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Is E-Business Helping You-Or Your Competitors?
E-business is transforming the commercial landscape and completely redefining traditional business assumptions. In an e-nabled world:
* Customers demand personalized, intimate relationships resulting in new levels of transaction simplicity and service value. Companies use the Internet to expand into new markets and grow.
* Products and services are designed for e-sales and customer segmentation. Companies package their most strategic asset-institutional knowledge-and bundle information with products and services to create new value for customers.
* Business processes seamlessly integrate with customers and business partners as companies build value networks, focus on their core competencies, and outsource non-core business components.
* Organizational structures are aligned to clarify internal governance for e-business. Process-oriented measures maximize the worth of information velocity in the value network.
* Systems and technologies utilize the Internet for most interactions between customers and business partners. Rapidly developing and maturing e-business applications make the Internet the place to do business.
* People and culture are transformed as work forces embrace the value of partnering and external relationships and employee knowledge equates to service value.
In Executive's Guide to E-Business: From Tactics to Strategy, PricewaterhouseCoopers professionals present a new model that all executives and managers involved in an e-business undertaking can use to prepare for the challenges of disruptive change, to foster communication and understanding throughout their organizations, and to achieve sustained competitive advantage. In doing so, they reveal the B2B e-business tactics and strategies used by successful companies worldwide to significantly boost performance and substantially improve market share.
With information applicable to a wide range of industries, Executive's Guide to E-Business will help any company take its rightful place in the e-nabled world and reap the tremendous benefits of the e-business revolution.
Snapshot One: Channel Enhancement.
Snapshot One: Effects of Channel Enhancement on Organizations, People, Process, and Technology.
Snapshot Two: Value Chain Integration.
Snapshot Two: Effects of Value Chain Integration on Organizations, People, Processes, and Technology.
Snapshot Three: Industry Transformation.
Snapshot Three: Effects of Industry Transformation on Organizations, People, Processes, and Technology.
Snapshot Four: Convergence.
Snapshot Four: Effects of Convergence on Organizations and People.
Managing Risk in E-Business.
Navigating Change: Becoming an Extraprise-Ready Company.
An Analytical Framework for E-Business.
Note: The Figures and/or Tables mentioned in this sample chapter do not appear on the Web.
To date, in a business-to-consumer (B2C) e-business context, the word channel has meant a connection from a seller to the buyer. But in an enabled business-to-business (B2B) context, it is also useful to think of a buy channel for the acquiring company. We propose this concept because a channel implies management and control, and with Web-based technologies, a company can control far more effectively how its employees buy as consumers of indirect goods and services. Today, the company that wants to behave as one consumer, can.
The opportunities indicated in first snapshot in the e-business panorama (Figure 1.1) are almost all tactical. There, a company leverages e-business to improve processes in both the buying and selling channels. The degree of risk is minimal, and the degree of organizational change is relatively low for the company as a whole. (For those who work in purchasing and marketing, however, the degree of change can be quite high.)
In the e-nabled B2B world, channel enhancement means using Internet technology to enhance sales by adding an electronic sell channel, and using the same technology to enhance the corporate buyer's ability to buy as one consumer (e-procurement). Whether as a buyer or a seller, or as both, channel enhancement is where most large companies start their e-business endeavors. The seller is trying to push products through the sell channel at the same time the buyer is trying to maintain control of its corporate information and control what comes into the company through the buy channel.
In the e-nabled B2B world, channel enhancement is a battle between the two parties-- seller and buyer-- for control of the channel, especially when the buyer is a large company. Control of the channel means control over terms of the transaction, as well as over information about the buyer's needs and desires.
In this snapshot, both the e-nabled sell channel and e-procurement are point solutions. On the sell side, the effort becomes truly all-encompassing only if the sell channel is integrated into the company's ERP system (enterprise resource planning applications, the computer programs that store data about the company's internal operations) to enable the purchasing of production. On the buy side, companies can, for the first time, use electronic catalogues and workf low systems to manage their indirect spending.
Within this first snapshot, business change is process oriented, that is, incremental rather than radical. Channel enhancement efforts are tactical rather than strategic. A company can add a sell channel without changing its basic business model and all of the required technology is readily available. If, however, a company truly expects to increase customer loyalty, customer service, or sales via this new channel, then new processes must be put in place to manage the channel.
VALUE PROPOSITIONS FOR SELLERS AND BUYERS
Channel enhancement results from gathering and managing knowledge about buying patterns on both sides of the channel. Sellers use this knowledge to craft products and services into customer-specific offerings, so-called markets of one. Buyers use this knowledge to negotiate better deals. By lowering costs, automation of the buying process benefits both sides.
Enhancing both the sell and nonproduction buy channels are the simplest forms of e-business, what we refer to as e-commerce. E-commerce is, for the most part, an efficiency play rather than an effectiveness play, focusing on cost reduction, extending a company's reach to a larger customer group, and speeding up time to market. Starting a Web site, putting product and service catalogues on the site, and using the site for customer support are all cost reduction exercises.
Most large companies will benefit more from a Web-enabled buy channel than they will from a Web-enabled sell channel. A 10 percent savings in the cost of indirect procurement can represent a 50 percent increase in profits, equivalent to that from a 50 percent increase in sales. As you read this chapter, envision your company as either the Web-enabled seller or the Web-enabled buyer, or both. Remember that everything you are trying to do to your suppliers, your customers are also trying to do to you.
On the sell side, effectiveness is enhanced in the case of products that must be configured; allowing the customer to configure on-line helps the seller reduce inventories and produce "just-in-time for customer" production. On the buy side, effectiveness is enhanced through getting individuals to comply with prenegotiated contracts.
In short, for the most part, channel enhancement in B2B has more to do with redesigning internal processes, creating an environment of standardization, and reducing costs than it does with absolute revenue increase and with integrating a company with other entities. This, of course, is very different from the "pure play" B2C Internet retailers, whose focus is entirely on revenue growth (or more accurately, customer capture). But, as many of the dot-coms are discovering, the back-end process and systems integration are necessary components of a long-term strategy for sustainable growth.
