Extranets: a tool for cost control in a value chain framework
| DOI | https://doi.org/10.1108/02635579810213125 |
| Pages | 120-128 |
| Published date | 01 May 1998 |
| Date | 01 May 1998 |
| Author | Murugan Anandarajan,Asokan Anandarajan,H. Joseph Wen |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
[ 120 ]
Industrial Management &
Data Systems
98/3 [1998] 120–128
© MCB University Press
[ISSN 0263-5577]
Extranets: a tool for cost control in a value chain
framework
Murugan Anandarajan
Assistant Professor, Management Information Systems, St Joseph’s University,
Philadelphia, Pennsylvania, USA
Asokan Anandarajan
Assistant Professor, Accounting and Finance,
New Jersey Institute of Technology, Newark, New Jersey, USA
H. Joseph Wen
Assistant Professor, Management Information Systems,
New Jersey Institute of Technology, Newark, New Jersey, USA
The purpose of this research
is to show through a case
study how the extranet has
been used by one specific
company to significantly
reduce operating costs. The
activities of the company are
analyzed within the frame-
work of the value chain con-
cept developed by Porter.
This, it is felt, will provide a
greater insight into how the
extranet can be used to
improve profit margins. Prior
research in this area has
either been of a conceptual
nature (explaining theoreti-
cally how the extranet should
be employed) or of a survey
nature (examining, by means
of a survey instrument, the
benefits accruing to compa-
nies that have adopted the
extranet). This study is differ-
ent in that it examines in
detail, by means of a case
study, how the extranet in-
fluences a retail company’s
chain of activities and
Introduction
There have been many recent articles on the
application and usefulness of an extranet as a
new form of technology (Dalton, 1997; Flana-
gan, 1997; Frost, 1998; McCarthy, 1997;
Schnaidt, 1997; Strom, 1997; Tweney, 1997
among others). In general, these articles have
commented on how an extranet can be used
as a tool to reduce costs and gain competitive
advantage. All these articles, without excep-
tion, provide theoretical frameworks to
explain how an extranet will generate bene-
fits. This article uses a case study approach to
demonstrate how the concept of the extranet
can be used to reduce significant costs that
companies incur in their respective “value
chains” and enhance competitive advantage
for firms. The company is analyzed in terms
of its value chain because new technology has
led to reconfiguration in terms of the rela-
tionship of information to the physical com-
ponents of the value chain (Evans and
Wurster, 1997). Evans and Wurster observe
that the Internet has caused a significant
change in the structure of entire industries
and in the way companies now compete.
Thus, it would appear that any meaningful
analysis can only be conducted in terms of
the value chain framework of a company.
We first explain the concept of the value
chain and provide an illustration of how costs
are incurred at different stages of the value
chain by a selected retail company. We then
discuss the concept of the extranet and show
how the extranet is being used as a tool to
eliminate costs, improve the flow of informa-
tion and improve the profit margin generated
by this company.
Prior literature
Most of the relevant research publications on
the impact of new technologies have adopted
the case study approach. Tucker (1997), for
example, showed how the Internet helped
small companies use electronic data inter-
change (EDI) to interact with large customers
and suppliers who have access to more sophis-
ticated technologies. Strom (1997) explained
how companies such as SAAB and BMW used
Web sites to enhance customer service.
In terms of the extranet in particular, initial
studies sought to examine how companies
implemented extranets. Strom (1997) used a
case study to demonstrate how a company
considered various options; among others,
buying a turnkey system from an integrator,
building a system from scratch, and finally
leveraging the company’s existing infrastruc-
ture and augmenting it with key extranet
components. The company adopted the final
option and the benefits of such an option were
discussed. Other studies examined the extent
to which extranets have been adopted by com-
panies. Schnaidt (1997) conducted a market
study and found that 26 percent of surveyed
companies have an extranet while a further 26
percent planned to deploy an extranet in 1998.
Further studies sought to examine how
extranets are being used by companies. Frost
(1998) showed how a company, among other
things, developed an extranet to help benefit
and payroll service providers, who work with
small companies, to conduct business elec-
tronically. Flanagan (1997), among other
things, focused on Federal Express Inc., and
showed how this company used extranet for
their package tracking system. He noted that
the extranet has provided Federal Express
with a distinctive competitive strategy. On a
macro scale, Evans and Wurster (1997) dis-
cussed how the US auto industry is creating
an extranet called the Automatic Network
Exchange (ANX), linking together automobile
manufacturers with several thousand of their
suppliers. The system is expected to save its
participants around a billion dollars a year,
also dramatically reducing ordering and
billing errors and speeding the flow of infor-
mation to second and third tier suppliers.
This study is different in nature in that it is
a study of one company that employed an
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