Lawrence Green on E Business

Knowledge Economy & Information Society (2007/8) Lecture 5 E-business, E-commerce & Business Communications Ian Miles & Lawrence Green [email_address] 25 th February 2008

Overview

1. E-business & e-commerce

Definitions

Technologies

Dimensions

2. Business to Business (B2B) communications & e-commerce

Definitions

Developments and trajectories – history of e-business communications

E-business and the supply chain

E-business – drivers, benefits and problems

3. Conclusions

Hype, reality and the future

Caveats: a US & Euro-centric view? Also, a skim of the field: mainly focusing on ‘business’ rather than ‘consumer’ aspects of e-commerce

What is E-commerce?

“ E-commerce is the exchange of information across electronic networks, at any stage in the supply chain, whether within an organisation, between businesses, between businesses and consumers, or between the public and private sectors, whether paid or unpaid.”

Source: UK Government, PIU (2000) ‘E-commerce @ its Best’

A problematic definition…some distinctions

The PIU definition is ‘inclusive’…

E-commerce is a subset of the broader category

‘ e-business’ (is PIU really defining ‘e-business’?)

E-business incorporates a wide range of services and activities (data exchange, online catalogues and ordering, automated payments, process integration etc.)

Should ‘e-commerce’ include only the elements of on-line business that directly involve commercial transactions?

Beware conflation! Whilst the terms ‘e-business’ and ‘e-commerce’ are frequently used synonymously, the latter constitutes just one (albeit important) facet of the former.

Consider ‘transactional’ (e-commerce) and ‘process’ (e-business) components

E-business and e-commerce as ‘exchange’ (PIU)

What kinds of things are exchanged?

Information (relating to goods, services, markets and persons)

Ordering and inventory data

Invoices & payments (automated payment via BACs etc.)

Products (delivered online - in the form of software, reports, music, multi-media, ringtones etc; delivered offline – almost anything!)

So…e-business is about exchanging information, products and payments via electronic environments

E-business & e-activity in context - 3 Key ‘use domains’ of digital technologies (transaction, process & exchange relationships) E-Business E-Governance E-Citizenry E-Commerce

Electronic media - e-business & e-commerce technologies

What technologies are deployed in business communications and as e-business enablers?

Communications media and systems

Telephone (fixed line & mobile) and FAX

E-mail (via www and ‘closed’ systems)

Electronic Data Interchange (proprietary systems)

The Internet (and ‘World Wide Web’)

Communications devices

Personal Computers, PDAs & Games consoles

Digital television

Mobile - telephones, PDAs and laptop computers (the Mobile Internet and wi-fi becoming increasingly important)

Dimensions of e-business: B2B e-commerce world revenues (US$Bn) (IDC and Gartner Forecasts from 2000)

Regional revenues (B2B e-commerce – On-line trade) Forrester Forecast (for 2004) 100 6,335 Total B2B 0.2 14 Eastern Europe 0.8 48 Africa – Middle East 1.2 76 Latin America 22 1,400 Western Europe 24 1,500 Asia Pacific 51 3,300 North America % Billion US$ On-line trade

But…problems with measurement!

Significant divergence in forecasts (200-500%) – contrast IDC, Gartner and Forrester!

Private sector forecasts – use of widely differing methodologies & indicators - e.g., transactions ‘initiated’ or ‘completed’ on the Internet (or both)

Include both B2B and B2C?

Include ‘company internal’ sales and each step in the value chain?

However – figures demonstrate massive regional differences and point to rapid growth

Increasing confidence in more recent figures?