ENHANCING THE SELL CHANNEL
Figure 1.2 illustrates the traditional way people think about channels, that is, as sell channels and as opportunities for increasing both efficiency and effectiveness in demand management.
Opportunities include increasing revenue by creating an electronic sell channel; reducing the costs of selling and customer service through automation and process redesign; seizing the advantage of being an early adopter of Web-enabled push technology within any particular competitive market (although that is rapidly evaporating); and using sell channel enhancement as a laboratory for the kinds of corporate behavior changes that need to take place in order to engage in more complex e-business and e-partnering relationships.
This strategy, however, posits a number of potential problems. The biggest problem is channel conflict (cannibalizing your other sell channels rather than really attracting new business.) Others include low return on investment (ROI); difficulty integrating Web-selling technology with legacy systems and even with newer ERP systems; and the issue of scalability.
Scalability refers to the ability of the channel to handle increasingly large volumes. Early adopter companies that put in a Web-based sell channel started simply by taking orders off the Web and rekeying them into the order-entry system, as if the order were taken by phone, fax, or in a face-to-face meeting. But at a point where about 10 percent of a company's present volume comes through the Web-based sell channel, it becomes necessary to focus on integrating the channel with the company's ERP system, because maintaining two separate processes becomes increasingly expensive, and increasing through-put actually begins to destroy value. Therefore, at this point, the Web-enabled sell channel needs to become more than just hype.
Companies serious about e-business can move forward in one of two ways. They either try to migrate their current sales model into a direct Web-enabled channel, or they use Web technology to strengthen their distribution network.
Whichever direction a company goes in, the greatest potential for new revenue results when the Web-enabled sales channel allows entry into markets in which it does not have a physical presence. Moving out from a saturated U.S. market, companies that have not been actively selling in Europe and Asia have been able to create new markets through their Web-enabled sell channel. Victoria's Secret, for example, was successful in this regard. The increased global visibility generated by a highly successful virtual fashion show led to more sales volume, better recognition, and new overseas markets.
Electronic communications creates de facto global markets. Many companies are using e-business to begin selling into countries and regions where the cost of having sales staff on the ground is prohibitive, or where the amount of potential business does not justify hiring sales staff. However, the level of actual business transacted is still relatively low, due to legal, cultural, tax, language, regulatory, and other barriers that impede shipping goods between countries. Internet-enabled companies are moving at a much faster pace in North America than in most of the rest of the world. While eStats reported in June 1999 that North America (Canada, United States, and Mexico) lost its majority share of the world's Internet user population in the first quarter of 1999, the company predicts that the United States will maintain its leadership in the volume of e-business transactions until at least 2003.
Serving global markets also involves many complex business decisions, including the cost of international customer service and warranties. Currently, perhaps the largest issue is the lack of assurances between buyers and sellers. In a purely electronic relationship, sellers need assurances that buyers can pay; buyers need assurance that sellers can deliver. This issue represents a major opportunity for the underwriters of these transactions.
As companies in North America and certain hot spots in the world flock to the Internet to conduct business, polarization will grow between those countries where e-business is a major component of most companies' operations, and countries where most companies don't utilize e-business technology.
It is already evident that the economies of countries in which companies use the Internet for business will grow far more rapidly than countries in which companies do not. Unfortunately, this also means that companies operating in countries without widespread support for Internet technology-- due to infrastructure, business climate, or cultural issues-- will fall behind.
For the near term, this gap in capability will create a competitive disadvantage. In the longer term, the widespread demand for conducting business over the Internet will drive most companies to adopt this new technology. However, first-mover advantage will have been lost for these organizations, resulting in a long-term negative impact on their country's economy.
Additionally, the media has tracked the growth of the Internet as if it were a juicy political scandal. Every night the television news covers yet another story about the Internet or an Internet-related company. All of this publicity surrounding the Internet has led to more and more people of all ages accepting the Internet as a means of communicating, researching, and buying and selling.
Businesses, especially in the United States and in some Western European countries, are expanding their communications infrastructures and acquiring Web-based software applications. This business investment is preparing companies-- from mom-and-pop stores to large industrial organizations-- to do business in a fundamentally different way, requiring a change not just in technical perspective, but more importantly, in business culture.
Outside of the United States, pockets of countries are readily embracing the Internet. Canada, the United Kingdom, the Nordic countries and other countries in Western Europe, are rapidly developing communications infrastructures and creative new applications for the Internet. North American businesses wishing to expand into these regions of the world find a climate of readiness to do business via the Internet. In these countries, the Internet is now an accepted way of selling products and services. Customers have moved beyond the need for face-to-face meetings in order to transact business. In mid-1999, Cisco announced that it had increased the percentage of European business done over the Internet from 12 percent to 91 percent in just 18 months and believed the total would be nearly 95 percent by year-end.
However, in those countries where the Internet has not yet been widely accepted, Internet-savvy businesses must temper their expectations about customers and suppliers actually using this tool. Where brand recognition is lacking, true expansion in these new markets will require more than just creating a Web site.
From Markets to Communities
Telecommunications is a two-way street: Companies and their business partners use telecommunications to satisfy their customers; customers use it to define their collective needs and desires for various products and services.
The ability to collect and analyze vast quantities of customer data and turn it into useful customer knowledge allows companies to define their customers in a new way. Customers are no longer simply part of market segments; rather they are members of communities who share similar product interests.
By tying into such communities, companies receive feedback on current products and services, as well as assistance with research and development of new products and services. A company that has a natural affiliation with a customer community can aggregate customer knowledge on behalf of other companies that do not.
Smarter e-businesses will actively try to create or promote such communities-- both in B2B and (famously) B2C. The current explosion in "portal" sites ref lects the growing importance of communities. In the B2B world, the ultimate manifestation of "community" is when it "becomes the industry" (Snapshot Three). The e-business evolution snapshots will soon be as relevant to communities as they currently are to companies. Early examples will focus on buying and selling (Snapshot One); more sophisticated strategies will soon follow.
