E-Business
Michael J. Cunningham ■ Fast track route to understanding and mastering e-business tools
and opportunities ■ Covers the key areas of e-business, from developing e-business
strategies and learning how to complement an existing business initiative to using e-business as a change management tool as well as a competitive weapon ■ Examples and lessons from some of the world’s most successful
businesses, including Staples, Travelocity, eBay and COVISINT, and ideas from the smartest thinkers, including Patricia Seybold, Thomas Koulopoulos, John Hagel III, Marc Singer, Thomas H. Davenport and John C. Beck ■ Includes a glossary of key concepts and a comprehensive
resources guide
ENTERPRISE
02.03
02.03 ENTERPRISE
ENTERPRISE
E-Business
■ Fast track route to understanding and mastering e-business
tools and opportunities ■ Covers the key areas of e-business, from developing e-business
strategies and learning how to complement an existing business initiative to using e-business as a change management tool as well as a competitive weapon ■ Examples and lessons from some of the world’s most
successful businesses, including Staples, Travelocity, eBay and COVISINT, and ideas from the smartest thinkers, including Patricia Seybold, Thomas Koulopoulos, John Hagel III, Marc Singer, Thomas H. Davenport and John C. Beck ■ Includes a glossary of key concepts and a comprehensive
resources guide
ENTERPRISE
Michael J. Cunningham
02.03
E-Business
Copyright Capstone Publishing 2002 The right of Michael J. Cunningham to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 First published 2002 by Capstone Publishing (a Wiley company) 8 Newtec Place Magdalen Road Oxford OX4 1RE United Kingdom http://www.capstoneideas.com All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, including uploading, downloading, printing, recording or otherwise, except as permitted under the fair dealing provisions of the Copyright, Designs and Patents Act 1988, or under the terms of a license issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London, W1P 9HE, UK, without the permission in writing of the Publisher. Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons, Ltd, Baffins Lane, Chichester, West Sussex, PO19 1UD, UK or e-mailed to
[email protected] or faxed to (+44) 1243 770571. CIP catalogue records for this book are available from the British Library and the US Library of Congress ISBN 1-841122-807 This title is also available in print as ISBN 1-84112-212-2 Substantial discounts on bulk quantities of ExpressExec books are available to corporations, professional associations and other organizations. Please contact Capstone for more details on +44 (0)1865 798 623 or (fax) +44 (0)1865 240 941 or (e-mail)
[email protected] Introduction to ExpressExec ExpressExec is 3 million words of the latest management thinking compiled into 10 modules. Each module contains 10 individual titles forming a comprehensive resource of current business practice written by leading practitioners in their field. From brand management to balanced scorecard, ExpressExec enables you to grasp the key concepts behind each subject and implement the theory immediately. Each of the 100 titles is available in print and electronic formats. Through the ExpressExec.com Website you will discover that you can access the complete resource in a number of ways: » printed books or e-books; » e-content – PDF or XML (for licensed syndication) adding value to an intranet or Internet site; » a corporate e-learning/knowledge management solution providing a cost-effective platform for developing skills and sharing knowledge within an organization; » bespoke delivery – tailored solutions to solve your need. Why not visit www.expressexec.com and register for free key management briefings, a monthly newsletter and interactive skills checklists. Share your ideas about ExpressExec and your thoughts about business today. Please contact
[email protected] for more information.
Contents Introduction to ExpressExec 02.03.01 02.03.02 02.03.03 02.03.04 02.03.05 02.03.06 02.03.07 02.03.08 02.03.09 02.03.10
Introduction Definition of Terms The Evolution of E-Business The E-Dimension The Global Dimension The State of the Art In Practice: E-Business Success Stories Key Concepts and Thinkers Resources Ten Steps to Making E-Business Work
Frequently Asked Questions (FAQs)
v 1 5 15 29 45 55 69 87 101 105 117
02.03.01
Introduction What is the role of e-business in the modern world of business? This chapter considers the changing nature of e-business, including: » why companies need to use e-business as a competitive weapon; and » how e-business has become a metaphor for both success and failure in many organizations, yet is needed to ensure success for almost any operation in the future.
2
E-BUSINESS
As more organizations understand the importance of e-business concepts, the prefix e- may eventually disappear from our vocabulary. Whether we want it to happen or not, e-business affects every organization. It is impossible to hide from its impact or influence in the marketplace. E-business will remain very important to our organizations; however, understanding e is not as much of a challenge as we all might think to begin with. Throughout the rise and fall of the New Economy (whatever that has turned out to be), vendors and influencers in the marketplace have tried to keep the relevance of e-business hidden from the average Joe on the street. Much has this has happened because of the propensity of vendors to have solutions looking for problems. (Hammers looking for nails, as I like to call it.) Also, the media and the financial markets have held sway during this process, causing firms to take action just for the sake of it. The reality is that technology and the supporting work processes that make up e-business are just alternatives. They can be ignored or they can be used, but they are options, no more and no less. Beginning with the fundamentals, there are three ways that we can do business: directly with consumers, commonly known as B2C; between business operations, whether in supply chains, partnerships, or development environments (B2B – Business to Business); and internally inside the organization (B2E – Business to Employee). Using e-business tools and techniques dramatically assists organizations with the development and delivery of improved strategies. One thing we do now know, is that the world will never be the same again for us, now that this technology is out there in the marketplace. The Internet has meant change for us, we have experienced the early years, but as James Champy, chairman of Perot Systems consulting practice and also head of strategy for the company, quipped at a recent conference ‘‘We are ten minutes into a 24 hour poker game.’’ We have already had to change, but we are still not sure how much more is to come. For any strategy to become a successful e-business plan, focusing on the business in e-business is a great place to start. While that might sound trite, it is unlikely that e-business technology alone will transform your operation. Most firms that have been successful using these
INTRODUCTION
3
technologies have initiated change associated with their existing businesses and created opportunities through incremental improvements in operations for themselves and their clients. This book is a good example of such a change. Traditional publishing models have followed a pattern unchanged in centuries. The book outline is prepared, a contract is signed with the author, and this is followed by development of copy, editing production, printing, marketing, and distribution. Typical timelines are around 9–12 months from beginning to end. Far too slow for some of the time-sensitive information contained in this series. So, taking advantage of electronic creation, production, and distribution technology, a new product, process, and business model emerges, one not bound by booksellers, marketing timelines, and the processes normally associated with marketing books. This example, like most examples in the ebusiness category, does not mean that the traditional book market is going away, but in the same way that Amazon has changed the way that many shop for books, the other e-business technologies will create new options for the presentation and delivery of information. CHANGE-READY AND ARMED FOR THE FUTURE Building business environments that are ready for change may turn out to be the most important aspect of using e-business technology. Managers today are faced with many challenges: paying attention to costs and productivity while staying flexible enough to ensure that they are ready for the next round of changes that markets and competitors thrust upon them. In addition to being experts in their fields, managers have to stay abreast of the most important technology developments, or risk missing opportunities. Using e-business technologies and systems can help in this effort. Market conditions are changing faster than ever, yet our ability to adapt and deal with these changes seems to be decreasing. Despite the fact that information technology and e-business solutions that meet the most complex business transactions are mature and available, the gap between the organization that wins the first time out and the others continues to widen. How can operations such as Cisco and Altra create tremendous value using technology to support their business needs,
4
E-BUSINESS
and yet others spend millions and still fail to get it right? How can one firm be so immensely successful, while others fail? CRITICAL FACTORS FOR IT EFFECTIVENESS » Development and support of corporate strategies » Return on Investment » Competitive edge » Leverage of core competency » Ability to adapt to changing business conditions
IT’S ABOUT BUSINESS One way to ensure that benefits are derived from IT systems is to focus on the most strategic applications and tie them into the way that the business is working and needs to work in the future. The development of new products and the promise of an Internet-based economy have all added to the confusion in the marketplace. Now more than ever, executives and line managers need to create game plans that will bring them successfully through potentially challenging market conditions. This book will provide a framework for educating staff through this process and will discuss the opportunities and means that executives can use to apply effective e-business strategies and technologies inside their organizations. We all understand the value of strategy to an organization, but the real value is not just understanding what strategy is, but knowing how to transform a strategy into results. Turning strategy into results requires expertise and techniques that leverage enterprise and individual business function skills into improvement across the board. This book will illustrate how best to apply this in a practical manner, specifically for systems that have very high impact on the organization, both in real monetary terms and in strategic support of the operation’s business goals.
02.03.02
Definition of Terms E-business is an often misunderstood term. This chapter examines some of the classic definitions of e-business. It includes: » » » »
what e-business is and how to take advantage of it; who owns e-business operations inside the organization; what e-business applications are typically implemented; and the financial payoff.
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E-BUSINESS
WHAT IS E-BUSINESS? Of all the questions to be answered in this book, the defining of e-business is the biggest. In the simplest terms, e-business is electronic business. The things that we do to help in the development of improved business operations, changing business models, and internal communication tools all make up the e-business world.
e-business – The transactions, processes, and systems that support the act of doing business through electronic networks. Of course, such an expansive view as this paints a very broad picture of the way that e-business can impact our organizations and operations. This view is important to understand, because e-business is not a niche or market sector. It’s a strategic way of systematically improving the way a business operates on a variety of levels (see Fig. 2.1). The connection with the Internet is often one of the most confusing aspects of e-business. In technical terms, e-business has been around for a long time. EDI (Electronic Document Interchange) was the business mother of today’s e-business. Organizations that had a large, valuable need to communicate together created business networks and specialized applications to do business together. These were based on VANs (Value Added Networks), which were private wide area networks allowing organizations to communicate electronically. Once in place, these networks became the means to develop and deliver electronic transactions for the business parties involved. EDI applications then dealt with the fulfillment of that transaction, through secure electronic and mostly proprietary tools. The reason that e-business has gone mainstream is threefold: 1 the Internet has been the backbone allowing communication and transactions between many different parties to become affordable and widespread; 2 businesses have adopted XML and other standards to create B2B applications much more quickly and at a greatly reduced cost; and
DEFINITION OF TERMS
S De cre upp lie Inv ase r en Sta Su n tor d pp ies ing Re ort ple Au t n o Re ish m du me ate of ce C nt d Sa o les st
rove Imp ation abor Coll s nitie ortu Opp eting Mark ease Incr are et Sh Mark ners part eting Mark
E-business
Brand Awareness
Improve Customer Satisfaction
Lead Impro Man ve agem ent Elec Establi s tron ic C h atalo gs I Prommprove Sales otio nal C & amp Distr aign ibuto s r
e e dg ye plo owle m y n E K ilit se ab rea Reus se tes c In rea n Ra c n I tio ce les ten du yc Re Re ng C ini Tra
7
Decrease Customer Service Expenses Customer
Fig. 2.1
Opportunities to use e-business inside and outside the organization.
3 Virtual Private Networks can be created rapidly and in a secure manner, allowing consumers and suppliers to join new business networks rapidly, using the Internet as the communications means. THE REASONS Business drivers are the primary and only reason why organizations should consider the use of these technologies and systems. A recent survey from AMR illustrates some of the major reasons why organizations use and need e-business investment (Fig. 2.2). As we have now moved from the first phase of investment and systems, this practical approach to technology investment has taken hold. While it might now
8
E-BUSINESS
Reduce costs; control costs; ROI
38%
Improve customer relations; satisfaction
25%
Increase revenue; market share
20%
Improve customer management
13%
Improve supply chain
11%
Improve business efficiencies
9%
Fig. 2.2 Reasons why organizations spend money on e-business initiatives. (Source: AMR Research 2001.)
seem obvious, many operations focused on e-business opportunities just because there was a chance of success. The huge monetary upside, crazy valuations, and the desire to not ‘‘miss the window’’ created a feeding frenzy for reasons to use the technology. Unfortunately much of this effort was not targeted at primary business needs or drivers but at other causes, trying to get there rapidly and make sure that the competition was outsmarted, outspent, and out of business. Building e-business systems without clear and measurable business reasons is folly of the greatest kind. The return to a solid set of business reasons to make e-business the place to be makes great sense, and is obviously the place to start with any program. Most organizations today focus on three main reasons to use e-business systems. These are: 1 reducing costs, controlling costs and improving ROI;
DEFINITION OF TERMS
9
2 improving customer satisfaction and relations; and 3 increasing revenue and market share. These high level goals mean that most organizations now focus on ‘‘real money’’ and ‘‘real world’’ applications for e-business. The success of the many firms has become the beacon for others to follow. However, despite these business drivers forming the foundation of any system, e-business strategies and technologies can have a huge impact on any business gaining success. WHAT ARE E-BUSINESS SYSTEMS? Any system or process in use inside an operation becomes a candidate to be part of an e-business system. At the simplest level, e-mail, Instant Messaging (IM) and Bulletin Boards (BBS) can provide the foundation of any e-business system. It would be unthinkable for most business operations to consider operating without these tools in place, mainly because the rest of the world is using them as a primary means of communication. In some sense these tools are now mainstream components that everyone should have to build a successful business operation; e-business tools that have become just business tools. E-business systems fall into the following categories: » » » » » » » » »
collaborative commerce systems and tools customer and partner relationship management e-commerce and transaction systems Customer Relationship Management systems e-marketing tools knowledge management back office and Enterprise Resource Planning portal tools and strategies integration and communications
Taking on the task of examining all the technology that is potentially available to an operation to leverage e-business is certainly a daunting task. While you are unlikely to become an expert after reading this chapter, understanding where to start looking for opportunities to use e-business strategies and technologies is a starting point. Technology can be considered ammunition for the business of e-business.
10
E-BUSINESS
The e-business system comprises a combination of technology, work process, and business rules to improve or optimize existing business situations. If we have learned nothing else over the past three years during the Internet ‘‘learning period,’’ it is that when building systems we must link these three elements effectively to make the success happen. Without the connection the results are unlikely to come in. An excellent way to consider the technologies is to view them based on the way that your business is or wants to use them. These are broken into information categories and mapped to a specific business function.
FRAMEWORKS The framework for the development of an e-business system has two levels. The first is how a project or program is approached in the organization. Unfortunately, many organizations approach e-business in one of two ways. The first is ‘‘I want some,’’ though the organization may not be sure how it is going to ‘‘bring it in.’’ The second is the ‘‘boil the ocean’’ approach, where massive planning occurs, but then too much change is forced through an organization that is not ready for it. While it is useful to learn from others’ failures, using a simple model to rationalize the e-business initiative is a great place to start. Leading rules on all e-business programs, right from the beginning, are: 1 educate those that have to use the system about the technology and its impact; 2 ensure that all areas and business functions that will or could be affected are identified before decisions are made; 3 always link business goals, work process, and technology when developing and delivering the system; and 4 measure and monitor the program’s success. These four simple rules will stop most programs running aground before the vessel has left the harbor.
DEFINITION OF TERMS
11
If these governing rules are in place, there will be a much lower chance of your operation becoming a victim of its second, third, and sometimes fourth attempt to implement e-business systems successfully. The risk of not planning systems and the resulting debacles are unfortunately very visible in today’s business world. WHAT THE AUTHORITIES SAY While there has been a considerable rise and fall of e-commerce consultants and gurus preaching their gospel, the range of advice and advisors has also been moderated by the changes in the market of 2000 and 2001. Patricia Seybold The successful and leading advisors in e-commerce tend to come from two camps, the management strategy camp and the technology monitoring and application area. Patti Seybold, an experienced researcher, observer, and proponent of applying technology with intelligence, started a veritable revolution with her customers.com book in 1998, and she continues to be insightful and prolific in dishing out useful advice. She takes a very customer-centric view of building e-business systems and their development. By analyzing how business is being done today, and answering questions about how it can be done differently, a model will emerge to establish the right level of change, the supporting technology, and of course something that prospects will adopt. Ensuring that others will actually use the technology and the business model together is at the foundation of all successful strategies. Seybold makes this very clear with her customer-centric approach. CRITICAL SUCCESS FACTORS IN CREATION OF E-BUSINESS STRATEGIES1 » Target the right customers » Streamline business processes » Foster community » Let customers help themselves
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E-BUSINESS
» Own the customer’s total experience » Help customers do their jobs » Provide a 360-degree view of customer relationship
Focusing on the success factors, Seybold proposes a five-step process to deliver the goods to you and your clients. These are: 1 make it easy for customers to do business with you; 2 focus on the end customer for the products and services; 3 redesign your customer-facing business process from the end customer’s point of view; 4 wire your company for profit: design a comprehensive, evolving electronic business architecture; and 5 foster customer loyalty – the key to profitability in electronic commerce and e-business. Thomas Koulopoulos Researchers that have followed the growth of the industry and stayed out on the leading edge would have to include Tom Koulopoulos. His most recent book The X-economy2 takes the high ground on e-business economics and how they will affect all operations in the future. Believing that the dot-com collapses were merely the thin eggshell surrounding our evolving e-business based economy, he argues that all business is moving this direction – the e-business direction, that is. I agree with him: much of his approach is based on the integration of collaboration, marketplaces, and communities. The blurring of these lines has been relatively unclear due to a changing marketplace, and the wide range of success and failure of e-business solutions. Reflect on the list below, outlining what to watch in the creation and development of your own e-business strategy. 1 Supply chain awareness: The ability to quickly access your inventory of skills and core competencies. 2 Supply chain responsiveness: The ability to rally the collective competencies of a supply chain in order to bring a product to market or respond to a customer need.
DEFINITION OF TERMS
13
3 Demand chain responsiveness: The ability to respond to changes in a complex market by rapidly making decisions and taking action to align supply chain capabilities with the requirements of the demand chain. 4 Demand chain awareness: The ability to understand how the market perceives the value associated with its products and services, and to recognize and decipher market trends and other factors that potentially impact the business offerings or customer needs. Each of these steps focus on taking a macro view of the capabilities of the operation, and then understanding clearly what dynamics are affecting the marketplace surrounding the operation. Understanding these elements will cause a strategic path for the development of the e-business strategy to be developed – one that takes into account the dynamics of the marketplace around you. NOTES 1 Seybold, P.B. (1998) Customers.Com. Random House, New York. 2 Koulopoulos, T. & Palmer, N. (2001) The X-economy. Texere Books, New York.
