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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.

Picking up from where I left off last week – I want to shift the focus firmly onto the impact of the Web/Internet on business competition as I move on from broad principles of management/economics to specifics. The examples used below are taken from Boddy’s ‘Management, An Introduction’.

I kick off with a consideration of Google as an illustration of the impact that the Web/Internet has had on competition between businesses. Google exemplifies a company created to use the Web/Internet – it is a pure e-business company built entirely around information technology. Since the search engine serve is free, it generates revenues by providing advertisers with the opportunity to deliver online advertising that is relevant to search results on a page. The advertisements are displayed as sponsored links, with the message appearing alongside search results for appropriate keywords. They are priced on a cost-per-impression basis, whereby advertisers pay a fixed amount each time their ad is viewed. The charge depends on what the advertiser has bid for the keywords, and the more they bid the nearer the top of the page their advertisement will be. Google has rapidly expanded the range of services it offers.

Pure e-businesses such as Google which focuses on search processes (other examples include easyGroup which exclusively sells its services online and eBay which facilitates online transactions) can be contrasted with companies existing before the Web/Internet but which use it to support many of their activities. They may still perform the same functions, but the Web/Internet often enables them to offer new services through an additional distribution channel online (such as banks).

As well as offering new ways of doing business, the Web/Internet also affects the way services are created and delivered. Examples include: delivering media content; satellite freight tracking services; and, social networking sites. Picking up on this last example in particular, social networking sites (types of community systems) enabling people to exchange information have grown very quickly. Setting up blogs is one major use, as are websites through which people with particular interests exchange information. They are significant for businesses even if they extend beyond the firm, since customers can use them to exchange positive or negative information about the company. These applications affect the strategy and competiveness of organization.

The publishing industry (compare music, film and journalism) is an example of a business model founded on information (its gathering, processing and dissemination) for whom the Web is the biggest threat. As digitisation and the Web have reduced the cost of the dissemination of information, it undermines the value proposition of those industries built on its premise.

There is also an internal business impact of the Web in terms of changing various aspects of organisational activity. Common information systems based on the Web/Internet move information between organizations, often having direct links with customers. This is part of a broader assessment of how information technology, in general, is affecting the way that business is carried out.

One way to consider the impact of the Web/Internet on business is by geographic reach. Inter-organisational information systems link organisations electronically by using networks that transcend company boundaries. They enable firms to incorporate buyers, suppliers and partners in the redesign of their key business processes, thereby enhancing productivity, quality, speed and flexibility. New distribution channels can be created and new information-based products and services can be delivered. In addition, many information systems radically alter the balance of power in buyer-supplier relationships, raise barriers to entry and exit and, in many instances, shift the competitive position of industry participants.

From an alternative perspective as an information system, the Web/Internet has had wide effects on managing data, information and knowledge. It can, for example, be used to integrate processes, from suppliers through to customer delivery. Managers must ensure that their organisation makes profitable use of the possibilities that the Web/Internet offers in a way that suits their particular business; and, not just as a technology challenge, but also as a ‘people challenge’. For example, network systems help people to communicate and interact with each other, but they do not define how they should do so (such as who should gain access to which part of the system or who is responsible for responding to customer comments on a blog – these are matters to be implemented and modified in the light of experience).

A useful distinction can be made between intranets and extranets. The former is a private computer network operating within an organisation, using Web/Internet standards and protocols and security protected. An extranet is a closed, collaborative network that uses the Web/Internet to link businesses with specified suppliers, customers or other trading partners. It can be linked to business intranets where information is accessible through a password system.

The simplest Web/Internet applications provide information, enabling customers to view products or other information on a company website; conversely, suppliers use their website to show customers what they can offer. Web/Internet marketplaces are developing in which groups of suppliers in the same industry operate a collective website, making it easier for potential customers to compare terms through a single portal. The next stage is to use the Web/Internet for interaction. Customers enter information and questions about, say, offers and prices. The system then uses the customer information, such as preferred dates and times of travel, to show availability and costs.

Another use is for transactions, when customers buy goods and services through a supplier’s website. Conversely a supplier who sees a purchasing requirement from a business (perhaps expressed as a purchase order on the website) can agree electronically to meet the order. The whole transaction, from accessing information through ordering, delivery and payment, can take place electronically.

Finally, a company achieves integration when it links its own information system to customers and suppliers: it becomes an e-business. Dell Computing is an example. Other companies use the Web/Internet to create and orchestrate active customer communications (e.g. Kraft, Intel and Apple). These communications enable companies to become closer to their customers and to learn how best to improve a product/service much more quickly than is possible through conventional market research techniques.

In conclusion, the Web/Internet is radically challenging many established ways of doing business. Combined with political change, this is creating a wider, often global, market for many goods and services.

Next week, in my final post, I will round up on the topics of e-commerce and e-business and the associated challenges faced by businesses in managing innovation and change.