High quality official statistics only now starting to come on-stream (work on ‘new economy’ indicators and surveys at ONS, EC & OECD is bearing fruit)

E-Commerce in Western Europe (EITO 2003) Projections – 7-fold increase in volume of e-trading 63.8 100 2224 100 309 Total 63.7 87 1942 87.5 270 B2B 64.4 12.7 282 12.5 39 B2C (%) % bn (€) % bn (€) CAGR 2002-6 2006 2002

E-commerce in top 5 European Countries (EITO 2003) 60 324 49 B2B 53 53 10 B2C 59 377 59 Total e-commerce UK 72 108 12 B2B 68 15 2 B2C 72 123 14 Total e-commerce Spain 64 210 29 B2B 72 30 3 B2C 65 240 32 Total e-commerce Italy 67 604 78 B2B 66 72 10 B2C 67 676 89 Total e-commerce Germany 70 282 34 B2B 78 46 4.6 B2C 71 328 39 Total e-commerce France CAGR 2002-6 (%) 2006 €bn 2002 €bn

Unpacking e-business Consumer to Consumer (C2 C ) and Peer to Peer (P2P) 85% 15% Growing fast: ebay, Bit Torrent, Napster etc. Business to Consumer B2C (Internet, digital TV, games consoles & mobile phones) Business to Business B2B (EDI and web e-business)

Classes of e-business

B2C – big hype, big crash, then rapid growth in web/TV/mobile shopping (for goods and services) – dot.com crash and revival – success of Amazon

B2G – electronically-mediated provision of goods and services to & from the public sector (auctions and on-line tendering in the UK – target driven?)

G2C - ambitious targets for service delivery in the UK

C2C – e-auctions and e-marts - e.g., ‘ebay’ – a phenomenon (233m users in 12 years)!

P2P – Napster & Gnutella etc. - from humble beginnings to BitTorrent and beyond – but problems and regulation?

B2B – growing rapidly (from a significant baseline) across a majority of market sectors and territories – the ‘big story’?

Business Communications B2B e-business & commerce

Overview

Defining B2B e-commerce & e-business

e-Business communications (forms)

The history and development of EDI & Internet-based e-commerce

The organisation of markets

Perceived benefits of e-business

Possible dangers in e-business

The dimensions and future of B2B

Defining B2B e-business & e-commerce (1)

“… in a loose sense, [e-business] means doing business over the internet, selling goods and services which are delivered offline as well as products which can be “digitised” and delivered online, such as computer software”

Source: OECD, Economic Outlook, vol.67 (2000)

“ B2B can be described as encompassing all e-commerce activities that do not address either a final individual consumer (B2C) or public authorities (B2G)”

Source: EC, European Competitiveness Report (2000)

Defining B2B e-business & commerce (2)

(a preferred definition?)

“ E-business is doing many business activities electronically using Internet-centric technologies.

The focus of e-business is on the application of Internet technologies in the management of day-to-day business processes...[including] on-line marketing and sales, supply-chain and channel management, manufacturing and inventory control, financial operations and employee workflow procedures across the entire organisation.

The intent of e-business is to apply the benefits of Internet technologies to better manage a company’s total value-chain with a focus on workflow, distributed workgroup computing and Internet-centric, knowledge-oriented operations at all levels”

Highlatitude.com/e-definitions

E-business: Key Issues

Lots of business jargon but some useful points:

Emphasis on electronic trading… but ,

Management - Internet technologies for enhanced management, monitoring, and control of business processes

(collection and use of data to assist strategic planning and improve efficiency and effectiveness of operations)

Integration - processes and back-office functions within and between companies – enhanced co-ordination

Automation - data flows and transactions (internally & externally)

Also implicit…

Knowledge - access to and use of knowledge across organisations - empowering employees & unlocking creativity?