02.03.03
The Evolution of E-Business E-business has grown from an idea to a critical strategy for many organizations in less than 60 months. Few technologies have had such a massive impact on business in such a short period of trading as e-business systems. This chapter examines the evolution of the technology, its use, and strategies for successful implementation today. It includes: » » » » » »
the history of e-business; the role of the Personal Computer; the components of the e-business world; hosting and Internet Service Providers; intranets and extranets; and technology food groups.
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E-BUSINESS
THE EVOLUTION OF THE INTERNET E-business today is a combination of communication, computer, and software systems. Despite the fact that the Internet has only been popular in the past few years, it is difficult for us to imagine a world without its presence. We now consider the Internet part of our desktop for the most part and have to negotiate how to deal with it. We want our kids to use it for research, but are wary of the consequences of them travelling to unplanned or undesired destinations. In an instant it seems that the Internet has become a center for commerce and global swindles. The US Government started the process, as they laid the framework for the Internet in the 1960s. A decision was made to fund a network of computers that would all talk the same language. This connected researchers, government workers, and contractors (providing systems and data to the government agencies) using common protocols. Most computers at this time had very different communication systems to talk to each other, known as protocols, and a new system was also developed. The network was known as ARPAnet, and it incorporated the now very popular TCP/IP networking protocol. The standards in this protocol permitted reliable transmission of data from one computer to another, and the networked communication of data between each computer connected to the ARPAnet. This provided the foundation for the Internet as we know it today. Another major US Government requirement was that the system should be secure and allow continued communication between sites and computers in the case of nuclear attack. Thus the serious requirement for redundancy was built into the Internet system from the word go. As the Internet evolved from a military focus towards non-military use, the first ‘‘killer application’’ of the Internet was born, electronic mail. Despite the fact that the ARPAnet had been built for the transfer of data between computers, electronic communication became the first wave of adoption. Over this same period of time, office productivity applications were developing and firms such as Wang were making millions from specialized computers providing office functions across a proprietary network. These networks were very useful for medium to large-scale organizations, but still not affordable to smaller businesses.
THE EVOLUTION OF E-BUSINESS
17
THE ROLE OF THE PERSONAL COMPUTER The other critical element that assisted in the development of e-business platforms was the Personal Computer. As the PC entered the market it immediately made a difference. Suddenly, the power of mediumsize minicomputers had scaled to a new level. Early 1985 saw the first serious PC products to market and their adoption rate was phenomenal. In the United States, this was exaggerated by early adopters, many of whom purchased computers as local purchasing decisions. Departments could make decisions about computers without them being bogged down in months of bureaucratic effort involving the MIS department. Apple in particular, developers of the Macintosh, drove a marketing program akin to a religious frenzy. (Their recent revival is also based on a marketing strategy where their customers ‘‘think differently’’ from the masses.) The PC started a revolution in the development (and the cost of) software products. No longer was software development something confined to the mid-range and high-end systems. The PC provided a new entry point for developers of software, and the leaders in the businesses understood this trend. Bill Gates left Harvard University early to take advantage of the market opportunity, Steve Jobs identified another leading application, desktop publishing for the Macintosh, and Adobe and many software vendors headed for the start-up capital and an expanding marketplace. As all this was going on the market became very polarized for computer products. Mid- and high-range vendors tried to ignore the PC and allowed new vendors to build their businesses at an incredible rate. IBM and Intel left an open door for the PC’s architecture (although IBM tried later to close it with OS/2 and their Microchannel architecture) and the market continued to grow. New companies such as Dell, Compaq, and Gateway forged ahead in the marketplace, building PCs from this open architecture. All of this provided the framework for the huge market demand. Organizations now had a collection of productive islands of computing, but needed to leverage them. The answer was to connect their machines to form a communications network inside the operation. Banyan and Novell built entire companies around the networking of PCs and other machines. The world of workgroup computing and
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E-BUSINESS
the Local Area Network was born. In retrospect, these became the foundation of collaborative computing. Simple applications such as file sharing and printing provided the foundation of most of those early systems. However, with the entry level for software firms now lower than ever before, the opportunity to develop and distribute systems at a lower cost created hundreds of start-ups to write software for the PC. The reason that this information is important to the evolution of the Internet is simple. The Internet is a network of computers, and it works in the same way as a Local Area Network, with a few differences. It has an industry standard protocol for communication between systems, and a common language to converse and present data between differing systems. THE COMPONENTS OF THE E-BUSINESS WORLD In order to understand just how open and powerful the Internet has become, we need to review a few more details of its components. Every computer on the Internet has its own unique name. This is called a domain name. In addition to the domain name, each system has an extension. The extension usually describes the general function of the holder of the domain name. Although there have recently been some changes in the use of extensions, they generally follow some basic principles: .com usually denotes companies or commercial operations, .net is often used by Internet Service Providers, .mil is for the military, and so on. More recently, country and other extensions are becoming sought after. The .cc and .tv extensions are particularly popular. For computers to talk to one another on the Internet a valid domain name is required to make the connection. Each of these unique connections allows us to ensure that we always connect to a valid member of the Internet, and that the members have become Internet citizens through a policing body that used to be known as the InterNIC. This authority has been replaced by a governing and licensing body (Shared Registration System) that allows approved organizations to issue domain names and manage and issue domain names. This authority ensures that each name is unique and managed independently. New mechanisms are now being set up as further extensions are being made available to the domain name world, most recently the .biz and .info extensions.
THE EVOLUTION OF E-BUSINESS
19
When we connect to the Internet, we connect to a network. In a typical workgroup organization, this connection is usually a physical connection, a network in the office. We get around this problem with remote access by using dial-up connections through a modem to connect to remote computers in the system. Our computers then become part of the network. There are many applications that use the Internet, but the most common and frequently used ones are those shown in Table 3.1. Even if you are not familiar with some of these applications, it is very likely that someone in your organization is using some or all of these applications in support of your Website or internal applications. Over time, more and more of these applications are becoming available via a simple browser interface, avoiding the need for specialized software or interfaces. HOSTING AND INTERNET SERVICE PROVIDERS Access to Internet applications and others are provided by companies with lots of computing resources, high performance connections to the Internet, and secure computing facilities known as data centers. Data centers are often built to withstand significant natural weather disasters, have their own generators as back-up, and are often ‘‘duplicated’’ in a huge network to provide a failsafe recovery means for data in the event of the power failure. The large ones such as America Online have huge membership (50 million as of July 2001). Suppliers known as Internet Service Providers (ISPs) deliver general Internet access. These groups supply e-mail service, Web page hosting, FTP access, and, of course, external access to the Internet. Most companies reaching a certain size will opt for an Internet Service Provider to support their Internet access for a variety of reasons: » » » » »
it’s cheaper; no need to deal with security or firewall issues internally; limited system maintenance required (lowering operating costs); screens junk mail; provides a hosting service for domain names (specific to the company requirements); » provides support for the company’s Internet users;
Interpersonal and worldwide communication of electronic messages and files. Visit sites, or run Web-based applications. Information transfer to specific databases that are by invitation only. Provides a way to upload and download data and software to and from Websites. Can be public or private access. Provide discussion groups that are useful for industry and professional information. Information is shared. Interactive (almost) discussion groups with members pre-selecting themselves.
Electronic mail
Chat and Instant messaging
Newsgroups
FTP
Bulletin board
Browser applications for the WWW
Function
Instant messenger, Netscape AOL Microsoft instant messenger, ICQ, service specific chat rooms.
Most browsers, support newsgroup functions directly.
Any email enabled browser, or Internet compatible email client software. Browser software from Microsoft, Netscape or other systems. Most bulletin boards are now accessible via Web browsers. FTP transfer software programs.
Product used
List of major application products and tools for Internet based applications.
Application
Table 3.1
20 E-BUSINESS
Telnet allows you to log into remote computers, Gopher is now built into most browsers today. Designed to allow bulk email delivery to a selected group of individuals. Provides a method to deliver real time video to the desktop of the user (if the bandwidth and server systems are able to support the requirements for the systems).
Communications and search tools
Video clips (streaming video)
Mail list servers
Various means of communicating with others via the Internet, used for voice, video and data conferencing.
Conferencing
Offered by most Internet Services Providers as option. Can be purchased as software products. Microsoft, Apple and Real Networks are the major players with tools and systems to deliver to the desktop.
Microsoft NetMeeting and many more on the market. Now often offered as part of a site service, with the hosting included. Included with most browsers and transparent for users today. THE EVOLUTION OF E-BUSINESS 21
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E-BUSINESS
» can host e-mail services; and » offers e-commerce services and storefronts on a turnkey basis. As the Internet continues to expand the range of services offered in the marketplace, and the range of companies and their activities are in constant flux. Despite these changes, there is still a continuous need to have access to the Internet. In the early stages, leading companies wanting to be on the Internet purchased bandwidth and Internet access from a telecom firm offering these services and then hosted their own system in-house, with a dedicated communications link to the facility. In early 1995, the market began to change. Many more firms and individuals wanted Internet access, but they either could not afford it or did not know how to do it themselves. (Setting up your own system in-house system requires significant knowledge of security and firewall systems to avoid unauthorized external access to internal computer systems.) Consequently, two types of services emerged in the marketplace. Service Providers primarily focused on the individual user, who needed to browse the Internet and have access to on-line information services, and a new breed of firms emerged known as Internet Service Providers. This second group focused on providing e-mail, Web hosting, FTP and other services to small- and medium-sized businesses. This allowed firms to establish a Web presence and have relatively high-speed access (better than dial-up services) without having to install dedicated software and computer systems to host their Websites or manage their Internet e-mail. Firms and services such as America Online, CompuServe, Prodigy, and MSN grew quickly and a ‘‘marketing war’’ was declared for users and their service fees. Today there are still thousands of Internet Service Providers in the United States alone, despite more recent consolidation, and the market remains very competitive. However, the range of services offered continues to change fast. One decision many of you will have to make early in your e-business strategy is how much of this is going to be brought in-house. In some cases, where security is critical, there are few choices. We do not expect banks or financial trading institutions to outsource the hosting of their systems any time soon. However, many other businesses are outsourcing many of their important Internet-based information systems, and we expect this trend to continue.
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In 1997 and 1998, another breed of firm entered the market. These dedicated high-end hosting providers provided some of the same services as the traditional ISPs, but with a twist. They focused on mission critical applications that needed a lot of network bandwidth and reliability – the sort that previously could only be obtained by individual companies setting up their own data centers and back-up systems. Many applications such as voice and video needed huge network and computing resources. These firms became known as Application Service Providers. Now with a dramatically improved and mature technology infrastructure in place, many have become very successful. This Application Service Provider segment is now quite mature. In these systems, the Service Provider hosts the application on their computer systems, providing support and maintenance. Other features include back-up and high performance features such as mirroring, replication, and access to on-demand bandwidth increases at peak times. Some of the application service providers also offer e-business features as part of their hosting offerings for companies of all sizes. The serious user will often opt to use a dedicated hosting provider. These companies provide the facilities that an organization might have to build for itself (such as the data center), shared with others, along with support for the applications that the company wants them to host. Many companies like this option, as it can save up-front costs for the Internet connection and reduce maintenance costs over the life of the system. Companies such as NaviSite grew rapidly as this segment of the market expanded. More recently, large ISPs have started to acquire the ASP and hosting services to extend their offerings, creating global networks with services to support clients in many locations. UUNet is one such example, having acquired Digex in 2001 to provide this facility. INTRANETS AND EXTRANETS The tools of the Internet are not just for external use. It is relatively easy for us to take the architecture of the ‘‘big’’ Internet and scale it to use in an internal environment. The following items will allow you to create your own ‘‘internal Internet:’’
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» » » » » »
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TCP/IP network electronic mail server browser or client software application chat FTP
This is the essential shopping list of what is needed to create an intranet. An intranet is your own organization’s Internet. Here you have all the advantages of the Internet but customized to your own internal requirements. Intranets have advantages over forms of groupware and office communication systems that they co-exist with. These include: » » » » » » » » » » »
browser-based (everyone can be a user) people-friendly easier to develop (than previous generation systems) easy to change lower cost than traditional development alternatives very high payback based on standards that every one should support easier to update easily customized perform well scale better than most applications
The development of an intranet has become a major component of many organizations’ e-business strategy. Intranet systems evolve from many starting points. These run the gamut from strategic initiatives with enterprise support, to development at the departmental level, to some that have been opportunistic, based on speed and cost constraints. Whatever the reasons, intranets have established themselves at the core of many IT strategies. Even organizations that have resisted the gravitational pull of the technology are adopting intranet strategies. In the beginning, intranets were either situated in data centers or out in the departmental computing locations. In recent years, intranets within organizations have become very common and have expanded dramatically. This has created a need to integrate content, maintain
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performance, share information, control access, and deal with intranets in differing locations. Multiple intranet servers, connected by local and wide area networks, provide the foundation for distributed intranets. Many of these systems are now linked to a portal strategy for the organization. Today, most organizations have moved away from the view that intranets are a separate component of their IT strategy. Intranets are a flexible way of organizing information where the content can be shared with others in a controlled and expandable way. This philosophy provides the foundation for the development of distributed intranets. In addition, as intranets become richer in content, and this content is extended to partners and customers, more extranets are born. From the architectural point of view, the extranet is merely a protected section of the intranet. Many firms develop intranets to improve productivity and increase the speed with which information is delivered inside their organizations. In environments that have a great need to provide accurate information in more timely and distributed ways, the intranet and its natural ability to expand has made it the technology choice of many. Intranets often provide the basis for the delivery of information that is needed by internal staff. This evolution is not limited to pure intranet solutions, it also includes groupware, office, and workgroup applications that either are or will become Internet-based. Microsoft’s .net strategy is a typical example of this move. These solutions are becoming more intranetbased, with browser based interfaces, compatible with Web servers and supportive of Web standards. However, the underlying databases and data structures vary according to application and platform focus. The extranet therefore becomes the key external part of e-business strategy, the component of your computing systems that will communicate with your business partners and clients. Companies can achieve dramatic reduction of timeframes and costs can be achieved with a careful combination of Internet, intranet and extranet programs (see Table 3.2). We will cover later (see Chapter 4) the ingredients that you need to make all this work. Software firms provide the ingredients for us to develop Internets, intranets and extranets. In the development of Internet technology, you
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Table 3.2
Intranet applications and access characteristics.
Application Employee telephone directory HR policies Support information Knowledge base
Intranet Yes Yes Yes Yes
Extranet Selected contact listing No Yes, but controlled access Selected components on password protected basis
will hear much about differing types of architecture, and how one is superior to the other. Software categorization for the Web can be very confusing for both the novice and the expert. Much of this caused by a very fast moving marketplace, and considerable vapor flying around in the marketing materials. TECHNOLOGY FOOD GROUPS The basic food groups that will influence our technology decisions on the Web are categorized below. 1 Horizontal applications: Most of the applications and tools mentioned earlier fit into this group: e-mail, newsgroups, and bulletin boards, for example. Today, most of these have reached a commodity pricing level, and are included in other applications for a small fee. Over recent years, many have been offered free. 2 Packaged applications: Turnkey applications that perform a particular application without major modification are becoming available for the Internet. Customer Management applications, Document Management Systems, and Project Management systems all fall into this category. Many of these were initially developed for client/server applications for local or wide area networks. 3 Web servers: The Web server is at the heart of any Web-based application. This is where data is stored, requested, and delivered to the appropriate applications (these are usually browser-based). 4 Database systems and application servers: Database products provide the information to send to Web servers and provide the
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transactions on the system. They are the brains of the system, where the most valuable information, trades, and transactions are taking place. 5 Security systems: The most important aspect of your e-business solution. Without security you do not have a system, you have a liability. Security typically is defined at the computer, network, users, applications, and right down to the individual transaction. 6 Tools and other systems: Myriad other tools are involved in the development of these systems, including authoring, maintenance, administration, optimization, marketing, and others. 7 Portals: Another type of site that is important to many operations today is the portal. The portal used to be viewed as a destination site for users of a particular class. However, today many organizations refer to their own environments as corporate portals (primarily for B2B and B2E applications), and other operations consider their marketplaces to be portals. (Vertical portals are sometimes referred to as vortals). Lines become blurred between dedicated portals and personalized ebusiness portals. The large portals that have evolved primarily from the search engines now play a much bigger role. Incorporating shopping, research, communities, chat and e-mail services, the battle for consumer mindshare goes on. Despite the success of the biggest ones, such as AOL, Yahoo!, Excite, and Lycos, searching for relevant information still remains a problem on the Internet that has yet to be solved. The portal market has changed. As Web users became smarter, they migrated to sites that offered them a more complete and relevant experience. In the business world, we have seen the birth of another form of portal, the corporate information portal. This allows users to interact with information and systems relevant to the corporate world, and is customizable to meet their needs. At the application end of the business, new portals are being defined based on the use of a ‘‘free’’ service on the Web, such as e-mail or Calendaring. These features are now common on large portals such as Yahoo! and Lycos. (However, the free may be going out of some of these services before too long). There is no question that the portal marketplace and what is means to us continues to change. As more companies with a presence on the
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Internet understand that content is one of the most important issues that continues to bring visitors back to their site, content-rich sites will continue to thrive. The vertical portal, focused on industry groups, has been one of the fastest growing sections of the marketplace. If you want to stay abreast of activities in your industry, watch this space carefully. The vertical portals are going to change the way that business is done, particularly for partnership creating and business networking. As you embark on the e-business road, consider the various elements and waypoints for your journey. There are many variables in this marketplace, and a continuously changing landscape. The trip will be exciting. Picking partners is however, only one part of the process. First, we need to take a deep breath and ready ourselves for the largest challenge of all. Change.
02.03.04
The E-Dimension E-business and the Internet create new opportunities for managing and improving business relationships and systems today. This chapter explores the key issues, including: » » » » » » » » »
B2B systems; B2C systems; the reasons for e-business; the marketplaces for e-business; portals and their role; procurement and e-business; B2B exchanges; supply chains; and trends and best practices.
