CHAPTER 16. THE EMERGENCE OF ELECTRONIC COMMERCE: IMPLICATIONS FOR CORPORATE STRATEGIES AND FOR INNOVATION.

Transcription

1 CHAPTER 16. THE EMERGENCE OF ELECTRONIC COMMERCE: IMPLICATIONS FOR CORPORATE STRATEGIES AND FOR INNOVATION. by Rafael Vasconcelos Electronic commerce refers to business activities involving consumers, manufacturers, service providers, and intermediaries using computer networks such as Internet [38, 39]. The goals of electronic commerce are to reduce product and service costs and improve customer response time and quality. Hence implementing initiatives in electronic commerce has emerged as significant business strategy in the Information Age. Technological developments made possible by the convergence of the telecommunications and computing industries have opened the door to a world of new and exciting applications that are changing the way business is conducted. A large number of businesses of all sizes have either begun to implement E-Commerce strategies and initiatives, or have plans to do so in the immediate future Introduction: the context of e-commerce for innovation Organisations are now moving into a situation in which they have to make choices from an increasing and changing variety of distribution channels, with the objective to expand market coverage and strengthen the competitive position. Changing the methods of approaching the market is a far-reaching process, since these generally are deep-rooted in the long-term strategy of an organisation. However, when a firm neglects to make use of the new marketing, distribution and communication possibilities, they run the risk of losing market share to competitors that actively develop a strategy to approach the market using a variety of distribution channels. E-Commerce and Business Business can implement electronic commerce applications in numerous ways, and as electronic commerce matures and develops, there are likely to change and develop as well. Organisations can use E-Commerce for transaction applications, advertising services, business process automation, information dissemination. Business Models And Business Functions Revolutionary changes in traditional commercial practices such as E-Commerce projects can not transplant the framework from existing business models, but need to establish new frameworks that build from previous models in some ways, and are totally novel in other ways. This combination of techniques to establish the business models for E-Commerce leads some analysts to believe that the shift to E-Commerce in business is less a revolutionary process than a very rapid evolutionary one. Impact in Industries It is scrutinised the entertainment/multimedia industry, the banking industry, the information/computer industry, the air-lines/travel industry, and the automotive industry. The list of affected industries could surely go on; for example, the health care and insurance industries are often as viable participants to exploit EC applications, but this sampling is a good starting point and representative of the changes taking place due to electronic commerce. Research Approach and Methodology This work is the starting point for the research in Portuguese market on several sectors of activity, namely: Cristalary; Tourism; Computers; Publicity, Journals and magazines; Moulds; Automotive; Government; Distribution and Telecommunication, about the implications of Internet in our companies, particularly the implications of the E-commerce in corporate strategies and innovation. Another aspect to be focused is the policy that Government should implement to create a positive environment for E-Commerce in Portugal. 16.1

