Chapter One Moving from E-commerce to E-business

Chapter OneChapter OneMoving from E-commerce to E-business

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© E-Business Strategies, Inc.

E-BusinessE-Business

Why Study E-business?Why Study E-business?

Promise:

Streamlined Business

Network Infrastructure

Adaptive Supply Chains

Process Automation

Lack of Framework

Reality:

Blizzard of Buzzwords

Customers.com

CRMERP

Digital Economy

SCMPortals

Exchanges

The scale and scope of modern IT investments requires that managers have a clear understanding of e-business

fundamentals!




Consequences of not Studying E-business?Consequences of not Studying E-business?

Poorly Designed Business Processes

Persistent Channel Conflicts & Cross-

Department Tensions

Locally Optimized Business Processes

Order Order FulfillmentFulfillment

ERPERP

CRMCRM

ProcurementProcurement

Incompatible Projects

Resistance to Changes




Need for a Robust FrameworkNeed for a Robust Framework

E-business Course Goals

Rationalize buzzwords

Recognize commonalties across business environments

Framework for designing more effective new systems

Provide a Managerial Perspective

A set of basic principles

Understand how to map business needs to e-business solutions

Synthesis

Information Technology (IT) changes, but management principles persist!




Enable

Business Strategies and Processes

E-business Applications

IT Infrastructure

Drive

DriveEnable

What is the basic framework that ties business strategies to applications?

What are the key ideas of e-business strategies and how do they translate into e-business design to align IT with business needs?

Framework for BookFramework for Book




Table of ContentsTable of Contents

Ten Rules of E-businessTen Rules of E-business

E-Business Success StoriesE-Business Success Stories

What does this mean for What does this mean for managers – Looking Deepmanagers – Looking Deep

E-commerce vs. E-business?E-commerce vs. E-business?

Key Take-AwaysKey Take-Aways




E-commerceE-commerce

Refers to selling of products and services over the Web

Transactions fall into three categories:– Business-to-business (B2B)– Business-to-consumer (B2C)– Consumer-to-consumer (C2C)

The goal of e-commerce is to reduce transaction costs




E-commerce Maturity

Fu

nct

ion

alit

y

Brochure ware

Web Storefront

E-commerceTransactions

0 1 2 3 4

Communities of InterestMega-Portals

Complex

Limited

E-commerce ProgressionE-commerce Progression

E-commerce has evolved rapidly since 1995




E-businessE-business

The back-office applications, systems or processes that create goods and/or provide services.

E-business includes:– Customer Relationship Management– Enterprise Resource Planning– Supply Chain Management– Human Resource Management Systems– And more . . .




E-commerce vs. E-businessE-commerce vs. E-business

value added

“INPUTS”

• People• Raw Material

• Serves Customers• Product Sold

“OUTPUTS”

• Processes• Facilities• Equipment• Finance• People

TRANSFORMATION

E-business E-commerce

E-business: The transformation of key business processes through the use of Internet technologies!




Inputs E-commerce

ProductsServices

Labor & Capital

CustomerFeedbackfor controlE-business E-business

Network of activities

Flow Units(Raw material, people, information, etc.) Resources

ProcessAnalysis & Management

E-business: All About Managing Business E-business: All About Managing Business ProcessesProcesses

A business process is a network of activities that takes one or more inputs and creates an output

of value to customer



E-BusinessE-Business E-business: Linking Today’s Business with E-business: Linking Today’s Business with Tomorrow’s TechnologyTomorrow’s Technology

E-business -- includes all apps and processes enabling a company to service a transaction

E-business Evolution– Phase 1: Presence, information-only– Phase 2: Transactions– Phase 3: Profitability

E-business in third phase today: – Psychology of first two phases: technology would

trump experience; future would belong to upstarts as eToys

– Psychology of this phase: experience, distribution, margins are worth something






E-business Success StoriesE-business Success Stories







E-business is Changing All IndustriesE-business is Changing All Industries

CommunicationsCommunications UtilitiesUtilities HospitalityHospitality

AutomotiveAutomotive FinancialFinancialInsuranceInsurance

Petrochemical/Petrochemical/ProcessProcess

TransportationTransportation

ManufacturingManufacturing

Health CareHealth Care Entertainment/Entertainment/Hi-TechHi-Tech

Consumer/Consumer/ServicesServicesRetailRetail

What differentiates the e-business efforts of leading companies from the pack?




