Chapter 1.

Moving from e-Commerce to e- Business

Todays Business Tomorrows Technology:
Conventional wisdom says that e-commerce is an economic(distribution and
consumption of goods and services) solvent(dissolve). It dissolves old business
models, changes the cost structure, and rearranges links among buyers, sellers,
and everyone in between. What is only now becoming clear is that e-commerce
is a relationship solvent as well, melting traditional boundaries between
companies' partners and customers, changing the nature of relationships.
Simply put, e-commerce is a potent socio economic chemical that reacts with
everything it touches. However, the impact of e-commerce is happening in
phases.

In its first phase (19941997), e- commerce was about presence: making sure
that everybody had a Web site, meeting the demand that every company, large
or small, get out there and have at least something on the Internet. People
weren't quite sure why they were doing it, but they knew that they had to have
an online presence.

The second phase (19972000) of e-commerce was about transactionsbuying

and selling over digital media. The focus in this phase was on order flow and
gross revenue. Some of that was the matching of buyers and sellers who never
would have found each other in the past. Some of it was simply taking
transactions that would have been done through paper purchase orders and
saying that this business was done on the Internet, although the meaning of
that change was quite trivial(minor). But in this phase, the announcements
were all about order flow at any cost: why-sell-it-when-you-can-give-it-away
business models. As a result, many of the first movers in this phase, such as
Value America, are either gasping(short intake of breath), have gasped their last
breath, or are flailing about in a sea of red ink.
Today, e-commerce is entering the third phase (2000?), with a focus on how
the Internet can impact profitability. And profitability is not about increasing
gross revenues but rather increasing gross margins. We call this phase e-
business, and it includes all the applications and processes enabling a company
to service a business transaction. In addition to encompassing(surrounding) e-
commerce, e-business includes both front- and back-office applications that
form the core engine for modern business. Thus, e-business is not just about e-
commerce transactions or about buying and selling over the Web; it's the
overall strategy of redefining old business models, with the aid of technology, to
maximize customer value and profits. To paraphrase Business Week, "Forget
B2B or B2C, E-business is about P2Ppath to profitability."

E-Business rules:
Ten Rules of e-Business

Rule 1 Technology is no longer an afterthought in forming business strategy but

rather the cause and driver.

Rule 2 The ability to streamline the structure of information and to influence

and control its flow is a dramatically more powerful and cost-effective service
than is that of moving and manufacturing physical products.

Rule 3 Inability to overthrow the dominant, outdated business design often

leads to business failure.

Rule 4 Using e-commerce, companies can listen to their customers and become
"the cheapest," "the most familiar," or "the best."

Rule 5 Don't use technology just to create the product. Use technology to
innovate, entertain, and enhance the entire experience surrounding the
product: from selecting and ordering to receiving and service.

Rule 6 The business design of the future increasingly uses reconfigurable e-

business models to best meet customers' needs.
Rule 7 The goal of new business designs is for companies to create flexible
outsourcing alliances that not only off-load costs but also make customers
ecstatic.

Rule 8 For urgent e-business projects, it's easy to minimize application

infrastructure needs and to focus on the glitzy front-end apps. The oversight can
be costly in more ways than one.

Rule 9 The ability to plan an e-business infrastructure course swiftly and to

implement it ruthlessly are key to success. Ruthless execution is the norm.

Rule 10 The tough task for management is to align business strategies,

processes, and applications quickly, correctly, and all at once. Strong leadership
is imperative.

E-Business: Structural Transformation:

Virtually every business today is stretched to the limit, attempting to maintain
viability and profitability in the face of unparalleled uncertainty and change.
And no relief is in sight. For example, the encyclopedia marketplace has
undergone radical change. Thanks to the Internet, Encyclopedia Britannica has
been forced to place much of its product on the Web for free. Yes, freea huge
step for the tradition-bound company, which hadn't made a change in operation
since the mid 1990s, when it put its products on CD-ROMs.

As technological innovations permeate(spread) more and more business

processes, structural transformation becomes more difficult to manage because
the issues of change play out on a much grander scale. Explosive, virginal
markets are popping up everywhere as the Internet transforms old industries
financial services, retailing, industrial distribution and creates new ones portals,
Internet service providers, application service providers. Increasingly, the
structural changes are not found just in tangible assets, such as processes and
products but also in intangibles, such as branding, customer relationships,
supplier integration, and the flexible aggregation(multiple purchasers in a
group) of key information assets.

Most companies have a terrible time cannibalizing(rebuilding) their existing

business structures in order to reallocate assets to compete directly with e-
start-ups. For instance, if you're Toys "R" Us, it's difficult to ignore existing
assets1,000+ retail storesin order to compete directly with eToys. This same
challenge is playing out again and again in industry after industry. The big
dilemma facing management today is how to trigger the spark of innovation in
the current business models, allowing the firm to compete seriously in the new
economy. Unless it develops an explicit strategy to accommodate the structural
transformation implied by the e-commerce revolution, an enterprise will find
itself scrambling, working harder and faster just to stay afloat and survive.