2 Summary Electronic commerce offers profound opportunities to better respond to demands and wishes of customs. However, internal organisation need to be capable of using electronic channels to improve customer responsiveness as well. Key elements in re-engineering the organisation are the co-ordination of the distribution channels, the internal information management and the redefinition of products and services. The latter point includes innovation in the sense of new information intermediaries, customisation of products and shortcuts within the supply chain. (Sol H. et. al.) 16.2 Strategies for E-COMMERCE AND BUSINESSES Business can implement electronic commerce applications in numerous ways, and as electronic commerce matures and develops, there are likely to change and develop as well. Organisations can use E-Commerce for transaction applications, advertising services, business process automation, information dissemination. Kalakota and Whinston [3] identify three general types of E-Commerce applications: interorganizational, intraorganizational, and business-to-consumer. Interorganizational electronic commerce involves business-tobusiness applications, and projects in this area facilitate supplier management, inventory management, distribution management, channel management, and payment management. Intra-organisational electronic commerce involves applications within a single business, and these types of initiatives facilitate workgroup communications, electronic publishing, and sales force productivity. Business-to-consumer electronic commerce focuses on transactions, and these projects facilitate social interaction, personal finance management, and the purchase of products and information. Within this framework, the definition for businesses can apply to governments as well. Interorganizational E-Commerce can include inter-agency transactions and applications; intraorganizational E-Commerce includes streamlining efforts within governments; and business-to-consumer E- Commerce includes government-to-citizen applications and projects. To further classify the ways that business adopt e-commerce strategies, Knowledgebank (Joint venture of Financial Technologies Group and Digital Peppers) depicts two routes corporations can take to implement and E-Commerce strategy. They differentiate between an internal channel primarily for staff and business partners and external channel primarily for customers, as two strategies for implementing E-Commerce. Knowledgebank s model of E-Commerce growth paths complements Kalakota and Whinston s classification of E-Commerce applications. Inter-organisational and business-to-consumer types of electronic commerce applications facilitate the external channels, and intra-organisational applications facilitate the internal channels. Initial excitement over the explosion in the E-Commerce industry (essentially in US), led analysts to believe that business-to-consumer type electronic commerce applications would be the first to reach critical mass. Individuals making impulse purchases over the web were expected to drive E-Commerce markets, but market research reports show that these types of transactions are developing considerably more slowly than expected (see http//www1.viaweb.com/vw/stumdimpurrar.html). After consideration and analysis of the market s development, it appears that these types of applications may actually take the longest to reach that point. For consumer applications to take off in the EC market, the added-value associated with changing the traditional way they conduct business will require more time to acclimate to new paradigms and change the traditional ways they do business than companies that must adapt to compete and survive. Interaction between businesses will shape electronic commerce in its preliminary stages, rather than individual consumers demand. This situation should not be overly surprising; in the physical world, business-to-business transactions are actually worth approximately 10 times more than consumer transactions [4]. Business are more apt to conduct the necessary analysis to realise what the advantages of implementing an electronic commerce system may be, and to do so in a timely fashion [5,6]. Even when the benefits involved are intangible ones, such as strategic and competitive advantages, these are factors that bear a greater effect on organisations than individuals and tend to influence short-term decision making and activities in consumers to a lesser degree [4]. One reason for the growing number of business-to-business E-Commerce transactions is that businesses are already accustomed to conducting commercial activities at great distances via fax, telephone, post, or ordinary networks. Transferring these processes to the Internet makes them cheaper, faster and easier [4]. There are a growing number of examples of business-to-business success in electronic commerce. Large high-tech vendors such as Dell and Cisco are often cited for the millions they are generating daily thanks to their E-Commerce generated business-to-business sales, but even some smaller corporations are engaging into E-Commerce race. 16.2