Sell-Side Value Proposition
Despite these advantages, it is still difficult to convince a chief financial officer looking at investment decisions that getting into sell-channel enhancement will increase revenue enough to cover the costs of technology and organizational change management (especially when a "serious" Web channel might easily cost $10 million to develop). Because an increase in revenues is difficult to measure as compared to the revenues realized by other channels to market, there must be other bases to the value proposition:
Components of an E-nabled Sell Site
There are seven components of an e-nabled sell site:
Catalogue. Catalogues and other content-management systems are used to present customers with information about goods and services offered for sale, bid, or auction. Some catalogue applications are designed to manage large numbers of individual items; search capabilities in such catalogues help buyers quickly navigate to and find the items they want.
Other applications are designed to emphasize merchandise presentation and special offers, much as a retail store is physically configured to encourage impulse or add-on buying. As with other aspects of e-commerce, it is important to match catalogue design and functionality to a company's business goals. Although there are many e-commerce catalogue software packages to choose from, only one may be appropriate for a particular company.
E-catalogues typically provide more information about products than paper catalogues. For example, along with traditional product attributes such as item numbers or stock-keeping units (SKUs), item description, and unit price, an e-catalogue may provide links that allow customers access to other information such as a photograph of an item, product or engineering specifications, or even a video demonstration.
E-catalogues may contain additional features, including cross-and up-selling capabilities, real-time inventory status, incentive pricing structures, and personalization features.
Many e-commerce packaged applications provide capabilities for catalogue creation and maintenance. Vendors that provide e-catalogue software and services include Actinic, Aspect Development, Harbinger, Mercado, and Requisite Technology.
Merchandising. Merchandising, sales promotion, or affinity programs such as frequent-flyer and buyer rewards are becoming common in e-commerce. Typically, they are initiated through a seller's catalogue or Web site. Some promotions occur beyond that site, however.
For example, electronic coupons can be distributed via e-mail to customers to encourage repeat purchasing. Direct mail campaigns can be implemented via e-mail.
Software packages to assist that function include e2 Software's Sales-Office and Revnet's UnityMail. Another vendor, Responsys, markets a service called Interact, which manages on-line direct marketing campaigns.
Configurator. If the product being sold has simple features (few or no conflicts between features within the product, few variable components, and straightforward pricing), then a simple catalogue may be sufficient to store the product's attributes. A book, for example, qualifies as such a product.
However, if the product's feature set is large, maps to a broad range of customer requirements, is composed of many interconnected elements-- some of which are incompatible with each other-- and is priced accordingly, then it is unlikely that a catalogue will be sufficiently flexible to model the various product lines and options.
Examples of such products include networking or telecommunications equipment, high-end servers, desktop computers, cars, or mutual fund investment opportunities. For such products, a configurator is the foundation that provides the needed customer-facing functionality.
A configurator is special-purpose software that allows users to define a product that meets given criteria or needs and whose features and options can be combined to work together. Conf igurators also may compute the price of an assembled item, calculate payments, or compare the difference between leasing and buying or buying and repairing.
A configurator's rule-based or constraint-based logic guides a user through the order process for complex products. E-commerce configurators promote unassisted selling, sometimes called customer self-service, through an intuitive Web interface.
Calico Commerce and Trilogy Software are two leading configurator producers. Calico's eSales Suite is a set of Java-based applications that guide customers through the purchase process. One of the modules, eSales Configurator, permits customer requirements and product attributes to be matched automatically and products and services to be configured accurately. It also provides the opportunity to up-sell and cross-sell by suggesting complementary products and options.
Trilogy Software's SC Config, a component of its Selling Chain Suite, is used primarily by distributors and resellers to deliver quotes based on several product variables. SC Config can also evaluate product options that would best meet a customer's needs. Trilogy Software's Selling Chain Suite consists of selling applications such as SC Catalogue, SC Commission, SC Pricer, and SC Promotion.
Shopping Cart. In the physical retail world, consumers use shopping carts to wander the aisles of stores and hold their purchases. The shopping cart (shopping basket or shopping bag) is a convenient metaphor for the e-nabled world.The electronic shopping cart, a concept pioneered by Open Market, holds a record of the selections a buyer is considering for purchase until the buyer is through shopping and ready to complete the purchasing process. At any point in the process, the buyer can review items in the cart, remove items, or change the quantity of a particular item.
Some shopping carts can remember the buyer's selections between sessions; this capability is known as a persistent shopping cart. A buyer can leave the Web site and still be at the same point in the shopping process when he or she returns.
Tax Calculation. E-commerce sell channels usually rely on integrated third-party tax-calculation software to determine local, state, or other taxes they are required to collect. A niche software industry has developed to provide automated tax calculations and track tax responsibilities of merchants in the United States. Several vendors of automated tax compliance products are expanding into the international Internet e-commerce market, providing software with international tax calculation, audit, and reporting capabilities.
Perhaps the best-known example of such a product developer is Taxware International Inc. This company has built a comprehensive international tax solution that can integrate with either storefront or back-office systems and can be embedded or interfaced with commerce servers or other seller systems.
Shipping/ Logistics. In many order-processing systems, the shipping charge is set at a fixed fee based on the number of items purchased, shipment weight, or the price of the order. With the connectivity of the Web and the interoperability of discrete systems, shipping charges can be precisely determined in real time, and a tracking number can be assigned to the shipment at the time the order is placed.
An example of such a solution is TanData's Progistics Merchant module, which provides global shipping charges in real time, validation of destinations served by major carriers and associated transit times and tracking numbers for each package. It can also use the seller's prenegotiated rates from the carrier.
Payment System. Currently, payment in most B2C e-commerce is via credit card. In B2B, the equivalent for low value items is the purchasing card (p-card). Credit card payment systems are common add-on components to e-commerce systems.Typically, these modules implement Secure Sockets Layer (SSL) or Secure Electronic Transaction (SET) as security standards. Companies hosting e-commerce sites also can choose to outsource the payment function.
iCOMS and Paymentech are two vendors that offer payment-handling services. Other vendors, such as CyberSource, provide fraud detection software or services.
One set of vendor offerings for an e-nabled sell channel, commonly referred to as commerce platforms, provides software, a framework, and tools for developing e-commerce capabilities. Commerce platforms are intended primarily for e-commerce sites that require a great deal of customization and flexibility.
