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2 Cost reduction. Operating processes can be made more efficient through an extranet. The
example given by these authors is Merisel, a $3.5 billion computer hardware reseller
reducing its order processing costs by 70%. Such cost reductions are achieved by reducing
the number of people involved in placing orders and the need to rekey information from
paper documents.
3 Order processing and distribution. The authors refer to an ‘electronic integration effect’. For
example, an extranet can connect a retailer’s point of sales terminals to a supplier’s delivery
system, ensuring prompt replenishment of goods sold. This potentially means less lost
sales because of out-of-stock items and a lower inventory holding is needed.
4 Customer service. Improving levels of service is one of the main benefits of the Premier
Dell.com extranet described above although it also has the other benefits listed above.
Distributors or agents of companies can also find information such as customized pricing
or advertising materials. For example, 3M provides open web access to individual
customers to find information about its office products such as Post-it notes and trans-
parent films (www.3m.com/uk/office), but it also offers an extranet for distributors such as
Spicers (www.spicers.net) and Euroffice (www. euroffice.co.uk).
Many of the management issues involved with managing extranets are similar to those for
intranets. These are five key questions that need to be asked when reviewing an existing
extranet or when creating a new extranet:

1 Are the levels of usage sufficient? Extranets require a substantial investment, but as with a
public-facing web site, efforts need to be made to encourage usage since we are asking the
users of the service to change their behaviour. It is in the organization’s interest to
encourage usage, to achieve a return on their investment and achieve the cost savings and
efficiencies intended. Take the example of the Standard Life Ifazone referred to above.
Many financial advisers may be comfortable with their existing way of selling products
using the phone and post. Education will be needed to explain the benefits of the extranet
and incentives such as increased commission may also be used.
2 Is it effective and efficient? Controls must be put in place to assess how well it is working
and improve its performance. Return on investment should be assessed. For example, visi-
tors levels can be measured for different types of audiences and the level of usage for
accessing different types of information can be assessed. The direct and indirect cost
savings achieved through each extranet transaction can be calculated to help assess effec-
tiveness. For example, 3M, manufacturer of many products including office products such
as Post-it notes, has an extranet to connect to the office supply retailers (see
www.3m.com/uk/easy). Retailers download the latest price lists and promotional infor-

mation such as product pictures. Each digital download represents a significant saving in
comparison to shipping physical items to the retailer.
3 Who has ownership of the extranet? Functions with an interest in an extranet include IT
(technical infrastructure), Finance (setting payments and exchanging purchase orders and
invoices), Marketing (providing marketing materials and sales data to distributors or
providing services to customers) and Operations Management (exchanging information
about inventory). Clearly the needs of these different parties must be resolved and
management controls established.
4 What are the levels of service quality? Since an extranet will become a vital part of an organ-
ization’s operating process, a problem with the speed or availability of the extranet could cause
loss of a lot of money; it is arguably more important than the public-facing Internet site.
5 Is the quality of the information adequate? The most important attributes of information
quality is that it is up-to-date and accurate. Vlosky et al. (2000) point out the importance
of liability if information is inaccurate or the extranet crashes.
It will be seen in Chapter 6 that extranets are used extensively to support supply chain man-
agement as resources are ordered from suppliers and transformed into products and services
delivered to customers. At Marshall Industries, for example, when a new customer order is