Visionary Firms and E-businessVisionary Firms and E-business

Visionary companies understand current business designs are inadequate for doing business in the e-commerce era

– Can buy a $999 built-to-order PC from Dell online but not a customized $3000 color copier from Xerox

– Cisco can overhaul its product line every 2 years, but Kodak cannot seem to deliver rapid innovations to meet changing customer requirements

Visionary companies have integrated operations to support changing customer requirements

– E-customers’ needs, tastes, and expectations transforming shape of the enterprise

Necessary: fusion of business designs, processes, apps, and systems on an unprecedented scale




Visionary Firms and E-businessVisionary Firms and E-business

Management at leading companies often ask:– How will ecommerce change our customer

priorities?– How can we construct a business design to meet

these new customer priorities?– What kind of new apps infrastructure do we need

to orchestrate the new business design?– What short-term and long-term investments in

people, partners, and tech must we make to survive, let alone thrive, in the new economy?

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E-business CapabilitiesE-business Capabilities

Process-based – Capacities that transforms material or information

and provide advantages on dimensions of cost and quality.

– E.g., United Parcel Service (UPS)Systems-based

– Capacities that are broad-based involving the entire supply chain and provide advantages of short lead times and customization.

– E.g., Dell ComputerOrganization-based

– Capacities that are difficult to replicate and provide abilities to master new technologies.

– E.g., Cisco SystemsLet’s look at a few visionary companies….




Founded in 1907 to become world’s largest express and package delivery firm

– 13.2 million packages per day, 3 billion/year

– 344,000 employees; $29.8 billion revenue

– 11th largest airline; Largest cellular user in the world

Initially a laggard in use of IT. In 1980s and throughout the 90s, spent billions of dollars putting in place

– Tracking and tracing technology

– Frontline handheld technology

– E-commerce capabilities

– Huge customer databases

Benefits– 2 Million tracking requests per day over the web – Connect 1.7 million sellers with 7 million buyers every day

Annual IT investment of over $1 billion

United Parcel ServiceUnited Parcel Service




Dell - Build to Order E-channelDell - Build to Order E-channel

Challenges– Scale to large volumes - $50 million a day– Service consumers & businesses

Solution– Premier Pages: Provide full-service (leasing, financing, order

status)– Increases effectiveness of their sales force

Benefits– Sales today: 60% Businesses, 40% Consumers– Improved Customer Service (7x24 account status, real-time

order status)– More efficient, lower-cost sales cycle




Cisco SystemsCisco Systems

Most successful “New Economy” firm with “Old Economy” discipline and operational excellence

Cisco has propagated IT throughout the organization, in every major function

Significant investments in back office ERP ($30M) and Internet/Intranet ($100M)

Almost $400M annual savings from use of technology

E-business use is a major competitive long-term strategy for Cisco

Made it very difficult for slow-moving, traditional companies (Lucent, Nortel) to catch up



E-BusinessE-Business What Do Leading Firms Have in Common, What Do Leading Firms Have in Common, Business-Wise?Business-Wise?

Unusually successful within their industries

Profitable and growing

Clear strategic intent – Wal-Mart (Low Price Guarantee)

Long-term technology blueprint -- “Built to last”

Complex, multi-functional business model

Good places to work – employees turnover low

Continually innovative

Fit among strategy, business model, systems







What does this mean for you – What does this mean for you – Looking DeepLooking Deep







Rule 1 Technology is no longer an afterthought in forming business strategy, but the actual cause and driver

Rule 2 The ability to streamline the structure, influence, and control of the flow of information is dramatically more powerful and cost-effective than moving and manufacturing physical products

Rule 3 Inability to overthrow the dominant, outdated business design often leads to business failure

Rule 4 E-commerce is enabling companies to listen to their customers and become either “the cheapest,” “the most familiar,” or “the best”

Rule 5 Don’t use technology just to create the product; use it to innovate, entertain, and enhance the entire experience surrounding the product, from selection and ordering to receiving and service





Rule 6 The business design of the future increasingly uses reconfigurable e-business community models to best meet customers’ needs

Rule 7 The goal of new business designs is for companies to create flexible outsourcing alliances that not only off-load costs but also make customers ecstatic

Rule 8 For urgent e-business projects its easy to minimize application infrastructure needs and to focus on the glitzy front end apps. The oversight can be costly in more ways than one

Rule 9 The ability to plan an e-business infrastructure course swiftly and to implement it ruthlessly are key to success; ruthless execution is norm

Rule 10 The tough task for management is to align business strategies, processes, and applications fast, right, and all at once; Strong leadership is imperative




Ten Rules of E-business: Rule 1Ten Rules of E-business: Rule 1

Technology is no longer an afterthought in forming business strategy, but the actual cause and driver

– Conventional, risk-averse businesses cannot ignore e-business

– E-commerce poses most significant challenge since advent of computing

– Most execs unaware of impact of these changes– Need to see business differently; maintaining

status quo not a viable option





The ability to streamline the structure, influence, and control of the flow of information is dramatically more powerful and cost-effective than moving and manufacturing physical products