These platforms make it easier to develop e-commerce applications such as feature-rich catalogues or ordering systems. They provide a well-defined set of application program interfaces (APIs), as well as integration of common modules that e-commerce applications require, such as payment methods or shipping logistics. However, implementing these platforms requires a high level of technical and programming expertise.
Commerce platforms include components for building and maintaining a commerce site. These components can include a catalogue, order taking and payment functions, security, programming methods to create and manage an interactive session, and basic site management tools. Leading commerce platforms include IBM's Net. Commerce, Microsoft's Site Server Commerce Edition, Sun/ Netscape's Commerce-Xpert, and Oracle's Internet Commerce Server (ICS).
Sell-Side Packaged E-Commerce Applications
Purchasing and implementing a packaged sell-side e-commerce application is an alternative to developing a customer application using an e-commerce platform or tool kit. As the number of companies using the Web to sell their products has grown, an opportunity has been created for software vendors to sell packaged applications.
These applications typically include many of the sell-side components already discussed. The line dividing packaged applications from platform or tool kit products ultimately is arbitrary because the distinctions are a matter of degree rather than a difference in kind.
Numerous software packages or suites of preintegrated solutions are available for companies that do not want to build their own e-commerce solutions. These package vendors may target specific market segments, such as small-to-mid-sized retailers, or Internet service providers that, in turn, may host the software applications, hardware, and network infra-structure, leasing it to their customers.
Today's packaged sell-side e-commerce applications span a broad range, from basic products to full-featured offerings. However, the market generally can be segmented into entry-level and high-level packages.
Entry-level packages offer easy setup (using vendor-provided templates for basic design and wizards for configuration) and include basic catalogue and merchandising functionality. They may be limited in their personalization capabilities, the degree to which they can be customized or extended with custom programming, and their scalability. These packages are designed for rapid implementation and are inexpensive, with prices as low as $500; the most expensive in this category run to about $25,000.
Further customization or integration of entry-level products requires programming. Many vendors offer an expanded, more expensive, developer's version of the package, which can be used to develop additional functionality around the core. A significant number of products are available in this area, with new ones appearing, it seems, weekly.
High-end packages typically offer enhanced capabilities in one or more major functional areas, such as personalization, merchandising, EDI capabilities, or transaction management. They also implement a full set of APIs that can be used to provide integration with a company's ERP system. These packages offer a higher degree of scalability. Major providers of this type of software include BroadVision, ConnectInc. com, iCat, IBM, Inex, Intershop, InterWorld, Mercantec, Microsoft, Netscape, and Open Market.
Customers of an e-nabled sell channel engage in three activities: e-browsing (the desktop equivalent of window shopping), e-buying, and e-customer service.
E-Browsing. E-browsers visit the selling company's Web site, where basic corporate and product information is published. The more sophisticated Web sites publish an e-catalogue of products and services.
Corporate Information Sites. Corporate information sites have a limited value proposition. Not having one, however, is a business negative. This should be the entry point to the corporate information infrastructure.
Product and Services Catalogues. Product and service catalogues are a customer service/ convenience issue. They allow browsing for customers who do not wish to use a paper equivalent. They are unlikely to totally replace the paper product in the near term, so they are mostly an additional cost in the hope of gaining the business of customers who use the Internet to search and research products and services. At a point in the future, some people will ask that paper catalogues stop being mailed to them.
Catalogue sites are mostly focused on end consumers and small businesses. Corporations hold catalogues internally that are aggregated from all of their suppliers. Data sheets and service catalogues are held and maintained publicly for both B2C and B2B e-business.
Intermediary Sites. A lot of browsing also takes place on intermediary sites. Electronic markets harken back to the farmer's market in the town center or village square, where supply from many sources comes together with demand from many consumers at a convenient location.
Virtual communities, not "owned" in the traditional sense, are another emerging nontraditional intermediary. Portals are positioned as a familiar interface or guide to the Internet, but in the end may serve as the ultimate intermediary to most e-commerce activities for consumers, and even for some small-and medium-sized companies.
Chemdex. com is a commercial example. Chemdex procures life science-related products for enterprises and university researchers. At the corporate end of the scale, heavy-duty business hubs will come to redefine whole industries by acting as exchanges for the principal goods and services needed within that industry. The recent announcement of a combined hub from Ford, GM, and DaimlerChrysler points the way.
E-buying occurs when the customer actually makes a purchase from the Web site. In order to do this, the selling company needs to have electronic transaction processing capability. Order status and delivery tracking also falls into the e-buying section of sell channel enhancement.
The E-Selling/ Buying Scenario. The typical e-selling/ buying scenario consists of seven steps (Figure 1.3):
ENHANCING THE CUSTOMER SERVICE CHANNEL
E-customer service involves automating as much of the help desk as possible, through the use of Web or telephone call-center technology that takes customers through simple menus to solve most problems. They only have to speak with a customer service representative to resolve problems that require a significant degree of expertise.
Service is one of the biggest issues in the e-commerce space. In their evaluation of electronic merchants' performance, on-line buyers surveyed by rating service BizRate. com ranked "level and quality of customer service" last.In order to implement e-customer service successfully, a company must begin utilizing data warehousing and data mining technology. The importance of data mining and data warehousing increases if a company moves to the right along the e-business panorama. For the present discussion, the following def initions are sufficient.
A data warehouse is a special-purpose database of already indexed, partitioned, and aggregated operational data, extracted from a company's databases. By effectively organizing data from various databases, the data warehouse provides an orderly accessible repository of known facts and related data that are used as the basis of inference and knowledge discovery.
Data warehousing allows a company to engage in data mining, the search for universal relationships and patterns that exist in a company's database, but are not apparent in a company's vast amounts of continuous transaction and relationship processing activities. Data mining is used to search through vast quantities of historical data to identify trends and opportunities.
While data warehousing and data mining are often thought of as tools for selling, customer-service data is one of the most important sources. By understanding the post-sale customer relationship, a company can learn about how it needs to design, build, and service its product and conduct the sales and service transactions in order to improve customer satisfaction.
E-nabled Customer Service
The Web can be used to provide personalized and responsive service specific to a particular customer-- an individual, a family, or a company. Internet technology provides on-line support and service that enhances the "faster, better, cheaper" model of Internet buying. The Internet approach to customers is highly egalitarian and responsive. It nurtures trust and a personalized response with the customer during the sale and afterwards.