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If you own, operate or participate in any business, e-business is going to become very important to you. Whether B2B or B2C is the requirement, e-business systems will have a huge impact on the environment. We have become complacent about the issue of disintermediation. This may well be poorly placed confidence. Changes in the way that these operations are going to be affected by business are real. Companies and organizations are gearing up not just for incremental change but for a completely new set of rules. This is not simply a matter of adjusting a supply chain process, purchase of office supplies on the Web, or providing electronic travel organization on the desktop. E-business is bigger. The technology and the way that it is used are having a profound impact on every organization around the world. The only variable is how fast your market sector or organization is adopting and using it. BUSINESS TO BUSINESS (B2B) B2B systems have been considerably misunderstood. B2B is not a new phenomenon. It has been around for several years, and has largely evolved from electronic data interchange and grown from there. Here’s how it works. Typically, e-business activities are conducted with other companies and partners through supply chains or distribution networks. These networks provide the materials, services, components, and products that make up the industry. Each of these has their network, capabilities, business rules, and competitive elements. MARKET FACTORS IMPACTING TYPICAL B2B MODELS » Strategy » Industry » Technology » Business processes
For many years, outsourcing and manufacturing components in these chains resided in the most competitive locations. Each element in the supply chain both provides a link and establishes a firm’s position in
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the chain. These chains have been mainly self-monitoring and policing, with few rules and international trade agreements keeping them in place. Market conditions, supply and demand, competitiveness, and distributed locations have all influenced where in the world part or all of the business function resided. As these chains and networks become more sophisticated, the impact of globalization and the Internet has extended the reach of our options and how quickly we can change them. In the case of B2B, organizations have been trading for many years using their existing environments, markets and supply chains, with little impact in the electronic world. The exception to this has been the world financial community, and a very small sector of B2B commerce that has been connected by EDI. As mentioned earlier, EDI and the supported dedicated networks were early stage e-commerce or ebusiness activities. They set the scene for the new markets and ebusiness developments. BUSINESS TO CONSUMER (B2C) The B2C market has also been greatly affected by e-business. As time has gone by we have moved on from the egregious initial impact of Amazon.com to a more pragmatic approach of portals becoming communities becoming stores. Just as Tom Koulopoulos’s X-economy1 predicts, the markets have changed because of the traction and interaction of interested parties. In the early stages of B2C commerce, many sites were dismayed by the results of their actions. Much money was spent on Web-based stores and the means to drive traffic to them. We have all learnt from this process. The market was at a primitive stage of development, and many made the poor assumption of ‘‘build it and they will come.’’ A time of flashing banner ads, Web counters and garish colors. My guess is that most visitors would have been put off just by the design. However, when the ingredients of poor functionality, performance, and security were added, consumers were kept at bay for a good period of time. Whether you are starting a new Web store, or are a large brick-andmortar wanting to leverage the Web, the way forward, the benefits, and the means to the end are much more obvious. With Web-based
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commerce now clearly established as a buying channel, it makes no sense to stay out of it. There are very few products that cannot be researched, compared, or bought on the Web. EBay had an auction recently for a mansion in Europe on-line, car shopping is made easier, and as a research vehicle the Web is a great boon to B2C commerce in general. Many organizations will focus on the Web purely to extend their offerings and see it not as a transaction engine but as a way to create new and incremental revenue. We continue to develop a more sophisticated understanding of where and how to use the Web. Much has been learnt from the mistakes of the early days. During the evolution of e-business programs and strategies, many forewarned of ‘‘terrible consequences’’ for those firms that stayed away from e-business and its huge growth potential. Despite the durability and size of the markets, in many cases the e-business component was ‘‘taking away’’ from the regular commerce activities. This was a function of automation and process improvements that new business models wanted and demanded. Most of the really big and successful companies either created a community or new marketplaces for existing products: Altra Energy selling excess energy products; GoFish.com bringing value and stability to a volatile marketplace; eBay creating a whole new destination for buyers and sellers on the Web. Not all of the transitions have been successful: Egghead made a bold move to get out of the retail business and rely on the Web as a means to sell their products – one that turned out to result in their demise. Lots of bets were made, some won and some lost. So what does all this mean to businesses around the world? How should we apply these tools and principles to our business area? THE REASONS The primary reasons that others have to care about e-business turn out to be the usual suspects. Ways of improving our existing cycles and programs should provide the foundation of any of these decisions. We are trying to implement change and make it take. For this to be successful in e-business we need to use the technology in an intelligent way. This is really the nub of e-business.
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The use of technology in an intelligent manner that will benefit the business is the foundation of successful e-business systems. At the organizational level, e-business activities can be broken into categories that map to a primary business function of any organization. These include: » » » » » »
sales: Website, catalog sales, e-commerce transactions; marketing: e-marketing activities; support: Web-based support with CRM; manufacturing: ERP, inventory control, B2B systems; distribution: catalogs, self-service sales; and magazines: infomediary.
By taking a simple approach of seeing how e-business tools are applied to everyday business operations we can become desensitized to the complexities of e-business technologies and tools. This is a good thing, as seeing this big picture is often the critical factor in the successful development of e-business systems. Most industry analysts define e-business activities using these general parameters: » » » » » » »
sale and transfer of goods before they reach a consumer transaction; sale and transfer of goods as they reach a consumer transaction; sub-contracted development and manufacturing processes; joint ventures and supply chains; manufacturing contracting and sub-contracting; distribution and marketplaces for the products; and support services for the products and services in the marketplace.
As Fig. 4.1 illustrates, it can be relatively easy for the differing forms of e-business systems to be confusing for organizations to consider. In most cases, however, e-business systems are really an extension of internal systems, or at the very least an extension of them. This larger definition of e-business systems clearly illustrates that the power is there to leverage information, skills, and relationships if implemented wisely.
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Employees
Partners
Customers
Intranets
Extranets
Intranets
CRM
CRM
CRM
ERP
ERP
ERP
Content Mgmt
Content Mgmt
Content Mgmt
B2E
Fig. 4.1
B2B
B2C
Relationship between different forms of e-business systems.
B2B e-commerce – Business transactions conducted over public or private networks, including public and private transactions using the Internet as a delivery vehicle. These transactions include: financial transfers, on-line exchanges, auctions, product and service delivery, supply chain activities, and integrated business networks.
To exploit these opportunities it is necessary to improve the way that current supply chains, sales, and support networks are operating. This will inherently provide value in the development and delivery of these systems. In many cases, the today’s business networks are too fat and slow for today’s fast-moving marketplace. Herein lies the opportunity for e-business focused organizations to improve their method of operation, and clean house in industries not leveraging the effectiveness or
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efficiency of their supply chains. Any transaction or information associated with development, manufacturing, delivery, sales, and support of products or services is a candidate for an e-business system. Most e-business systems can be categorized to clearly define their business function. In many cases the technology components are common for these systems. For example, they all include a Web server or transaction management system of some description. THE MARKETPLACES E-business marketplaces consist of tools and processes that help us do business with other businesses more effectively. The systems encapsulate business rules (how business is done), processes (protocols and support for the process), technology (to encapsulate the rules and process), and the transaction support for the application (underlying system for the system and the technology). If that’s all there is to it, why do we have this new marketplace to describe what we have been doing for many years already? The answer in two words: ‘‘efficiency’’ and ‘‘change.’’ Every e-business system can add value by connecting partners in an improved supply chain for the product or service. E-business systems – and the companies using them – can often create a multidimensional aspect to the marketplace. Firms setting up new e-business enterprises often have a great deal of experience in particular vertical markets or industries. This detailed knowledge often provides the basis for an improved business model, whether by taking advantage of an opportunity in the marketplace, or by identifying ways of making an existing market more efficient. Many discussions of e-business focus on the Digital Marketplaces or the topic of supply chain. While both are important, there is more to e-business than just these. As Fig. 4.2 illustrates, it is possible to have many different types of e-business system involved in a single company or operation. It is important to understand this multi-dimensional aspect as e-business is integrated into your organization. In marketplaces and exchanges, there are often many of these components linked together in a complementary web of services. For example, a procurement system may need to be supplemented with an auction capability to meet all the needs of an individual marketplace.
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Fig. 4.2
Supply Chain
Auction
Buyers and Suppliers (The B2B eXchange)
BUSINESS RULES
Procurement
TECHNOLOGY
Infomediary\Portal
PROCESSES
Various business functions and destinations in e-business activities.
Others may require a reverse auction to allow the development of ‘‘bidding sites’’ with qualified and verified contributors. Each of these systems has to comply with corporate standards and work practices and the technology must be put in place to support them. Many systems today include the capability to ‘‘program in’’ business rules in order to ‘‘emulate’’ physical methods of doing business. This allows for a customer-specific version of a procurement system meeting the needs of each individual in the marketplace. THE PORTAL Another important concept is the portal. Portal literally means ‘‘gateway.’’ In the e-business context, portals represent an ‘‘entrance’’ into something. Many portals started out as transitory sites such as search engines. They then grew from pure indexes into information centers, providing news, views, and relevant information. This content progression was intended to keep the user on the site longer, resulting in more pages viewed, and more advertising revenue generated. Another development that impacts e-business is the self-created portal – or the intranet. The intranet is the ‘‘home base’’ of the portal
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world and is usually packed with information designed to improve the productivity and information flow of the internal operation. Intranet functions that go beyond internal company usage include extranets and virtual private networks for interacting with business partners and suppliers. In e-business terms, a portal is usually a one-stop destination specific to an individual industry or function in the B2B cycle. There are many types of portals, and in this early stage of development, we are seeing only a portion of what is likely to appear in the coming years. PORTAL TYPES » Multi-industry: e.g. Freemarkets.com – B2B portal and procurement site to assist organizations find, manage, and purchase materials. » Single industry: e.g. e-steel.com – B2B exchange and portal designed to service the needs of the steel industry on a worldwide basis. » Sector of single industry: e.g. Harddollar.com – construction industry portal specifically focused on the roads and bridges infrastructure portion of the industry.
Portals are the workspaces of the future. They are where we will go for relevant information, specific to our individual job tasks and daily routines. Tomorrow’s portals will have news feeds, professional information, and our daily tasks all nicely packaged for the day. Although we use some of these tools on today’s portals, the current technology is neither as widely used nor as sophisticated as it will be in the near future. Ultimately, these systems will include information from our suppliers, partners, sales, and support. Most importantly, this information will be re-used and customized according to our individual information needs at according to the work task requirement. Many firms are trying to gain mindshare and market share in these vertical markets across the world. They plan to do this by offering you several different experiences and tools including:
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» relevant information for you based on your job role and industry; » customization tools to allow companies to create their own ‘‘internal portal,’’ defining a new workspace that will combine news, data, content, and tasks (corporate information portal tools); » sophisticated information services that will deliver and route relevant information to those that need it; and » real time information to support just-in-time decision support for purchasing, supply chain, and partnership relationships. State-of-the-art portals are and will continue to be very relevant B2B tools. Because the ultimate position in a B2B market is as a transaction participant, customized portal content is one way to attract participants to a community. After all, a main principal of the portal is that content is king. People come back to sites that have useful, relevant, and exciting content. They leave the others, and do not return. The corporate information portal is a more recent and relevant offshoot of the portal. The corporate information portal allows users to interact with information and systems applicable to the corporate world, and is customizable to meet their needs. Corporate information portals are one effective method of dealing with the continuous requirement of customizing the desktop. As more companies with a presence on the Internet realize that content is one of the best means to bring visitors back to their site, these customized, portal-related tools and sites are increasing in number and significance. The Delphi Group of Boston, Massachusetts has been tracking the development of the corporate information portal marketplace. The sector’s growth has been prodigious: from $37mn in 1998 and $178mn in 1999, it reached $390mn in 2000 and is projected to reach $740mn in 2001. The hybrid portal of the future is currently in use, and will become more mainstream according to The Delphi Group by mid and late 2002. PROCUREMENT Procurement systems were a pioneering component of the B2B market. Vendors and suppliers in this market saw immediate advantage in being able to share information about products and services that others
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needed for their own internal needs. An obvious problem for many organizations, both commercial and government, was (and remains) the cost of procurement. The clear benefits of B2B systems include avoiding the creation of complex approval cycles for insignificant items. The paperwork required for small office supplies, for example, can cost more than the items themselves. While this benefit is significant, automating and enforcing business rules for the purchase of a wide range of systems became the focus for procurement. E-business applications that depended largely on suppliers realized some huge benefits including: » » » » » » »
reduced costs of items in the procurement market; improved availability; ability to reduce inventory for buyers; controlled procurement processes; ability to control quality standards more effectively; improved cash management; and supplier control expansion and improvement.
These systems now form the heart of many supply chain environments. Most of their functions are now accessed across the Internet directly into the supplier’s organization. Some are through links and others are a sublicensed component of the digital market itself. For example, Staples and Travelocity.com are suppliers of digital procurement services that businesses can use through on-line ordering. By moving one step further, it is possible to offer a customized catalog, with prices (and discounts) reflected for each of the companies in the program. The large procurement systems – such as those used by the State of California to improve their e-government initiatives – are often the ones that steal the headlines. However, the market is expanding, with simple applications that meet many e-business requirements. Examples of B2B procurement solutions include: » corporate travel: on-line travel agency; » hardware and software acquisition: hardware and software supplier with configuration control; » payroll and 401k: on-line payroll services, retirement management services;
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» banking: on-line banking and accounting services; and » shipping: on-line shipping services. These are all simple e-business market services. Although straightforward, many of these services were too expensive to offer when most of the work required considerable human effort. However, once the business rules are electronically applied, a self-service approach made the offering efficient and affordable. The range of these services will expand dramatically over the course of the next few months. Companies such as CitiCorp are trying to become one-stop-shopping locations for e-business applications. By combining payroll, shipping, office equipment, credit services, travel, e-commerce, and investment and insurance services, a wide range of business functions can be centralized around a single procurement system. More organizations will start to understand the value of these services, and alliances will occur making it easier for buyers to comparison shop for these services. THE B2B EXCHANGE Independent of procurement is the marketplace known as the B2B exchange. The B2B exchange is a place where suppliers, buyers, and intermediaries congregate and offer products to each other within an agreed framework of business rules. Despite many cries of disintermediation in the B2C market, it seems the calls were made too early. In the B2C market, it took some time for intermediaries to enter the market, but when they did, they provided valuable services for Web consumers. Comparison shopping and relevant review sites that point consumers to the right location have become very popular. Services such as Consumer Reports (consumerreports.org) provide consumers with unbiased advice to assist in the shopping process. Operations such as edmunds.com provide detailed information that assist potential car buyers before they make the decision to purchase a particular vehicle, including pricing, margins for dealers, test comparison, and recommendations for purchasing. In the business space, we have routinely witnessed margins being affected as market conditions change. Take the role of large suppliers of computer hardware and software through huge distributors such
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as TechData, with sales in excess of $20bn annually. These suppliers continue to provide a valuable service to the marketplace, but at the same time have caused the margins of many products to fall from the previous companies in the distribution channels. The result of this was a change in business strategy of the vendors in this channel. Many were disintermediated and with good reason – they were not adding enough value in the chain. B2B distribution channels are having the same impact. The difference with B2B is that many new companies will not have the desire to protect an existing channel or business practice. In fact, they may want to deliberately eliminate them, so that the new business model benefits from slower moving players in the market, which cannot take advantage of a digital market for whatever reason. Each digital marketplace can have many vendors and business models. Some will be closed and only available by invitation only, others will be open to a wider range of players. Many products and services are finally becoming suited to this model. Adoption is taking more time in some industries than in others. This model benefits not only the owner of the digital marketplace, but can also improve margins for participants (at different membership levels). In its ultimate form, the digital marketplace model provides a fully automated business exchange for partners looking for products, places, and partners to sell them. Some digital markets operate based on rules that are defined by the owner or by the participants (if this option is given by the host). The marketplace host often builds an exchange based on the requirements for a particular market sector, and then determines the services that will offer value to its members. Creation of exchanges requires money and patience. Many of the early players without a solid business model are clean out of business. Others have modified their strategy, such as VerticalNet.com, providing the software systems rather than the exchange to support an industry operation. Most exchanges are predicated on big changes or optimization of the way that supply networks operate. Some companies have started out with a strategy to build business partnerships in volume, at attractive fees to their clients, then, as the market starts to evolve, the business model changes. Suddenly, participants are expected to pay
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large commissions and the lucrative contracts are funneled to exchange members willing to pay the fees. The B2B exchange model is likely to result in several different models, each with its own revenue stream. These include: » membership or subscription: fixed annual fee, or usage subscription base; » percentage of transaction: share of transaction based on pre-agreed business model; » referral fee: percentage based on agreed fee basis; » auction: based on auction rules for buyers and sellers of products in the exchange; and » purchase of products/service: based on transaction rules determined before entering and participating in the exchange. THE SUPPLY CHAIN The use of B2B strategies to support company operations is not a new phenomenon. Industries have been using B2B strategies and processes to support the development of their products, services, and partnerships for many years. For example, the aerospace industry has been working with partners in the airframe, avionics, and engine sectors. All of these are members of supply chain groups who co-ordinate design, development, testing, acceptance, production, and maintenance of products and systems. Other industries are also moving rapidly towards the adoption of supply chain B2B systems. The automotive industry has made huge inroads in this area. All of these systems are designed to improve the efficiency and the method of dealing with partners in the development, manufacturing, support, and sales cycles. They allow contributors in the supply chain to view status information for inventory, orders, and deliveries within the framework of the production process. Before the Internet, the benefits of supply chain management were considered high enough to invest in specialized networks and infrastructure to link members of the chain together. The Internet now allows us to connect these groups in a common system at a much-reduced
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cost, and the need for sophisticated and expensive communication systems is negated. As many firms have already made the necessary investment to create these interdependent relationships with suppliers and business partners, the Web offers a unique opportunity to further extend and improve these systems. Companies with supply chains understand the power and relevance of these systems. Companies like Dell have united an end-user focus with a superb Web delivery system. This has worked remarkably well for them, to the point that most of their business is created from online orders. Dell builds new products directly for existing customers’ orders, thereby limiting expensive inventory costs and making it easier for them to upgrade and change with technology improvements. They are taking orders for more than $16mn of products on-line though their B2B and B2C site. In general, companies use supply management systems for many reasons, including: » reducing manufacturing cycle times; » reducing product development, production and manufacturing cycles; » improved sales and delivery timeframes; » reducing inventory; » increasing revenues; and » reducing costs of goods. A wide range of existing supply chain software and systems is in the process of becoming converted to meet Web-based and browser standards, so they can be extended easily to meet a variety of market trends. TRENDS AND BEST PRACTICES In addition to these fundamental technologies and systems that support B2B development, other strategies are having a huge impact in the marketplace. The two most important ones are collaborative computing technologies and customer relationship management. These technologies and systems allow others not only to have access to relevant information, but also to work more efficiently.
