplier representative who requested that the companys website be modified for one of his suppliers. Unfortunately, the modification ended up making the site very difficult for several other buyers to use. Some B2B managers address technician overload by giving the head of the technical department sufficient power to filter, deny, or negotiate the demands made by internal representatives. However, we also found a second, less conflict-ridden approach: allotting each department in the firm a certain number of technical requests each month to submit to the technical unit. Such an allotment procedure has numerous benefits. First, it provides a cooling-off period in which the non-technical personnel can objectively evaluate the importance of each demand relative to the other demands on their list. Second, it forces them to sort among their requests and select only those of major importance to the department. Finallyand perhaps most importantit eliminates the perception that the squeaky wheel gets the grease. When people know that only the selected items on their list will be addressed during the month, they are less apt to make forceful demands. They will also be more cooperative with other non-technical colleagues because they know those colleagues cannot gain an advantage with their own demands. A final social problem we found, most often in alliances, was overcommitment. Some suppliers discovered that growing demand prevented them from keeping their commitments to the intermediary firm that was electronically linking the alliance members. In another example, an intermediary promised software improvements to an alliance of supplier firms that it could not keep. The knee-jerk prescription to such challenges is probably Dont make commitments you cant keep. But the more profitable solution has a richer touch: The goal for managers in B2B e-commerce is not to avoid overcommitments but to make and keep them accurate and attainable. How can they do this? To us, it seemed that the B2B managers who were pursuing the commitment goal best were those who had

Solving social problems

The central social problem uncovered in our interviews seemed to be a lack of empowerment for the B2B managers. When one first-time buyer attempted to establish

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refined their own internal ISs and had come to know their own capabilities well prior to linking the systems with others in an alliance. Moreover, prior to, during, and after linking to other firms, the managers relied heavily on boundary-spanning activity among their own technical and functional personnel. They emphasized to their employees that isolated super-techs who do not assist other people in keeping their commitments are of limited value. And they trained their functional staff to communicate, understand, and cooperate with the technical people in order to obtain the latters guidance and reach company goals and commitments.

7. Give the B2B e-commerce personnel adequate power to perform effectively and set up mechanisms to prevent overloading them. 8. When fine-tuning the IS and linking it into an e-commerce system, train both the technical and functional personnel to communicate with each other as boundary spanners. B2B e-commerce rests on a very sophisticated technological base that underpins high volume, accuracy, efficiency, and profitability. However, the solutions to its problems and conflictseven the technical onesrequire social talents and tactics. Seldom do computers fix computers and IT problems; people do. And these people, along with those who establish, operate, and interface with the system, must be managed effectively. So as the technical sophistication of firms and their electronic links to others increase, managers must continue to rely on their social skills.

ur example of Sunnyside Manufacturing and its B2B system illustrates some of the potential benefits e-commerce holds for businesses that are willing to embrace its possibilities and avoid its pitfalls. Once B2B e-commerce systems are planned, agreed to, designed, implemented, tested, and debugged, they can produce good results. Usually, however, these systems must be continually monitored and tweaked to resolve their technical and social problems and keep them from escalating into real conflicts. From our research into some of these problems, the suggestions we have come up with can be boiled down into the following: 1. Monitor the recurrence of problems and attempt to reduce or eliminate them as soon as possible. 2. Rely on two-way communication to deal with the uncertainties of performance. 3. Use one-way communication to express cooperation, and then be cooperative in problem resolution.

References and selected bibliography

Covisint. 2002. Accelerating the pace of business. @ www. covisint.com. Dembeck, Chet. 2000. US B2B to reach $6 trillion by 2005. ECommerce Times @ www.ecommercetimes.com (27 June). Greenberg, Paul A. 2000. Hilton hotels unveils B2B marketplace. E-Commerce Times @ www.ecommercetimes.com (2 June). Macaluso, Nora. 2001. Auto industry poised to lead B2B rebound. E-Commerce Times @ www. ecommercetimes.com (26 September). Peppers, Don, and Martha Rogers. 2001. One to one B2B. New York: Doubleday. Tapscott, Don. 1998. Introduction: Alliance for converging technologies. In Blueprint to the digital economy, ed. Don Tapscott et al., 1-19. New York: McGraw-Hill. Turban, Efraim, Jae Lee, David King, and H. Michael Chung. 2000. Electronic commerce: A managerial perspective. Upper Saddle River, N J: Prentice Hall.

4. Ensure that the firms internal information system is up and running smoothly before linking it to another external system. 5. Avoid addiction to paper fixes for e-com problems. 6. Convert partners lack of experience (or lower technical sophistication) to transaction advantages.

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