Finishing off my posts on this blog, I conclude with some final thoughts about e-business / e-commerce and the associated challenges faced by businesses in managing innovation and change in the context of the impact of Web/Internet on business competition. These bring together various topic strands from previous weeks.
For completeness sake:
• E-business refers to the integration, through the Web/Internet, of all an organization’s processes from its suppliers through to its customers. For example, a company may use a website to manage information about sales, capacity, inventory, payment and so on – and to exchange that information with their suppliers or business customers. In other words, they use the internet to connect all the links in their supply chain, so creating an integrated process (what is termed “Management in Practice’).
• E-commerce refers to the activity of selling goods or services over the Web.
As discussed last week, networked information systems enable companies to coordinate joint processes with other organizations across great distances. Transactions such as payments and orders can be exchanged electronically, thereby reducing the cost of obtaining products and services. Many such systems use Web/Internet technology, with labels such as extra-organizational systems, e-commerce, e-business systems and supply chain management systems (collectively, inter-organizational systems).
The relationship between a company and its channel partners can be fundamentally shifted by the Web/Internet (or by other applications of inter-organizational systems). They can create new relationships between an organization, its customers, suppliers and business partners, redefining organizational boundaries. Firms are using these systems to work jointly with suppliers and other business partners on product design and development and to schedule work in manufacturing, procurement and distribution.
This fact is because electronic networks can help to bypass channel partners – so-called disintermediation. Disintermediation is when intermediaries, such as distributors or brokers (whose function is to link a company to its customers), are removed. For example, a manufacturer and a wholesaler can bypass other partners and reach customers directly. The benefits of disintermediation are that transaction costs are reduced and that it enables direct contact with customers. This also makes it possible to increase the reach of companies, e.g. from a local presence to a national or international presence.
Disintermediation can be contrasted with reintermediation (the creation of new intermediaries between customers and suppliers by providing (new) services such as supplier search and product evaluation helping customers to compare offers and link them to suppliers: examples are Yahoo and Amazon).
From a management perspective, the challenge of transforming a company into an e-business lies in reorganizing all the internal processes. A major concern of companies moving towards e-commerce or e-business has been to ensure they can handle the associated physical processes. These include handling orders, arranging shipment, receiving payment and dealing with after-sales service. This gives an advantage to traditional retailers who can support their website with existing fulfilment processes. Given the negative effects of failure once processes are supported by inter-organizational systems, it seems advisable to delay connecting existing systems to the new system until robust and repeatable processes are in place.
Kanter (2001) found that the move to e-business for established companies involves a deep change. She found that top management absence, short-sightedness of marketing people and other internal barriers are common obstacles. Based on interviews with more than 80 companies on their move to e-business, her research provides ‘deadly mistakes’ as well as some lessons, including:
• Create experiments and act simply and quickly to convert the sceptics.
• Create dedicated teams, and give them autonomy. Sponsor them from the wider organization.
• Recognize that e-business requires systemic changes in many ways of working.
Earlier, I identified the management job as being to add value through the tasks of planning, organizing, leading and controlling the use of resources. In particular:
• Planning – this deals with the overall direction of the business, and includes forecasting trends, assessing resources and developing objectives. I also introduced Porter’s five forces, widely used as a tool for identifying the competitive forces affecting a business. Information technology can become a source of competitive advantage if a company can use them to strengthen one or more of these forces. Managers also use IS to support their chosen strategy – such as a differentiation or cost leadership. IS can support a cost leadership strategy when companies substitute robotics for labour, use stock control systems to reduce inventory, use online order entry to cut processing costs, or use systems to identify faults that are about to occur to reduce downtime and scrap. A differentiation strategy tries to create uniqueness in the eyes of the customer. Managers can support this by, for example, using the flexibility of computer-aided manufacturing and inventory control systems to meet customers’ unique requirements economically.
• Organization – This is the activity of moving abstract plans closer to reality, by deciding how to allocate time and effort. It is about creating a structure to divide and coordinate work. Information systems enable changes in structure – perhaps centralizing some functions and decentralizing others. For example, Siemens have used the Internet to bring more central control.
• Leading – This is the activity of generating effort and commitment towards meeting objectives. It includes influencing and motivating other people to work in support of the plans. Computer-based IS can have significant effects on work motivation, by changing the tasks and the skills required. >>>
• Controlling – Computer-based monitoring systems can constantly check the performance of an operation, whether the factor being monitored is financial, quality, departmental output or personal performance. Being attentive to changes or trends gives the business an advantage as it can act promptly to change a plan to suit new conditions.
The Web, like other new technologies, also enable processes of international business, since firms can disperse their operations round the globe, and manage them economically from a distance. The technology enables managers to keep in close touch with dispersed operations – though at the same time raising the dilemma between central control and local autonomy. This internationalisation effect also makes possible working interdependently with other organizations: previously this was constrained by physical distances and the limited amount of information that was available about the relationship. As technology has advanced, interdependent operations become more cost effective – most obviously through outsourcing and other forms of joint ventures. Companies can routinely exchange vast amounts of information with suppliers, customers, regulators and many other elements of the value chain. This implies that managers need to develop their skills of managing these links (to foster coordination and trust between network members).
In summary, the Web enables radical changes in organizations and their management. It enables management to erode the boundaries between companies, through the use of inter-organizational systems. They can then develop systems for e-commerce and e-business, ultimately connected with all stages in their supply chain.
As well as transforming the internal context of organizations, the Web also affects the external context (hand in hand with internationalization and other factors) to transform the competitive landscape in which firms operate. The Web has enabled companies offering high-value/low-weight products to open new distribution channels and invade previously protected markets. These forces have collectively meant a shift of economic power from producers to consumers, many of whom now enjoy greater quality, choice and value. Managers wishing to retain customers need continually to seek new ways of adding value to resources if they are to retain their market position. Unless they do so, they will experience a widening performance gap (when people believe that the actual performance of a unit or business is out of line with the level they desire).
I have also considered how people introduce change to alter the context, with management attempting to change elements of its context to encourage behaviours that close the performance gap. For example, when supermarkets introduced on-line shopping, their management needed to change technology, structure, people and business processes to enable staff to deliver the new service. Thus there is an interaction between context and change: with change affecting context but also context (organisational culture) affecting change.