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The development of business networks to support B2B systems is likely to become a major trend in the near future. Business networks differ from supply chain in that they can be distribution-based, or joint venture partnership and co-operation networks. Business networks allow organizations to work more effectively together and reduce their cost of development, sale, distribution, and support in many different ways. Surveys conducted in the latter part of 2000 highlighted the importance of various e-business initiatives to B2B and B2C in the coming years: » » » » »
customer relationship management (B2B and B2C) collaborative technologies (B2B) e-commerce (B2B and B2C) intranet (B2B) knowledge management (B2B)
Increasingly, organizations are beginning to understand that it is the business decisions that will drive the next generation of systems in the marketplace. This critical link between the business requirement and the technology is likely to drive the market more than any other factor. As we are all operating in what we have collectively started to refer to as Internet time, we have to change things quickly and in a synchronized manner. This means linking business goals, processes, and technology in timeframes previously not considered reasonable. This change of thinking and the development of ‘‘change ready’’ organizations is probably the greatest challenge facing us. That’s the bad news. The good news is there is a lot of technology and a huge market opportunity waiting. NOTE 1 Koulopoulos, T. & Palmer, N. (2001) The X-economy. Texere Books, New York.
02.03.05
The Global Dimension E-business offers tremendous opportunities to go global. This chapter includes: » » » » » » »
the global opportunity; building the business model; product suitability for the international marketplace; pricing and legal factors; best practices; getting the product right for the market; and packaging your e-business product.
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While writing this, I am on a plane headed to South Africa, my assignment being to perform due diligence on a potential supplier for an up-and-coming fashion accessory boutique. The client’s plan is to sell these products directly via the Web, as well as through specialized retail channels. Given these issues, the global reach of the Web is impacting how business connections are made, negotiated, and put into action. Suppliers and buyers are being connected in effective networks, creating new complications and challenges for the development and delivery of these systems. The speed at which these relationships can be established and their cost-effectiveness creates a huge impact on how we view business today. The ability to reach out and touch at the global level is something that creates opportunities and at the same time causes concern to others in the supply chain. The massive buying consortia of COVISINT are cementing global relationships in business networks that have more than $260bn changing hands annually. But speed can kill, and you can be ruined by being too slow as well as too quick. By now, most companies have instigated a presence on the Web. For many, an important aspect of this decision was the capability to go worldwide with their message and product. However, the global nature of the Web prohibits many firms from making the ‘‘big move’’ to international e-business. Important decisions have to be taken before putting regional price lists out there for the world to see. Many organizations have been scorched badly by their distributions and global operations. In order to achieve accelerated sales cycles, potential clients have to see more information in order to make decisions quickly. Meanwhile, corporate concerns about comparative shopping and the public broadcast of previously ‘‘private’’ information all gnaw at the current culture of the organization. These issues and more come to the forefront when considering international e-business solutions. Determining the timing and methods to implement a program that will be successful can be a daunting task. The Web can be a short cut, but there is a huge difference between an ‘‘informational site,’’ and using the Web as an integrated part of a company’s international business. The road to success may be paved in part, but there are also some road repairs that can make the journey hazardous.
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In 2001, US e-commerce revenue is expected to reach $38.7bn. Just 36% of dot-coms are pure-plays, while 63% are multi-channel businesses. Overall IT spend among dot-coms is expected to equal $15.3bn in 2001. By 2006, when there will be an estimated 4000 dot-com companies in the US, IT spend will decrease to $9.2bn.1 With a vast international community of users and potential consumers, the Internet offers an opportunity the like of which merchants and suppliers of information and services have never seen before. Today the greater numbers of users are still located in North America and Europe. However, new markets are also coming on strong, and the numbers of users continues to expand across the globe. The most popular activities of users continue to be e-mail, finding out information about a hobby, and general news. These continue to outrank on-line shopping as an activity. However, on-line shopping is growing in popularity. As it becomes easier to facilitate the delivery of goods and services using the Internet and associated overnight shipment services, the convenience of shopping on the Internet is catching on fast. Services that would not have been considered reasonable to purchase a few years ago are becoming popular. However, most of the sales to date are in books, CDs, software, high tech, and other items easy to shop for and deliver to the consumer. The range of offerings is likely to expand dramatically as groceries, financial services, and even on-line house hunting expand their currently small penetration of the marketplace. THE FUNDAMENTALS Several factors influence the development of an international strategy. These factors are often considered separately, but for a successful implementation they should be considered in a common framework. One reason why companies have taken time to make this move is the widespread impact on the organization, clients, and distribution systems. Reviewing international e-business as either technology or as a better way of doing business can lead to failure. Successful
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implementations consider both the business and technology factors together. Determining the business model An international e-business strategy can change how a company is doing business in a dramatic way. Careful consideration needs to be given to understanding the requirements for such a change. Ensuring that this effect is dramatic in improvement and not traumatic to others is essential for success. Usually one of three scenarios form the basis of the business model: 1 a new international business on the Web; 2 changing an existing international direct sales business model; or 3 changing an existing international indirect sales business model. As Table 5.1 indicates, some major changes have to be considered in the development of this strategy. For companies that already have international distribution in place, channel conflict can be a major concern; for new distribution strategies, the other concern of product support will also play a major part in the development of the strategy. E-BUSINESS GLOBALIZATION FACTORS 1 Distribution model 2 Product suitability 3 Legal and pricing 4 Localization 5 Transaction 6 Fulfillment Product suitability Ensuring that a product is suitable for the target marketplace is the next step in the process. This includes a number of factors that are specific for e-business, but also others that are important to ensure success. » Pricing: Is product competitive in local marketplace? » Competitiveness: How should product be priced and packaged for local market needs?
Existing indirect business model
Existing direct business model (non Web-based)
New international e-business business model
No channel conflict, but complete system from demand through fulfillment has to be developed. Could create conflict with current distribution systems in place, if not factored into the design. Could create conflict with current distribution systems in place, if not factored into the design.
Impact on direct sales to new international clients
Needs to be developed considering existing channels and support that is in place.
Not applicable.
Not applicable.
Impact on current international channels
Could create conflict with current distribution systems in place, if not factored into the design. Could create conflict with current distribution systems in place, if not factored into the design.
Not applicable.
Impact on direct sales to current international clients
Business model impact with international e-business. (Source: Harvard Computing Group 2001.)
Business model
Table 5.1
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» Language: Is localization required to enter the market? What will the cost and scope of translation needed for success be? » Market size: Is the marketplace large enough to warrant the investment? » Internet infrastructure: Are there a suitable number of Internet users to make the transactions happen (including good connections via ISPs)? » Cultural infrastructure: Is e-business accepted as a means of doing business? What is the current rate of e-business growth in this market? » Existing distribution systems: Are there current distribution systems in place that will help (or hinder) an e-business initiative? » Shipping/fulfillment: How will the product be shipped and delivered to the client? » Support: What local support is required? » Volatility: Is the market volatile (either financially or politically)?2 A moderate amount of research should provide the information that will determine the most attractive markets to target. This will also provide some good input on the scale and cost of what is needed to customize your product or service to enter the market. Pricing and legal factors Developing pricing strategies for international distribution via the Web is no more complex (or simple) than any other environment. However, if this is the first foray into the international marketplace, then several issues need to be determined. The first phase will comprise of the basic business issues of: » » » » »
single or custom pricing strategy for each market margin goals cost of sale cost of support market share goals
Once these have been determined, other pricing factors come into play including: » competition » what will the current marketplace stand?
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currency transactions import duties export duties shipping costs
Many companies are concerned that once their US list price is shown on their site, then it will be very difficult to obtain a different (read higher) price from other markets. There is no question that once a US list price is shown, then a benchmark has been placed for international prospects to consider. However, there are other variables to consider that can cause changes in price and support. » Warranty: Increased price for international support. » One single price based on US list: If the transaction is in dollars, no currency issues arise. » Support: Local support has different price. » Shipping and handling: Cost will increase based on client requirements (air or sea freight). » Customs and import/export duties: Usually paid by the consumer.3 Careful consideration of contract issues should to be made to avoid potential problems. A good approach is to keep things simple and understandable. This will reduce confusion and potential problems. Many countries have very different commercial trading practices, and it is important to become familiar with them before presenting them with an unsatisfactory method of purchase. The legal profession and governments worldwide are trying their best to come to terms with the complex array of problems associated with trading on the Web. The Web changes many rules of trading that were based on the physical transfer of goods across borders for many years. BEST PRACTICES The development of an effective international e-business strategy is largely based on several factors, including: thinking for the culture; improving business operations; protecting channels and the support they may give; and taking advantage of e-business opportunities.
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A matter of culture In all things international, the cultural application of what should and should not be done remains critical to success. Because it is easy to offend others’ expectations and requirements through misunderstanding, it is important to understand the basis of the business deal. Too many people fail to make the effort to understand international business concerns or are unwilling to adapt themselves to the realities of different cultures, customs, and languages in order to gain an advantage when doing business in other countries. Successful organizations make the effort to understand the needs of their international business partner and how they are going to work together before they make their move. The businesses that do show an interest in the people with whom they are dealing have found that it leads to additional business. Just as individuals have to adapt to the relevant protocols of each nation to become an effective communicator and businessperson, so e-business needs the same adaptability. Creating the right environment in the e-business system is critical to allowing for the cultural characteristics of the marketplace. As many e-business systems require considerable automation of existing manual or physical processes (sales and service for example), ensuring that these are acceptable to the target users and communities is essential. For example, the US consumer is much more likely to accept unsolicited mail, email, and telephone canvassing for products. In Europe this practice is frowned upon, and governments provide means for individuals to ‘‘opt out’’ of all systems. In order to avoid some of these cultural issues, the following best practices can assist considerably in the acceptance of products and services. 1 Understand local business practices and how they can be encapsulated into e-business systems. 2 Ensure that the quality of language translation and terms and conditions meets local requirements and relevant laws. 3 Check that product packaging and naming is sensitive to regional concerns and practices.
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Getting the product right for the market In simple terms, will the consumers buy the product? Is someone going to buy this product and service and be satisfied? These questions need to be answered in detail when it comes to the international marketplace. For example, on recent trips to the Middle East a Webbased development service was being proposed for certain consumer items. However, when it came to the issue of fulfillment and the logistics of delivery the plan had to be halted. Why? Because the streets and the street numbering were so random, it became almost impossible to create a cost-effective delivery means. In the United States or Europe, however, this problem would never have arisen. Factors to be aware of include the following. 1 Ensure that the product can be delivered effectively, to the specific requirements of the market, and in a cost-effective way. 2 Determine price and positioning points carefully. Many firms make the mistake of using the country of origin end user price as the starting point for the development of the product line. Start out by understanding the retail or manufacturer’s recommended selling price (MRSP), and reverse the margins and delivery means from there. 3 Try to avoid adding existing distribution layers (reducing profit and increasing overhead) to new e-business based offerings. While this is often difficult to manage, it will ultimately become a major factor in the long-term success of the venture. 4 Check out your suppliers, business references, and integrity. One disadvantage of Web-based commerce is that sometimes strategic relationships can be established very quickly. This can be a problem when the qualification process lets less than desirable suppliers or buyers into your international supply chain. There is still no substitute for effective due diligence: visiting partners that are going to be strategic to your international business strategy and ensuring they meet your own business standards. 5 Ensure that your business partners and/or local staff understand the marketplace and product area that you are entering. This may be the most important factor in any overseas venture, as your business
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partners can provide you with the necessary intelligence to modify product or service strategy to meet the local needs effectively. Pricing and packaging In addition to earlier recommendations on pricing and packaging, the following should be considered as best practices in this very important area. 1 Test the pricing to meet the requirements of others in your supply chain as well as the final pricing in the marketplace. 2 Understand the impact of currency fluctuations and how they may positively and negatively affect the business model. Adjust the number of supplier locations if this is too risky for your business model (e.g. textiles, manufacturing). 3 Build the pricing strategy based on the operations business goals. Adjust for market penetration and market share according to the competitive nature of your product line. 4 Ensure that your partners have a good business opportunity in your supply chain, otherwise they will only be short-term suppliers and partners. Doing business in the international marketplace requires considerable effort, expense, and careful consideration. Many businesses fail in their first attempts to enter a new marketplace, and international commerce is no exception. Firms not willing to make the necessary investment to learn about the target market and how they will successfully bring their product to the market will ultimately suffer the disappointment of many who have traveled the same road. NOTES 1 Source: Datamonitor. 2 Source: Harvard Computing Group 2001. 3 Source: Harvard Computing Group 2001.
02.03.06
The State of the Art E-business technologies and the way they are being used is under constant change. The tools and the way they are being used is constantly evolving. So what are today’s hot topics in e-business This chapter explores current trends. » » » » » » » » » »
Pragmatic use of e-business technologies. Focusing on the business needs. Technology and business systems – united? The statistics of failure. Return on Investment. Portals – the desktop of the enterprise. Competitive edge. Leveraging the core competency of the organization. Business ready systems. The future.
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PRAGMATIC SOLUTIONS IN A FAILURES.COM WORLD Of all the events that have affected our view of e-business the failures of the dot-coms have had the greatest impact. On one side it has allowed organizations to become comfortable with their ‘‘less than state-of-theart’’ status, and on the other it has scared then away. The reality is that now organizations are looking for pragmatic ways of using the technology without incurring massive risk. In the early days of e-business, organizations were being almost forced into doing something, even if it was wrong – as in many cases it was. They changed the way they were operating back to the ‘‘old ways’’ rapidly, or they viewed the results with considerable disdain. Change for the sake of it has never been a good thing, and e-business is no different. However, change is required of most businesses, and using e-business tools as a means to effect that change is valid, useful, and very profitable. Successful organizations using e-business to improve the way they are operating can now see e-business strategies and the supporting technology for what they are: an enabling method for all businesses. The question now is not whether e-business is part of your business, it is a question of how to make it happen. Much has been learned from the collapse of so many dot-com firms and organizations. The primary lessons fall into the ‘‘what not to do’’ category. Some of these should have been obvious from the beginning, but some are less so. Problems encountered by those firms with only e-business operations or those bricks-and-mortar firms that started their own initiatives include the following. » A poor business strategy, supported by a flawed model. Operations that planned to provide services that would change the world turned out not to make it. Firms like garden.com, boo.com, and toys.com all spent millions on branding and paving the way for a new way of doing business, but in the end did not have enough value to stay in the game. » Lack of near-term profitability. Many operations just plain ran out of cash. The huge amounts of venture capital being applied to advertising programs for firms before they had a product to market,
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or any market position, would seem ludicrous today. However, this was the norm in 1998–99 for many new firms. » Little understanding of valuation, combined with a red-hot IPO marketplace. Many individual millionaires were made during the dotcom phase of the market development, yet many firms were valued incorrectly due a to a lack of understanding of the business model they were applying. » ‘‘Just do something’’ mentality. Many operations started their ebusiness initiatives with few skills in the business strategies and technologies that were needed to successfully deploy a system. As a result, the failure rate of many of these systems reached an all-time high, while the learning curve was very steep. As a result, organizations are now looking for solutions that will help them to make pragmatic decisions regarding e-business. FOCUSING ON THE BUSINESS NEEDS Given the challenges of today’s marketplace, executives are looking for solutions that will give them a key advantage over their competitors. Part of this advantage is clearly based on identifying ways to use technology and innovative work practices to improve productivity, reduce costs, and improve service to employees, partners, and consumers. By focusing on Return on Investment (ROI) these issues are addressed, providing guidance on where best to apply the technology to gain a competitive edge. Leading edge research for most firms and IT-watching operations now indicates clearly that Return on Investment has moved from being a nice option in any e-business strategy to become the foundation element. Organizations are looking for ways to hold managers and staff accountable for the systems that they install and use, ensuring that some form of Return on Investment is at the core of these plan is critical. TECHNOLOGY AND BUSINESS SYSTEMS – UNITED? While market conditions are changing faster than ever before, our ability to adapt and deal with these changes seems to be lower than
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ever. Despite the fact that information technology solutions are mature and available, the gap between the organization that wins the first time out and the others continues to widen. The development of new products and the promise of an Internet-based economy have all added to the confusion in the marketplace. Now more than ever, executives need to create game plans that will bring them successfully through potentially challenging market conditions. Turning strategy into results requires expertise and techniques that leverage enterprise and individual business function skills into improvement across the board. We need to examine how best to apply this in a practical manner, specifically for systems that have very high impact on the organization, both in real monetary terms and in strategic support of the operation’s business goals. CRITICAL FACTORS FOR IT EFFECTIVENESS1 » Development and support of corporate strategies » Return on Investment » Competitive edge » Leverage of core competency » Ability to adapt to changing business conditions
THE STATISTICS OF FAILURE Unfortunately, many operations today are reeling from the failures of systems in the marketplace. With more than 40% of IT projects failing, the time has come to bring some order to the planning process and ensure that a project has a good chance of success. While this general failure rate is bad enough, recent studies (from Gartner Group) indicate an unbelievable failure rate of 60% for Customer Relationship Management (CRM) systems – with other enterprise and business function-specific systems not faring much better. The common causes of system failure are not new to the Internet economy. However, technology confusion, buying the wrong product, and lack of a good business case cause failure to occur more rapidly. It is not as difficult as it might seem to avoid some of these problems, but it requires starting with the basics. While the same fundamental
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techniques can be applied to any project, they are particularly suited to enterprise-scale technologies, where user acceptance and buy-in are crucial for success. The first step to ensuring success is building an effective business case, including the appropriate Return on Investment (ROI). COMMON CAUSES OF IT FAILURE » Does not support the business goals » Work processes are not integrated with the requirements » No return on investment » Cost overruns » Unusable or unstable technologies
RETURN ON INVESTMENT A powerful business case and sound ROI is key to ensuring the support of management and the board of directors for large IT and e-business programs. While it may appear obvious that the development of an ROI business case is an essential element of any successful program, it is amazing how many projects reach the procurement phase without one and become stalled at this stage. A surprisingly large number of IT projects make it past procurement and reach the development or deployment phase without an ROI, which is exactly why the numbers cited above are so high. In order to gain support for these systems, a clear determination of the ROI model must be extracted from the process. The following framework (Figure 6.1) should assist others in the development of such a program, based on a consulting methodology used for several years by the Harvard Computing Group, Inc. BEST PRACTICES TO ENSURE SUCCESS IN ENTERPRISE APPLICATION SELECTION2 » Select high-impact, strategic applications » Determine the ROI
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Identify business goals 1
Measure savings from applications 4
Fig. 6.1
Find the business opportunities 2
Identify specific applications 3
Estimate cost
Calculate Return on Investment 6
5
How to develop an effective ROI strategy.
