When global telecommunications giant Siemens won a major award last year for its knowledge management application, it wasn't a recognition of a glitzy Web site. Rather the prize honored Siemens' ability to decipher a code that's bewildering many: collaborative commerce. Germany's Siemens is one of the first global players to turn this concept into a meaningful strategy to structure a complex business process via the Internet. Its application allowed knowledge sharing among far-flung salespeople in a way that actually cut costs and strengthened sales in the process of customer acquisition.

Collaborative commerce, an approach to online business that goes far beyond transactions, has become a buzzword. Collaborative commerce has been defined as the use of an online business-to-business exchange to facilitate the flow of information rather than to process transactions. Business partners can exchange information such as inventory data, product specifications, or fulfillment status by using a Web server as an intermediary.

But a recent study, commissioned by ArsDigita and conducted by Bain & Company, shows that while 70% of business and technology leaders consider enhanced collaboration capabilities a critical next step for their online services, few have a clue what collaborative commerce implies practically. In fact, Siemens' efforts are just the tip of an iceberg that, as increasingly sophisticated software becomes available, will change the way business processes are structured and executed and money is made in almost all industries.

Moving Beyond Transactions

Early Internet software tackled the relatively simple task of structuring transactions-such as buying books or specialty chemicals. High-profile Internet brands then made successful moves to create additional value around the process of filling orders-searching, selecting, and paying for goods, and delivering purchases to buyers.

The next round of collaborative commerce will entail moving core business processes such as product development and customer acquisition onto the Web. Software is now available that can manage workflows, projects, and knowledge, and support the development of communities-giving structure online to complex business processes and slashing costs by reducing the need for iterative human communication and eliminating the need for all users to have their own copies of specialized software. As the new software functionality emerges, pioneering businesses are doing far more than just buying and selling online.

Structuring Knowledge Sharing

Traditional, global companies, like Siemens, are beginning to take advantage of collaborative opportunities beyond procurement and clearly have the most to gain. Take the process of customer acquisition, where effectively managing a complex, worldwide bid process requires acting on the amorphous. You need to assimilate dribs and drabs of feedback from your current "community" of customers and peers, and share knowledge residing in disparate quarters across your organization.

One of the first to do this successfully online was ICN, the Information and Communication Networks division of Siemens AG, which won the Best Knowledge Management Application of 1999 from the American Productivity and Quality Council. ICN sells switching solutions to telecommunications companies around the world. Deals are complicated and require approaches closely tailored to the needs of different customers. ICN has put online knowledge management software to work to improve its sales process. Worldwide, 6,900 sales representative can tap into all the relevant information they need to make a sale: a full history of each client relationship including purchasing patterns and key decision-maker contact details. They can also access information on the client's business environment, as well as ICN pricing schemes, details of potential technical solutions, and tips on soft selling skills. This system has helped Siemens achieve an estimated $20 million annual savings.

The system also includes software that helps sales people to help one another. A community-supporting application gives representatives access to the unstructured comments, tips, and anecdotes of their peers in a chat facility that works a bit like a company lunchroom. The development of such online communities has the potential to improve business processes online. The software allows such interactions as argument, criticism, negotiation, and chat to take place in the ether. With these tools available, companies can begin to use their intranets and extranets for product design, recruitment, and other processes that rely heavily on people collaborating.

Structuring "Community"

One of the more difficult business processes to support is product development. Product development for an original equipment manufacturer (OEM) manufacturer, for example, is characterized by "communities" of individuals from engineering, marketing, and other functional areas across the supply chain of the OEM and its myriad subassembly and component suppliers. Years of effort to support product development processes across a supply chain have had limited success to date.

Until now, highly successful examples of online communities around product development have been in the non-commercial sector where creative people-professional and amateur-experiment. Consider the success of Photo.net, which allows individuals to store, display, and share pictures, buy and sell equipment, and exchange views with other buffs. Photo.net, by virtue of being brilliantly useful to its visitors, has emerged as one of the stickiest sites in its industry.

Now, as the capabilities of online software mature, the major, traditional players-those that stand to benefit the most-are sitting up and taking notice. E2open.com, the online exchange recently launched by some of the world's biggest electronics companies (Acer, IBM, Lucent Technologies, Panasonic, Solectron, Hitachi, LG Electronics, Nortel Networks, Seagate, Toshiba), promises to support the entire product lifecycle from design, source, and build, to marketing, selling, and end-of-life management. Alongside its now run-of-the-mill electronic marketplace for components and supplies, the E2open Web site offers a design collaboration facility where cross-company teams can collaborate to develop electronics solutions to meet specific company needs. It also provides supply chain management tools that help business partners reduce inventory costs, increase operational efficiency, and improve time to market.

While it's too early to say whether E2open will significantly change the electronics industry, it's clear that firms such as E2open are poised to capitalize on the emerging software functionality. Merge such assets with the technology and focused online leadership of a pure-play, and more of the potential in collaborative commerce will surface.

As more and more companies harness this new functionality effectively, they will transform collaborative commerce from cryptic buzzword to corporate watchword, simultaneously building loyalty and slashing the cost of doing business, for themselves, their customers, and their suppliers.

Bob Bechek is a director in Bain & Company's technology practice. Cesar Brea is Vice President of Marketing and Business Development at ArsDigita Corporation.