The self-service channel model offers companies the opportunity for relatively low-variable transaction costs. As activity through the e-nabled sell channel increases, sales and support-service costs begin to decline rapidly.
Already, some e-nabled customer and field-service applications give customers access to databases that only company employees could previously use. Customers need to get better, more timely, and more precise information about products and suppliers. Internet technology can provide a way for customers to get real-time data about products, availability, and pricing.
The Internet can be used to set up different Web sites that allow customers to interact with the company at many times throughout the sales and receiving cycle, including:
Cisco Systems lets customers discuss problems with each other, and they often f ind solutions through group self help. This puts customers and service engineers in the same community.
Interactivity and Personalized Service
Customers want to encounter a system that is highly effective, responsive, and flexible. Internet technology allows a high degree of interactivity so the customer can easily create, edit, send, confirm, and track orders.
Customers also wish to receive personalized service. E-commerce applications are customizable to accommodate specific customer needs, nuances, and interests, as well as to set up particular accounts, special terms, and tailored conditions.
Personalization involves tailoring a Web site's presentation to individuals or groups based on profile information, demographics, or prior transactions. Unlike a broadcast channel such as print, television, or radio, where most consumers receive the same content, each Web user has an individualized channel to a company's on-line presentation.
Personalizing a site may be done for business or merchandising purposes. Users of a B2B catalogue, for example, may see different prices, based on the volume discount negotiated by the user's company. In addition to custom pricing, preapproved product configurations and other prenegotiated packages of goods and services can be displayed.
If supply-chain efficiencies and new ways of executing sales and fulfillment represent significant changes in the cost base of e-business, personalization is where much of the added value is located. E-business leverages two fundamental forces in commerce by combining supply-side commoditization of products or services with demand-side customization.
To balance adding value through personalization while maintaining the cost base associated with commodity-based companies, e-business seeks to add information content to a transaction. The goal is to develop a personalized experience coupled with rapid order fulfillment. In this way, a customer may reap an actual or perceived bonus that adds value to transactions involving goods and services, which by all rights should be moving toward commoditization.Personalization techniques include clickstream data (data on browsing behavior), which comes into a Web site from an unknown user and can be compared with patterns of clickstream behavior from previous visits to the site. Outputs from this are used to guide the creation of targeted Web pages.
Additionally, a data warehouse repository containing this data can be analyzed using data mining pattern-recognition software to devise the rules that govern which message to offer the anonymous prospect, how to counter points of resistance, and when to attempt to close a sale.
Collaborative filtering takes advantage of previous decisions made by other people with whom an individual shares common characteristics to help a company select information likely to be relevant to that individual. Collaborative filtering applications collect observations of user preferences and make recommendations based on user taste and preference correlation. Amazon. com, perhaps the best-known user of this technology, bases its recommendations to buyers of any given book on the preferences of previous buyers of the same book.
Rules-based systems match user profile data to a predefined set of rules or assumptions. A content-matching engine is the means by which these rules are used to identify content to be received by profiled users. Several different types of rules can be applied effectively.
Case-based personalization software translates user-supplied free-form text into a query that can be run against a database. This software often is used to automate query-handling interactions.
Call centers are the main point of contact for customers. Call center representatives:
Web-based customer service technology has evolved to include Internet telephony and alternatives such as interactive text chats and call back requests.
The use of Internet protocol (IP) telephony in Internet call centers allows customers to speak directly with a call center agent while using the browser to access the company's Web site. Frequently integrated into a preexisting call center, it is comprised of several core technologies.
IP telephony can be used in call centers when, for example, a user is on a corporate Web site and requests technical support. The user clicks on a call button displayed on a page. The call button is a hypertext link that activates the IP telephony software that then connects the user with a call center agent.
Some call buttons might first ask for a customer's ID. This data allows the call center agent to access the customer's history, which products the customer is using, and what problems the customer has encountered previously. Allowing the call center agent to access the customer account history also enables the agent to sell upgrades or new products based on the customer's purchasing history. Computer-telephone integration (CTI) technology enables this capability and is available as a feature of high-end customer relationship management (CRM) software packages.
As an alternative to IP telephony, customers with two telephone lines can supply their secondary phone number to a merchant. While on-line, the customer can submit a request for support and expect a call on the secondary line. Callbacks are also used in situations where the customer is protected by a firewall that does not permit IP telephony.
For customers using slower connections, customer service representatives are using Web-based text chats. Customers can request support via the Web and then correspond in real time with the customer service representative. Some software products allow for escorted browsing, in which the agent escorts the customer through Web pages containing information relevant to the customer's query.
The agent and customer move from Web page to Web page in synch with one another. This technology likely will shorten the resolution time of any given query and make customers more self-sufficient in the future.
By supporting these customer service communication channels, the major telecommunications providers such as AT&T, MCI, and Sprint have become players in this software arena. Vendors including eFusion, Ericcson, and Sitebridge currently offer customer relationship management IP telephony packages.
These solutions allow more calls to be handled at call centers without additional personnel. Also, these solutions improve customer satisfaction because calls are processed and routed more rapidly.
Field service deals with that part of customer service where qualified representatives of a company are sent to the customer's site to resolve problems. Calls from the call center are forwarded to field service when the problem can not be resolved by the call center.
E-nabled field service helps a firm's representatives by providing them with up-to-date customer and product information, including design documents and repair manuals via the Internet. Field service representatives can check on outstanding customer queries, view their active service calls, and even update the status of accounts while traveling.
For customer-facing applications, field service is being adapted to allow customers to serve themselves. For example, customers can go to the field service Web site and see what they need to do to set up a product, perform a test, and trouble shoot.
Cisco Systems has saved millions of dollars on Web-initiated customer service requests, and customer service productivity has increased dramatically. The company, a large supplier of networking products, provides customer service through Cisco Customer Connect (CCO), an e-nabled system that serves as the starting point for the vast majority of the company's customer service cases, greatly reducing the number of calls handled by technical assistance centers. In addition, the company's Open Forum, an on-line troubleshooting service, uses the Cisco Web site as the first level of escalating unsolved problems.