» Prioritize applications » Gain agreement between management, IT, and line managers on how technology will be used » Reject unusable or unstable technologies This simple six-stage process creates an effective framework to gain consensus inside the organization to ensure that success will result. As part of this process, it is important to ensure that applications and requirements that do not support the organizational goals die rapidly. All areas of the organization must be focused on meeting the selected requirements; self-serving ‘‘pet projects’’ and ‘‘special needs’’ should not be allowed to continue. One of the major problems for many firms is that few organizations have a framework that can assist with the facilitation of these goals. Thankfully, many organizations are taking this process more seriously, and either are installing such programs to develop their systems based on business needs, or are using specialists that understand both the management and technology components of these systems. Either way, organizations have experienced enough failure to know when it has to stop. PORTALS – THE DESKTOP OF THE ENTERPRISE Portals are a very misunderstood topic, and one that many managers and executives have struggled to understand in the context of their
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organizations. At a corporate level, portals are a ‘‘gateway’’ to a set of information and resources that are part of a specific business environment. The environment could exist for a company’s employees, their business partners, or consumer groups. In practical terms, creating a portal involves organizing information around those who need it so it is available at the time that they need it. For more than 10 years the credo of workflow, document or content management software providers has been to deliver the right information, to the right person, at the right time. Portal technologies do not replace the core capabilities of these products. Instead, they help to take this objective even one step further by linking disparate information sources – regardless of their type – together in a meaningful manner, and then delivering them to users’ desktops. For many organizations, the concept of managing information based on the role of the individual in the organization is still a new one, but one that is growing in strength. Portal technologies are now being deployed in large numbers, as the network of employees, consumers, and partners becomes connected via the Internet. Building these systems around the way that organizations work, and making the connections occur quickly, is also creating the huge returns for operations that are using them effectively. WHERE PORTAL TECHNOLOGIES CAN HELP A BUSINESS MOST » Connecting employees with data sources and information relevant to their needs » Controlling and expanding knowledge networks » Creating business partner networks » Reducing operating costs » Improving quality and consistency
Portal technologies that connect people to information based on their role in the organization can dramatically improve an organization’s ability to make specific content available to individuals with the same role. Similarly, when business requirements change, role-based portals allow an enterprise to add or change access rights for entire groups of people with minimal effort. In the absence of role-based administration,
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organizations can spend untold hours configuring permissions and access rights for individual applications, databases, and content sources. Recent studies of portal technologies that have been deployed effectively are producing ‘‘wake-up calls’’ around many boardrooms. The ability to connect workers with relevant information in a timely fashion has always been a desirable goal but has been difficult to achieve. When portals can meet this challenge and show a Return on Investment measured in weeks – not years – the benefits are considerable. During a study conducted by Harvard Computing Group of portal clients, several firms indicated that the improvements in employee effectiveness that resulted from the deployment of the portal were saving up to 15–30 minutes a day per employee. Even for relatively small organizations the benefits build up very rapidly. Partner networks are another very effective method of leveraging portal technologies. By linking the information and security requirements for a particular partner in a portal, a company can establish specialized, secure networks in a very short period of time, allowing firms to be agile and flexible in meeting their partners’ requirements. Competitive edge In addition to using portal technology inside the organization to improve business operations, firms are deploying portals to gain the upper hand on their competitors. Because organizations can use portals to deliver data, applications, and transaction management systems in a single environment, they are able to deploy complex systems in a relatively short period of time, thereby getting a jump on their competition. COMPETITIVE DRIVERS FOR PORTAL SOLUTIONS » Expanding and optimizing partner network » Self-service applications for clients » Business intelligence systems » Shorter product development cycles » Improved distribution systems
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A recent survey by Morgan Stanley Dean Witter demonstrates that there is enormous opportunity for firms that can succeed in turning their back-office systems to face the customer. The survey indicated that fewer than 41% of CIOs surveyed interact on-line with their clients, and that the majority of firms only conduct e-business with 10% of their suppliers. This leaves a lot of room for those firms that are developing and focusing on the integration of core technologies and then using them as a competitive advantage with their clients. Many significant business improvements are not possible without integrating these back-office systems into a common framework. Portal technologies are fast becoming the vehicle to achieve this goal, leveraging the existing environments and allowing operations to rapidly create customer support systems that dramatically deliver appropriate solutions to the users who need them. One strategy that really helps organizations build their competitive edge is self-service. Self-service systems allow users to gain access to many different information sources and applications to ‘‘serve themselves.’’ Whether it is internal self-service applications, or external to customers or partners, self-service creates value for all concerned. Used effectively, self-service systems allow an organization to develop relationships and facilitate transactions that previously took hours or days. To fully understand the importance of self-service, we must reestablish some principles that have not been in vogue recently. As a result of the meltdown in many dot-com enterprises in late 2000 and early 2001, many brick-and-mortar firms have become comfortable running people-intensive systems, rather than computer-based selfservice systems. Though some executives may think that labor-intensive systems will prevail, they are leaving a huge opening in the market for their competitors. Self-service strategies have proven their worth and will be used for years to come. Both new and renewed companies will embrace the concept in a big way and portals will be one of the primary vehicles that allow firms to implement their self-service strategy. LEVERAGING CORE COMPETENCY While many talk of a return to core competencies in the enterprise, developing the strategy to make this a reality requires more than words.
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The primary assets in any operation are the people. In order to really leverage these resources, the information sources and systems that surround them need to be enhanced. ‘‘The main armament in any successful business is the staff of the organization.’’ Michael J. Cunningham3 A recent IDC survey (see box below) indicated how important leveraging these skills and systems has become. Many organizations cannot gain this leverage unless the technology is externalized and made available to those who need it. For example, what is the use of an inventory management system, if your partners’ sales staff do not have access to it? Leveraging the core competencies of the operation means redistributing information to those who need it, and delivering it when they need it. Supply chain applications are another very important candidate for this work, where the status of products, configuration controls, and time to market all have a huge impact on the success of the business. Linking these systems together, so that the customer, product, and distribution systems are combined in a relevant form is a key to success. This will then improve business practices and the business decisions made around them. Portal technology again helps dramatically in these efforts. PERCENTAGE OF SYSTEMS FULLY INTEGRATED WITH WEB DESKTOPS4 » CRM – 18% » ERP – 26% » Supply chain – 14% » Order processing – 23%
While gluing the relevant applications together in a common framework may seem an obvious move for executives who want to leverage the knowledge that is littered around the organization, there are other places where ‘‘low hanging fruit’’ is also rife. The myriad of departmental intranets that now dominate medium- and large-scale
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operations can be diamonds in the rough. Many of these systems have very important and relevant information, but are only accessible to a few. By using portal technology, executives and CIOs are weaving together relevant information sources from the intranet and beyond. Combining search tools with portal solutions allows organizations to share content and collaborate much more effectively. In a world where we continue to drown in data, portal technologies offer a means to provide sanity and simpler navigation to achieve information sharing. Knowledge management applications and collaborative systems, ranging from e-mail to wireless applications, provide the foundation for how operations must work together. Sharing this information and providing tools to allow ‘‘natural collaboration’’ to occur among workgroups is key to success. The simplification of data access is one element that has made portal technology less susceptible to IT cuts (according to a recent Information Week study), mainly because many of the projects are relatively inexpensive and can be implemented in short periods of time, compared to many other enterprise initiatives. By leveraging existing systems, whether CRM, manufacturing, or other information repositories, portal technology can assist operations to leverage the information by finding and delivering it to those who can act upon it. WHAT CORPORATIONS WANT FROM PORTAL TECHNOLOGIES5 » To unify business applications » To provide dynamic content » To allow employee customization » To provide simplified access to corporate data
ABILITY TO ADAPT TO CHANGING BUSINESS CONDITIONS (BUSINESS READY SYSTEMS) Perhaps the biggest challenge for many organizations today is to be ready for another storm. In general, executives understand that
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they have to be ready to deal with change, but many organizations are not truly ready. Often it is the IT systems and the knowledgesharing mechanisms that are least ready to deal with rapid change. In the creation of a change-ready environment, many are now turning to new strategies in the development and use of technology. Given the daunting statistics of failure (outlined earlier), learning methods to reduce risk becomes almost mandatory for executives and managers around the globe.
BEST PRACTICES6 » Design systems based on roles not individuals » Single sign-on » Include personalization and customization in the requirements » Include portal technologies in solutions to leverage existing and new sources of information
The concept of business ready systems is a new one. Based on increasing requirements of demanding technology change, market movements, and the need to respond to them, a ‘‘ready for change’’ approach is one way of anticipating change and being ready for it. There is a good reason that some firms are just better at adapting to changing business environments. They embrace change, they are ready for it, and the really smart ones enjoy change. In the technology selection and adoption curve, careful planning that allows organizations to select tools that are flexible and adaptable make it easier to deal with new needs as they arise. In addition, systems that allow an organization to rapidly develop and deploy tools also make a huge difference to their flexibility. This allows the operation to be responsive to changing business conditions, and not miss opportunities. As organizations juggle the priorities for their IT initiatives and spending, many make portal technologies their top priority. As a result, they maximize the return on investment for many other IT implementations
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by leveraging the portal as the infrastructure to quickly and flexibly deploy other solutions. Planning for change means picking technologies that can change rapidly when you need to change. Most Web and portal technology has some level of customization to allow individual groups to change the way that data and applications are accessed and presented when necessary.
BUSINESS READY SYSTEMS7 » Flexibility » Adaptability » Rapid development » Fast deployment
THE FUTURE The days are upon us when business drivers will start to take the high ground on large-scale systems and technology decisions. The stakes are becoming too high for the organization that is not leveraging either its skills or its staff. Building good business cases to drive the requirements for portals and other technologies is likely to be a foundation skill for the future, and not an exception to the rule. Return on Investment will be a common theme to many projects in the coming years and months. Table 6.1 shows some basic examples of where an organization can look for the business cases to achieve significant ROI. Executives need to fully understand what these technologies can do for them, and what the impact on their business will be if they ‘‘wait for it to happen around them.’’ The competitive edge will go to those that understand and exploit these technologies. While portal solutions may seem like yet another daunting enterprise initiative, this need not be the case. Effectively managed organizations have used portal technology to create huge advantages, and have done so with relatively low risk and small incremental cost.
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Table 6.1
Example business cases.
Objective
Assumptions
Results
Ability to find information
20,000 employees $75,000 fully burdened average overhead 200 working days/year
Partners’ and customers’ ability to service themselves
50,000 customers worldwide 1 call per customer per month 3 minutes per call $150,000 fully burdened support staff 5000 salespeople worldwide Industry average annual staff turnover Average $1 million annual quota
Eliminate at least 15 minutes per day per employee spent finding information $36mn/annual productivity improvements Reduce calls by 20% $433 thousand annual support savings or improvement in productivity
New salesperson productivity
Improve the time to productivity (ready to sell) from 3 to 2 months $27mn annual productivity improvements
NOTES 1 Source: Harvard Computing Group. 2 Source: Harvard Computing Group. 3 Cunningham, M.J. (2001) Partners.com. Perseus Book Group, Cambridge, MA. 4 Source: International Data Corp. 5 Source: Corechange electric and gas utility customer. 6 Source: Harvard Computing Group. 7 Source: Harvard Computing Group.
02.03.07
In Practice: E-Business Success Stories What are the secrets of building a successful e-business system? This chapter explains how Staples.com, Hard Dollar Corporation, Travelocity, eBay, Altra Energy, COVISINT, and Amazon.com have managed to use some of the most successful e-business systems in the market today. It includes case studies of their systems. » E-business companies in the B2B space and their best practices. » B2C companies and their strategies.
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E-BUSINESS COMPANIES IN THE B2B SPACE AND THEIR BEST PRACTICES The e-business arena is an extraordinary one. Many companies have had outstanding success with their e-business strategies, while others have failed. To help us understand what makes success occur, we’ll examine some of the most successful companies and their different strategies for different markets. There are tools-oriented start-ups, software companies, crossovers from the B2C market, and many others moving rapidly into B2B. BRICKS-AND-MORTAR TO CLICKS-AND-MORTAR Existing firms have tremendous advantages over start-ups in development of their e-business strategies. Armed with a bevy of existing clients, relationships, brands, and market share, they can create increased market share rapidly if they can adopt the e-business programs rapidly. However, they are also faced with the potential of losing momentum in the marketplace if they leave large ‘‘gaps’’ or ‘‘opportunities’’ to others in the segment. Being able to move quickly enough is important, but being pragmatic about the change also determines how rapidly an organization has to cannibalize their existing business. In the first phases of e-business for firms, many decided to separate their e-business efforts from their existing ‘‘bricks-and-mortar’’ business. Other factors such as lack of skills, innovation, and strategic knowledge about how to use e-business systems all had an impact on these decisions. In many cases they subsequently decided to reintegrate their ebusiness into their mainstream business operations. Staples.com is one such example. The Staples.com story Staples.com established a B2B dot-com with revenue of $3.7mn in 1998, rising to $94.3mn in 1999. This represents a solid 450% growth in a single year. More importantly, quarter to quarter sequential growth was 80%. While this is not a serious dent in their $7bn bricks and mortar business, it represented a success story in the development
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of a new B2B business rising from the existing environment. Like other successful bricks-and-mortar firms moving into this space, Staples elected to create a separate operating division to ‘‘get it done.’’ Creating a business environment that can adapt quickly to Web market conditions will often mean creating a spin-off or other operating unit that has the freedom to work to a different set of rules than the current business – in this case, retail. In an interview, these were the comments of Jeanne M. Lewis, President of Staples.com. » Why did you go after this market? ‘‘We saw the Web as a tremendous opportunity for Staples. It is a huge, growing and fragmented market and the Web is a great tool for acquiring new customers. It transcends our physical infrastructure and brings us to new geographies. Online we can serve the underserved small biz customer with small-business tailored services which is much easier to do on-line with content, tools, and virtual expert selling.’’ The small business market and the SOHO market in the US was a great one to take advantage. Staples, with a traditional market presence in the office superstore sector, had an opportunity to either capture or lose market share to the electronic commuter and small business segment. » Do you feel that your idea was unique? ‘‘We have one of the largest on-line assortments [or products], some of the most robust tools including a group account feature for multiple users on one account that helps centralize and manage purchasing. Additionally we have community, content, and a marketplace with both buyers and sellers at a time when many sites have been built and have sellers but do not yet have buyers.’’ Unlike many B2B start-ups, Staples had the advantage of a large infrastructure already in place to manage the back end of the process. Having existing back office systems can create an opportunity to go directly into another segment, while leveraging their existing relationships and purchasing power.
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» Do you consider this business to be high risk? ‘‘We already had the backend infrastructure, we have the aggregated purchasing power, an established vendor base. The primary risk is not seizing the opportunity fast enough and with creating a tracking stock for our e-commerce initiatives and our strong commitment, this risk has been mitigated.’’ Again the back-end infrastructure considerably reduced the risk for Staples.com. However, it may become more competitive over time, given the increased activity in this segment of the market. » Given what you now know, would you have done anything differently? ‘‘We did a good job initially. However, there are always learning and ways to improve. We didn’t realize just how different e-commerce is from our retail business and how quickly you need to move to capture market share.’’ Moving at Internet speed, particularly for a firm in the retail segment, can be a learning experience. » Do you have a sustainable competitive advantage? ‘‘With an established brand, with relationships with 8 million small businesses and 15 years of knowing our customers, plus a strong management team, and comprehensive distribution infrastructure, Staples.com has a strong market advantage.’’ The power of an existing position in the marketplace can be tremendous if leveraged properly. » At what moment were you most concerned? ‘‘Our biggest day-to-day concern is keeping ahead of our competitors. The Web space moves so fast, that we need to keep two to three steps ahead of our competition. There is only room for a few great players and we need to make sure we are one of them.’’ » What significant challenges have you overcome? How? ‘‘We’ve faced similar challenges to other Internet businesses. We compete for great talent, our challenge is to be an employer of choice through our culture, compensation and strong brand.’’ In the current employment environment Staples.com has cause for concern. The US industry is in general very short of talent
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in the Web space, experienced staff in the B2B space even more so. » What do you look for in your staff? ‘‘We look for flexible, adaptable employees who can excel in a fast-paced environment and team players who check their egos at the door and put the needs of the team and the business first.’’ Almost every B2B and Internet start-up wants a team-oriented, business-focused staff that can work under pressure and produce results at superhuman speed. Staying flexible and understanding the value of building change into the environment may be one of the most important qualities for any employer. » What was your go to market strategy and how has it changed? ‘‘Initially Staples.com focused on selling office supplies. Through the new Staples.com Business Solutions Center, we have begun to significantly build out our small business service offerings. We are now truly the place where business does business and provide everything a small business needs from supplies, to essential business services, community, and a RFQ marketplace where our customers have access to over 20,000 vendors and can participate as sellers.’’ Moving from a straight office procurement store to the larger picture of a B2B exchange is a transition that many organizations are moving through. Many large organizations are beginning to learn how to use the relationships that they have established in their own supply chain in innovative ways. This will allow organizations to keep themselves positioned effectively with value in new sales and procurement processes that are evolving in the marketplace. Staples.com recently turned the corner of profitability for the operation in the second quarter of 2001. This was ahead of their internal expectations. COMPANIES IN TRANSFORMATION Many firms tackling e-business are existing businesses that have the vision and determination to change the way that things are done in their industry. These organizations are changing existing business operations and have focused on moving to a new space – the marketplace. They
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are moving new products to a new sector. Despite industry-specific knowledge and/or an existing product line, these transformations are demanding and fraught with risks. The Hard Dollar story In the fall of 1999, Grantlun Corporation was a 40-person, 10 year old software firm servicing project managers and estimators in the infrastructure sector of the construction industry. The firm was full of construction industry professionals; the founder came from the construction business, not from the software industry. Like many firms in the software sector, Grantlun Corporation decided that the time was right to change the way things were being done in their business. Transformation can be the only word to describe what this firm has gone through. A 10-year history of being self-propelled in their market, with tough competition and slim margins but a very high value proposition, made Grantlun a successful but niche software business. Grantlun Corporation moved into the e-business and B2B market and is still a work in progress. They have developed a huge transformation program for the organization, which affects everything in their current business. Since the summer of 1999, when the initial vision to create a B2B Website as an ‘‘operations center’’ for the infrastructure contractors and their clients was developed, an aggressive plan has been implemented to make the site, software, and content meet the goal. The timeline (see box) shows what can and must be done to keep a competitive advantage in large segments of any B2B market. With over $200bn in federal projects earmarked over the coming years, contractors are suffering from a dearth of qualified project managers and estimators to bid and build roads and bridges. This is not an opportunity that Grantlun (now Hard Dollar Corporation) wants to miss. TRANSFORMATION TIMELINE » September 1999: B2B plan, funding. » December 1999: Development partners. New staff plan, hiring.