– Core driver of structural transformation of business– Few companies have info-centric business designs for

continuous business change and innovation– Changing info flow requires changing product mix and

ecosystem• DEC’s demise

– Most companies unable to cannibalize existing business structures, reallocate assets to compete with startups





Inability to overthrow the dominant, outdated business design often leads to business failure

– CompuServe & Prodigy Vs. AOL

Not the earliest adopters, but the most serious, eventually prevail

– AOL outlasted, outwit, and outsmart competition

Often in the early phase, there is an “arms race” between competitors

Need to convert technology advantage to process advantage to business model advantage

Deeply-embedded innovations are difficult to implement – but also to copy!



E-BusinessE-Business Value Chain Disaggregation and Value Chain Disaggregation and ReaggregationReaggregation

Disaggregation to separate means, or products, from ends, or customer needs

– Value of a business in the needs it serves, not in products it offers

– Intel with continuous innovation in chip design and manufacturing

– Requires identifying, valuing, and nurturing core of business: the underlying needs satisfied by company

Reaggregation to lower cost or enhance differentiation from competitors

– Streamlines entire value chain– Success dependent on well-integrated enterprise apps– Amazon.com Vs. Barnes and Nobles




The Road Ahead: Steps to a New BeginningThe Road Ahead: Steps to a New Beginning

Six steps of disaggregation and reaggregation– What is the new industry structure?

• Configuration– What does the digital consumer want?

• Value in terms of experience and expectations– What are the new economics?

• How to convert value creation into revenue?• How do you engineer the end-to-end value stream?

– How do we reorganize our business?• Right partnerships

– Where is the value?• Integration

– How do we implement change?• New generation leaders who understand how to create

digital future by design and intent, not by accident




Challenging Traditional Definitions of ValueChallenging Traditional Definitions of Value

Customers need businesses to improve– Speed of service– Convenience– Personalization– Price

Managers should ask how they can use technology to create new value proposition for the customer

– Domino’s Pizza, Dell, Amazon.com

Ability to view world from customers’ perspective prevents visionary companies from starting in wrong place and ending up at wrong destination

– Market segmentation analysis difficult to execute in turbulent environment




Changing the Notion of Value: E-commerceChanging the Notion of Value: E-commerce

Web and ecommerce have accelerated value innovation in speed, convenience, personalization and price dimensions of a service

– Changed underlying value proposition

Customer’s looking for cheapest, most familiar, or best quality product

– A product or service that is 98 percent as good, unfamiliar or costs 50 cents more will not survive

– Companies following such middle-of-the-road strategies will underperform





E-commerce is enabling companies to listen to their customers and become either “the cheapest,” “the most familiar,” or “the best”

– “The cheapest” not synonymous with inferior quality

• Southwest’s “No Frills Flying”• Wal-Mart’s “Everyday Low Prices”

– “The most familiar” means customers know what to expect

• McDonald’s, Coca-Cola took decades to build brand

• AOL and Yahoo carved out strong identities in only a few years using technology





– Being “the best” • Reinventing service processes to enhance

quality• Turning company on a dime to move in more

profitable directions• Raising relationships with customers and

suppliers to unprecedented levels of cooperation and trust

• Amercian Express’ Return Protection Plan





Don’t use technology just to create the product; use it to innovate, entertain, and enhance the entire experience surrounding the product, from selection and ordering to receiving and service

– Amazon.com in the book retailing industry identified new source of customer value by streamlining consumers’ buying experience

– Microsoft anticipated changing customer experiences and reengineered several value chains: Travel (Expedia), Automotive (CarPoint), Real Estate (HomeAdvisor), Finance (Investor)





CEOs must understand the threat posed by value migration

– Is there an Amazon.com that can squeeze margins in your business?

– If not, can you create one -- “destroy your business” initiative at GE?

– Are any new entrants in your industry leveraging Web to rewire customer experience and change service expectations?