Sun Microsystems, a global provider of work stations, has created SunSolve service, allowing customers to download product documentation, receive the latest product advisories and specifications, and communicate with other users. It also provides answers to product questions. Another feature, Catalyst Catalogue, maintained by vendors, lists compatible third-party software. Finally, SunSoft Try and Buy allows users to download evaluation software and temporary demo licenses. Using this e-customer service, Sun saves millions of dollars annually in software mailing costs and achieves significant savings annually in telephone support.
Internet-Enhanced Dealer Service
Harley-Davidson does not expect consumers to buy motorcycles over the Internet, but the company does expect dealers to take advantage of the technology. Like many companies, Harley-Davidson is using e-business to enhance its existing dealer channel and help dealers provide better customer service.
Dealers use the Harley-Davidson extranet, H-DNET, to check recall status, order parts and accessories, and rapidly process reimbursements for warranty repair work. These transactions, which used to be performed either with paper and pen or through a proprietary client-server DOS-based software package called Talon, can now be processed on a Web browser.
Companies that establish a Web presence are often surprised by the large volume of incoming e-mail they receive. The growth of e-mail as a form of customer interaction often outstrips companies' ability to handle it. In 1998, approximately 1.9 billion e-mail messages were sent each day. Pioneer Consulting estimated that this number grew to 4 billion by the end of 1999. This problem is compounded by the lack of an e-mail equivalent to the automated-call-director systems used by call centers to route calls to customer service representatives (CSRs).
In response to this challenge, several vendors are offering packaged applications specifically designed to handle customer-facing e-mail. A typical customer-facing e-mail package includes the following:
In its simplest form, a customer-facing e-mail package can be seen as a hybrid of a work flow system that manages the process of responding to e-mail messages, combined with a knowledge-based system that manages the content used in those responses.
ENHANCING THE BUY CHANNEL
By early 1999, companies had resigned themselves to the fact that they had to have an e-commerce sell channel in order to be perceived by customers as part of the modern world. Yet for many companies, those sell channels were not really producing much increased revenue. They were, however, reducing costs. And companies love to reduce costs.
This cost-reduction mindset caused corporate executives to think about how to cut costs on their nonproduction buying, an area that had long been overlooked and which was widely thought to be impossible to manage effectively.
Dedicated electronic data interchange (EDI) has been used for about two decades for the electronic exchange of information about production material purchases, but buying nonproduction-related goods and services (indirect procurement, also called goods-not-for-resale) has continued to be a pen-and-paper free-for-all, with individual employees having wide discretion to make their own purchases of low and even moderate-priced goods and services. Could technology help them in any way? The answer is a definite yes.
Figure 1.4 positions the new concept of an indirect procurement buy channel in a company's value network.
Early efforts at managing indirect procurement focused on process cost reduction because, although most companies have no real solid handle on how much they spend on indirect procurement, financial managers do understand that there is a process cost problem in indirect procurement. Small orders do cost as much to process as larger orders. But before e-business solutions, tackling the problem meant creating a rigid set of procurement rules that would alienate employees and probably, for the most part, be ignored anyway.
E-Procurement Value Proposition
In roughly descending order of savings, the three value propositions for moving to e-procurement are: employee compliance with prenegotiated contracts, improved leverage with suppliers, and process improvement.
Our experience shows that compliance can be worth twice the reduction attained by leverage and up to 10 times the reduction from process enhancement. Knowledge is the key to making compliance and leverage possible and so worthwhile. Knowledge of established contracts, shared with individual buyers throughout the company, leads to better compliance. And knowledge of what buyers are actually spending on each supplier's products can be leveraged in the next round of negotiations.
For many companies, indirect procurement can represent as much as 30 percent of the company's annual revenues, an amount easily comparable to the amount spent on direct procurement. Most companies, however, don't have the capacity to measure the amount accurately, explaining why, until recently, this area has been overlooked as nonstrategic. For many companies, issuing a single purchase order can cost more than $100. This cost, which can be substantially avoided, can add up to hundreds of thousands, or even millions, of dollars a year. And process cost reduction is typically the least important value of e-procurement!
Savings in this area go straight to the bottom line. As noted earlier, a 10 percent reduction in indirect procurement cost can result in a 50 percent increase in profit margin. In order to achieve an equal impact, a company would have to either increase sales by 50 percent, reduce overhead by 20 percent, or significantly reduce head count.
Indirect procurement involves more than just commonplace, small, low-cost, bland, or generic items such as office supplies, furniture, and computers. Indirect goods are the buying organization's commodity goods and include industry-specific items. For example, for telecommunications companies, network switches are indirect goods; for oil refineries large condensers that cost millions of dollars are indirect goods; for companies that operate gasoline stations, retail station fascia and signs are indirect goods.
Historically, purchasing cards (P-cards) were the indirect procurement instrument of choice because the issue was seen as one of process and paper elimination, not leverage. This offered consolidated billing, a large reduction in paperwork, and minimum management overhead. Unfortunately, such efforts were often poorly implemented, resulting in a mushrooming of the supplier base (contrary to best practice) and actually addressed the least important of the available value propositions underlying the bringing of indirect procurement under control.
Because indirect procurement is a true cross-industry problem, with a huge market opportunity for a good solution, independent software vendors have rushed into this space over the past couple of years. Internet startups have been slowly followed by ERP vendors, who by and large initially missed the significance of the Internet and its related technology as a new way to solve old problems.
A large percentage of indirect items and services can be put in a catalogue that is demand driven at the individual level and that mimics a consumer buy in the way it is carried out. Today, using packaged technology combining electronic catalogues and work flow distributed over corporate intranets, large companies in particular have realized that indirect procurement can now be effectively managed.
A one-time investment of $5 to $20 million-- half spent on technology and half on organizational change management-- to enhance the buy channel can yield yearly savings of up to 10 percent of the organization's spending on indirects. Controlling the channel as the buyer can lead to ongoing reductions in the price of goods, as the spending is leveraged and the volume concentrated among a smaller supplier base.
