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
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
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
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
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.