Digital Economy

In 10 years from now the term will be completely obsolete.

They backbite about youon the internet

Definition

What do we understand by “business” ?All activities that have to do with buying, selling , providing,

paying, handling, administrating etc. of goods, services or information.

What do we understand by E-business ? IBM

E-business is what happens when you combine the broad reach of internet with the vast resources of traditional information technology systems. It is dynamic and interactive.

Automotive Industry Action GroupThe application of advanced information technology to

increase the effectiveness of the business relationships between partners.

Other Definitions

Electronic Commerce ( EC )

Narrower than electronic business

Limited to the pure trading activities

Electronic Commerce

A new concept covering buying and selling of products, services and information via computer networks, including the internet.

EC applies different technologies, varying from EDI till e-mail.

In fact we can also consider buying food at a POS automate using a smart card as a form of electronic commerce.

B2B and B2CBusiness to BusinessBusiness to Customer

E-Commerce : B2BE-Commerce : B2B

4/2/2000

« B2b or not 2b »« B2b or not 2b »

Internet changes the Internet changes the way of doing business.way of doing business.

‘‘B-2-B’B-2-B’Growth of commerce via Internet

BusinesstoBusiness

Retail trade

Closed

The real impact of the Internet at the long term?

The internet improves the transparency of the economy• easier prise comparisons (buyers - sellers)• eliminates intermediaries• reduces the cost of a transaction• lowers the entry barriers

The internet brings economy closer to the classical model of the free competition:• abundance of information• cost of transaction almost zero

What will be the real long-term impact of IT and the Net?

“The biggest winner will probably be the consumers and the entreprises of the old economy (the automobile sector, chemical sector, ...) that use e-commerce B2B within the framework of a business process re-engineering effort”

April 1, 2000

Strategic NetworksStrategic Networks ! !

• Internet - The textbook model of perfect competition: abundant information, zero transaction costs and no barriers to entry. The most important effect of the “new” economy may be to make the “old” economy more efficient The Economist April 1, 2000

• L’ Ubiquité. L’ Ubiquité. L’internet transforme le mode de L’internet transforme le mode de fonctionnement des entreprises : tous les fonctionnement des entreprises : tous les acteurs du marché seront dotés d’une plusacteurs du marché seront dotés d’une plus grandegrande connectivitéconnectivité• Les réseaux stratégiques de partenariat Les réseaux stratégiques de partenariat deviennent la meilleure façon d’être deviennent la meilleure façon d’être compétitif.compétitif. Le Monde 27/4/1999

•REORGANIZE YOUR REORGANIZE YOUR COMPANY – COMPANY – CHANGE THE CHANGE THE OLD ENTERPRISE MODEL OLD ENTERPRISE MODEL

Survival GuideSurvival Guide

March 22 1999March 22 1999

ExampleExample:: US US

Feb 1998 31/1/2000 The Economist Jan 14 2000

The US Job Machine“We woz wrong”

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security

cost

privacy

ObstaclesObstacles

EITO 99EITO 99

ObstaclesObstacles

EssentiallyEssentially Cultural Cultural

• A generation of managers has to redo A generation of managers has to redo their exams” their exams”

” ”Connect yourself, boss” (BusinessWeek)Connect yourself, boss” (BusinessWeek)• The publicThe public

The value of the network grows by the square of the The value of the network grows by the square of the number of users number of users

The Internet soap-bubble?

• The railway companies in the 19th century:most lines bankrupted over investments created excess capacity and deadly competition

• the good news: after the collapse of the shares, the railways remained operational good for the whole economy

EthiEthicalcal e- e-businessbusiness mainly for self-defensemainly for self-defense

‘High standards of ethical conduct by busi-nesses should be the main method of foste-ring consumer confidence in the Internet’

US Secretary of Commerce Daley Global Business Dialogue On E-Commerce, Sept 13, 1999 Paris

• non-transparancy : non-transparancy : not accepted by the consumernot accepted by the consumer• 100% data protection : extremely high cost100% data protection : extremely high cost• changing mentality: examples Dell-IBMchanging mentality: examples Dell-IBM• citizen follows citizen follows more ‘open’ society ? more ‘open’ society ?