Novelty - opportunities for new business models, forms & channels

History & Trajectory of Business Communications Technologies 1920s Telephone (telegraph?) - 1st electronic business tool? 1950s Telex (teleprinting & teletype) - 1st ‘non-voice’ electronic communications tools 1960s EDI 1970s FAX 1990s email 1990s Internet- or web-based e-business

Business communications (1) : FAX

FAX – available and widely used in business since the early 1970s

Rapid take off in US and later in Europe (accelerated by reductions in equipment price)

Facilitate the transfer of symbolic data (via manual intervention)

Incremental development of ’phone service – intuitive and user-friendly

Widespread access to terminals

Business communications (2): e-mail

Available in 1967/8 to a highly circumscribed community

Diffusion throughout the 1970s and ’80s but limited (largely) to the defence and academic sectors (with the Internet)

Rapid take off from the early-mid 1990s (with the expansion of desktop computing)

The business communications tool of choice by 2000?

Some substitution but email and FAX are frequently operated in parallel

But ‘overload’ and emergence of Skype and VoIP

Business Communications (3): The arrival of EDI and (Internet-based) B2B e-commerce EDI – the first really significant form of eB2B? Many definitions, but Electronic Data Interchange is generally defined as: “ the interfirm computer-to-computer communication of trade documents in a standard format that permits the automatic handling of transactions.” (Sokol, 1989; Kuhn Pedersen, 1995)

… In more detail - what is EDI? According to UK Department for Trade and Industry (DTI), EDI involves: “ Computer-to-computer exchange of structured data between two or more companies, sent in a form that allows automatic processing, with no manual intervention. It is relevant to any business that regularly exchanges information such as client or company records, but is especially relevant when they send and receive orders, invoices, statements and payments… … EDI remains the dominant term in the UK for electronic trading [but is being substituted increasingly with e-commerce and e-business]” Important development - introduces the notion of ‘AUTOMATION’ to business communications

From EDI to Internet-based e-business

1960s – automated transfer of large & routine transactions in the auto industry

Late 1960s – the emergence of ‘communities’ in the auto and banking industries

Late 60s and early 70s – emergence of first ‘value-added networks’ (VANs) offering computing and data-transmission services

1980s – major expansion of EDI – government promotion and efforts to standardise transmission protocols

Mid 90s – still only circa 100k EDI users (but COVISINT)

2000 – Internet explosion and rapid increase in web-based transactions – Mass Migration?

Developments in EDI

EDI - around since the 1960s but growth and expansion (into new sectors) slow until the 1980s

Early EDI - reliant on proprietary systems/standards (e.g., ODETTE in the car industry) - some VANs incapable of dealing with non-standard protocols (absence of a uniform technology and software platform)

Universal, international standard (EDIFACT) now ensures transmission compatibility

EDI traditionally encompassed a few (large) players, but the Internet is opening up EDI and B2B opportunities to a wider range of businesses –

Many more business entrants into electronic trading environments!

What do e-Business technologies do? – Facilitating networked electronic business relationships

Facilitate electronic networks and relationships between a range of (supply-side) market actors

These can include: producers (of goods and services); intermediate suppliers; business services; infrastructure operators; regulators; and, logistics and distribution agents etc.

Crucially, e-business technologies bring supply-side actors into an electronically-mediated environment

Organisation of the e-B2B ‘value network’ Tangibles: Suppliers of Raw materials, Intermediate goods, infrastructure and networks Logistics & Retail Distribution Channels Producer of goods or Services Intangibles: Business services (Consultancy, Accountancy, Design services etc.) Regulatory Agencies (Government etc) Retail Customer

E-business in the value chain: process integration within and across the firm and its partners R&D collaborative & remote design - shared CAD Procurement enhanced product sourcing and price transparency - search via e-markets SCM Production JIT, inventory control & concurrent engineering - SCM & ERP systems Logistics Efficient warehousing, stock handling and delivery - ERP Sales Online selling via websites & e-markets or auctions – liaison with retailers Logistics Efficient warehousing, stock handling and delivery - ERP Customer Service Marketing, customer care, marketing & data capture - CRM Customer Service Marketing, customer care & data capture - CRM Suppliers, clients and partners

Organisation of EDI & B2B markets

Typically (and traditionally) organised around one sector (e.g., automotive, banking, chemicals, metals)

New forms of (sectoral) markets are emerging (as are new forms of intermediaries) – markets may be organised by single (major) corporations; coalitions of businesses; industry associations; or third-parties (e.g., UDEX in retailing)

EDI proprietary systems are giving way to Internet-based market systems – access to new/more players (expensive closed arrangement are replaced by relatively accessible systems)

E-markets are diffusing into more sectors and are becoming larger – revenues from e-mediated business are increasing (rapidly?)