3 Lohr [7] discusses several of these smaller companies that are engaging in E-Commerce not necessary for their belief in the benefits and savings these initiatives will bring about, but simply to keep up and survive in the changing business environment BUSINESS MODELS AND BUSINESS FUNCTIONS Revolutionary changes in traditional commercial practices such as E-Commerce projects can not transplant the framework from existing business models, but need to establish new frameworks that build from previous models in some ways, and are totally novel in other ways. This combination of techniques to establish the business models for E-Commerce leads some analysts to believe that the shift to E-Commerce in business is less a revolutionary process than a very rapid evolutionary one. Goldman Sachs s E-Commerce report, Cyber Commerce: Internet Tsunami, refers to a Fast-paced Internet-driven Technology Ethos (FITE) that stresses this evolutionary aspect of E-Commerce business models [8]. Examples for companies to consider are beginning to come to light though, as reports on the results specific businesses are achieving from particular are assessed. By now there are a number of E-Commerce ventures worth looking at to develop business models, and this number is growing steadily. Amazon.com is one of the most cited success stories in electronic commerce. The Electronic Commerce Survey by The Economist [4] provides an excellent case study of Amazon.com s business model. It depicts how the company has combined value-added services such as book reviews and recommendations with cost savings over physical bookstores offering to emerge as a major competitor to traditional book sellers such as Barnes & Noble ( In US) or Livraria Barata (in Portugal). Furthermore, rather than looking at a specific organisation s E-Commerce projects in detail, we will discuss more generally the relevant issues pervasive to business models on the whole. The topics this environment unique or as enablers of new business processes that innovates in business models and relationships. Information-Intensive Added-Value: Electronic commerce must add to a business function to change the traditional way that processes are carried out. An identifiable thread among EC projects is that they are generally information-intensive, capitalising on this enabling feature of the Internet as a medium[98]. Electronic commerce technologies offer cheaper and easier access to more information, and it is this characteristics that may drive E-Commerce business. Rather than always demanding the lowest price, on line consumers have shown as interest in making quicker, better, informed decisions [4]. Different types of transactions can capitalise from this feature in different ways. Difficult and tedious purchases in the physical world, such as buying a mortgage, have great potential for effectively selling over WWW, where a site could offer straightforward and simple comparisons. Simple purchases such as CDs and books are not overly cumber-some in the physical world, and to attract on line customers to these transactions vendors need to offer some type of added-value, such as numerous reviews and information about books, or audio samples of music in the CD. Changing Relationships: Another identifiable difference from traditional business models that E- Commerce enables involves the shift in balance of power from merchant to consumer [4, 9]. With alternative choices for products just a mouse click away, and the power of the Internet as a word-ofmouth amplifier, consumers enter a new relationship in a transaction where customer service becomes a paramount issue in a global electronic marketplace. On the other hand, merchants gain new information about the tastes of individual consumers that can enable them to customise their shop or service in ways that were previously impossible due to lack of information. This unique feature of the E-Commerce environment will shape and impact business models. Businesses and consumers are just beginning to feel their way around in this new environment, and the consequences for business models are only beginning to take shape. The increased availability of information for vendors may help address the demographics issue; although the environment may change quickly in electronic commerce, participants also get more information more quickly as well. Customisation: Electronic commerce enables the customisation of products, creating differentiation that binds the demands of a small group or an individual to the manufacturing process [10]. E- Commerce can enable the customisation of physical products, using customer input in the design and 16.3

4 production of a car, or it can involve tailoring digital products, using a personalised daily news feed from an information broker. One effect of this process can be a decrease in the sharing or reselling of products due to high degree of customer satisfaction concurrent with a high degree of customisation. Customisation can also drastically affect prices allowing sellers to set them based on the consumer s willingness to pay [10]. Demographics: Business models should take demographic considerations into consideration. The fact that there are a growing number of successful examples of E-Commerce initiatives may not alleviate the concern businesses have over developing new business models. Assessments of E-Commerce business models made as recently as one or two years ago are already inaccurate or no longer valid. The reason for this is that business models are highly dependent on the demographics of an industry, and E-Commerce demographics are unsettled and rapidly changing. The upper-income male internauts who dominated the E-Commerce consumer market in 1995 and 1996 (in US) propelled merchandise concerning sports and sex to success in the first stages of EC explosion [11]. Changing demographics on the Internet and whiting the E-Commerce market will certainly affect business models. Industries with rapidly changing demographics such as E-Commerce must be particularly sensitive to their conditions and reflect the current status. Adapting a business model is difficult for organisations though, and the rapid growth of the Internet makes this an even more challenging task. New Channels: The infrastructure for E-Commerce applications is a cause of the changing business models as well. The use of open networks as the medium for electronic commerce allows the potential for organisations to communicate with each other in fundamentally new ways. Communications no longer have to be point-to-point, or point-to-multipoint, but through the Internet van now be multipoint-to-multipoint. Whiting this new channel, participants can still focus on particular areas of interest, thereby creating a wider, yet paradoxically narrower, market segment [8]. One-to-one marketing is possible in this environment, offering the potential to change the way organisations generate business. Business are struggling to find ways to optimise this new communications channel. Legal Ramifications: One issue often neglected by participants and observers in the electronic marketplace is the need to be aware of legal ramifications of new or changed business processes. Transactions applications must consider tax issues; digital information must adhere to intellectual property rules, and so on. Many participants in the electronic market place recognise the need for integrating the technical and business issues in E-Commerce; we must stress the need for participants to consider all of the interdisciplinary issues in E-Commerce in conjunction with each other. As legal frameworks unfold for E-Commerce, the effects on business models and technology may be considered. In this early state of E-Commerce, business models are still being formulated and developed. Discussing current trends in this area on a smaller scale should provide insight into the business issues that organisations are considering. Electronic commerce is increasingly playing a role in numerous aspects of business, including [12]: marketing, sales, and sales promotion; presales, subcontracts, and supplies; financing and insurance; and commercial transactions (ordering, delivery, payment); product service and maintenance; co-operative product development; distributed co-operative working; use of public and private services; business-to-administration transactions (concessions, permissions, taxes, customs, etc ); transport and logistics; public procurement; automatic trading of digital goods; accounting; and dispute resolution. We look at seven business processes to characterise business models that are affected by electronic commerce. (Nabil R. Adam et. al.) 16.4 IMPACT IN INDUSTRIES Entertainment/Multimedia Industry Collins, et al [62], credit the effects of EC applications and services on the entertainment/multimedia industry to the convergence of the telephone, television, and personal computing industries. The ability to transmit voice, video, and data over an open network with a common infrastructure has a dramatic effect on industries such as ones that are in the business of distributing these commodities to end users. New technologies enable new applications and services that are transforming former business models. For two examples, consider Internet 16.4