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» March 2000: Go To Market strategy. Pricing, branding, name change. » June 2000: Launch of new site, infomediary and Web-based applications. » September 2000: New applications, remote project management. » December 2000: More to come.
Since September 1999 Grantlun has achieved the following in its bid to be first and biggest in this sector. » Raised $11mn for first round financing to develop the site, software, staff up, and introduce the products to the market. » Hired development and marketing partners to create the site, software products, and manage the program. » Redesigned the entire architecture around the Web strategy, including a complete Java implementation. » Hired offshore development firm to keep costs under control and ensure that tight implementation schedules would not be impacted by US labor shortages in this segment. » Developed a complete new branding program, pricing strategy and Go To Market program for an integrated traditional media and e-marketing program. » Changed the corporation’s name to Hard Dollar Corporation, in line with new branding program. » Extended internal systems to provide internal and Web-based Customer Relationship Management software in the organization. » Expanded their internal staff to support the B2B e-commerce requirements. While this shopping list of goals and achievements would be enough to keep most businesses humming for a few years, Hard Dollar plans to make this happen in nine months from the funding date. Fast, fast, faster is often the characteristic of firms trying to make this amount of change happen and deliver to their clients in rapid period of time. As a software company, Hard Dollar has an advantage – they understand
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what they are getting into, as they become an e-business. Their business does not work if their site does not. Travelocity.com Travelocity has been a leading light in the on-line travel industry. The system was initially designed for internal use by American Airlines, but then was externalized for reservation agents around the globe, and then went public in the B2C marketplace. One reason this firm has been amazingly successful is the hard work done at the start of the systems development. By having the internal back-end system, Sabre, to link agencies, companies, and suppliers in the travel industry, all of the requirements to ensure that the firm could service clients electronically was already in place. Estimates in the on-line travel industry (for corporate and personal travel) are just vast – Forrester Research estimated the industry at $7.8bn in on-line travel in 2000, rising to $32bn by 2004. Travelocity’s response has been a greater focus on the business traveler to complement their early-stage consumer focus. As airlines continue to offer ‘‘specials’’ that are available only on the Web, the demand for on-line travel booking and management will increase. Travelocity travel already has bookings of more than $2.4bn, making them a giant in this sector. eBay eBay has always been considered a destination site for B2C activities, particularly famous as an auction powerhouse. However, eBay is a sleeping gorilla in the B2B space. It has the tools, the methods, and the clients to make it a dominant player in B2B. As the world’s largest personal on-line trading community, an established brand, and with the ability to pair buyers, sellers, and suppliers in short order, they have the ingredients for success. Execs at eBay know that there is huge money out there in this space. The Business eXchange B2B segment of their site provides access to sales, auctions, and services for a variety of products. These range from computing services to industrial, farm, and restaurant equipment. Their business model of taking a shave of the revenue from the transaction is very scalable. They are currently one of the few profitable exchanges on the Internet.
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Creating winning e-business systems does not happen by accident. The development of relationships and leveraging them occurs as a result of a deliberate strategy to ‘‘make’’ the results happen. Because of the complex nature of the partnership environment, many elements come into play. Misunderstandings, management of partner relations, and some natural tendency to blame the other in any failing relationship come to the front as partners work with each other. Those that can overcome these problems, and manage the relationship effectively, truly gain the power of many. Others simply fail. They are not willing to do what it takes to make it happen. While many will compare partnership to marriage, there are significant differences. The primary one is that most partnerships are not a one-to-one relationship. Most firms and organizations want many to assist them in the bringing of their products to market, and therefore the exclusive relationship is becoming a thing of the past. As exclusive relationships fall to the domain of specialized and small market areas, the management of partnerships becomes more demanding and complex. This requires a shopping list of skills, tools, and systems to make all this work. Management of partnerships may not be the easiest thing on earth, but it certainly creates conditions that will allow an organization to thrive. Getting inside the minds of some of the leading firms in the industry is one way to determine how much the partnership has added to the success of the firm. Unlike other factors, organizations cannot be successful just because of the their ability to partner. While this can be a tremendous differentiator, one that will often cause others to lose market share while partner-friendly operations succeed, it is rarely the only factor. Companies can sometimes win on leading technology or great customer service. The fundamentals of why a business operation is successful must be present. However, an operation’s ability to partner often is a realization of how they can best leverage their position. For those already in the market, such as the automakers of the world, leveraging their position to ensure that competition has a high bar to reach is the focus of their strategies. New firms operating in traditional markets will try the opposite approach, using partnerships, strategy and technology as a weapon to differentiate themselves in the market, and ultimately gain and sustain new market share.
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In the course of examining firms in these areas and their success to date (nothing ensures success in the future), we can learn from their wins and errors. As with most strategies, the firms that have done well on the partnership front have modified their strategy and approaches based on what has happened in the marketplace. This snapshot has been taken looking at firms in various segments of the B2B and B2C marketplace. Most of the firms listed have already implemented a very extensive B2E (Business to Employee) strategy and system to improve the productivity of their operations. This foundation creates the basis for most of the way they operate, interacting with both clients and business partners appropriately. Each of these segments has a different set of issues governing why the partnership is successful, but they have all shown how they can make a real difference by leveraging their position. The ideal for most organizations with regard to partnerships is interdependence not just dependence. Creating an environment to develop an interdependent environment requires energy, determination, creativity, and resilience. Since the recent corrections in the dot-com markets, these will become ever more important factors. PRIVATE EXCHANGES In times long gone, the Corn Exchange was the focal point of trading society in farming communities in Europe. This became the place where buyers and sellers gathered to examine each other’s goods, determine the price and trade. Most of this was conducted on preset days, with most transactions based on the ‘‘word’’ of the trader. Often the trade was conducted without any paperwork, no attorneys and the quality of goods and market conditions determined price. Even today, some commodities exchanges work on the same basis, where the trader is ‘‘good’’ for the money or supplies that were contracted. Modern private exchanges perform somewhat the same function, with a few exceptions, for instance: » the trade is often guaranteed; » participants are certified before they can trade; » legal terms are agreed before and during the transaction;
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» traders only need to be present electronically; » there are usually no geographic boundaries; and » connections and trade with individuals unknown to individuals can be made securely and with confidence in minutes. While I would not try and describe these new private exchanges as the Corn Exchanges of the future, it is interesting to see the speed at which new relationships can be established and the complexity of the transaction that can be affected. One example is the seafood exchange established by GoFish.com. Altra Energy While selling excess gas over the Internet might seem like a silly thing to do, Altra has proved they can do it. In fact they have proved it $6 billion times in the first half of 2000, a transaction volume that will make many exchanges envious. Building an exchange that brings producers of excess energy with hungry buyers has proved very fruitful for the company. By providing a trading platform where buyers and sellers can meet to trade natural gas, gas liquids, power, and crude oil, Altra has been a very successful exchange in the marketplace. A private company based in Houston, Texas, Altra Energy Technologies, Inc., offers an electronic marketplace, along with a suite of products to schedule, transport, and account their energy transactions. In addition to facilitating the purchasing process (using systems that separate the buyer and seller until the transaction is complete), Altra also offers portfolio monitoring and scheduling of trades for their clients. E. Russell (Rusty) Braziel founded Altra in 1996, as business units of the Williams Companies and Duke Energy Corporation were consolidated, creating what has become the world’s leading energy software and e-commerce company. As with most successful private exchanges in the market, the industry knowledge and personnel have provided the underpinning for a successful operation. With several years and a strong position in the marketplace, the future for exchanges such as Altra looks bright. By bringing together parties that were not trading effectively with each other, and selecting energy products that are particularly suited to this form of trading, their huge ‘‘niche’’ has been well established.
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BIG CONSORTIA COVISINT At the other end of the spectrum to Altra Energy are buy-side consortia such as the huge initiative from DaimlerChrysler, Ford, General Motors, and Nissan/Renault. Named ‘‘COVISINT’’ to indicate a strategy of Connectivity, Visibility and Integration, the B2B hub could be the largest transaction engine this side of the New York stock exchange. Transaction revenue estimates have run as high as $240bn over time. With this level of volume, the partnership has attracted the attention of the Federal Trade Commission, with concerns about monopoly and price fixing in the marketplace. For now, they have been given a clean bill of health, but this size of exchange brings buying power to new levels in the marketplace. The large auto firms have in general been late to take advantage of the Internet in the B2C space, but they really understand the value at the B2B level. Whether this consortia is successful or not in the long run, each auto supplier has been busy creating their own B2B exchanges to leverage their supply chain. As it becomes easier to find suppliers and partners around the globe, the big vendors want to ensure that their ‘‘chain’’ remains viable. The partnership desires of consortia such as COVISINT are steeped in a desire to improve the timeline from design to a finished car from 42 months down to 12–18. While this is a noble cause, the other main reason is to drive cost out of the process. Most of this squeeze is likely to occur on the suppliers in the exchange, according to industry analysts. Estimates have been as high as a 10% cost reduction for the vehicle production process. With firms like General Motors and Ford purchasing more than $80bn in supplies each year, you can tell that these partnerships are important to the future. Time will tell whether COVISINT turns out to be the megapartnership of the century. Certainly in terms of volume, with 90,000 potential suppliers, the exchange would be the largest in the industry – providing, of course, that they sign up. THE CONSUMER MARKETPLACE eBay Creating one of the ultimate partnerships in the marketplace today is eBay, arguably the world’s largest on-line trading community. eBay
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is the epitome of the power of many. By creating an environment that permits individuals and small businesses to trade directly with each other they have created a powerhouse in the marketplace. We examine eBay not because it is the biggest community, but because it has been able to create traction in a marketplace that has been inevitability fragmented. While others failed to create the super-mall of the Internet, eBay succeeded. At least if numbers measure success, with over 19 million registered users, eBay is a winner. The entire philosophy of eBay is based on partnership and trust. They expect certain levels of performance in the description of goods from sellers, and that fulfillment works at the other end with buyers receiving goods. As their environment includes collectors, hobbyists, small business operations, antiques dealers, and just plain lookers-on they have a lot to deal with to create a compelling experience at their site. During 2000, the community grossed over $5bn in merchandise. The company has also been expanding their offerings by moving into the B2B marketplace, and acquiring firms where they have not been able to provide services demanded by users of the existing environment. Half.com was one of their 2000 acquisitions, combining auction and fixed-price trading on their site. While the numbers of their community are impressive, more important is that they have been able to provide a trusted marketplace for a community that had few locations to go to trade their products. Flea markets, car boot sales, regional magazines, and classified ads were the locations where others could reach out and touch buyers and sellers. In a very short period of time, eBay has established them as a destination that meets many needs. As with most successful Internet-based businesses, the company wants to leverage its brand and get more of the financial transaction from its clients and partners. eBay enables trade on a local, national, and international basis. It features a variety of specialty sites, categories, and services that aim to provide users with the necessary tools for efficient on-line trading. Areas of specialty include: » eBay International – in addition to the US-based site, the firm has specific sites for the UK, Canada, France, Japan and Australia;
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» regional sites in the US market – this allows for the geographic segmentation of eBay items, particularly those that might be difficult to ship; » vehicles from eBay Motors – one of the largest sites on the Internet trading cars, motorcycles, and accessories, this has become a destination site for all things automotive; » the Business Exchange – eBay’s entrance to the B2B marketplace; expanding rapidly, the site allows businesses to sell industrial and office equipment to buyers quickly and easily; and » a live auctions feature – allows eBay to offer real-time on-line bidding for items that are on auction floors, thereby creating new ways of connecting buyers and sellers to the traditional auction world. Aside from the obvious volume and range of the offerings available from the eBay Web environment, the firm has created some significant differentiators in contrast with others that are trying to muscle in on the marketplace. By continuing to move into new segments that have volume opportunities, eBay is connecting buyers and sellers together in a very powerful manner. While individual sites are making a good market in small segments, eBay operates like a huge classified engine, flea market, and specialty store all in one. While eBay offers these services at prices that users consider reasonable, it is hard to see how they will have their dominant position in this area challenged anytime soon. The regional market expansion is particularly interesting, as the model can scale easily and also be customized to meet the specific needs of other areas rapidly. eBay is expanding by providing financial services along with the ability to acquire products and services through their channel. This mixed selling model is rapidly taking the Internet by storm. Recent surveys indicate that as much as 50% of on-line purchases could be in the form of blended sales, where cross-selling of services occurs when others are in the presence of related areas of interest. Perhaps this will be eBay’s next horizon on the partnerships front? Amazon.com While much has been written on the topic of Amazon, the firm continues to innovate in a way that sets the benchmark for ‘‘what’s next’’ in
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consumer trends. Amazon has moved from the early days of focusing on the virtual bookstore business to become a multi-faceted branded store with much of what consumers are looking for on the Web. Aside from gaining a significant stranglehold on Internet consumers, Amazon has become the master of the partner game. Virtually inventing the affiliate model, the firm’s adoption rate has been phenomenal. The affiliate program is just one example of how Amazon has learned to use others to sell for them. For some reason, the firm has also been able to attract the reviewers of the world to come and work for them. Now, in their latest move in the book section of their Website, they are trying to turn buyers into sellers, by allowing the sale of used (read) books back into the marketplace. (With the commensurate commission of course.) This moves the company straight into the sphere of used books, and creates even more loyalty with the client base. Providing advertising opportunities for all levels on their sites, the visibility for a book and its success in the market is now being determined, not solely, but significantly, from how it is received at the Amazon site. As other retailers struggle to gain traction in this market, it appears that however they try to attack the Amazon product, they still cannot gain market share from them. Why is this? What makes this company so unique in the market? Amazon, like eBay, has had little to protect in the way of existing market share, and firms that have this attitude can only do one thing. Innovate. Now Amazon has moved from the pure innovation stage to leveraging their brand in the market. While they are not the cheapest in the market, they are still the biggest. Unless the firm continues to have the tremendous pressure put on them to become profitable soon, then their lead will be hard for others to emulate. Winning firms in this segment will use technology, pioneering business strategies, and new work processes in significant combinations. They cannot do it by purely bullying the marketplace, although this technique may work for a while. The tide is changing, allowing firms to partner with the right choices, not just the only choices. Of all the benefits of the Internet and a wired world, choice will be the one that makes all the difference in the end. Partnerships that work will roll the dice on the winning numbers.
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BEST PRACTICES All of these firms have developed a set of best practices that can be applied to many business situations. Here are some that are worth emulating. Think fast, work fast The ability to think and work quickly is omnipresent in this sector. Staying paranoid is probably a good thing for most operations. Partnerships are essential Each firm included in this chapter relies on partnerships. Marketing, strategy, industrial, development, sales, and distribution are all areas where partners can potentially be recruited. Leveraging existing relationships Organizations with existing relationships are finding ways to leverage them early in the process. Sometimes those relationships may have been developed with a different idea in mind. However, leveraging them to create new business opportunities is a best practice that most B2B firms are using to generate results. Go international early As the B2B market heats up quickly, and the scramble for market share in the US becomes more violent, a great differentiator is to move overseas early in the process. As the rest of the world joins the e-business adoption cycle, a great opportunity awaits firms that get to the early adopting markets first. Understand supply chain Supply chains and how they operate can be used as a model to identify ways of getting to a target market quickly. The relationships and the way that they operate is often the foundation of making any B2B system and connection work well.
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Leverage your brand Building on an existing brand gives bricks and mortar firms a significant opportunity to enter the market at a discount. The amount of dollars that are required today to create brand awareness can keep players from entering the market at all. Multi-heading business models The development of business models that have many dimensions can ensure that the minimum amount of money is left on the table with e-business partners. Many successful B2B operations have models that include business exchanges, sponsorship, advertising, content relicensing, stores, and application services. More is generally better, as the money has already been spent to bring your partners to the site. Ditch old market and development programs The era of sequential long-term market planning, development, and test adoption cycles is over. Successful e-business tacticians have learned how to integrate market research, testing, prototyping, and awareness programs. This will become mandatory in the future. Develop your own practices Evolving in real time is a challenge for everyone in this marketplace. However, learning new techniques and maintaining a willingness to adapt are vital. Remember that speed can kill, but staying put is a guarantee of failure.
02.03.08
Key Concepts and Thinkers E-business has its own language. Get to grips with the lexicon of e-business and the key personalities in this chapter.
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KEY PERSONALITIES John Hagel III and Marc Singer Net Worth1 was one of the leading new economy books of its time when first published in 1999. As with many good books and advice, the information has stood the test of time, even Internet time. Hagel and Singer understood and clearly articulated the importance of infomediaries and their influence in the sales and distribution cycle of products. By reviewing and creating information about these products, they became a large factor in the decision-making process for those shopping on the Web, or looking to verify that a supplier was of the right quality and characteristics. Predicting accurately the importance of the relationship between information and the development of communities, they predicted the development of collaborative commerce environments. In Net Worth they offer some excellent advice for firms that are faced with the challenges on how best to deal with this critical issue, advising three alternative strategies. 1 Transition: Change the existing business operation to break it into segments so that it will be better able to address the challenges from e-business pressure and market changes. 2 Merger and acquisition: Acquire or merge operations that best meet the requirements of effective operation, and build new core competencies and e-business capabilities that make sense. Given considerable consolidation occurring in the market during 2001, this trend is likely to be a major one for the near term. 3 Divestiture: The other side of the M and A approach – Hagel and Singer recommend getting out of business areas that are not core to the e-business strategies. Thomas H. Davenport and John C. Beck Another groundbreaking book that can assist us to understand the complexity of how to gain, manage, and retain the attention of people is The Attention Economy.2 Outlining a world where we are bombarded by conflicting and distracting messaging, the Web represents the ultimate in distraction if the information access is not managed and understood.
