Winning in the race for e-business

Winning in the race for e-business Lecture Three - Highlighting global best practice Presentation to Sheffield University Management School EMBA Course 12 November 2010 Prof. Jim Norton! External Board Member! UK Parliamentary Office of Science & Technology! Former Director UK! Cabinet Office PIU! e-commerce team! www.profjimnorton.com! Issues to be covered How much business is e-business? Measuring national e-business capability. 2010 international BCG study results. SMEs and ICT: IoD research results. Key ground rules for successful business change. Approaches that reduce risk. Final thoughts. 1

How much business is e-business (1)? The total value of Internet sales by UK non-financial businesses employing 10 or more people in 2008 was 222.9Bn, up 36.6% on 2007. This is 9.8% of the value of all such sales in the UK. Sales consisted of 104.7bn in website sales and 118.2bn in EDI sales over the Internet. Source: UK Office of National Statistics Report: e-commerce & ICT Activity 2009 http://www.statistics.gov.uk/statbase/product.asp?vlnk=6645 How much business is e-business (2)? The proportion of businesses* using the Internet to sell rose from 14.4% in 2007 to 15.2% in 2008. The proportion using a website for their Internet sales was 12.6% in 2008. Mid size businesses (250 to 999 employees) showed the largest proportional rise in Internet sales up 51% to 65.9Bn in 2008. The proportion of businesses* with a website increased to 73.5% in 2008 (from 70.3% in 2007) but only 12.6% of businesses used a website to sell Looking at sales over ICTs as a whole (including telephone and not just the Internet) those rose to 339Bn in 2008. 83% were within the UK, 11% to other EU countries and 6% to the rest of the World * non-financial sector employing 10 or more people Source: UK Office of National Statistics Report: e-commerce & ICT Activity 2009 http://www.statistics.gov.uk/statbase/product.asp?vlnk=6645 2

Some e-business nuggets Cyber Monday (the first Monday in December) is believed to have achieved 350M in online spending on Christmas gifts in 2009 Research from Kelkoo for Christmas 2009 suggested that 70% of people planned to do some shopping online. 3 out of 4 of these people will do the majority of their gift buying online Total sales for December 2009 exceeded 5Bn up 14% on 2008. On Cyber Monday 2008 Amazon UK saw 1.4 million items ordered in 24 hours Source: Financial Times quoting IMRG, Kelkoo and Amazon. Issues to be covered How much business is e-business? Measuring national e-business capability. 2010 international BCG study results. SMEs and ICT: IoD research results. Key ground rules for successful business change. Approaches that reduce risk. Final thoughts. 3

Highlights from the Boston Consulting Group The Connected Kingdom Report The United Kingdom has embraced the commercial Internet and is now home to the largest per capita e-commerce market and the second largest online-advertising market globally In 2009 the Internet contributed an estimated 100bn or 7.2% of GDP to the UK economy. The significance of the Internet to the UK economy is actually greater than these numbers suggest because important economic activities ogf both consumers and businesses are not directly captured by GDP. While the Internet has disrupted several industries, it has empowered many others, especially small and medium enterprises Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. The Internet s contribution to UK GDP is projected to grow substantially Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. 4

Only some of the Internet s impacts are captured in the GDP figures Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. Only some of the Internet s impacts are captured in the GDP figures Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. 5

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 1995. 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 2004. 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 http://www.statistics.gov.uk/cci/nugget.asp?id=1240&pos=2&colrank=2&rank=640 6

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 e-commerce@its.best.uk Vision e-commerce@its.best.uk! 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 ʻhackedʼ or ʻspammedʼ.! 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 e-commerce@its.best.uk 7

Issues to be covered How much business is e-business? Measuring national e-business capability. 2010 international BCG study results. SMEs and ICT: IoD research results. Key ground rules for successful business change. Approaches that reduce risk. Final thoughts. Constructing the BCG e-intensity index The index looks at three measures of Internet activity: Enablement: how well built is the infrastructure and how available is it to access? Expenditure: how much money are consumers and businesses spending online on e-commerce and online advertising? Engagement: how actively are businesses, governments and consumers embracing the Internet? The index balances enablement (which has a 50% weighting) against the two measures of usage: expenditure and engagement (each with a 25% weighting). Despite its assumptions and the inherent margin of error, the index does help to show a country s strengths and weaknesses, especially at the sub-index level. Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. 8