5 news services that update their content continuously in real-time versus the daily print media; and the forthcoming video-on-demand movie services versus the traditional videocassette recorder rental systems. These changes are not just improvements or enhancements to the previous models, but radical changes that have uncertain effects on structures within industries, such as the pricing and distribution systems and the structures of industries themselves. Publishing Electronic commerce is changing the publishing industry in several ways while creating a plethora of business models as well. The nature of electronic commerce and the Internet itself make it attractive to publishers of all sizes for several reasons [14]: low barriers to entry; an abundance of market niches and potential business models; similar technology available to everyone; the potential for mutually successful players in the market; and nonexclusive universal access based on virtual location rather than physical location. The business of publishing boils down to information dissemination, and the World Wide Web is a revolutionary tool for information business [42]. Banking Industry Banks are emerging as an integral part of business models for modern electronic payment systems. Banks are central to inducing confidence in novel systems with which users are largely unfamiliar. Beyond these roles, the business processes and commercial activities affiliated with banks are affected by the advent of E-Commerce in several ways. There are five components to banking: retail, domestic wholesale, international wholesale, investment, and trust. The first three in this list can also be collectively termed as commercial banking. The enabling services of electronic commerce mostly affected retail and investment banking [16]. The two major applications emerging in these areas are Home-PC/Internet Banking (retail, or consumer banking) and On line Trading (investment banking). Information/Computer Industry The effects of EC technologies on business processes are relevant to the information/computer industry in several ways. Changes in retailing, R&D, and supply-chain management have the potential to benefit this industry significantly. Within the retail channel, direct distribution from supplier to customer is particularly attractive in this industry. The effect of a streamlined retail channel on OEMs and VARs may be damaging, but suppliers themselves seem pleased. Value-added resellers for Sun Microsystems, Inc. have become disruptive over Sun s plants to sell its new Ultra 5 to 10 Workstations over the Web through their own PCs over the web. Dell and Cisco are boasting daily sales in the millions of dollars by selling directly through the Internet. The continuation of this trend will depend on the ability of traditional vendors to demonstrate new kinds of value in the retail channel in an E- Commerce environment. An increasing collaborative R&D process is also relevant to the information/computer industry, where R&D is the key to innovate and progress. Increased collaboration made possible by intranet technologies and applications are specifically important to the research intensive computing industry, and GroupWare and workflow enabling tools and services will be especially applicable. Furthermore, supply-chain management and manufacturing applications and services are streamlined by the advent of real-time product information on a global level. The computing industry will benefit from the closer relationship between geographically dispersed divisions within companies and developers. A team of software developers can continually work 24 hours a day on a project by establishing a real-time information link in a number of different time zones across the globe, having one team pick up where the other left off at the end of their respective days. The overall effects of these changes in a business process will impact the information/computer industry in at least two ways. For one, changes in R&D and the supply-chain will create shortened development cycles. Shortened development cycles should speed hardware and software product development. Secondly, a creation of new wealth in the industry should follow. This industry should have a better understanding of the technical 16.5

