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THE EMERGING DIGITAL ECONOMY
Over the past few years, the impact of the Internet has focused our attention on the new imperatives of innovation and speed. In ways that are still being defined, the Internet has unleashed new technologies and practices that are transforming our business environment. Not surprisingly, business and industry leaders are reacting swiftly, realizing that their companies must come to grips with the Internet if they want to succeed. They have found that there are no easy answers; there is no haven from the struggle: there is no turning back the clock.
From market capitalization to pricing to channel delivery, conventional business practices are undergoing radical change. Established business models are being redefined in the wake of technologies that remove the barriers between buyers and sellers, simplify collaboration and decision-making, and shorten time to market in every industry. What we have instead is a digital economy, emerging from the new possibilities opened up by e-commerce, global value chains, and e-communities. And it's booming before our very eyes:
- Business-to-business e-commerce surpassed $100 billion in 1999 and is forecasted to reach or exceed $1.3 trillion by 2003.
- Today, almost 200 million people are online worldwide: and in the next four years, that figure will have soared past 500 million.
- By the end of 1999, $1 billion in US venture capital funds was invested per week in e-commerce start-ups.
The 1999 holiday shopping season produced a threefold increase in online sales over the previous year. The growth trend continues to beexplosive and relentless across industries, global regions, and classes of users - and cannot be dismissed as a bubble. Corporations and governments have begun focusing on the Internet's implications and opportunities in earnest.
Underlying the new economy is what can be called a quantum shift in the index of economic value. According to classic economic theory, a company's value was determined by its capital assets - its physical and monetary capital, plus the present value of the income stream derived from those assets. The effectiveness of the company in managing its assets would eventually result in a market presence and a perceived market value. As rational as this may seem to us, we find ourselves wooed by a new and revolutionary model of economic value, exemplified by the many Internet startup companies whose market cap has soared beyond the wildest expectations. They represent a new breed of businesses that create value through services and technology initiatives.
In this new environment, information - not physical assets - has become the new currency, the new gold standard. What increasingly determines a company's market value today relates to the following considerations:
- How information is leveraged to enhance responsiveness to customers.
- How information is used to accelerate sound business decisions.
- How a company uses its online presence to differentiate itself in the marketplace.
- How information is generated, stored, and applied to business purposes.
Information management is, in this sense, the key to building shareholder value, as leading companies are proving over and over again.
As a result of the new marketing paradigm, business executives everywhere are under pressure to catch up with the market leaders that have established their presence in the new marketplace. Companies are finding it harder to win new contracts, largely because of competition from fast-moving, innovative players who embraced the Internet early in the game. Online buyers are known to make a snap judgment about a company's worth in the course of a few mouse clicks. Companies must therefore find ways to project their value to a customer through the initial experience of their website. An instant advantage has become the selling proposition of our times.
Easier said than done. For many, the hurdles seem insurmountable. Beleaguered by changing trends and global competition, business and IT executives are concerned about the skills and technological resources needed to provide customers with the services they demand. They are asking themselves, "What do we need to do to act quickly to meet customers' raised expectations? What kind of business model or paradigm must we adopt to seize new e-commerce opportunities? What do we need to do to be agile and fast moving? How can we expand our offerings and enter new markets with our current infrastructure and service providers?" They are in search of an approach that balances stability and risk, while keeping their IT investments aligned with their business goals and initiatives.
NEED FOR EFFECTIVE ENTERPRISE STRATEGIES
Many business executives originally thought that being an Internet player only required them to develop a pretty storefront on the World Wide Web, and that would be that. However, the success of new e-business leaders like priceline.com and autobytel.com proved them wrong. A piecemeal approach to the massive changes associated with a digital economy falls far short of what is needed to achieve success and sustainable growth.
What is really needed is the realignment of business strategy with Information Technology (IT). While many have paid lip service to this alignment, companies operating successfully in the new Internet environment are living it. If one looks carefully at those companies, it becomes clear that the CIO not only reports directly to the CEO, but serves on the company's executive committee, working hand-in-hand with the CEO in the development of business and IT strategy. Not surprisingly, companies now are making the previously unprecedented decision to promote the CIO to the top spot in the company, as was recently the case at Compaq Computer Corporation.
We are now entering the second phase, or early maturation stage, of the Internet and the digital economy it spawned. The early winners are scrambling to protect their territory by developing comprehensive strategies for winning in a new environment. Companies that lost ground by being cut out of traditional supply chains - they have been "disintermediated" - are struggling to play catch-up any way they can. IT System Integrators are becoming IT/Business Strategy Integrators. Moreover, IT vendors are responding to customers by developing a 24/7 internal infrastructure that will be modular and accommodate explosive business growth. The IT industry is responding vigorously.
This book is written for CEOs, CIOs, and other decision-makers in business and IT who need to understand and embrace the new dynamics unleashed by the Internet. It will help them develop comprehensive strategies for adapting to the realities of the digital economy. This book will also help those who have begun the journey to online success but are in need of a refresher, or those who are looking for confirmation and additional guidance along the way.
Unlike most books that survey e-commerce trends, this book offers business and IT managers the strategic pointers they need to begin their journey toward transforming their companies into e-businesses. Our discussion of the issues will help lay the foundation for a business and IT plan of attack that takes into account the lessons learned by the e-commerce pioneers. Interspersed throughout the book are proven approaches and best practices of some of the most successful e-businesses around the world. The book offers specific guidelines for developing e-solutions, modeled after the examples of the best-known online companies. In addition, we let you hear directly from CEOs and others who talk about the lessons they learned in leading their respective companies into the online era.
GAINING INSTANT ADVANTAGE
We believe the transformational strategies and tactics presented here will enable you to lay the groundwork for creating an online business in your enterprise. We earnestly hope that, by absorbing and applying the concepts presented in this book, you will:
- Anticipate the impact of the emerging online ecosystem on your business.
- Discover ways to better service and retain your customers.
- Create and sustain competitive advantage through a 24/7 services model.
- Leverage IT through constant innovation in the face of continuing market disruptions.
- Establish a results-oriented plan with measurable ROI and benefits.
- Maximize the payback across the total enterprise value chain.
You will find that the success factors in the digital economy come down to these:
1. Understanding and embracing the dynamics of the new online marketplace. 2. Leveraging Internet technologies to engage customers, partners, and suppliers in the creation of value. 3. Building an e-culture in your company that rewards vision, innovation, and the entrepreneurial spirit.