Project Management Institute

Is building an extranet right for your company?


by David Blumenthal and Yair Alan Griver

MORE THAN HALF OF Fortune 1000 companies have implemented extranets, according to a 1999 report by Forrester Research. After all, an extranet can address a number of very tangible business needs: reduce operating costs, increase revenues, speed up and improve communication, enhance relationships, and readily facilitate strategic opportunities.

In building an extranet, a company must look upon its return on investment in more than just the traditional ways of decreasing costs and increasing revenues, it also must look at finding new markets and pathways for business and securing its position in the future.

How do you determine if an extranet is right for your business? What rationale do you have for creating such a site? What kind of planning is necessary? And who are the audiences, or communities, that you need to reach?

Defining the Nets

An internet is the public site of a company, the face it shows to the world. A company may put news stories or public relations pieces on the Internet, or permit knowledge-based searches by the general public. This site is open to everyone, without restrictions.

An intranet site, meanwhile, is a closed site. Though intranets are often posted on the World Wide Web, these sites are generally passworded or otherwise encrypted and are intended to be read only by people inside the company. Intranets may include sensitive corporate news and sales information, directories, and other information useful to the company's employees.

David Blumenthal and Yair Alan Griver are the CEO and CIO, respectively, of Flash Creative Management, a Hackensack, N.J.-based provider of management and technology insight and information (

An extranet blurs together these two concepts. It's geared both to an internal audience and, most importantly, to selected customers, special prospects, vendors, suppliers, and partners outside of the company.

By opening up areas that have traditionally been private to your company, you can't help but create cultural issues. How much information, after all, should be made available to a customer, vendor, or partner? And like an intranet on the Web, opening doors to certain people and organizations also means the need to add security measures.

An extranet uses Internet technology to provide easy access to private information. As creator of an extranet, you define the rules. You control who has access to the site and what exactly you want them to see. In a sense, you get to set up your own club, doling out special benefits to those who are important to you. You can put together an ad hoc group to solve a business problem, work on a specific project, or take advantage of an opportunity.


Extranet technology uses the same standards-based communication and display mechanisms found in the Internet. There are no additional wiring or cable costs, no retraining of people, and minimal configuration and installation requirements. To help build a community of special relationships, information must be easily accessible to users. The extranet provider accomplishes this by making the site accessible from any machine—PC, airport, telephone, or a personal digital assistant (PDA) such as the Palm Pilot. And once posted to the Web an extranet is accessible by anyone with Web access that the company gives privileges to.

An extranet has three basic aspects: communication, connection, and systems. With communication, it's a case of a business talking to special users. This typically is accomplished through password-based access that provides access to specific data. The communication aspect most closely blurs the line between internet and extranet sites. is an example of an internet site that by capturing user information and using extranet features blurs the lines between plain internet and “club” type extranets. On the first visit, Amazon knows nothing about a user, and the user sees a standard internet site. Once an order is placed, however, and the user allows Amazon to store information about that user, the next visit yields a much richer experience. On entering the site, the user receives a personal greeting and a recommended list of books or music suited to his or her tastes. Payment and shipping information is already stored on the site. Similarly, customizes its site by showing news, local weather, or other items tailored to a user's special interest.

The aspect of connections entails a more select group of users and closer relationships. Members may be given direct access to one another's internal systems. This is commonly found in extranets with companies that offer specialized services like consulting, legal, software development, or accounting services that not only have employees working on projects, but have relationships with consultants or partners outside the company as well.

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Connecting by systems takes it one step further. Software that runs one business talks to the software that runs another business. A simple example of this is Quicken, which facilitates connections between different hardware and operating systems, creating ad hoc extranets that go unnoticed to the user. Simply click the “online” button, and Quicken gets data from credit card providers, mutual fund companies, stock brokerages and exchanges, and other financial institutions—each running different software, but all communicating through similar internetbased technology. One can access financial information as a result of “invisible” connections made between the user's PC and mainframes at various financial institutions.

Special Communities

Extranets consist of communities. As a result, anyone building an extranet needs to be concerned with the different types of communities that can be developed and the value and benefits that can be delivered back to the members of these communities. Extranet communities commonly include customers, vendors, suppliers, partners, and prospects.

The challenge is to create special relationships with members of your community—both individuals and organizations—that will keep them coming back. This entails creating a feeling of relatedness, integrating them into your information and processes, and generating new opportunities together.

Microsoft, for example, has a site geared toward Microsoft-certified solution developers. By virtue of passing four tests, these developers receive membership in a club that offers them software information and support that is exclusive to them., on the other hand, is a business-to-business site created around the extranet concept. Companies putting together requests for proposals use it. A client that may be building a bridge, for example, puts its RFP up on the site. then forwards this to construction companies that have registered with them. The online company reads through the proposals submitted and based on its client's criteria—for example, necessary experience, cost parameters, location—sends the proposals from the top candidates to the client.