CEOs must understand how to manage in a fast-moving environment





The business design of the future increasingly uses reconfigurable e-business community models to best meet customers’ needs

– Competition no longer between companies but between Business Webs (BWs)

• Auto-By-Tel vs. Big Three in the car industry

Cost

Quality

DeliveryFlexibility




Process OutsourcingInvestment

PartnershipsContract

ManufacturingAdministration

HRAccounting

IT

Do not outsourcecore competence

Focus: efficiencyand cost reduction

Outsourcecritical tasks

Focus: Time-to-market, Market position via ease of doing business

1st Gen:Cannot do everything well

2nd Gen:Cannot goat it alone

3rd Gen:Need advice, contactsand Web savvy

Co-create critical tasks

Focus: Market position via ease of doing business (e.g, GE in India)

Harvesting Outsourcing: E-business Core Harvesting Outsourcing: E-business Core CompetenciesCompetencies



E-BusinessE-Business Creating the New Technoenterprise: Creating the New Technoenterprise: Integrate, Integrate, IntegrateIntegrate, Integrate, Integrate

App integration key to e-business

– Not easy, requires major app overhaul for integrated front-end/back-end infrastructure

– Integrated app architecture critical with advent of e-commerce

– Threat of losing customers looming large with advent of new market entrants

Strategy Process

Customer Needs

Corporate Strategy

Process Strategy

Application Integration Decisions





The goal of new business designs is for companies to create flexible outsourcing alliances that not only off-load costs but also make customers ecstatic

E-business enabled outsourcing a big deal– Pressure by shareholders for double-digit revenue

growth– CEOs have already reengineered, downsized and

cut costs; now looking at technology to transform business model and deliver results





For urgent e-business projects its easy to minimize application infrastructure needs and to focus on the glitzy front end apps. The oversight can be costly in more ways than one

– Decision to adopt e-business architecture is a business, not technical, decision

The lack of attention to the back-office systems and process side of E-business is the primary

reason for many project failures.





The ability to plan an e-business infrastructure course swiftly and to implement it ruthlessly are key to success; ruthless execution is norm

– Most e-business strategies in dire straits even before they start

– Managers often don’t understand complexity of converting strategy into a working architecture

The goal of every successful e-business

strategy is help the firm either save or make

money.





The tough task for management is to align business strategies, processes, and applications fast, right, and all at once; Strong leadership is imperative

– Many managers good at planning strategy and looking at things strategically but not at implementing strategy

– Implementation takes leadership, commitment and backbone

– “Creative destruction” or breaking free from habits of past necessary













Current Issues in E-BusinessCurrent Issues in E-Business

Effectively consolidating the processes and IT operations resulting from mergers

Developing flexible supply chains – physical, information and financial -- to enable mass customization of products and services

Managing global supplier, production and distribution networks

The customer oriented integration -- using technology to combat the increased “commoditization” of products/services

Using self-service to cut internal and external operating costs




Are You Ready? Are You Ready?

Does senior management understand?– Implementation side of strategy?– That entire business platform is being transformed

by new technology that tightly integrates internal and external processes?

– The risks, challenges in integrating and implementing enterprise apps necessary for an e-business enterprise?

– What it takes to build inter-enterprise, tech-supported processes, such as SCM, that form backbone of ebusiness?

– Do you have baggage – legacy apps, calcified processes, bureaucratic controls and inflexible business models




Fundamental Questions in Each PhaseFundamental Questions in Each Phase

• How will e-commerce change our customer priorities?

• What new things do our customers want?

• How can we construct a business design to meet these new customer priorities?

• What kind of new applications infrastructure do we need to orchestrate the new business design?

• What short-term and long-term investments in people, partners, and technology must we make to survive, let alone thrive in this new environment?



E-BusinessE-Business Are Customers Are Looking for Are Customers Are Looking for Internet Business Solutions Internet Business Solutions

• Customer attitudes — from tactical to strategic

• Customers require solutions — not just products and services

• Internet business solutions are evaluated and selected by the business decision-makers — not the technical staff

• Business decision-makers are looking for a trusted advisor













Time

E-business is NOT about TechnologyE-business is NOT about Technology

E-business decision-makers are Presidents, CEO’s, CFO’s, and department heads

What motivates them – business strategy & direction, NOT technology

Tactical

Strategic Business decisions

Technology decisions

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E-business Management ChallengesE-business Management Challenges

The Cost Of Making A The Cost Of Making A Technology Mistake Has Technology Mistake Has Increased ExponentiallyIncreased Exponentially

Coco-Cola invest 600 Million in Logistics platform

Siemens invests 1 Billion in Supply Chain Project

Nike reports 400 Million loss due to supply chain software snafu

Why Should Senior Management Be Much Why Should Senior Management Be Much More Focused On E-business Decisions More Focused On E-business Decisions

Today?Today?




Questions for every E-business managerQuestions for every E-business manager

• How will e-business transform business models in my industry?

• How can e-business help to achieve my business goals and objectives?

• What is our e-business design that lets us compete effectively?

• What e-business opportunities are attractive for my company?

• Based on customer needs, what processes can be streamlined or enhanced by e-business?

E-Business E-Business Strategies, Inc.Strategies, Inc.

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Chapter One Moving from E-commerce to E-business