Value Chain Disaggregation and Reaggregation:

Disaggregation of the value chain allows firms to separate the means, or
products, from the ends, or customer needs. Disaggregation requires
identifying, valuing, and nurturing(promote) the true core of the business: the
underlying needs satisfied by the company's products and services. This
approach enables managers to disassemble old structures, rethink core
capabilities, and identify new forms and sources of value.

Disaggregation is a crucial tool for industry leaders, such as Intel, because

successful organizations may need to abandon(throw away) old
paradigms(model,pattern) systems, strategies, productswhile these assets
possess equity. The foresight to cannibalize(rebuild) a working business design
takes courage because it's risky, but the payoff can be enormous.

The objective of reaggregation is to either lower cost or enhance differentiation

between a firm and its competitors. Reaggregation, by reorienting the business
toward a renewed vision of the needs it serves, enables businesses to
streamline(update) the entire value chain. Reaggregation also helps create an
unparalleled customer experience that satisfies specific needs while offering the
customer far more. Customers can find their interactions with a business less
sterile(diseffected), more engaging(attractive), and even intriguing(interesting)
as they encounter an array of support, services, and sensitivity never before
experienced. Successful reaggregated business designs depend on a well-
integrated set of enterprise software applications. These "killer apps" represent
the new technological backbone of the modern corporation and will soon be the
standard for companies seeking to compete in the new era. Using technology to
reaggregate the value chain is fundamental to the emergence of the digital
economy. Reaggregation enables new entrants to compete differently, even
though they're competing with the same scope of activities as well-established
leaders.

The Road Ahead: Steps to a New Beginning:

Weve identified six steps that the processes of disaggregation and
reaggregation follow with systematic logic. The steps are the same for any
business organization whether a start-up, a visionary firm, or a mature
company.

1. What is the new industry structure? It's a configuration that challenges

traditional definitions of value.

Challenging Traditional Definitions of Value:

Customers require the companies with which they do business to continuously

improve, particularly in the following areas:

Speed of service: Service can never be too fast. In the real-time world, a
premium is placed on instant, accurate, and adaptive responsiveness to
customer needs. Visionary companies embrace the continual need for change
and consistently deconstruct and reconstruct their products and processes to
provide faster service.

Convenience: Customers value the convenience of one-stop shopping. In

addition, they want better integration of the order entry, fulfillment, and
delivery cycles. In other words, customers demand better integration along the
supply chain.

Personalization: Customers want firms to treat them as individuals. Little or

no choice in the products offered is being replaced. Today's technology gives
companies the ability to provide precisely what customers want, made to their
specifications.

Price: "Too affordable" is meaningless. Companies that offer unique services

for a reasonable price are flourishing, benefiting from a flood of new buyers.

2. What does the digital customer want? Customers want value defined in
terms of the whole customer experience and accompanying expectations.

Identifying new sources of customer value is an important step, but it's not
enough. Firms need to invigorate (energize) the complete customer
experience. For example, Amazon.com makes the mundane (dull) process of
comparing, buying, and receiving books interesting, convenient, and easy to
use. The ability to streamline the end-to-end experience provides a complete
solution to customer needs and sets visionary companies apart.

Creating New Experiences: The Case of Microsoft:

Creating New Experiences: The Case of Microsoft anticipated changing

customer experiences by reengineering several value chains, including travel
(Expedia), automotive sales (CarPoint), real estate (HomeAdvisor), and
finance (Investor). The foundation of these new value chains is the Microsoft
Network (MSN) infrastructure. Let's meet these new infomediaries (an
Internet company that gathers and links information on particular subjects
on behalf of commercial organizations and their potential customers).

Expedia provides travelers with a large number of resources and tools,

including an interactive travel agent, a fare tracker, a hotel directory with
maps, travel reviews and tips, weather information, and even a currency
converter.

CarPoint provides a wealth of automotive information, such as news,

reviews, dealer invoice information, complete model listings, and a dealer
locator.

Investor is designed to help individual investors research, plan, execute,

and monitor their investments. Investor supplies news, commentary, quotes,
portfolio tracking, historical information, and market information, as well as
direct links to online trading with Charles Schwab, E*TRADE, Fidelity
Investments, and AmeriTrade.