For some companies, this investment pays for itself literally in a matter of weeks; for any global 500 company, the payback should be less than six months. It is estimated that, by 2002, most of the global 500 companies will have installed such systems, at a total cost of about $5 billion. This investment is expected to yield annual savings of $7.5 billion.
Indirect procurement is similar to consumer purchasing because in most large corporations, individuals are allowed to make buying decisions for many, if not all, indirect items-- everything from stationary to computers and office furniture. Technology allows the standardization of indirect procurement and will be the stepping off point for many large organizations moving into e-business (Figure 1.5).
The e-procurement scenario is the flip side of the e-selling/ buying scenario in the e-selling channel discussed earlier in this chapter. The full e-procurement cycle has 12 steps (Figure 1.6):
1. Identify a need. A company employee identifies a need for a
particular product, service, or even a digital product.
2. Sign on to an electronic procurement application. The employee gains access to a browser-based procurement application that includes a user profile. The profile allows the user to access catalogues, items, and services retrieved from a digital library and authorized for use.
3. Access authorized buying catalogues. The employee's user profile, in conjunction with business rules and authorizations residing on the e-procurement application server, allows the employee access to only those catalogues required to perform his or her job. The electronic catalogue allows the user to perform complex searches and to configure the desired item for specific purposes. The content of the catalogue itself is created by the sourcing process operated by the company's procurement organization and supported by product usage information reports generated by the e-procurement system.
4. Select an item from the catalogue and create a requisition. Once the employee selects the desired item from the catalogue, a requisition is generated in any one of several possible formats.
5. Approve the requisition. Business rules are applied against the employee's requisition to determine whether the purchase can be made on his or her own authority, or if it requires a higher-level approval. If approval is required, the requisition goes through a work flow process, potentially passing through multiple levels of approval. Managers can approve or reject requisitions on the Web using the browser interface.
6. Create a purchase order (PO). The e-procurement application interfaces with the ERP server to create and record the PO. Upon approval of the requisition, the e-procurement system either generates the PO, combines the requisition with other requisitions for similar products from the same vendor, or splits the requisition into multiple POs to different vendors. The PO is then recorded in the company's ERP database or accounting system.
7. Transmit the PO. A PO may be transmitted to a vendor in one of many alternative ways, as EDI over a proprietary value-added network (VAN), via fax, or over the Internet as e-mail or eXtensible markup language (XML) formatted messages.
8. Vendor receives the PO. If the PO is received via EDI/ VAN or XML, the vendor's ERP database or other order-entry system receives and automatically records the document. If the PO is received via fax or e-mail, human intervention is required.
9. Query requisition status. Using a browser, the employee can ask about the status of the PO. The employee enters a PO number and receives the status of his PO based on updates provided by the vendor or shipping agent through a real-time link to the e-procurement application.
10. Goods shipped. The vendor ships the goods and may generate a message (known as an advanced shipping notice) to the company. Once the company receives the goods, it may generate an evaluated receipt settlement (ERS) and provide immediate payment on delivery.
11. Receive invoice. If payment is not via ERS, the vendor sends an invoice to the company's network. The invoice enters the company's network either through the proprietary VAN or through its Web server via the Internet. Once in the company's network, the invoice is sent to the ERP application server where the transaction server processes it and updates the database.
12. Pay invoice. Through electronic funds transmission (EFT), the company pays the vendor once the invoice is received and processed. Other methods of payment include procurement card, where the company provides a credit card number at the time of requisition. This precludes creating a purchase order/ invoice paper chase.
Not Just Indirect
Although the business case for moving into e-procurement is usually made in terms of bringing indirect procurement under management, most companies moving in this direction understand that significant elements of their direct spending can also be managed in a similar wayÑ especially the more commoditized elements. As the number and range of electronic catalogues increase and the number of industry procurement portals escalate, the ease of e-procuring even the most obscure and industry-specific items will grow.
Advantages to Both Parties
At first, this process may look like buyers simply putting the squeeze on sellers. But there are advantages to the seller as well. Approximately 20 percent of paper-and-pen purchase orders on which sellers act are incorrect in some way. Resolving these errors requires human intervention and thus drives up transaction overhead costs. E-procurement purchase orders are correct because of the checks built into the system. The seller can reduce its sales and sales administration workforce, since it knows that it has a blanket contract with a company and is guaranteed payments for authorized orders that come through the e-procurement channel. Even with a reduced margin, increased volume and a more efficient process can actually increase seller profit.
Savings through Compliance, Reduced Costs, and
Contracts can be written with national or regional suppliers, whose catalogue information is vetted by the corporate buyer or third-party provider, aggregated with other suppliers' catalogues, and then put on the company's intranet. Employees who use the intranet buying system will f ind it much easier to buy from the sellers who have been precertified and whose materials are on the corporate intranet.
In the paper-and-pencil world of indirect procurement, compliance with prenegotiated contracts is as low as 30 percent in some companies. If such a company can increase compliance to even 50 percent, the savings can be enormous and the technology will pay for itself very quickly. Some companies have much higher compliance.
We believe that the e-procurement systems most companies will build first are those impacting the "requisition to purchase order" stage of the procurement cycle. By increasing compliance from 30 percent to 75 percent with the internal e-catalogue, the company could save 7 or 8 percent of managed indirect cost. As process refinements occur during the first year, the equivalent of another 1 percent of indirect cost can be saved.
From this position of better information, better compliance, and streamlined processes, the company can possibly leverage the size of its total cash outlay in order to negotiate price reductions of another 3-to-5 percent. Further automation of the indirect procurement process, encompassing the entire "req to check" sequence (requisition, purchase order, three-way match, payment) can possibly slice off the equivalent of another 1-to-2 percent of indirect costs.
The key to the level of savings possible is the amount of indirect spending that is e-procurable. Not all goods and services can be easily catalogued. We estimate that for a typical high-tech manufacturing company today, taking on board perhaps 50 percent of total indirect spending is relatively straightforward. Beyond that amount, it becomes progressively more difficult. Services, in particular, are difficult to standardize for cataloging purposes. The use of XML and supplier-side configuration and estimation tools to extend the range of what can be transacted through a self-service catalogue model offers a ray of hope.
