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Time to distinguish between e-business and e-commerce
by Patrick King and Joe Clift -   Financial Times (Wednesday 06/02/1999)

A recent survey has shown that out of 119 board directors and CEOs of global corporations, not one believed that the effects of the former was an important problem facing their companies.

"The full importance of an epoch-making idea is often not perceived in the generation in which it is made.  The mechanical inventions of every age are apt to be underrated relatively to those of earlier times."  (Alfred Marshall, 1920)

Today, there is one epoch-making idea that is transforming how we conduct business.   It will change business irrevocably, yet most businesses have yet to perceive it, let alone understand it or adopt it.  The idea is electronic business, often known as e-business.  The 'e' will soon be dropped and e-business will be business as it comes to be generally understood.

Once a theoretical concept discussed by academics, e-business has become a core topic at business schools, of some MBA courses and, more recently, of popular business publications.  However, it is not widely grasped, largely because the speed at which it is being introduced has allowed very few organisations the time to analyse its potential.  It is still confused with its most visible but relatively limited manifestation, electronic commerce.  Many business leaders believe that they can ignore e-business until it is more fully developed.  But, by the time e-business is commonplace, in years, rather than decades, it will be too late for the non-adopters.   Those companies will have ceased to exist.

The power of electronic technology to change fundamentally the way in which organisations work is hard to conceive.  It can help to boost revenues, cut production cycle times and costs, improve customer service and broaden market share.  Interactive relationships with customers and suppliers enable new products and services to be delivered faster and better at a substantially lower cost.

Ultimately, e-business will be deployed throughout an entire industry's supply chain, linking manufacturers, assemblers, distributors, marketers and customers.  One press of a button triggers processes throughout the chain.

Recent research carried out by Pricewaterhouse-Coopers and MORI shows that most companies still miss the point.  Out of 119 board directors and CEOs of global corporations surveyed, not one believed that the effects of e-business was an important problem facing their company.  43 per cent felt that three of the top four concerns were the threat of competition, controlling costs was named by 30 per cent, while 24 per cent raised the difficulty of finding new opportunities.  Few organisations have taken the leap of faith to realise that it is e-business that can deliver these benefits.

Historically, e-business has been thought of as electronic commerce.  While internet shopping is expected to generate at least $1,000bn a year by 2002 -- and some research suggests more than $3,000bn -- the wider concept of true e-business will bring benefits worth many times more.  In fact, e-business's greatest opportunities are to be found in back office and supply chain systems.

E-business seamlessly moves data and information over open and closed networks, bringing together previously separate groups inside and outside companies.  It improves company performance by connecting disparate value chains, which allows new relationships to be developed.  It provides information instantaneously, helping executives to identify their best profit centres, modify existing business processes and create new ones.

E-business allows organisations to create strategic alliances and to outsource functions and processes that can be carried out more efficiently by others.

Most companies will migrate to e-business in four stages.  They will start with a web site, because that is the familiar window on the world that is the internet, now an everyday business tool.  They will integrate business that site's buying and selling processes into the company's back office, customer and marketing systems.

Many companies have already done this or are doing so.  Then they will extend the web site's capabilities by connecting it to supply chains, eliminating paperwork and cost.   Many motor manufacturers have reached this stage and established electronic supply chains.  After that, they will form alliances that transform the way their industry operates.  Electronic share dealing on the internet is a pioneering example.   Finally, there will be industrial convergence, when e-business makes it possible for industries to combine expertise and provide packaged services.

The first indication of this in the real world is the merger of television, computing, telephony and entertainment industries to provide one consumer communications package.   Companies will move naturally from stage to stage as they appreciate the benefits of e-business.

E-business also creates new competition by removing barriers between industries.  For example, UK supermarket chains Tesco and Sainsbury are using e-business to extend their brands into banking services.

The directions that businesses choose to take will increasingly be determined by the results of inter-networking through e-business.  These may be radically different to traditional ideas of companies in a marketplace, who carve out a section of an industry value chain and provide a product or service for that niche.

Instead, e-business blurs the demarcations between businesses and joins value chains in different industries.  Organisations will find ways to work together to build on common strengths.

In the longer term, value chains rather than companies will compete against one another.   The businesses that flourish will have integrated their joint demand and supply chains to the point where information is seamlessly shared and instantly transmitted to all partners.  Inevitably, this will involve multi-company strategic planning, human resources and finance.

The logical conclusion is modular e-business.  Just as a separate operating module can be slotted into a larger computer program, the true e-business company will be able to slot its systems and processes into a new market at minimal cost.  The company will merely need to make commercial, business process and systems connections with new suppliers or partners.

The technological barriers to competition in many markets and industries will have ceased to exist.  Ultimately, a company could concentrate solely on managing its brand, outsourcing all physical aspects of the business to others.

As demand increases, there will be no need to go through the usual steps of scaling up production and distribution capacity.  It will simply connect to third parties who have the capacity.

As change accelerates, companies will find that they need an unusual blend of skills and experience if they are to succeed.   They must have the ability to integrate new technologies, an understanding of their current business processes and a clear vision of how their future ones will work.

They also need a well-informed view of the strategic consequences of forging partnerships and alliances.  Heads of companies will have to consider what their company actually means.

In the past, the bulk of day-to-day CEO responsibility consisted of managing the staff who carried out the operations of the company.  As these activities are moved to specialist third parties, the core activities will change.

The truth of e-business is that it changes industries.  It merges industries, destroys industries and is unstoppable.  It is an epoch-making idea that is rapidly turning into a fact of life.

Patrick King is a partner at PricewaterhousCoopers Management Consultancy Services and Joe Clift is UK marketing director at UUNET.  Both companies are sponsors of the FT Business Web Site awards.




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