Winning in the race for e-business

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1 Winning in the race for e-business Lecture Four - Benchmarking global best practice Presentation to Sheffield University Management School MBA Students 6 March 2007 Prof. Jim Norton Senior Policy Adviser UK Institute of Directors Former Director UK Cabinet Office PIU e-commerce team Issues to be covered How much business is e-business? Measuring national e-business capabiltity international benchmarking study results. A challenge: Remember the people dimension. Final thoughts. 1

2 How much business is e-business (1)? The total value of Internet sales by UK non-financial businesses employing 10 or more people in 2005 was 103.3Bn, up 56% on Internet sales represented 5.5% of total sales, compared to 3.8% in 2004 and 2.2% in Sales over other ICTs (e.g EDI, telephone & ) in 2005 were 204.1Bn, up 11.5% on 2004 ( 183Bn). Internet sales represented 34% of sales over all kinds of ICT, up from 27% in 2004 and 17% in % of sales were within the UK, 9% of sales to the rest of the EU and 9% of sales to the rest of theworld. 79% of sales were to other businesses (B2C) and 21% of sales were to households (B2C). This represents a swing towards B2B - in 2002 the B2B share was 73%. Source: UK Office of National Statistics Report: ICT Activity of UK Businesses How much business is e-business (2)? UK Internet Business to Consumer (B2C) sales totaled 21.4Bn in 2005, up from 16.5Bn in 2004 a rise of 29.7%. The total value of Internet purchases by UK non-financial businesses employing 10 or more people was 72.8Bn, up by just over 50% on 2004 ( 48.4Bn). Internet purchases represented 5.6% of total purchases in The proportion of business purchasing online in 2005 was 56.3%, up 12% on This compares to just 15% of businesses selling online. Nearly 70% of businesses employing 10 or more people had a website in 2005, up 4%. The proportion of businesses employing 10 or more people using the Internet to interact with public authorities (B2G) was 50.5% in 2005 up from 41% in Source: UK Office of National Statistics Report: ICT Activity of UK Businesses

3 Businesses that placed orders online Note: Business here means businesses representing x% of employment in the relevant country Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 74 Businesses that pay online Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 76 3

4 Resolution of the Solow productivity paradox Policy-makers and economists have long debated the role of information and communications technology (ICT) in the economy. The traditional view in the 1980s and 1990s was that its impact was limited. This was well characterised by the Solow Productivity Paradox that "you can see the computer age everywhere but in the productivity statistics". In the last year this paradox has been resolved. A confluence of new evidence based on analysis of US economic performance in the late 1990s demonstrates a strong inter-dependence and that ICT has had a substantial impact on GDP. This view has been supported by research by the European Commission that lies behind the claim by Erkki Liikanen, commissioner for enterprise and information society, in October 2003 that "there is more and more evidence that the adoption of ICT is a key to productivity growth. In the US, it has been unusually robust, and has spread to the wider economy." Evidence of a substantial impact on productivity and GDP growth in Europe is much more limited to date. For the first time since 1950 European catch-up ceased and the productivity gap between the US and Europe started to increase again after Innovation in ICT has a transformational impact on productivity and growth - in the US, ICT produced an estimated one percentage point increase in yearly GDP growth in the late 1990s. Evidence and reasoned argument point to this productivity and growth improvement continuing for many years to come. Applying the same logic to the European economy, ICT could increase our future GDP growth rate from 2 per cent to 3 per cent. ICT can do to our economy in the 21st century what railroads did in the 1800s and electricity in the 1900s. Sectors that are or will be particularly heavy users of ICT - retail, financial services, media and government - stand to benefit most, although the whole economy will profit indirectly. This raises the question of whether policy makers in Europe can do anything to improve Europe's relative productivity performance. Source: Andrew Heaney of Spectrum Strategy Consultants and Brian Williamson of Indepen, "Reaping the Telecoms Dividend" January Quoted in the Financial Times 18 Feb 2004 UK research shows that ICT use is linked to higher productivity Manufacturing companies in the UK achieve an extra 2.2 per cent in productivity for each additional 10 per cent of employees using computers. In newer firms, this extra productivity effect rises to 4.4 per cent. The effect associated with internet use is greater. Manufacturing companies in the UK achieve an extra 2.9 per cent in productivity for each additional 10 per cent of employees using the Internet. Again, for newer firms the effect is larger. Source: Office of National Statistics, with London School of Economics and UK DTI 4

5 Issues to be covered How much business is e-business? Measuring national e-business capability international benchmarking study results. A challenge: Remember the people dimension. Final thoughts. A framework for analysis.. The UK is the leading centre for e-commerce activity within a strong Single European Market, based on openness and innovation by suppliers and customers, light touch regulation, and Government-Industry partnership Access Understanding Trust Market-led approach A competitive and innovative environment Co-ordination and focus across Government Internationally agreed tax and regulatory frameworks Monitoring and evaluation Source: PIU Report 5

6 Vision Access Understanding Trust Individuals... have ubiquitous, low cost, high bandwidth, fixed and mobile, access, with an always on capability. are not e-excluded. Almost all, including the disadvantaged, have affordable access. are no longer barred by limited literacy.. Business and Government. have access through broadband networks which are nearly ubiquitous throughout the UK. Individuals... are aware of the benefits that they can gain from e- commerce and feel confident that they have the skills to exploit them. are able to use routinely electronic means for Government transactions. Business and Government. use e-commerce as an integral part of strategic thinking in UK industry. have embraced the tools of e-commerce to develop skills. Individuals... can use networks for e- commerce transactions with minimal risk of being defrauded. have minimal risk of being hacked or spammed. Business and Government. are fully confident in the use of e-commerce transactions. have systems which are intrinsically secure. Can protect their IPR. Source: PIU Report Assembling the Sophistication Index Environment Adopt Impact Aware People Deploy Technology Processes Based on a fusion of the three pillars and technology innovation lifecycle approaches with 50 sub-indicators. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 102 6

