Harink, J., Witteveen, H.J., Business beyond the hype, Management Consultant Decisions International, 2000 (paper)
Nowadays the subject e-business is not only the playing field of technical hobbyist but is also a major item on the agenda in the board room. It is important to get a complete picture on the impact of e-business for a company. PricewaterhouseCoopers has a broad experience in defining and implementing e-business strategies for all kinds of companies throughout all kinds of industries. In this article, we will explain what the impact of internet might be for a company. Besides this, we will illustrate the impact from a marketing point of view and from a purchasing point of view.
The great economist Alfred Marshall wrote in 1920, “The full importance of an epochmaking idea is often not perceived in the generation in which it is made ... The mechanical inventions of every age are apt to be underrated relatively to those of earlier times.”
Today, there is one epoch-making idea that is transforming how we think about business and how we conduct business. It will change business irrevocably. And most businesses have yet to perceive it, let alone understand it or adopt it. The idea is electronic business, now often shortened to e-business. Soon, even the e- will be dropped. E-business will be business as it comes to be generally understood.
E-business has gradually crept its way from a theoretical concept discussed by the academics who created the Internet to become a topic at business schools, the core subject matter of some MBA courses and, recently, the subject of populist business books and articles on the financial and feature pages of quality newspapers and magazines.
But it is still not widely grasped, largely because the speed at which it is being introduced has allowed very few organisations the luxury of time to analyse its potential and estimate what its end result will be. It is still confused with its most visible but relatively limited manifestation, electronic commerce. And many business leaders believe that they can ignore e-business until it is more fully developed.
They cannot. By the time e-business is commonplace — in years, rather than decades — it will be too late for the non-adopters. Those companies will have ceased to exist. They have not realised that they are in a race where there are no runners-up.
The extraordinary power of Internet technology to change fundamentally the way in which organisations work is hard to conceive. It can help to boost revenues, cut production cycle times and costs, improve customer service and broaden market share. Interactive relationships with customers and suppliers enable new products and services to be delivered faster and better at a substantially lower cost. Ultimately, e-business will be deployed throughout an entire industry’s supply chain, linking manufacturers, assemblers, distributors, marketers and customers. One press of a button triggers processes throughout the chain, like a series of falling dominos.
But most companies still miss the point. A recent MORI poll of 119 chief executive officers of major corporations worldwide asked them what were the most important problems facing their companies. Not one mentioned the effects of e-business, though three of the top four concerns were the threat of competition at 43 percent, controlling costs was named by 30 per cent and 23 per cent raised the difficulty of finding new opportunities. Few organisations have taken the leap of faith to realise that it is e-business that can deliver these benefits.
Historically, where e-business is considered, it is mainly been thought of as electronic commerce. While worldwide Internet shopping by consumers and businesses is expected to generate at least $1 trillion a year by 2002 — and some research suggests more than $3 trillion — the wider concept of true e-business will bring benefits worth many times more. In fact, e-business’s greatest opportunities are to be found in back office and supply chain systems.
E-business seamlessly moves data and information over open and closed networks, bringing together previously separate groups inside and outside companies. It improves company performance by connecting disparate value chains, which allows new relationships to be developed. It provides information instantaneously, helping executives to identify their best profit centres, modify existing business processes and create new ones. E-business allows organisations to create strategic alliances and to outsource functions and processes that can be carried out more efficiently by others.
Most companies will migrate to e-business in four stages. They will start with a web site, because that is familiar — the window on the world that is the Internet is now an everyday business tool.
The second step will be to integrate that site’s buying and selling processes into the company’s ERP systems linking with back office, customer and marketing systems. Many companies have already done this or are in the process of doing so. Then they will extend the web site capabilities by connecting it to supply chains, eliminating paperwork and cost. Many motor manufacturers have reached this stage and have established electronic supply chains.
The third step is a complete transformation of an industry, as outsourced applications support specific processes. Users of these outsourced applications will form communities – be they vertical (ie, industry specific) or horizontal (ie industry independent). In the vertical community businesses will be linked by an outsourced application that supports a shared value chain. An existing illustration of this is the airline industry where an outsourced application – eg SABRE supports the ticketing process linking corporate customers, travel agents and the airlines. In the horizontal community, businesses will be linked by a shared need for support in a particular area such as the procurement of indirect goods, or the provision of the services. An existing illustration of this is the outsourcing of payroll calculations and payment.
In the fourth stage E-business creates new competition by lowering the barriers between industries. For example, British supermarket chains Tesco and Sainsbury are extending their brands into banking services. Customers use these banking services because of the brand and neither know nor care that the actual work is being done by connected partner banks.
The directions that businesses choose to take will increasingly be determined by the results of inter-networking through e-business. These may be radically different to traditional ideas of companies in a marketplace, who carve out a section of an industry value chain and provide a product or service for that niche.
Instead, e-business blurs the demarcations between businesses and joins value chains in different industries. Organisations will find ways to work together to build on common strengths. In the longer term, value chains — rather than companies — will compete against one another. The businesses that flourish will have integrated their joint demand and supply chains to the point where information is seamlessly shared and instantly transmitted to all partners. Inevitably, this will involve multi-company strategic planning, human resources and finance. The logical conclusion is a modular business. Just as a separate operating module can be slotted into a larger computer program, the true e-business company will be able to slot its systems and processes into a new market at minimal cost. The company will merely need to make commercial, business process and systems connections with new suppliers or partners. Some of the traditional barriers to entry in many markets and industries will have ceased to exist.