The business case for EDI/e-business: operational benefits (firm level)

Precision timing – speed and control; 24 hour trading; advanced notification and early warning in the supply chain (facilitates JIT etc.)

Improved cash-flow – savings in inventory management; reduced stockholding (and thus ‘working’ capital); rapid payment authorisation

Financial savings – reduced expenditure on postage, paper and administration (and personnel)

Data accuracy – reduced risk of error(?)

Improved accountability and document tracking (availability of ‘audit trailing’ mechanisms)

Improved knowledge management (and use) – sophisticated data-mining – learning about suppliers and customers

The business case for EDI/e-business: strategic benefits (firm level)

Competitive advantage – image; reduction in number of suppliers (increased reliability?)

Closer trading relationships – partners gain a deeper understanding of needs and practices of suppliers and clients

Increased customer satisfaction – prompt, error-free delivery; fewer delays (establishment of CRM systems)

Simplified business processes – improved levels of efficiency and competitiveness

More effective exploitation of personnel – staff freed from routine administration (reconciling orders & invoices etc.)

More effective exploitation of data – facilitates use of MIS and search for new opportunities

Network externalities - enhanced opportunities for co-innovation activity

Potential problems e-business and EDI trading environments (1)

Power - large clients can assert significant control over suppliers (accusations concerning grocery retail industry in the UK?)

Monopolisation of markets - the emergence of cartels & exclusion of certain players is a fear (original opposition to COVISINT in US motor industry – anti-competitive activity in the form of price and production fixing?)

Standards – technology and interfacing standards are still not settled (greater difficulty with rapid technological development and accelerating globalisation – legacy systems and system friction?)

Regulation – an issue in global market-places – some regulatory regimes are less stringent than others (US versus EU and Japan – see EU directives on transparency, liabilities, dispute resolution, location data)

Access – accessing networks as a ‘qualified supplier’ – smaller companies may be unable to afford technology investments

Potential problems e-business and EDI trading environments (2)

Taxation – application of VAT to all e-commerce transactions in Europe?

Financing - investor uncertainty on the back of the (B2C) dot.com crash (largely reconciled) – differential availability of venture capital across regions

Trust and Confidence – technology oversell (CRM and DBM fiasco – Sky v EDS)

Availability of skilled workers – technology skills shortages expected across Europe

Security – fear of hacking, breaches, malicious attack, loss or theft of critical data constitutes a brake on development

Sustainability - emergence of many new electronic markets and market mediators – can all survive – effect on confidence?

E-business - the future?

B2B e-commerce revenues are growing (with migration into the environment and new markets)

Regional difference in e-revenues are expected to remain strong

Despite growth, B2B e-commerce is still estimated to represent a fraction of global GDP (OECD) – 7% in 2003

Conclusions

E-commerce has grown rapidly and looks set to continue this trend (however, associated hype has been enormous and possibly damaging)

B2B is the locus of the ‘real story’ (at least economically) – it may grow less rapidly than B2C (especially if DTV, web commerce & m-commerce accelerate rapidly) but will remain more significant if less visible

Existing metrics and instruments have been inadequate for the job of measuring e-commerce – the picture is improving but is it possible to measure intangible benefits?

Exercise

What are the key issues that surround any decision (at firm level) to launch into B2B e-commerce environments?

Think about company internal and external factors – key drivers, resources and finance, capabilities and skills, organisational issues, infrastructure, markets etc.