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‘‘One way to get attention from customers, of course, is to give them attention.’’ Thomas H. Davenport and John C. Beck Davenport and Beck pay particular attention in this book regarding processes and how they impact the way a business is operating. They recommend balancing the organization’s capability to change, along with new work processes to support e-business and related change. Their guidelines include: » tying process management to information systems initiatives; » relying on senior management making the issue of the organization and process change important for all to recognize; and » evaluating and rewarding employees based on performance management. Many organizations will see how much time and focus is wasted by not managing time or information correctly. Regardless of whether these principles are applied for internal employee management, or for the creation of e-business systems for clients and business partners, much can be gained from their work. GLOSSARY Access provider – A company that provides connectivity to the Internet. Customers of Access Providers pay a fee and are then granted access to the Internet through an electronic account defined and managed by the providers. Asymmetric Digital Subscriber Line (ADSL) – Provides high-bandwidth connections to the Internet, but can use twisted copper wiring (regular phone lines). Bellcore Labs in New Jersey initially developed this cost-effective method of bringing bandwidth to homes and small businesses in 1993. Andreessen, Marc – Marc Andreessen led the team that created Netscape Navigator through his company, Mosaic Communications Corporation. Before creating Netscape Navigator, Andreessen created NCSA Mosaic at the National Center for Supercomputing Applications.
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ARPANET (Advanced Research Projects Agency Network) – The first Internet, developed in the 1960s as a way for US authorities to communicate with each other in the aftermath of a nuclear attack. This formed the basis of what has subsequently evolved into today’s Internet. Authentication – The process of verifying the identity of a user as they log onto a network. Bandwidth – Bandwidth describes the amount of data that can travel through the Internet or any communications network in a specific period of time. Berners-Lee, Tim – While working in Geneva, Switzerland at CERN, the European Particle Physics Laboratory, Berners-Lee created the World Wide Web. Bricks-and-mortar – A term used to describe traditional stores and methods of selling and distributing products. Barnes & Noble, who sell books through their stores as well as on-line, can be described of using both bricks-and-mortar and e-commerce strategies in their business. Brochureware – The act of putting your corporate literature directly onto a Website in its basic, static form. Often bores visitors to death, and causes rapid exits from the site. Browser – A software application, (such as Netscape Navigator and Microsoft Internet Explorer which interprets HTML and Web documents so that they may operate on a point-and-click interface.) A browser can be used to run complete software applications with extensions and plug-ins. Bulletin board system – Often referred to as a BBS, this system allows others to read, comment, and electronically post new messages to the group reading them. Often used for interest groups, customer support, or professional groups, BBS systems represent a low cost and effective collaboration forum for the Internet. Channels – Can have two meanings in the Internet. A ‘‘channel’’ is a Website designed to deliver content from the Internet to your computer, similar to subscribing to a favorite Website. Typically, it is not necessary to log onto the Website, but by connecting to
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the ‘‘channel’’ suggested content can be delivered to your desktop browser, often through a portal. Channels of distribution – A distribution channel is a method of providing your product or service to the target user of the system. This could be an on-line mall, portal, your own brand site, or a distribution supply chain. Chat – Chat systems are used to allow users of networks and the Internet to communicate in real time. Messages today are typically posted via a desktop window with other members of the group. The message will then appear in the open chat windows of others in that particular group for review and further comment. Clicks-and-mortar – Organizations that have bricks-and-mortar (traditional non-Internet based businesses) that have changed their strategies to provide both on-line and off-line channels for their clients and business partners Click-thru – The act of clicking (with a mouse) on a particular graphic or element on a Web page. These are measured to determine the effectiveness of advertising, content, and traffic patterns of individual Websites. Communicator – Netscape’s browser, collaboration, and communication software developed in January 1997. Community – Electronic forum where individuals and groups gather to find relevant and pertinent information. They are often segmented by interest or geography. Content management – The system and method by which content is updated, changed and re-posted to the Website. Cookie – Stores personal preferences for Internet information and communication tools. A text file that contains the information of user’s preferences is created and is stored in memory while the browser is running. In addition to personal preferences, cookies can also save information such as the date that the Website was visited, what purchases were made, what ad banners were clicked on, what files were downloaded, and what information was viewed. CPM – Cost per thousand impressions. A measurement of how many times someone has viewed your banner ad via a browser.
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Customer Relationship Management – Technology systems and internal processes to support the continuous relationship with clients from early stage prospecting through to customer support. Typically provide support for sales, marketing, support, finance, and, increasingly, workflow processes to allow clients to serve themselves with information and product. Cyberspace – Coined by William Gibson in 1984, this term is used to describe the place where people interact, communicate, and exchange information using the Internet Disintermediation – Being excluded from a business network or supply chain due to new market conditions, pricing, or distribution process and operations. Usually happens when the value being provided by the organization is not high enough to prevent getting squeezed out of the chain. Early adopters – Groups of users and individuals that will typically adopt technology and new work processes early in their introduction to the marketplace. EDI – Electronic Data Interchange. The controlled transfer of data between businesses and organizations via established security standards. E-business – Term now used broadly for the act of doing business using the Internet and other electronic means to conduct business. E-mail – Electronic mail is the Internet service most widely used. When sending an e-mail, a file is created that is transmitted and delivered to the electronic mailbox of the person you address. Can also be used to transfer files containing other information such as documents, programs, and multimedia data. Extranets – Private wide area networks that run on public protocols with the goal of fostering collaboration and information sharing between organizations. A feature of extranets is that companies can allow certain guests to have access to internal data on a controlled basis. E-tailing – On-line sales of retail style goods. Many consumer and specialist goods are now available via these on-line e-tailers. E-zine – On-line publications in the form of newsletters or magazines that allow for a new way for communication and interaction to occur on the Internet, e.g. www.salon.com.
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FAQs (Frequently Asked Questions) – Helpful way for new users to look at questions that are regularly asked, usually saved on a bulletin board or as archived files. File server – A computer that stores and makes available programs and data to other computers on a connected network Finger – A locator used to find people on the Internet. Its most common use is to detect data about a particular user, such as telephone number, or whether they are currently logged on or their e-mail address. The individual being ‘‘fingered’’ must have his or her profile on the mail system, otherwise there may be no results to a finger query. Firewall – A software/hardware combination that separates an internal local area network from the external Internet. This is done for security purposes in order to protect a company’s network from the outside world and unauthorized electronic visitors. FTP (File Transfer Protocol) – A protocol used on the Internet to transfer many different types of information in the form of files and data. These files and data may contain software, text documents, sound, or images. Used as a way of transferring data from one site to another, this protocol is now transparent to many users using browser-based applications. Gateway – A hardware or software component that links two otherwise incompatible applications or networks. Gopher – A navigational tool that finds resources and information on the Internet by using a multi-level menu system. The main menu is a list of hyperlinks, each with an icon that describes the type of resource to which the resource connects. The resources that a hyperlink could be connected to could be a text file, a movie or binary file, an image, or an index. Home page – Using HTML, Internet providers are able to create a home page, which is the first page that a user sees after entering a URL for a Website (now sometimes called the index page). HTML (Hypertext Markup Language) – The language used to create a Web page. It is used to format the text of a document, specify links to other documents, and describe the structure of the Web page. In addition to these main uses, HTML may also be used to display different types of media, such as images, video, and sound.
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HTTP (Hypertext Transfer Protocol) – A protocol used to transfer information within the World Wide Web. Hyperlink – An electronic link that can be programmed so that it is possible to make a jump from one document or Web page to another. These are primary tools for navigating the Internet Impressions – The number of times that an element of a page has been viewed by an individual browser. Often used to count Internet ad placements. Intranet – Internet-based computing networks that are private and secure. Typically used by corporations, government, and other organizations, these are based upon Internet standards and provide the means for an organization to make resources more readily available to its employees on-line. IP (Internet Protocol) – Software that divides information into packets. It then transmits this information in its divided form. This is required for all computers on the Internet to communicate. IP address – An address that identifies each computer on the Internet using a string if four sets of numbers separated by periods. IRC – An acronym for Internet Relay Chat. Allows individuals to ‘‘chat’’ on the Internet. See ‘‘Chat’’. ISP – Internet Service Providers deliver a wide range of services to individual users and organizations for the Internet. These include Web hosting, electronic mail, FTP, and many other e-commerce services. ISDN (Integrated Services Digital Network) – A telephone service that has become a popular, cost-effective solution to traditional dialup speeds over the Internet. ISDN allows ordinary telephone lines to transmit digital instead of analog signals, thereby permitting much faster dial-up and transmission speeds. Internic – Governing body controlling the issuance and control of Internet domains and addresses. Currently a partnership between the US Government and Network Solutions, Inc. Java – A programming language that was created in 1995 in order to allow programs to be downloaded and run on a Web browser. Developed by Sun Microsystems, Java is an object-oriented programming language that allows content and software to be distributed through
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the Internet. Applications that are written in Java must be run by a Java-enabled Web browser. Kermit – A file transfer program that is popular on mainframe computers. Killer app (application) – An incredibly useful, creative program that provides a breakthrough for its users. The first killer app of the Internet was e-mail. LAN (Local Area Network) – A computer network that operates and is located in one specific location. Many of these may be connected together in order to enable users to share resources and information on their network. Legacy systems – Generally described as an existing computer system that is providing a function for some part of the business. These systems are considered older in nature, but often provide some strategic function to the business. Examples include: » Inventory Management systems » Manufacturing Resource Planning systems (MRP) » Enterprise Resource Planning (ERP) » Sales Automation systems » Help Desk systems MIME – Multipurpose Internet Mail Extension, a standard method to identify the type of data contained in a file based on its extension. MIME is an Internet protocol that allows you to send binary files across the Internet as attachments to e-mail messages. These files includes graphics, programs, sound, and video files, as well as electronic office files. MIME allows different types of systems to interpret these different files types successfully. Mirroring – Exact copying of the content of one computer disk to another. Used to back up information in mission-critical systems, and permit the maintenance of others while the system is still running. Moore’s Law – Gordon E. Moore, co-founder of Intel, said in 1965 that he predicted that the processing power of integrated circuits would double every 18 months for the next 10 years. This law has proven true for almost 30 years and is now used in many performance forecasts. Moore’s second law is that the cost of production would double every generation.
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Newsgroup – An electronic discussion group comprising of collections of postings to particular topics. These topics are posted to a server designated as the news server for this group. Newsgroups can be an invaluable source of information and advice when trying to resolve problems and get advice. Newsreader – A software program that lets you subscribe to newsgroups, in addition to reading and posting messages to them. Will keep track of groups visited and favorites for simplified navigation when returning and tracking activities in different groups. Netiquette – Set of rules users are encouraged to follow if participating in an electronic discussion group or sending e-mail on the Internet. NIH – Not Invented Here. Node – An individually addressable point on a network. Could be a computer, printer, or server on the network One-to-one marketing – Customization and personalization of both product and prospect requirements to meet an individual set of established needs. Once matched, a one-to-one marketing program delivers an exact marketing message, with the appropriate product to meet the prospect’s needs. Packet – Term used to describe data being transferred over a network in a unit. Switching – A communications paradigm used to minimize latency and optimize the use of bandwidth available in a network. It does this by individually routing a packet between hosts using the most expedient route. Once the packets are sent, the destination computer reassembles the packets into their appropriate sequence. PDAs – Personal Digital Assistants are used to provide relevant computer functions to the individual without the overhead of a laptop or local computer. These now include e-mail, contact information, paging, Web browsing and access to remote corporate applications. Personalization – Customization of Web information to specifically meet the needs and desires of the individual user. Plug-ins – By extending the standard capabilities of a Web browser, the plug-in permits the running of other programs and many multimedia applications through the Web browsers. POP (Point of Presence) – Where the Internet server is located.
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Portal – Major visiting center for Internet users. The very large portals started life as search engines. AltaVista, AOL, CompuServe, Excite, Infoseek, Lycos, Magellan, and Yahoo are examples of major portals. B2B portals offer locations for individual business transactions to occur specific to affinity groups and business needs. PPP (Point-to-Point Protocol) – Internet communication protocol for transferring network data over serial point-to-point links. Pull technology – Describes the type of technology used in the Internet where users searching for and requesting information to be downloaded to their computer. Push technology – Delivery of information to potential consumers via electronic means. Often involves the automated transmission of new data on a particular topic on a regular basis, or some predetermined event. Quality of service – Defines the level of service for an individual, voice, data, or video connection when using a telecommunications supplier. Redirectors – Programs that send visitors to one segment of a Website to a new location automatically. Replication – Describes the process of controlled copying of certain elements of a Website, database, or other collection of information. A technique that can provide portions of a system to be automatically distributed to the area that needs it for performance or other reasons. Robot – A robot is a program that is designed to automatically go out and explore the Internet for a specific purpose. Some robots record and index all of the contents of the network to create a searchable database; these robots are called spiders. Router – A system at the intersection of two networks that works to determine which path is most efficient for data when traveling to its destination. Search directories – Subject indexes on the Web that allow users to search for information by entering a keyword into a query box on their site. The directory searches through keyword matches in their database only. Search engines – Search World Wide Websites, Use net newsgroups, and other Internet resources to match descriptor words. Many also
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rank the matches in order of relevancy, making it easier for the user to know what sites are likely to be most helpful. Server – A software program that functions in a client–server information exchange model whose function is to provide information and execute functions for computers attached to the network. Shareware – Software that is made available to users, by the developers, at no cost. Manufacturers of shareware often ask users to review the applications and sometimes request a fee of $10–$25. Shareware is available on Websites such as www.jumbo.com, www.shareware.com, and www.tucows.com. SMTP (Simple Mail Transport Protocol) – The protocol for Internet e-mail, where the host name of the Internet provider’s mail server must be designated in order to send mail. Spam – The practice of sending email or posting messages for purely commercial gain, often to very large groups of uninterested users. Spider – Programs designed to browse the Internet and look for information to add to a search tool’s database. Spoofing – Slang for someone impersonating another on the Internet. Typically used in electronic mail applications. Streaming – Where a plug-in is used to watch a video in real time as it is downloaded, instead of having to store it as a file Stickiness – A general term to describe the characteristics of a Website to attract and keep users in the area. Also a measurement of how many users return to the site for more information or products. Streaming – Relay Chat, net phone and video conferencing where communication occurs at the same time. Synchronous communication – Simultaneous communication using applications such as Internet Targeted marketing – Development of marketing programs by identifying segments in specific markets and designing the product or service to specifically meet these needs. Templates – Pre-defined application components that allow rapid development and deployment of computer-based systems. T1 line – A high-speed digital connection that can transmit data at a rate of 1.5 million bps (bits per second). Often used by small- and medium-size organizations, very fast file transfers can be made using this type of connection.
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T3 line – A very high-speed connection capable of transmitting data at a rate of 45 million bits per second. Good enough to transmit real-time video, this type of connection is usually reserved for large organizations. TCP/IP (Transmission Control Protocol/Internet Protocol) – Set of protocols that allow computers of any make or model to communicate with each other over the Internet. TCP packages the data to be sent and IP provides the addressing information about where the packages are to be sent. Telnet – Allows users to log onto different computers and run resident programs. Although this is not as lauded as the World Wide Web and requires commands to navigate, it is essential for Internet travel. Tunneling – A secure mechanism to allow transmission of data across points of access on the Internet. URLs (Uniform Resource Locators) – The standard form for addresses on the Internet that provide the addressing system for other Internet addresses. Virus – A program created to cause problems on the computer systems they invade. Virus protection has become a major component in maintaining the health of computer systems everywhere. Veronica – An acronym for Very Easy Rodent Oriented Netwide Index to Computerized Archives, Veronica is a network utility that lets individuals search all of the over 6,000 Gopher servers in the world. Virtual Private Networks – Private networks that allow users to purchase bandwidth and access, often through their Internet connection, without the need to purchase dedicated network cabling or systems. VRML (Virtual Reality Modeling Language) – Language that allows users to experience a simulated three-dimensional environment on the computer. This was first developed for video games and now has advanced, creating a non-profit VRML consortium with more than 50 companies. WAIS – An acronym for Wide Area Information Servers, WAIS is a network information retrieval that allows searching for keywords or phrases. These are indexed in special files. Unlike Gopher, WAIS searches the full text of files that it indexes, thereby providing a much larger group of documents for the user to select. This method
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is the most popular method used by large search engines on the Web. Wallets – Electronic wallets offer the ability for shoppers on the Internet to automatically debit their accounts using e-money. The wallet contains electronic money which is usually deposited in advance, and is replenished as the account need it. This is likely to become a more common form of shopping in the future. WAN (Wide Area Network) – Made up of local networks that are connected to other local networks by high-speed telephone lines. Whiteboard – The electronic equivalent of a chalkboard, whiteboards provide visual communication and interaction over networks. Wired – Term used to describe users who are attached to their computers or use the computer and the Web as in integral part of their lifestyle. World Wide Web – A collection of protocols and standards that make it possible to view and retrieve information from the Internet. By being linked together in a hypermedia system, this information can be used through the World Wide Web. WYSIWYG (What You See Is What You Get) – Term used to refer to text and graphics that will print in the same format that it is seen on the screen. XML – Extensible Markup Language describes the structure of, and provides application control over the content of, the documents and systems using this language. Much more powerful than HTML, XML is likely to be the next generation language for the Web and business applications. NOTES 1 Hagel, J. & Singer, M. (1999) Net Worth. Harvard Business School Press, Boston. 2 Davenport, T.H. & Beck, J.C. (2001) The Attention Economy. Harvard Business School Press, Boston.
02.03.09
Resources Much has been written on the subject of e-business. This chapter identifies the best resources: » Websites; and » books and articles on CRM.