Ultimately, a company could concentrate solely on managing its brand, outsourcing all physical aspects of the business to others. As demand increases, there will be no need to go through the usual steps of scaling up production and distribution capacity. It will simply connect to third parties who have the capacity. As the speed of change accelerates, companies will find that they need an unusual blend of skills and experience if they are to succeed. They must have the ability to integrate new technologies, a thorough understanding of their current business processes and a clear vision of how their future ones will work. They also need a well-informed view of the strategic consequences of forging partnerships and alliances.
Heads of large companies will also have to consider what their company actually means. In the past, the bulk of day-to-day CEO responsibility consisted of managing the staff who carried out the operations of the company. As these activities are moved to specialist third parties, the core activities will change. The truth of e-business is that it changes industries. It merges industries. It destroys industries. And it is unstoppable. The technology already exists and it cannot be uninvented. It is an epoch-making idea that is rapidly turning into a fact of life.
E-business from a marketing point of view
The rise of the Internet and e-business is changing the global marketing landscape in ways we are only beginning to understand. E-business not only reflects and intensifies current trends in consumer shopping behaviour, it is also a powerful, opportunity for consumers to gain direct and influential access to retailers, manufacturers, distributors, and even suppliers.
In terms of e-business marketing, those business that succeed will do so by focusing on consumers, rather than on products. They will reinvent themselves by finding new ways of adding value to the shopping experience. They will build and maintain customers loyalty by recognising, exploiting, and appealing to the difference-rather than the similarities-among their customers and, in a process referred to as customerising, use that understanding to differentiate themselves and their products. Not to do so would be to ignore the consequences of retaining a mass marketing mentality: the drift of consumer products from brands, to commodities, to a point where the absence of price and value differentiation leads consumers to choose products and services on a seemingly random basis. As a result of the internet, attention to product life cycles is giving way to management of customer life cycles. Company values are aligning themselves with consumer values. Brand managers are evolving into customer managers.
Mass marketing, mass merchandising and mass media, aimed to sell mass quantities of replicable products to large groups of undifferentiated consumers. The rise of the internet, however, showed consumers in a new light, as active and opinionated decision makers rather than passive and undifferentiated receivers of messages and products. The consumer can choose to participate in the transaction process, he or she can terminate that participation at any time. We are witnessing the decline of mass markets, mass merchandising, and mass media. Marketers who are building strong brand loyalty establish value based on attributes other than price. The independence of the consumer will have a significant effect upon brands. The consumer will change the way he or she makes decisions and, in reaction to competitive pressures, companies unwittingly undermined loyalty from their brands. Marketers, failing to understand the fundamental changes taking place in the marketplace, will try to recapture customers with discounts, promotions and rebates. In effect, they will communicate to consumers that the items that they purchase- electronics, groceries, credit cards and even money, are no longer brands but commodities (and consumers are not loyal to commodities), because the marketers themselves will distinguish products by price. They will ate their young. The reality of an internet driven UTIPS Annual Report 1999-2000 19 market place will force us to adopt a new perspective to rescue branded products and services from a commodity future.
Before the 1950s there were no marketing departments. After the 1990s, there should not be marketing departments as we know them because forevermore consumers have redefined the relationship that they want with sellers.
Another area where e-business is making a substantial impact is in procurement. Webbased procurement of maintenance, repair and operations (MRO) supplies is expected to reach more than $100 billion worldwide by the year 2000.
MRO comprises those goods required to tun a company that are not raw materials used in the direct manufacture of a product or the provision of a service. Generally, MRO supplies are low-cost items purchased in bulk on an intermittent basis. In the traditional approach to MRO procurement, a corporate purchasing officer would receive a paper-based requisition. That purchasing officer then would need to search a variety of paper catalogs to find the right product at the right price. Not surprisingly, the administrative cost for purchasing indirect supplies often exceeded the unit value of the product itself. According to the Organization for Economic Cooperation and Development (OECD), companies with more than $500 million in revenue typically spend an estimated $75 to $150 to process a single purchase order for MRO supplies. The goal of many e-business procurement applications, therefore, is to link organizations directly to preapproved suppliers’ catalogs and to process the entire purchasing transaction over the Web. Linking to electronic catalogs significantly reduces the need to check the timeliness and accuracy of supplier information.
MRO procurement by large companies previously was done through proprietary electronic data interchange (EDI) applications running on private value added networks (VAN’s). Now, the trend is to move these activities to a Web-based environment available to requisitioners (who had no access to EDI in the past) rather than the purchasing department (that may have used EDI but no longer needs to be involved in each transaction). EDI over the Web costs one-tenth as much as it does over a VAN. Not surprisingly, some of the largest corporate EDI users are migrating their EDI-based MRO procurement to the Web. Dramatically lower transaction costs coupled with the ability to enforce purchasing policy across the enterprise have been instrumental in driving Webbased MRO procurement for example at Philips, Boots, SwissAir and KLM. Well-known suppliers of Web-based MRO procurement systems are Ariba (ORMS), Commerce One (BuySite / MarketSite) and Netscape (BuyerXpert).
The overall conclusion of this article is obvious: e-business offers companies great opportunities to increase the competitive advantage, to dramatically reduce costs, to find new ways of doing business, etc. Based on a clear company strategy on e-business the various benefits can be achieved.