“Winning in the race for e-business”

Lecture Three - “New opportunities - New threats”

Presentation to Sheffield University Management School MBA Students

24 February 2005

Prof. Jim Norton

Senior Policy Adviser

UK Institute of Directors

Former Director UK

Cabinet Office PIU

e-Commerce team

www.profjimnorton.com

•Key points from lectures one and two.

•The new business context - 8 Cs. Customers

Creativity

Co-operation

Commitment

•Final thoughts.

Issues to be covered

Charging

Competition

Culture

Cost

Lecture one: Fertile soil

e-Business has not gone away!

The excess of gloom on the ‘downside’ was just as wrong as the earlier excess of ‘hype’.

e-Business represents a complex ecology, don’t just focus on the end users.

UK has come from behind, particularly on consumer Internet access, but is now catching up.

Remember, the underlying technological capability continues to grow exponential in terms of price performance ratio…

Lecture two: Good access matters…

Affordable broadband access, initially fixed, eventually mobile, is a key accelerator of e-Business.

Broadband enabled e-business often generates business benefits way beyond costs.

Interactivity based upon pervasive, affordable, broadband access will have profound implications.

UK has been a long way behind on pervasive broadband, but is now catching up.

New and complementary delivery channels, such as interactive digital TV and 3G mobile phones, will give the Europe a key role…

•Key points from lectures one and two.

•The new business context - 8 Cs. Customers

Creativity

Co-operation

Commitment

•Final thoughts.

Issues to be covered

Charging

Competition

Culture

Cost

The new e-business context..…or how not to get lost in the desert

E-business is evolving at a fearsome rate.

How can we determine the best approach?

Some old business landmarks do remain firm in this shifting landscape.

Focus on the ‘business’ and not on the ‘e’

Eight key landmarks to navigate by:

Customers Creativity Co-operation Commitment Charging Competition Culture Cost

The eight ‘C’s of e-business strategy...

Customers - serving them better...

Outsourcing cost to customers yet improving their satisfaction.

Developing ‘one to one’ marketing based on detailed customer profiles.

Outsourcing cost to the customer….Dell

Source: http://www1.euro.dell.com/content/default.aspx?c=uk&l=en&s=gen

Outsourcing cost to the customer….Jali

Source: http://www.jali.co.uk

Outsourcing cost to the customer….Jali

Source: http://www.jali.co.uk

Outsourcing cost to the customer….Jali

Source: http://www.jali.co.uk

New types of banking with lower fixed costs...

There were estimated to be 11.5 M online banking users in the UK at the end of 2003.

This compares to just 5.6M at the height of the “dotcom” boom.

Only 2.45M are customers of “branchless” banks (e.g. Cahoot, Smile, First Direct, Intelligent Finance)

Some 300,000 customers at HSBC offshoot's First Direct - almost a third of its current account customers - already use its free text messaging service. This alerts them when pay enters their bank account or when they are close to breaching their overdraft limit.

Source: Datamonitor Aug 2003 Source: http://www.woolwich.co.uk

Creativity - new value propositions...

Using the transaction information available at marginal cost to generate new value propositions.

Fundamentally transforming business models.

New value in pharmaceutical retailing….routing all purchases through a single site and gaining automatic warning of adverse drug

interactions

Source: http://www.drugstore.com

How can you create value from an online pharmacy?

Drugstore.com offers superior customer service and a host of value-added features, including:

• eMedAlert™, which alerts members about drug warnings, updates, and recalls;

• the Drug Price Index, which shows consumers the price savings from purchasing larger quantities of a drug or choosing a generic version of the drug;

• the Drug Information Database, which lists all relevant data about the drugs stocked by the drugstore.com™ pharmacy;

• the Drug Interaction Checker, which provides information on drug interactions, including drug-drug, drug-food, drug-vitamin, drug-herb, and drug-alcohol interactions; and

• the Generic Insider, which notifies customers if a branded drug they are taking becomes available in a generic form.

Source: http://www.drugstore.com

Co-operation - new types of intermediary

Customers’ agents for collective purchasing or to manage risk.

Suppliers’ agents to generate critical mass from a large number of small companies

Co-operatives acting for small businesses...