HomeAdvisor facilitates the home-buying process by arranging mortgage

sales over the Web and offering information useful to potential home
buyers, including real estate agent referrals, home sale listings, and a
property valuation estimator. According to a Microsoft strategy memo, the
target markets of these online services are vast. Microsoft plans to win a
major share of the sales and distribution charges in the markets for airline
tickets ($100 billion), automobile sales ($334 billion), and retail goods ($1.2
trillion). Expedia illustrates how Microsoft is reshaping the economics of the
markets it's entering. Expedia is selling more than $35 million in tickets and
travel services every week, making it one of the largest online travel
agencies. Expedia has established itself as a travel agency and negotiated
deals with American Express and major airlines to sell tickets for a fraction of
the standard travel agency commission rate.

Expedia engineered the customer experience by looking at the customer's

needs and then working back along the fulfillment chain, changing it based
on the customer's requirements. Such an outside-in strategy requires
engaging the customer's perspective and reworking inward into the
company's capabilities and direction. The Expedia strategy is simple. By
focusing on selection, ease of use, and aggressive pricing, Expedia builds
customer traffic. Integrated, personalized service keeps customers coming
back. However, profits remain elusive.

3. What are the new economics? How to convert value creation into
revenue? How do you engineer the end-to-end value stream?

Engineering the End-to-End Value Stream: e-Business Webs:

A company must be capable of engineering the entire end-to-end value
stream to ensure future success. This concept is neither radical nor new.
Experienced managers know to redefine business designs and processes
when implementing new forms of value. What distinguishes
reengineering efforts in the new era is the emergence of more intricate
and committed relationships among business entities. As a result, we see
the widespread use of synergistic clusters, business ecosystems,
coalitions, cooperative networks, or outsourcing to create end-to-end
value streams in the new environment. Business webs (BW), as these
networks of relationships are known, link businesses, customers, and
suppliers to create a unique business organism.

BW strategists see companies as part of an extended business family that

pools the resources and benefits of each company's expertise. A BW can
play a powerful role in attacking market leaders, and new entrants are
using BWs to gain access to resources, customers, technology, and
products. BWs are not restricted to just e-commerce start-ups but rather
are everywhere. Large established companies too are moving to the BW
model. But the transition is at a slower pace because BWs are difficult to
integrate on a large scale, and coordination among partners can prove
troublesome. Therefore, large companies are taking an incremental
approach to BW implementation by first concentrating on creating
flexible supplier communities vis--vis supply chain management.
4. How do we reorganize our business? We do so by creating the right
partnerships.

Outsourcing:
Outsourcing is an effective cost-saving strategy when used properly. It is sometimes more
affordable to purchase a good from companies with comparative advantages than it is to
produce the good internally.

Harvesting the Partnerships: e-Business Core Competencies:

The e-business environment is one of intricate and dynamic change. New

business environments require finding or developing personnel with
critical skills required to get the job done. For many organizations,
outsourcing their need for core competencies has been the answer. The
argument for outsourcing is simple: Individual companies cannot do
everything well. True enough. In the first generation of outsourcing, the
focus was on gaining efficiency and reducing costs, primarily in business
processes and support functions, which weren't the company's primary-
line work. Administration, human resources, accounting, and often IT
(information technology) functions were the targets for outsourcing. For
example, with the increasing complexity of computers and networks,
more and more firms began outsourcing their technology management. In
the 1990s, the biggest beneficiaries of this trend were computer service
firms, such as IBM, Andersen Consulting, and EDS. In the first generation,
the business's core competence its line of work was never outsourced, for
the reason that turning it over to "outsiders" who didn't understand the
firm's customers and their needs would be extremely risky.

In the second generation, the outsourcing boom extends well beyond

data center management. In recent years, outsourcing in the form of
 contract manufacturing has caught on considerably as companies search
for ways to cut costs. Examples of contract manufacturing abound in the
high-tech industry: Solectron, Flextronics, and SCI Systems. As a result,
outsourcing is changing the nature of the relationship between contract
manufacturers and the original equipment manufacturers (OEMs). In the
past, these two groups danced like detached partners, but now they're
dancing cheek to cheek. Why? With the shared objective of pleasing
customers, the best relationship for both parties is to act as a single
company in a truly cooperative and integrated manner.

In the third generation, companies outsource in the form of investment

partnerships. As traditional brick-and-mortar companies wake up to the
impact of the Internet on their industries, they're turning to venture
capitalists (VC) for help with funding their online strategies. Staples have
taken the VC route to obtain both funding and Web acumen for its new e-
commerce division. According to staples.com President Jeanne Lewis, the
major reason for turning to venture capital firms rather than relying on
resources from its parent company was access to "advice, contacts, and
Web savvy" such firms command.

5. Where is the value? Value is in integration. Value is also in creating a new

techno enterprise foundation supportive of customer needs.

6. How do we implement change? Change is implemented by developing a

new generation of leaders who understand how to create the digital
future by design and intent, not by accident.