You can build new communities by creating membership clubs. Frequent flyer clubs offer an example of this. The host airline returns the favor of doing repeat business with them and becoming part of their club by giving members certain benefits. The customized capability of the airline's extranet enhances this association by allowing members to make reservations, check out frequent flyer bonuses, and redeem mileage.

Creating communities where customers, vendors, and partners are made to feel special make extranets exciting vehicles for enhancing and attracting business relationships. Developing one-to-one relationships where people feel they receive special treatment strengthens the bond with those audiences that are important to you and raises the bar to your competition.

A company called, for example, sells computers and accessories. An ability to tie its extranet into its customers' purchasing systems sets it apart from the competition. When a customer puts in a request for, say, 50 new computers, takes the request within minutes, configures the system, and sends the computers out to its client within a day. For a rapidly growing company with immediate hardware needs, this offers outstanding value.

An extranet also allows a company to receive fast and meaningful feedback from the members of its community. This is effective for surveying customers, vendors, suppliers, and partners on specific issues.

A Rationale

In determining whether to build an extranet, start with your own business strategies and look at the solutions it may provide. The extranet needs to be geared toward specific audiences and address specific business imperatives. If it doesn't, the time may not be right for building such an entity.

Consider how companies are using extranets to address their strategic objectives and reach targeted audiences:

img Kodak, faced with fierce competition from Fuji, needed to lock in business relationships with key customers. It built an extranet that creates a new set of franchise-like relationships with over 25 major retail chains. Participants can now obtain information never previously available to them—including historical information, future projections, and information on their own buying patterns. This has created closer relationships with Kodak.

img Cisco was experiencing rapidly spiraling customer service costs as a result of the company's increasing business. Since much of the information requested by customers existed on databases, Cisco decided to remove the customer service agent and provide the information via its extranet directly to customers. The result: Cisco reduced costs by $60 million per year.

img Ford, GM, and Daimler-Chrysler shared a common need to reduce costs in order to fight market erosion from Asian competition. To accomplish this objective, the three auto manufacturers recently announced the formation of a new purchasing extranet site that will provide for the joint purchase of $250 billion annually in parts and supplies. They anticipate that this effort will result in a 10 percent cut in costs, or $1,000 per car.


Planning for an extranet is like putting together a puzzle. The first piece deals with the corporate strategy and the need for any proposed extranet to address it. The next piece concerns the members of your community for whom the site has been built. The third piece relates to the competitive landscape. Only after each piece fits together can a company proceed toward the fourth and final piece, the one that finishes the puzzle: the extranet implementation plan.

Begin the process by examining your existing relationships. Access is easier with the individuals and organizations you know. They are more likely to provide you with the kind of honest feedback that will minimize guesswork and mitigate the likelihood of mistakes before you expand the extranet to other audiences.

To understand what the members of your extranet community value, draw up audience profiles that will examine their needs and concerns, goals, and expectations.

For example, take the case of a champagne manufacturer who wants to cultivate the relationship of the managers at chain liquor stores prior to a key selling and buying time of year. The time? New Year's Eve. The primary need? To stock champagne in anticipation of this festive time. The goal? To make sure the managers receive just the right amount of champagne—not too much so they're forced to discount remaining stock, not too little so they run out—delivered in time to satisfy their customers plans. The expectation? Since we can assume that this audience is not technology savvy, the extranet will need to be user friendly.

In addressing competition, look at both your direct competitors and those outside your industry. Competition today can come from virtually anywhere, as technology has lowered the barrier for entry. Even automobile dealers, bankers, and pharmacies must now vie with online service firms for their share of a customer's wallet.

Once you've identified your competition, find out if any of those companies is providing similar Web-based services. If so, determine if these services should be offered within your extranet. You should weigh this need against your capacity to offer such services, considering your own resources, how members of your audience will perceive the service (for example, is it too cumbersome or slow to use?), and whether it's out of date.

Security is another issue that calls for careful planning. According to a survey by Information Week and Pricewaterhouse Coopers, over 50 percent of sites reported security breaches in the last year. This number was higher for e-commerce sites and supply chain and ERP applications, where companies tend to expose more sensitive information to the world. Over $100,000 in losses were reported by 16 percent of these companies. Interestingly enough, another 48 percent of the sites surveyed said they didn't know if they had been pickpocketed. You will need to assess the situation by identifying your potential adversaries, the kinds of information being exchanged, and your vulnerabilities. This will help you determine what security is necessary to safeguard the information that is moving back and forth between your firm and your users.

Once these pieces fit together, you can move toward the extranet implementation plan. This consists of the release plan and project schedule. The release plan should include such details as the project boundaries and the features and functions that will be included during each stage. The project schedule is where the proverbial rubber hits the road.

AN EXTRANET ISA POWERFUL vehicle for bringing tighter integration between people and organizations. It can establish one-to-one relationships with a range of different constituencies that can help close deals and create new partnerships. When the company identifies strategic needs and plans accordingly, an extranet can open up new horizons and broaden opportunities. ■

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October 2000 PM Network



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