Dot-Coms Needed a Double Dose of Reality...

Traditional commercial and legal precepts that govern capitalism must also apply to the Net. High-tech entrepreneurs must address these problems as the price for continued access to capital:

• Privacy. • Should be respected

• Transparency. • About real cost

• Patents. • Patenting widespread business methods to create a monopoly and

inhibit rivals. The US Patent Office changed its mind. • Monopoly.

• The courts have ruled that Microsoft violated the 100-year-old Sherman Anti-Trust Act. Investors sent Microsoft's stock down.

BUSINESSWEEK : APRIL 17, 2000

Merely adding a website Merely adding a website on to an existing business on to an existing business is not enoughis not enough : : the the whole business whole business needs to be needs to be redesignedredesigned around the around the cost-saving, communication-cost-saving, communication-easing properties of the neteasing properties of the net

Dot.business ?

Most companies must become Internet firms Most companies must become Internet firms if they are to surviveif they are to survive

The Economist 26/2/2000

ee--Economy Threshold TimingEconomy Threshold Timing

1998 1999 2000 2001 2002 20032003 2004 2005

Portugal

Greece

U.S.

Austria

France

Italy

Spain

UK

Germany

Ireland

Netherlands

Switzerland

Norway

Finland

Sweden

Denmark

Forrester Research - TM@B 18/5/1999

Belgium

‘Seller beware’ •e-procurement to cut costs

and speed supplies (General Electric and Wall-Mart)

•third-party exchanges: independent firms that bring together many buyers and sellers to create a genuine market (auction market)

• giants of an industry create large virtual markets: General Motors, Ford, DaimlerChrysler, Toyota, Renault, Nissan abandon stand-alone efforts and join forces

• markets intellectual property: TechEx (Yale) 400 inventions looking for a licence

Online markets

e-Logistics

E-technology transition ...

EDI era

– Large companies– Proprietary– Batch– Bilateral– High cost

Internet era

– All companies– Public– Online– Networks– Low cost

… Results in cost (and quality) discontinuity: Cost to process an order: >10x improvement, plus better quality!!

The Zero-Latency Organization

Zero-Latency

Enterprises or organizations that can act quickly on new information have a competitive advantage and deliver better services.

Latency is the time it takes for a system to respond to an input

all parts of the organization can respond to events as soon as they become known to any one part of the organization.

Requires reengineering the business processes.

Zero-latency strategy is needed.

Zero-latency Strategy

A zero-latency strategy requires:

A network and software infrastructure that is capable of quickly exchanging information across technical and organizational boundaries

End-user interface tools and other application programs that are capable of sending and receiving information in a timely fashion

A business strategy that leverages fast action to achieve a real business benefit (by managers)

A set of business policies, processes and product offerings that have been engineered to implement that business strategy

it can affect the way tasks are done or goods are delivered

An organization that can implement the new processes

function of workgroups and departments may change

Zero-latency Strategy

A zero-latency strategy is any strategy that exploits the immediate exchange of information across technical and organizational boundaries to achieve business or organizational benefits.

Technical boundariesdifferent operating systemsdifferent DBMS’sdifferent programming languages

Organizational boundaries inter-department inter-organizational

The Virtual EnterpriseThe Virtual Enterprise

Source: Gartner group Inside report June 1998

Virtual Organization

Cooperation between independent organizations that operate to the outside world as a unit. Temporary cooperation to gain competitive advantage or to

make up from arrears (Airbus)Works well if the objective is clearLegal problems can occur in case of conflicts

Intensive but non-definitive relationship Essential is that partners can survive after a divorce

e.g. Toyota with partners is not a virtual organization Seen from user point-of-view

Clients and suppliers are seen as part of the networkorganization is not seen as a unit of buildings and resources,

but is always and everywhere accessible via ITnetworking organization

Increased customer access to information allows them to search among product and services to select the best-of-breed

enterprises narrow their focus on core competenciesadd customer valuedifferentiate products and services in the marketplaceadd value across multiple products and services over time

enterprises narrowing the focus

+ Virtual companies

need to offer broader product range

Focussing on Core Competencies

Virtual Company

Basic set of ideas outsourced non-core competencies focus on core strength or business little or no physical presence or infrastructure network of business alliances heavy reliance on telecommunications.