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RECOMMENDED READING » Peppers, D. & Rogers, M. (1997) Enterprise One to One. DoubleDay, New York. » Haylock, C.F. & Muscarella, L. (1999) NetSuccess. Adams Media Corporation, Avon, MA. » Moore, G. (1995) Inside the Tornado. HarperBusiness, New York. » Segil, L. (2001) Fast Alliances. Wiley, New York. » Seybold, P.B. (2001) The Customer Revolution. Crown Publishing, New York. » Hagel, J. & Singer, M. (1999) Net Worth. Harvard Business School Press, Boston. » Siebel, T.M. (1999) Cyber Rules: Strategies for Excelling at EBusiness. Doubleday, New York. » Seybold, P.B. (1998) Customers.Com. Random House, New York. » Meyer, C. & Davis, S. (1998) Blur: The Speed of Change in the Connected Economy. Capstone, London. » Miller, W. (1998) Flash of Brilliance. Perseus Books, Reading, MA. » Senge, P.M. (1990) The Fifth Discipline. DoubleDay, New York. » Hagel, J. & Armstrong, A.G. (1997) Net Gain. Harvard Business School Press, Boston. » Evans, P & Wurster, T.S. (2000) Blown to Bits. Harvard Business School Press, Boston. In addition to these excellent books some excellent resources for specific topics are listed below. These will provide up to date information on particular e-business areas that are changing and evolving rapidly. E-MARKETING The following are excellent Web-based resources for e-marketing activities. eMA – eMarketing Association The eMA is a professional organization for companies and individuals involved in the practice of e-marketing and the integration of on-line and off-line marketing activities. This site provides resources such as
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white papers, newsletters, Web tools, and articles as well as information about professional certifications. The site can be accessed at http://www.emarketingassociation.com. Wilson Internet – Web marketing and e-commerce This site, created by Ralph F. Wilson, is one of the best free sources for e-marketing resources on the Web. The site includes a large collection of free articles, a newsletter, and recommended books, all highlighting e-marketing best practices. This is a great resource for firms currently using the Internet as a key component of overall marketing strategy. The site can be accessed at http://www.wilsonWeb.com/. Brint.com – e-business Brint.com has long been recognized as an excellent resource for business professionals. The site includes a section devoted to e-business in which many relevant topics are covered, including a directory of Web marketing resources. This page can be found at http://www.ebiztechnet.com/cgi-bin/links/links.pl?passurl= /Computers/Internet/Marketing/Resources/. KNOWLEDGE MANAGEMENT KM World KMWorld is the leading information provider serving the knowledge management systems market. The site provides information about the components and processes – and related success stories – that together offer solutions for improving your business performance. The site can be accessed at: http://www.kmworld.com/. Knowledge Management Magazine This magazine’s site is an excellent information source for the latest developments in knowledge management. The site can be accessed at: http://www.kmmag.co.uk/. Brint.com – knowledge management portal Another excellent resource from Brint.com, this site includes a portal devoted to knowledge management which includes forums, magazines,
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articles, events, resources, analyses, and news. This page can be found at http://www.brint.com/km/. RE-ENGINEERING Reengineering Resource Center This site is an excellent information source for both the re-engineering novice and the seasoned professional. The site can be accessed at: http://www.reengineering.com. Brint.com – business process reengineering and innovation The site includes links to information about BPR, which includes papers, books, articles, and tools for process reengineering. This page can be found at http://www.brint.com/BPR.htm. PORTALS CIO.com This site bills itself as ‘‘The Leading Resource for Information Executives.’’ Topics covered by CIO.com are organized into Knowledge Centers. Although there is not a specific knowledge center for portals, a search for ‘‘portal’’ will turn up hundreds of articles on the subject. The site can be accessed at: http://www.cio.com. Intranet Journal The Intranet Journal is an excellent source for information on portals as well as other technology utilized by intranets. The site offers access to articles and case studies as well as an Intranet Events Calendar. The site can be accessed at: http://www.intranetjournal.com.
02.03.10
Ten Steps to Making E-Business Work Building a successful e-business solution requires a plan of action. This final chapter provides some key insights into creating and implementing an e-business solution in today’s business environment. » » » » » » » » » »
Strategy The business case Build versus buy Partners Platform support Business processes Technologies Pricing Support and maintenance Conclusions
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PULLING IT ALL TOGETHER Creating a road-map to assist operations to make the right decision along the way is the final wrap to a solution. 1. STRATEGY A clear strategy for an e-commerce solution is the key to the door of success. Without a well-defined strategy the other pieces may work, but not without significant revisions, out-of-control costs and endangerment of the client base. Keeping business goals, technology, and work processes aligned spells success for any e-commerce system. These important factors must work together. Developing and deploying an e-commerce strategy without talking to existing and prospective clients or understanding the demographics of the market can be fatal. It is little different to building convenience stores miles from a busy road. No one would dream of it, but it is common to avoid planning with e-commerce systems. Assumptions are made, such as: everyone has a browser, therefore everyone can reach us. Reminiscent of the early days of workflow systems, e-commerce systems provide some similar challenges to ensure they are successful. Workflow required us to change business processes, apply technology, and roll them out in unison. So goes e-commerce – with some new wrinkles. To ensure that e-commerce systems are effectively developed, all of the parts of the puzzle need to be considered. Table 10.1 illustrates concerns that are on the shopping lists of many companies considering e-commerce solutions. Many things go wrong due to the poor development of a strategy. Like workflow in the past, most of these failures come down to three issues: 1 the business case for the system was not defined; 2 it was doomed to failure because the business processes were not identified and agreed in advance; or 3 the technology or the application did not prove suitable. While there is still concern about the robustness of certain technologies to support demanding e-commerce applications, the first two items will
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E-commerce concerns.
People
Processes
Content
Technology
Transactions
Influencers
Sales process
The product
Purchase
The client (consumer) Client (B2B)
Market feedback Advertising and promotion
The service
Infrastructure and development platforms Security Content management
Fulfillment
Advertisers
Customer support
e-commerce
Shipping
Internal staff
Maintenance of site
Multi-language support Hosting and access
Taxation
Marketing and catalog information Legal agreements and contracts Corporate information Multi-language content
Transactions
International distribution
cause most casualties in e-commerce. Avoiding these problems before they emerge is not difficult, but it does require some discipline. The first step in the development and deployment of any e-commerce strategy is to clearly understand the client’s needs. This step is the one most often needed in e-commerce applications but also most avoided. Understanding what customers want and how they would like to have it delivered is a great starting point for any strategy. This will provide insight, buy-in, and input to most of the application needs, simply by asking prospective users what they would like to see in the system. Once research is complete then the time is right to review the technology that is available to meet the e-commerce needs. 2. THE BUSINESS CASE Building the business case for an e-commerce strategy is a fundamental step for success. This can be as simple as a few bullet slides and a spreadsheet, but is a necessary step to building good solutions. Ebusiness applications often provide very high Return on Investment,
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many producing returns in the range of 500–2000% or more. The successful ones create tremendous value for the clients. Many models exist to develop a solid business case, but most require clear measurement of expected outcomes from the system implementation. Discussions and workshops are often used to ensure consensus and agreement in determining the outcome of e-commerce systems. Table 10.2 shows examples of factors to consider. Hard benefits measure the positive financial impact to the organization. These are offset against incremental costs, estimated as part of the development of the business case. Then the Return on Investment is calculated according to the accounting practices of the organization. Although there are always some variables to add in later in the process, most of the opportunity has been quantified at this stage. This business case provides the foundation for the system development and deployment. Table 10.2 Examples of factors to be considered in the development of the e-commerce business case. (Source: Harvard Computing Group 2001.) Business needs
Incremental costs
Soft benefits
Hard benefits
Increased sales
Hardware and software costs Consulting costs (internal/external) Marketing and promotion Hosting and Internet access costs Training and implementation
Improved competitiveness Customer satisfaction Better access to information Better corporate image Increased staff satisfaction
Increased sales
New product Greater market penetration New business initiatives
Shorter sales cycles Improved margins Reduced costs
3. BUILD VERSUS BUY A major choice to be made is the ‘‘build versus buy’’ decision. In most cases, organizations need some help through the decision cycle. As many businesses are now moving on to their second or third generation of e-business systems, the mistakes of the first system now
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appear obvious. As each e-business system requires a blend of business, technology, and work process change, it is likely that you will need some outside help. A number of variables determine how much of an individual project should use external resources. These will alter according to the importance of particular functions to the success of the system, and how much control the organization wants to have over these elements. In many financial applications, for example, companies want to have total control over the computer systems for a variety of regulatory, security, and business process reasons. However, many companies in other industries can take advantage of the wholesale outsourcing of their projects. Reviewing various aspects of the project provides guidelines for determining which elements are targets for external support or assistance. As recently as a few years ago, most complex systems involved a tremendous amount of complex programming in their development. Today there are great opportunities to reduce the amount of programming required in the development and even the hosting of the project. CONSIDERATIONS IN A ‘‘BUY VERSUS BUILD’’ DECISION » Do I have the resources to define the system requirements and the work process needs? » Has my organization the appropriate development resources and experience to build the e-business systems? » How much of our existing systems are involved in the development or deployment of an e-business solution? » How will the content be maintained and updated? » Who will administer and control the system after it is installed? » Do we have existing products that could provide the foundation of a new system? 4. PARTNERS Selecting the right partners to work with is one of the most important decisions in the entire process. Here are some guidelines for what to
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look for in the development of successful partnerships, in the selection of both the technology vendors and the consultants that you hire to assist with the implementation. SMART THINGS TO CONSIDER WHEN SELECTING VENDORS AND CONSULTING PARTNERS » Platform support: Operating system; network operating standard; compliance with standards; Web support; thin client; NPR – no programming required; use and compatibility with leading programming systems. » Financial viability: Is e-business a core business? Well funded? Profitable? » Quality: References; reliability of systems; release schedules; time for critical fixes; escalation procedures; test drive the help desk; knowledge base. » Price: Licensing scheme; cost per seat; maintenance cost; server base pricing; Web pricing; partner program. » Performance: Number of transactions; impact on desktop; network performance; remote access; database engine; overhead; scalability. » Business practices: Integrity; pricing policies; guarantees; references; attentiveness; quality of staff; responsiveness. » Support: Help desk; standard support contracts; response times; consulting support; training; local offices. » Maintenance: Cost of administration; software distribution; fixes policy and guarantee period; cost of maintenance, help desk, fixes, updates; frequency of updates; cost of ownership. » Set up costs: Training investment (initial, ongoing); internal help desk; initial; ongoing; annual maintenance costs; dependencies.
5. PLATFORM SUPPORT Ensuring that all decision-making staff are familiar with your organization’s platform plans is extremely important. This can influence results in time and performance. When your organization already has standards in place, it makes sense to use these as the baseline for new systems
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technology. For example, if a particular Web server or database is available and supported in the organization, then pick companies that have products and staff familiar with these standards. Many organizations will tout their services as being ‘‘open.’’ However, this often means that they will use whatever you want, but may be learning these products for the first time on your ‘‘dollar.’’ This not only increases costs, but will also compromise timeframes and the quality of the results. It usually makes sense to do business with an organization that already has skills in a particular area, even if they are not as ‘‘open’’ as some other firms. Financial viability Avoid doing business with companies that are not financially sound. However, in the Internet space, many products are developed and brought to market by innovative start-ups that can cut months off a system’s development timeline and reduce maintenance costs. (Many content management systems are in this category, with few vendors in the market for more than 24 months). Care should be taken to investigate the financial backing of companies in this space, although most that are now in the market have been there for some time now. Quality Quality of product and services remains an important decision point for doing business with a company. As a significant amount of your firm’s business is likely to be tied to the success of this system, paying attention to quality is paramount. In particular, among product companies, examine references (in similar applications if possible) and release schedules (notoriously subject to slippage), and talk to user groups or communities if possible. Many companies now have a great deal of customer support material and services available on-line. Look at their bulletin boards, FAQ databases, knowledge bases, and other support programs provided to help their clients after systems have been installed and supported. 6. BUSINESS PROCESSES The business processes to ensure success for an e-commerce application should be clearly defined. These can be as simple as defining site
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and product pricing updates, or as complex as defining B2B protocols and work processes with distribution and development partners. Part of the successful definition of the business case is to intensively review these procedures when determining the business case. What is the use of spending thousands of dollars on an e-commerce Website, to have no method of delivering the goods? Some of the points listed earlier in this chapter will help identify where to begin considering change in the process. Many of these factors may have little to do with the transaction itself, but can speed the decision-making process, or accelerate sales cycles. B2B e-commerce represents a huge part of the marketplace. E-commerce provides the opportunity for companies to improve and cement business partnerships, and develop new relationships by offering improved service and support. Many business processes are linked to what are known as self-service or personalization applications. These are designed to provide information directly to the person who needs it without further intervention. Customer support applications are very popular in these areas, along with a supporting knowledge base to provide the information to the customer when they need it. Business processes cannot be ignored. If they are, e-commerce applications may actually increase costs and provide little or no benefit to anyone involved. The strategy will provide the drivers for change – new business processes must be developed to support it. 7. TECHNOLOGIES The majority of technology needed to develop e-commerce can be grouped into five categories. Application development tools are the foundation of any Web-based system. The majority of systems provide the technical platforms for system development and deployment. However, specialized systems have emerged into the marketplace over the last two years, dramatically reducing the time and effort needed to develop sophisticated e-commerce systems. E-commerce development tools are impacting the speed at which very large-scale applications can be developed. Many tools now integrate inventory management, transaction security, marketing, and catalog systems. Likewise, content management systems are providing
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organizations with the ability to deal quickly with customization, changes, and the controlled updating of sites without the need for Web authoring tools. This is particularly important for international applications. Table 10.3 illustrates some of the applications that are currently being developed using these tools. Table 10.3
Some applications of e-commerce development tools.
Application type
Application characteristics
Technical publishing, database publishing, knowledge management applications.
High volume electronic document applications. Built-in sophisticated information retrieval and PDF generation. Customization of content and presentation can be controlled interactively; business rules can be developed and modified easily; high level of personalization. Customized content can be presented in many different forms and formats.
B2B communication, supply chain, distribution applications and catalogs.
Commercial publishing, electronic magazines, and personalized content.
The types of applications that are being developed include catalogs and product information sites, B2B applications, self-service applications, and customer service applications. These applications usually require careful control and presentation of information providing the most value to the target consumer. They also require close control of the update, release, and approval processes for the information on the site. Security always raises its head as a concern on the Internet. Whenever financial information or internal corporate information is being accessed, companies worry about defenses being breached. Firewalls, tunneling technologies, S-HTTP, digital signatures, and EDI all continue to make strides to secure the Internet. We all want the openness and accessibility of the Web to market products, but we also want those private and secure transactions to be guaranteed. Despite these concerns, e-commerce is an unstoppable force in the marketplace.
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8. PRICING Everyone is sensitive to price when developing a new system. Pricing dynamics and the Internet are continuously changing phenomena. In general, software is still sold using server-based pricing, with a license charge according to the number of users of the system. (There are some variations to this model, but in the main, this continues to be a common practice). Some firms now offer combined services, where the software, maintenance, and hosting of the system are included in the price. (This will vary according to the amount of traffic, users, or transactions on the system). Price comparisons have to take into account various factors that affect each other in e-business pricing. These can be exceptionally complex, but this is nevertheless an important exercise. With many Internet offerings, firms want to engage you with their platform at the entry price, then expand their offerings (read ‘‘revenue’’) as your system needs to grow. This is not necessarily a bad thing, but it makes it even more important to compare apples with apples at this early stage of the procurement. 9. SUPPORT AND MAINTENANCE Having the correct support in place for any e-business solution is often the difference between success and failure. The various flavors of support that will be needed include: » » » »
help desk training and technology transfer on-site support client support
Depending on the amount of support that you plan to have outside the company, there may be different business models to meet support needs. Some firms will outsource all but the essential aspects of the system, others will want everything under their control and internal. Vendors’ and integrators’ cycle times and escalation procedures need to be reviewed carefully to see if they meet the needs of your operation. As it is likely that you will have several vendors, and perhaps one or two consulting operations assisting with the system, keeping the support
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criteria built to standards that meet the business needs is vital. For example, if one vendor commits to a four-hour response on critical problems, and another’s response is 24, the 24-hour response becomes the new low point for critical support. Maintenance The problem of maintaining an e-business system has many facets. Some of the more obvious ones have already been reviewed. Here are the main issues: » software updates and administration of systems; » updates and delivery to the clients and users of the system; and » maintaining content, policy, and pricing. While the first two issues are common to all system administrators, the third provides a great opportunity for flexibility and cost reduction. If a vendor or integrator requires their own staff to make changes to the system and its content as the only way of updating the system, beware. Many organizations have locked themselves into systems that are difficult to change, update, and modify. These relationships cause problems, are based on old models of content maintenance, and should be avoided at all costs. One major problem with this type of system, is that the funnel for the information delivery and publishing process is still the old one, often based on paper publishing and information release. In general, most systems should drive the content maintenance back to the desktop of the individual responsible for the material and they should have the ability to change this ‘‘anywhere in the world.’’ Dynamic and effective content maintenance and development is critical for success. 10. CONCLUSIONS (KEEPING IT IN PERSPECTIVE) E-business is the Web, our information systems, customers, and business in a common network. The opportunities are limited only by our creativity and willingness to change our business environments. Keeping these areas aligned will be the most important element guaranteeing success, and the careful framing of solutions to support overall business goals determines the outcome of each system.
Frequently Asked Questions (FAQs) Q1: What is e-business? A: See Chapter 1. Q2: What are the world’s most valuable e-business programs? A: Chapter 5 illustrates the market size, and how firms are making e-business critical to their success. Q3: Who is responsible for e-business development within an organization? A: Details of who, and how e-business programs can be built are outlined in Chapter 10. Q4: I want to create and develop an e-business system. How do I go about it? A: See Chapter 10.
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Q5: What does the term ‘‘e-business’’ mean, and why is it important? A: See Chapter 2. Q6: How have others created value from their ebusiness programs? A: See Chapter 7 where organizations show how e-business programs have helped these operations Q7: What are the best practices of others to improve the way that e-business operates? A: Best practices of leading e-business practitioners are outlined in Chapter 7. Q8: What are good real-world examples of successful e-business operations? A: How Staples.com, Travelocity and eBay have made successful operations in Chapter 7. Q9: How do I find out more about the subject? A: Details of additional resources for e-business are in Chapter 9. Q10: What are the origins of e-business? A: Chapter 3 has all the info on the development of e-business.