Other Kinds of E-Purchasing
In addition to e-procurement, other forms of e-purchasing include:
E-Sourcing. E-sourcing allows individuals working in R&D or procurement organizations to f ind parts, components, and subassemblies for prototypes and subsequent production models. The difference between e-sourcing and nonproduction commodity e-buying is that in e-sourcing, decisions are made on the basis of functionality and characteristics, not purely on the basis of product classification and price. The e-sourced products form part of the finished product. Therefore, e-sourcing is a way to determine which direct goods to buy.
While e-procurement is available to a large number of people making frequent low-value purchases, e-sourcing is only really used by a small number of specialists. E-sourcing allows engineers to go out and look for things in a different way than they do now; with the search engine, people base their product searches on their performance attributes. Pioneered in the electronics industry by companies such as Aspect Development, these tools are being used in other industries for other products.
Once the sourcing decision has been made, a framework agreement is struck for the supply of these direct materials, which are then typically ordered on a m achine-to-machine (ERP to ERP) basis as part of the production process.
E-Auctions: The Buy-Sell Channel and the Efficient Market. Electronic auctions can be used to establish supply contracts (that is, as sourcing mechanisms) or to immediately acquire or dispose of goods on a spot-price basis.
As a sourcing strategy, the reverse auction is a particularly effective mechanism (the lowest bidder wins the right to supply the required goods or services). Depending on the strategy, sellers' competing bids may or may not be visible within the auction time window. Typically such an electronic invitation to tender would be issued only to a pre-qualified list of bidders. Companies will either make the short-list selection from their own preferred vendor list or, in the case of a new supplier, from supplier performance information available from a procurement portal. Such supplier performance information will be collected and disseminated in much the same way as Amazon. com collects and disseminates reader book reviews. This would allow a company to issue an invitation to tender to companies with, say, four-star or better customer reports.
For spot-buying, electronic auctions are useful for buying commodity items (of which the company does not need a steady supply) at a guaranteed price, presuming that the company has some flexibility on timing (to take advantage of seasonal or other market movements) and that it is capable of warehousing or storing the goods.
From the sell side, electronic auctions are useful for selling commodities to a wider market or for disposing of surplus products that the company does not want cluttering up its usual sell channels.Goods bought or sold in B2B transactions through electronic auctions are not differentiated in any way. Because of this, there may be little value to an individual company's setting up its own auction on its electronic sell channel; selling through a third-party auction site might be just as effective. However, because the technology to set up an auction is not very expensive, some companies may want to run the auction themselves-- perhaps just for disposals.
Knowledge Is the Key
Because transaction processing technology is becoming ever more sophisticated, conflict concerning the value of the information that passes through this channel is inevitable.
Three types of transactional technology exist: e-mail (between people and unstructured); EDI (between machines and tightly formatted); and process-formatted (between people and machines). The latter (human-to-machine communication) embodies the highest e-business value.
The buyer uses the technology to open a window into the seller's business by e-browsing, and to try to make the purchasing process more efficient and more pleasant (for those who find human-to-computer communication to be pleasant). At the same time, the seller is trying to capture as much information about the buyer as possible.
If today, a seller company sets up a Web site to sell B2B, it can only really target small-to medium-sized businesses; these companies purchase the same way that individual consumers do, by giving up information about how they make choices.
Big businesses are increasingly saying, "Send us your electronic catalogue, and we will approve portions of it for our intranet. You will not know how our decisions are being made; you will only know when we have made a decision to purchase from you."
Ninety percent of what a buying company saves using e-procurement results from the way it organizes the knowledge it has. Perhaps 10 percent is saved through process enhancement. Spreading knowledge internally about contract terms helps increase contract compliance. Knowledge of what the company is buying helps to leverage that buying into better terms and conditions.
Figure 1.7 and Figure 1.8 illustrate the variations on the sell/ buy channel and where the knowledge sits. These are adversarial models, where each company wants the knowledge to sit on its side of the technology firewall.
Catalogues and Configurators: Using XML, the
Best of Both Worlds
Figure 1.9 illustrates the improved semicollaborative model of e-procurement that is now becoming available because of XML, a recent but rapidly developing and important breakthrough. With XML, business information is exchanged in highly flexible ways and sellers can create a collaborative sell site that includes, say, a product configurator. The buyer exits his or her company's intranet and enters the sell site, browses, tinkers with product configuration, and so forth. Then the individual's work is brought back into the buying company's intranet, where a requisition is placed. The requisition, which now contains all the detailed order configuration information that was developed on the sell site, is still processed through the buyer's system. In this way, the necessary internal work flow and information collection is maintained before the PO is issued back to the supplier.
This technology affords buying companies continual control over purchases, while allowing selling companies to gain some information about buyers' behavior in terms of their browsing habits, the product-build options they investigate, and their general shopping patterns. Even more important, it helps extend the range of products and services that can be made e-procureable by making available the seller's own (previously internal) configuration or estimating tools to the buyer on a self-service basis. As a result, we expect to see ever more complex products and services available for on-line purchase.
Posted April 17, 2001
The content of this book truly lives up to the deliverable set forward in the title. Structure is put in place whereby a company can evolve into a member, or leader, of an 'Extraprise Value Network' (an integrated network for bringing value to a customer). Intelligently and professionally written, EXECUTIVES GUIDE TO E-BUSINESS forms a strong balance between the 'how to' and its effects on the rest of the business. Whereas other books in this field explain why companies should embrace E-Business, this book goes into more detail on the methods. The breakdown into snapshots places realistic frames around the stages companies will most likely go through during their evolution. At times the authors do break off into crystal ball gazing, which requires the reader to keep a critical eye open and stay current on business trends. However, the projections put forward are very insightful and thought provoking. Overall, the book is a tremendous resource well worth reading.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted July 27, 2000
In fact,many executives often faced the difficulty to accept the challenge of Internet. About this book,it includes:Customers,Products and services,Business processes,Organizational structures,Systems and technologies, People and culture and so on. If you are not available to change your organization to accept Internet,you will die. And this book will give you some practical guides about transpositioning your business to e-Business. e-Commerce is only the frontier of this trend,and e-Business will be the most important after next 5 years.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.