Source: http://www.farmbid.com

An alternative “farm” site….

Source: http://www.agriculture.com

We are seeing a wave of new intermediaries…

Whilst existing intermediaries (physical realtors, travel agents, financial advisers,…) may see their traditional roles severely threatened, many new opportunities are created. ‘Infomediaries’ are an example. They:

• can resolve the privacy dilemma between the consumer’s desire for privacy and the industries need for information...;

• support confidence building services such as holding payments in escrow against fulfilment;

• add real value for the consumer.

• give new opportunities for the resolution of taxation challenges;

Commitment - ensuring fulfilment works...

“In a gold rush those who are really smart get there fast and sell shovels”.

Enhanced safety and stability in the fulfilment backend rather than the ‘dot com’ front end.

Charging - linking directly to value created

Many business are threatened not because they no longer add value but because e-commerce undermines their existing ways of charging for that value.

Travel Agents’ inherent cross-subsidy is lost

It is now very difficult to book seats on ‘budget’ airlines other than on the Internet… Even traditional carriers offer “e-ticket” discounts…

Source: http://www.thomascook.com

Competition - leveraging brand into new markets

Using brand to transfer trust into adjacent market segments without building new businesses

WAL*MART carries ten times more lines on its Website than in its largest store...

Source: http://www.walmart.com

Culture - keeping the team onside

Valuing creativity

Giving people genuine authority

Developing the best blend of systems and people

Avoiding attrition

Cost - driving it down through new approaches

Pushing stock holding elsewhere in the supply chain.

Increasing competition among sub-contractors

Enhancing logistics

Gaining cash flow at the expense of suppliers

The chemicals sector as an example...

Bulknet.com Bulk chemicals distribution logistics centre.

CheMatch.com Commodity chemicals exchange

ChemConnect.com Auction site

Chemdeals.com Trades off excess inventory

Chemdex.com Trades laboratory chemicals

• Chem-etrade.com Speciality chemicals marketplace

• ChemSource.com Index site…

• GlobalBA.com Site that includes distributors

• Lotsofplastics.com Trades surplus raw plastics

• Chemmerce.com Chinese chemicals marketplace

A darwinian process - all these sites were operating five years ago. Those in red italic are now gone or merged….

Evolution in B2B exchanges (1)

• change the balance of power in entire sectors by aggregating the purchasing and selling power of large numbers of small companies;

• foster (rather than destroy) supply chain relationships for collaborative development, innovation and the creation of ‘competitive edge’;

• offer options to manage the risk associated with ‘just in time’ approaches to inventory management;

In the B2B space, infomediaries – in the guise of the next generation of trade exchanges – will:

“Covisint” represented a key test case

E-business is not about incremental improvement; e-business is a fundamental redesign of the enterprise. Web sites that offer incremental solutions for isolated aspects of your business do not enable you to reap the full benefits. Covisint will address your entire business, link you to the entire industry, and provide a foundation to accelerate you into operating at Internet speed.Source: www.covisint.com

Evolution in B2B exchanges (2)

• maintain online registers for the location of scarce resources or high value spare parts;

• support escrow accounts as part of a payment offer in order to transfer payment upon agreed fulfilment;

• develop anonymised and accurate market intelligence based on aggregated actual purchasing behaviour;

• help to manage exchange rate risks; and

• provide real-time on-line credit search for accreditation of third parties;

In the B2B space, infomediaries – in the guise of the next generation of trade exchanges – will also:

•Key points from lectures one and two.

•The new business context - 8 Cs. Customers

Creativity

Co-operation

Commitment

•Final thoughts.

Issues to be covered

Charging

Competition

Culture

Cost

Some final thoughts….

E-business is about new opportunities to improve your business model…

Implementation is usually incremental: adoption; adaption; and finally absorption.

Normal ‘Darwinian’ processes have removed from the market those who had wacky business plans and little common sense…

E-business is now being integrated into ‘traditional’ business, bringing major cost savings, service enhancements and new business opportunities.

A step too far…

Questions & Answers

Slides (in portable document format) available to download from:

www.profjimnorton.com/shef05mba3.ppt