6 issues and technologies in E-Commerce than most others, and is more apt to realise the potential benefits in a timely manner. Airlines/Travel Industry The travel/airlines industry is one of the largest industries in the world (only in US sales are over $100 billion per year), and its sheer size makes it prime choice for applications which increase efficiency and add value [17]. This industry is particularly susceptible to advantages offered by electronic commerce due to favourable product attributes in an electronic market [18]: low asset specificity (items are interchangeable) and simple product description. To this end, E-Commerce applications and products have been focused on the distribution of travel products such as airline tickets, hotel rooms, and related services [19,20]. The information-intensive nature of these products means that E-Commerce applications over multimedia networks quality as good process facilitators. Enabling services over WWW are emerging as technologies eith the potential to seriously endanger traditional service-oriented industries such as travel agencies. In fact, Zone research inc. is predicting an impressive $1 billion lion in on line travel sales in 1998 [21], a figure that s even more notable when one considers that the industry has only about one year. Automotive Industry The automotive industry has shown the potential to realise benefits from electronic commerce in three areas: the supply-chain and manufacturing applications, retailing, and customer service. Some car manufacturers are also looking into data mining to enhance their R&D process [241]. Automakers and their suppliers have been among the earliest groups to effectively implement intranet applications to streamline the supply chain between,manufacturers and distributors. General Motors Corp. and Mobil Corp. are two companies that have demonstrated success in this area, replacing functions formally handled by EDI applications that were costly to implement and maintain, and providing cost advantages [23, 24]. More recently, the automotive industry is undertaking an initiative to extend these benefits by implementing an industry wide extranet. The network has the potential to save over $ 1 billion per year if implemented industrywide [25,26] RESEARCH APPROACH AND METHODOLOGY The work presented above will be completed by July 2000 following the questions below: 1. What s the impact on the strategy of Portuguese Companies caused by Internet in general and E- Commerce in particular? 2. What s the relation of using old electronic transactions (E.g. EDI) in Business to Business or Business to Consumer and the adoption of Internet as Transaction tool for Portuguese Companies. Specific questions for second general question: What are the Portuguese companies: - That use to use old electronic transactions and today use Internet? - That use to use old electronic transactions and today still continue using? - Didn t use any electronic transactions and today use Internet? - Didn t use any electronic transactions and today still continue not using? 3. What type of policy should be implemented by the government in Portugal, in a way that could create a good environment to the intensive use of Internet by the companies? Hypothesis 1. Are the companies that actually use Internet the best prepared for the future? 16.6

7 2. Is the government implementing the right policy, in a way that companies use Internet in their strategy. Methodology for Analysis The methodology it will be based in interviews and questionnaires for several sectors of activity, namely: - Cristalary - Tourism - Computers - Publicity - Journals and magazines - Moulds - Automotive - Government - Distribution - Telecommunication All data will be analysed and compared with international countries (Holland, Ireland and Finland). Furthermore, some international cases like Cisco and Dell will help to understand how to take good advantage of Internet in Business to Business and Business to Consumer. The goal of the final work is to understand the implications for corporate strategies and innovation, for Portuguese companies. Moreover, try to make some policy that help companies to be more prepared for Digital Economy. BIBLIOGRAPHY [1] Workflow and Process Automation in Information Systems: state-of-the-art and Future Directions, [2] Workflow Reference Model. Technical report, Workflow Management Coalition, Brussels, Belgium, [3] R Kalakota and A.B. Whinston. Electronic Commerce: A Manager s Guide. Addison-Wesley, [4] The Economist. The Economist Electronic Commerce Survey: In search of the perfect market. The Economist, May 10, Available: March 6, [5] Interactive Marketing News. Companies prepare for Electronic Commerce. ISSN: , no. 28, vol. 3, October 18, [6] J. Ambrosio. Business, not consumers, will shape online commerce. Computerworld, March Available: http// July 14, [7] S. Lohr. Beyond Consumers, Companies Pursue Business-to-Business Net Commerce. The New York Times, April 28, [8] M. K. Parekh, et al. Cyber Commerce: Internet Tsunami. Technology:Internet/On-line Software & Services, Goldman Sachs, August [9] C. Wilder. Online Auto Sales Pick Up, Transforming An Industry. Information Week, February Available: http// March 3,

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