The combination of independent enterprises required to fulfill a defined customer need.

Virtual Enterprise

1

Virtual Enterprise

3

VirtualEnterprise 2

The IT-enabled Virtual Enterprise

Source: GartnerGroup

InternalOperations

Fulfillment and Delivery

Product andService Creation

Sales andMarketing

Business Partners

Customers

SuppliersIndustrynetwork

PhysicalEnterprise

Types of Virtual Companies

Project oriented (airbus)

Competence based

Kernel partner (Mc Donnalds)

With or without mission overlap

IT-enabled

Existed for a long time as a business concept Made feasible by IT A chain of enterprises is required to deliver a single

product Some enterprises offer multiple bundles of products

and services Enterprises rely on a virtual enterprise of coordinated

service providers (value web) IS departments must be ready to provide necessary

IT-services to rapidly changing partners Need for rapid IT infrastructure, application

development capabilities and security strategies

Could you check my agendaand tell me who are the peoplewith whom I'am having this lovely lunch ?

Characteristics and examples

Elements usually present alliances brand identity knowledge base marketing strategy problem solving research and

development

Elements usually absent Human resources Inventory Manufacturing Materials Offices Storefronts

Examples:• Airbus: Aerospatial, DASA, Aerospace, CASA, SABCA• Virgin• Construction companies

Knowledge: Key Differentiator

The virtual company will:constantly scan the environmentconstantly scan own internal processesidentify opportunities and challengessense changes among its suppliers, competitors,

customers, …innovate products, services, communications, …

Constant mutation and change will be the norm

Knowledge Based

Critical Success Factors

Extensive interoperability between constituent parts

Subsume non-differentiating business processes for key functions that facilitate application interoperabilitypackaged solutions: Baan, Oracle, Peoplesoft, SAP, …

Standards for the meaning and presentation of information Key technology enablers

application interoperability (interenterprise, intraenterprise )high speed networks rapid application development terabyte database management systems interenterprise collaborative computingsecurity

Electronic Commerce

Interorganisational Systems

Information flow between two or more organisationsefficient transaction processingno bargaining, only executionpre-defined formats, no telephone calls nor paper

Drivers reduced cost for routine business transactions (SWIFT) improved quality of the procedures because of less errors reduced processing time (Singapore) lower cost for paper handlingbusiness process easier for the users

TypesEDI, EFT, e-mailshared databases

Establishing Trust

Without trust between parties online, the value of electronic transactions remains limited.

The concept of a certificate authority, trusted by all parties involved in electronic transactions, is at the heart of new security practices for E-business.

Outsourcing trust is not always the best solution; it has consequences for vulnerability and the degree of comfort.

E-commerce

ElectronicMarket

Payment authorization request

Payment approvalEFT

PurchaserSeller

Purchase order

Order reply

Bank of the purchaser Transaction Handlers bank bank Supplier

Buying, selling products, services or information via a computer network

• EDI• SWIFT• Tradenet• ...

•Reply on information request•purchase confirmation•shipping note•payment acknowledgment

Order

Approvals byTrusted party

Role of the certificate Authority

Facilitate E-commerce among parties.

Identify and authenticate certificate requesters and users.

Maintain records on certificates issued.

Audit itself and (as appropriate) its subscribers.

Where possible, avoid or resolve disputes due to the use of certificates.

Absorb risk and take fiduciary responsibility for certificate issuance.

Electronic Market

Clients and providers negotiate on an on-line or off-line sales transaction.

Network of interactions and relations where information, products, services and payments are exchanged.

The business center is not a physical building but a network-based location.

