The Invisible Hand of eCommerce

April 22, 2015
 

Adam Smith, one of the greatest minds of all time, is often referred to as the father of economics. Amazingly, a few centuries later, his insights are still very relevant in today’s technology era. In our day and age, software may have supplanted the more traditional labor of Smith’s time, but the guiding principles he set forth are still applicable. Smith discussed three perceived benefits of the division of labor in The Wealth of Nations. Here is how the three benefits are applied to the division of software vendors in delivering an eCommerce environment.

  1. Specialization increases speed

Vendors who are more focused on a specific niche become experts in that area and are much more efficient at delivering within it. As a result, they can provide more custom consulting and a quicker time to market for their capabilities than their end-to-end counterparts. A reduction in time that can be from a year or more down to a few months. An eCommerce software vendor who focuses on end-to-end deployments will not be as dexterous as a software vendor who focuses on one part of the eCommerce process chain.

This is especially true for focused SaaS providers who are increasingly using APIs and scalable cloud-based infrastructure. These vendors offer multiple product releases and enhancements per year versus one or two that is common for on-premises solutions. SaaS vendors are also able to quickly and seamlessly integrate into legacy systems or existing, outdated solutions that aren’t delivering on market demands. As a result, they are able to get a front-end commerce platform, order management system or supply chain management system up and running in 12 weeks or less. A company could choose to launch one, two or all three of these at the same time without impact on total deployment time. Each one is focused on its particular niche and as a result can launch in tandem with the others versus using one vendor for the end-to-end solution, which would require a much longer deployment.

  1. Not having to switch between tasks saves time

Vendors who try to tackle an end-to-end eCommerce solution are faced with a bigger scale of problem. As a result, their internal team needs to grow exponentially. The cumbersome size of the team and the scope of the problem they are dealing with, along with switching between the customized deployments of their clients, makes these vendors less efficient and as a result they take more time to get things done. Specialized vendors have a singular focus on their area of expertise that increases efficiencies, sending cost savings back to clients. This is reflected in the quick deployment times and lower total cost of ownership for SaaS solutions.

  1. Using the right technology saves time and money

Each specialized vendor will be using the latest and greatest technology to support their platforms. Hence we see a growing adoption of SaaS technology while on-premises solutions remain unable to accommodate agile software changes. This move allows for these specialized vendors to iterate at the speed of the market and to provide upgrades and support to multiple clients at once versus having to deal with multiple one-to-one scenarios, which are inefficient and consume time and resources from both their clients and their own teams. With emerging trends like this, it’s no surprise that analyst firms, like Forrester Research, are recognizing this in their research, pointing out that “SaaS is eating traditional licensing’s lunch” and that they anticipate SaaS adoption to grow from one-third of US customers today to nearly half by end of decade.

The specialization of functionality that is occurring with SaaS technologies allows companies to pick and choose the best solutions on the market for their eCommerce environments, a luxury that hasn’t been a reality until recently. With SaaS based technologies, a company can swap out any software for another one relatively easily, quickly and affordably. This is enabling businesses to have best-in-class technologies and to deliver on consumer demands. The days of multi-year replatforming projects are quickly becoming obsolete.

For example, a SaaS based company like Kibo pushes out about 6 releases per year, which benefit their entire client base. Releases that encompass components like user interface and workflow enhancements to keep up with market developments and demand. Whereas if a company goes with a clunky on-premises, end-to-end solution and customizes the version to fit their needs then it becomes increasingly hard to upgrade to the next version. Whatever customization was appropriate at the time of deployment will quickly become obsolete as the market is moving at an increasingly quick pace. The time, cost and resources needed to upgrade systems often becomes too daunting for teams who opted for an on-premises solution, so daunting in fact, that many teams neglect investing in regular upgrades. Forrester Research reports that such upgrade neglect forces these operators into major upgrade programs or, in many cases, pushes them back to the drawing board to undertake a complete selection and replatforming program.

A real life example of a company capitalizing on the division of labor as manifested in software providers contributing to different parts of an end-to-end eCommerce environment is that of Home Hardware. When Home Hardware selected Kibo to provide complex fulfillment capabilities via our cloud-based distributed order management platform, they selected us for our specialized expertise and state-of-the-art technology. This criteria enabled them to be up and running with Kibo in 3-4 months without having to uproot their POS, supply chain and front end solutions as they would have had to do in a typical end-to-end implementation. Additionally, the ability to integrate Kibo as a separate functionality piece, allowed Home Hardware to do a Ship-to-Store program incredibly quickly, even though they couldn’t do it in their current system.

Learn more about how you can get up and running with order management capabilities today whether or not you want to integrate them with your existing infrastructure or roll them out with a whole new end-to-end eCommerce environment.

1 Retrieved from US Commerce Platform and Services Forecast, 2014 to 2019. Source: Forrester Research, Inc. February 5, 2015.