The UK performs moderately on the Enablement sub-index Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. The UK performs best on the Expenditure sub-index Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. 9

The UK performs above average on the Engagement sub-index Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. The UK finishes high on the BCG e-intensity Index Source: Boston Consulting Group The Connected Kingdom: How the Internet is transforming the UK Economy published October 2010. 10

Issues to be covered How much business is e-business? Measuring national e-business capability. 2010 international BCG study results. SMEs and ICT: IoD research results. Key ground rules for successful business change. Approaches that reduce risk. Final thoughts. Results from our IoD survey 11

Results drawn from detailed telephone interviews with a balanced sample of 500 IoD members Sample by employee numbers (%) Distribution of sample by sector (%) 15% 13% Bus & Prof Servs 6% 8% 9% 11% 51% 1-25 26-50 51-100 101-200 201-500 501+ 10% 17% 6% 15% 39% Financial services Distribution & Hotels Govt, Educ, Health & Personal Servs Manufacturing Other, inc. Construction Mining & Transport Source: IoD Dell Report: Small & Medium Enterprises: successful growth through ICT investment Sept 06 Growth ambitions of SMEs 2004 2006 2007 Do you want to grow your business? For those who want to grow their business, is the use of ICT a key factor in helping your business grow? Percentage of SMEs as a whole who see ICT as a key factor 92% 87% 91% 84% 85% 82% 77% 74% 75% Source: IoD - Dell Studies 2004 & 2006, IoD-Dell Report SMEs: Successful Growth through Innovation, IoD Business & Technology report 2007 (unpublished) 12

Importance of ICT by organisation size Percentage indicating ICT as key factor in growth 100 80 60 40 79 76 78 80 89 81 88 94 20 0 Under 1M 1-5M 6-10M 11-20M 12-50M 51-100M 101-500M > 500M Annual turnover Investment in ICT is important to organisations of all sizes - only a very weak correlation with size Source: IoD Business & Technology Report 2007 (unpublished) Key reasons for investing in new ICT Increase productivity Increase sales Competitive pressure Save time Reduce costs Reduce risk Combination of factors 2007 2006 2004 35% 42% 64% 16% 8% 8% 8% 12% 3% 8% 11% 9% 5% 2% 5% 2% 2% 3% 15% 9% 1% For Mediums sized organisations, there is little variation from the total figures in 2007. Productivity is cited by 38%, increased sales by 10%, competitive pressure by 8%, time saving by 4% and reducing costs by 7%. Source: IoD - Dell Studies 2004 & 2006, IoD-Dell Report SMEs: Successful Growth through Innovation, IoD Business & Technology report 2007 (unpublished) 13

Key tools for SMEs For Medium sized companies the top four tools are unchanged, but business intelligence systems (4=) and collaboration tools (6th) are rated more highly than for smaller companies Source: IoD Business & Technology Report 2007 (unpublished) Key tools for cost saving For Medium sized companies the top four tools for saving cost are rather different: Integrated Communications (4.96), Business Intelligence Systems (4.93), Virtual Office (4.85) and Document Scanning & Management (4.69). Source: IoD Business & Technology Report 2007 (unpublished) 14

Key tools for improving efficiency Score: Most Important = 7 5.5 5.25 5 4.75 4.5 4.25 4 3.75 Total Mobility Virtual Office Integrated Comms Business Int. Collab. Tech Software as a Service Document Mgmt. VoIP Desktop Conf Tools For medium sized companies the top four tools for improving efficiency are very similar: Virtual Office (5.15), Total Mobility (5.13), Integrated Communications (5.05) and Business Intelligence Systems (4.92). Source: IoD Business & Technology Report 2007 (unpublished) Biometric Sec. Key technologies for future development For medium sized companies the scores are typically higher but in almost the same order KMS (5.55), IA (5.28), Virtual Communities (4.91), Social Networking 4.85, Web 2.0 (4.72) and Grid Computing (3.82). Source: IoD Business & Technology Report 2007 (unpublished) 15