Participants: sellers, buyers, brokers, providers, clients

they are on different locations

sometimes they don’t know each other

Push and Pull possibilities

Advantages for the Organisation

Lower cost for handling, creation and storage of paper information

electronic purchasing system

electronic payment 95% cheaper than check

Reduced stock and overhead with “pull-type” delivery

Reduced time between sales and payment

Supports BPR efforts , leading to higher efficiency

Advantages for the Client

More alternatives from various vendors

Cheaper products and services

Often immediate delivery

24 hours service

Relevant information can be obtained after seconds instead of after days

Constraints

Lack of security standards

Insufficient bandwidth

Problems with Interoperability

Accessibility of the internet

Remaining legal aspects (digital signature)

Still in full evolution: code of conduct

Clients do not like changes

Still limited number of buyers and sellers

Problems with human relationships.

SET Secure Electronic Transaction

1. Client initiates a transaction by sending a request and a signed, encrypted authorization. The supplier can not access the credit card number because it is encrypted.

2. The supplier passes on authorization. The bank can decrypt this and see the credit card number. It can also check the signature.

3. Acquiring bank checks credit card with card issuer.

4. Card issuer authorizes and signs transaction.

5. Bank authorizes merchant and signs transaction.

6. Customer gets goods or service and a receipt.

7. Supplier asks to capture the transaction and get the money.

8. Supplier gets paid according to its contract.

9. Customer gets monthly bill from card issuer.

E-cash Electronic Cash

1. Customers open an account with a bank and either buy or receive free special software for their PC,s.

2. The customers buy electronic money by using the software. Their accounts are debited accordingly.

3. The bank sends an electronic money note to this customer, endorsing it with a digital signature (made with its private key). Customers then inquire whether the money is available by using the bank’s public key.

4. The money is stored on the buyer’s PC and can be spent in any store that accepts E-cash.

5. The software is used to transfer the E-cash to the seller’s computer. The seller uses the bank’s and customer’s public keys to verify that the money belongs to the specific buyer and is indeed at hand.

6. The seller then deposits the E-cash in the bank, crediting his regular or electronic account.

Electronic Credit CardsEncrypted payments

1. Customer sends the encrypted credit card information and digital signature to the supplier.

2. The merchant validates the customer’s identity as the owner of the credit card account.

3. The supplier checks the information with his own bank or credit card processor. Authorization is obtained by contacting the customer’s bank.

4. When the authorization is sent to the supplier’s bank, the deal can be concluded.

5. The customer’s account is debited and the supplier’s account is credited.

Electronic checks

similar to regular checks, secured by public key cryptography.1. The customer establishes a checking account with a bank.

2. The customer contacts a supplier, buys a product or service and e-mails an encrypted electronic check.

3. The supplier deposits the check in his account; money is debited in the buyer’s account and credited to the seller,s account.

E-checks carry an encrypted digital signature and additional information.

Can be exchanged between financial institutions via electronic clearinghouses.

Can be used as payment instruments in EDI-applications. The NetCheck system.

Accept paper checks in exchange for crediting customer’s NetCheck account.

Integrated with financial institutions.

Electronic Payment Cards

Traditional bank cards

Payment cards for specific companies

(transportation)

Smart cards: electronic purse

Information Services

Evolution in information services

Information Broker

Content Specialist

Electronic Market Facilitator

Information Broker

Identify an unfilled need for high-value information contentthat is difficult to access through available channels

Build a community of interest between suppliers and customers

Penetrate quickly through”giveaway” strategies, contracts and partnership arrangements

Deliver value toall parties initially through linkages, information collection and categorization, and transaction coordination.

Content Specialist

While paying careful attention to private rights, collect information on market transactions

Create organizational capabilitiesto make sense of information and use it to add value to products and services

Distribute value to to all members of the community

Electronic Market Facilitator

Build a web of alliances to extend scale and scope of community

Develop interactive tools to establish closer links with community members and to facilitate linkages among community members

Develop intelligent agents and filters to customize the experience of all members of the community

Build organizational capabilities to deepen commitment and loyalty of all community members.