7 Defining the sophistication index The technology innovation lifecycle approach: Awareness - the ability to make an informed decision based on knowledge ; Adoption - decision making, ownership of, or access to, particular resources; Deployment - usage and optimisation of particular resources; and Impact - the outcomes realised from the adoption and deployment of particular resources. The three pillars approach: People - the leadership, skills and culture of business; Technology - online platforms and applications; Processes - buy-side, sell-side, and inside processes, which support specific business functions; and surrounding them all environment - competition, government, customers, suppliers and other influences. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 103 Issues to be covered How much business is e-business? Measuring national e-business capability international benchmarking study results. A challenge: Remember the people dimension. Final thoughts. 7

8 E-Business benchmark winners 2004 Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 105 Overall sophistication index scores Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 107 8

9 Sophistication index - numerical results 2004 The absolute score differences between nations are generally quite close, in most cases within ten percentage points. Overall the leading nations are Sweden, Ireland, and the UK. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 104 Year on year sophistication index change Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 106 9

10 UK ICT sophistication index Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 17 Sweden tops the league table Its strengths are environment, adoption, technology process and deployment Environment - A sharp improvement (six index points) on Driven by rise from 8 to 18% of in businesses making payments online to Government, and rise from 22 to 35% of businesses interacting with Government through . Technology - Very high internet connection speeds, two thirds of businesses use mobile or remote terminals (up 9 percentage points since 2003 and Swedish businesses are the most consistent implementers of advanced ICT. Process & Deployment - 65% of businesses make payments online (up ten percentage points since 2003), 54% of businesses allow customers to order online (up three percentage points), 33% of businesses allow customers to make payments online (up 14 percentage points since 2003). Swedish people have a strong affinity for new technologies and a familiarity with e-banking and e-shopping. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page

11 Doing the basics very well followed by Ireland People - Irish businesses are among the most confident that their IT skills are meeting the needs of business and their staff have very positive attitudes to new technologies. 78% believe that their IT skills mostly or completely meet business needs; Awareness - 54% of Irish businesses measure the benefits of technology this is up 13 percentage points on Technology & Adoption - the key to Ireland s high score is the high level of basic connectivity among businesses: there is almost total saturation of Internet and access. Connectivity amongst small and micro businesses is amongst the highest measured. Ireland also excels in the adoption of more advanced ICT such as WAN, LAN and VoIP. Ireland s main liability remains the low penetration of broadband access resulting from low levels of infrastructure competition. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 109 along with the UK UK s strengths are across the board, without any specific leadership: People - 53% of UK businesses now measure the benefits of ICT, up 15 percentage points on 2003, They are also being much more proactive about skills development, 69% of businesses that identify skill gaps now use regular or ad hoc training up 19% points on Technology & Awareness - UK businesses have shown a marked improvement in the adoption of advanced ICT, broadband access - doubled in the year, they have also enthusiastically adopted Wireless LANs, VoIP and desktop video conferencing. Process & Deployment - UK businesses are deploying ICT more deeply into their processes and operations. Of businesses with an internal network 70% already have or intend to integrate their internal systems to improve information sharing - up 8 percentage points on Percentages using online banking and invoicing have also increased sharply. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page

12 Issues to be covered How much business is e-business? Measuring national e-business capability international benchmarking study results. A challenge: Remember the people dimension. Final thoughts. Technology of course makes an excellent servant but a poor master As an engineer and director my strong concern is with the process by which increasingly rapid change in technological capability diffuses out into society and the economy Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03 12

13 The people dimension part one Networked information systems can be either (or both!) a benefit and a curse Major scope to improve quality and lower cost in product manufacture and service delivery But poor track record in building systems which align people, systems and processes. Potential for SMEs to level the playing field with large companies Immense potential in sharing knowledge across divisional boundaries But in the UK SMEs Were slow to adopt e-business seriously. But how to overcome the knowledge is power barriers and reward knowledge sharing? Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03 The people dimension part two Networked information systems can be either (or both!) a benefit and a curse Potential for enhanced information flow and more responsive management exploiting But widespread poor practice leading to information overload and excessive hours worked. Opportunity to codify explicit knowledge into attractive expert systems Potential to tailor private and public sector services to individual consumers But increasing premium on tacit knowledge strengthens clusters. But major absence of the trust required to permit the holding and use of personal data. Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03 13

14 Structural change proves challenging Organisational change has been slower than I expected.. Some very successful pioneers - e.g. Oracle (trial financial balance each day).. Much scope for more virtual organisations and for portfolio working; greater empowerment of individuals. Great scope for e- Government initiatives to improve accessibility But an enormous number of failed ERP and e-crm system implementations But little sign of serious implementation (or new support structures such as Guilds) But very low take up of e- Government services, particularly in the UK Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03 Issues to be covered How much business is e-business? Measuring national e-business capability international benchmarking study results. A challenge: Remember the people dimension. Final thoughts. 14

15 Some final thoughts. E-business has not gone away! The excess of gloom on the downside was just as wrong as the earlier excess of hype. Normal Darwinian processes have removed from the market those who had wacky business plans and little common sense E-business is now being integrated into traditional business, bringing major cost savings, service enhancements and new business opportunities. Remember that, in e-business, people and processes are much more of a challenge than technology And remember the law of unintended consequences. 15

16 Questions & Answers Slides (in portable document format) available to download from: 16

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