Issues to be covered How much business is e-business? Measuring national e-business capability. 2010 international BCG study results. SMEs and ICT: IoD research results. Key ground rules for successful business change. Approaches that reduce risk. Final thoughts. First, understand where you are scope holistically budget honestly If people are at least equal partners with Information Systems in delivering service, then surely they deserve at least half of the project budget allocated to them in order to communicate: why change is required; how it will be achieved; the new skills required; the development new business models, and to reward positive change? Best practice suggests an allocation of 80% of the budget to people and process and 20% to ICT systems. 16

Second, provide leadership, sponsorship and governance The change programme must be visibly owned and sponsored at the highest level. The board-level sponsor must have clear authority to resolve conflict before it can get out of hand and block progress. A small steering group of senior executives is helpful to drive speedy decision making, openly sharing information and reducing political inertia. This is business change not IT change Third, ensure executive alignment The more the executive team shares a common point of view on the challenges of change, the greater the chance of success. Any chink of difference within the team will be exploited by the forces within the organisation that oppose change. 17

Fourth, don t take too long Transformation programmes have a limited shelf life beyond which little can be achieved. An early focus on the positive outcomes of change, and the means for their delivery, is essential. Regular (and honest) updates to the steering group by the champions of individual elements of the programme are vital. Large projects will develop a life and bureaucracy all their own unless tightly managed. Fifth, confront organisational resistance Sadly, resistance is inevitable. Seek it out and confront it head on. Left to fester, it will eat away at the heart of the programme... 18

Sixth, remember workload, capability and ownership The body of work in transforming an organisation is substantial. If outside advisers do all work there will be little ownership. Allocating poor staff simply leads to ridicule. Change needs to be driven by the best team, accepting the short-term opportunity cost implied. Seventh, avoid problem overload... Success is highly dependant on starting with a clear understanding of the new business model required and clarity on the path for its achievement. The journey offers many tempting diversions. Ruthless focus is required in avoiding such opportunities for own goals... 19

Issues to be covered How much business is e-business? Measuring national e-business capability. 2010 international BCG study results. SMEs and ICT: IoD research results. Key ground rules for successful business change. Approaches that reduce risk. Final thoughts. Create cross-functional teams Such teams break down barriers and reduce the potential for tunnel vision in problem solving. Few problems sit neatly in a single function The best team members become skilled advocates for the transformation. 20

Don t over centralise A small number of large linked systems may be more effective (and less vulnerable) than a single mega system. Use irrefutable facts Evident facts kill unwanted and otherwise contentious arguments. Opinions are open to debate and contradiction. Robust analysis and structured feedback are important tools for presenting key findings and drawing unresolved issues to a close. 21

Communicate regularly It is literally impossible to over-communicate during a change programme. Far better to get the facts out clearly and quickly, even if not always palatable. Left in a vacuum, people will create their own stories based around fiction more often than fact. It is vital to address directly the unspoken fears and emotions of individuals and groups. Document agreements and disagreements The factual and specific documentation of important agreements (and disagreements) acts as a referee in times of crisis. Once progress has been achieved, it is important to lock the doors behind so that people have to move forward. 22

Declare regular victories When progress is irrevocable, declare a victory. This brings unambiguous completion to a phase of change and generates momentum for further success. Adopt reinforcement mechanisms Change is at least as much about behaviour as it is about business process. Make sure that your performance measurement, pay and reward systems reinforce the new behaviours. Don t give people excuses to cling on to the old. 23

Finally, practice programme management Too often there is not enough time to get it right, but always time to do it again... A well-structured programme management office act as both control centre and communications device. Sadly, a stream of reports over the last ten years have emphasised that the procurers of change projects still tend to regard the people who will operate and use these systems as a necessary evil rather than an integral part of the overall system design, don t fall for that illusion... Acknowledgement: With grateful thanks to Mike Lander of Consulting Strategies, Prof Martyn Thomas and the whole of the IET IT Policy Panel Issues to be covered How much business is e-business? Measuring national e-business capability. 2010 international BCG study results. SMEs and ICT: IoD research results. Key ground rules for successful business change. Approaches that reduce risk. Final thoughts. 24

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. 25

Questions & Answers Slides (in portable document format) available to download from: www.profjimnorton.com/shef10mba3.pdf 26