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Knowledge Economy & Information Society (2007/8) Lecture 5

E-business, E-commerce & Business Communications

Ian Miles & Lawrence Greenlawrence.green@mbs.ac.uk

25th February 2008

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Overview1. E-business & e-commerce DefinitionsTechnologiesDimensions2. Business to Business (B2B) communications & e-commerceDefinitionsDevelopments and trajectories – history of e-business communicationsE-business and the supply chainE-business – drivers, benefits and problems3. ConclusionsHype, reality and the future

Caveats: a US & Euro-centric view? Also, a skim of the field: mainly focusing on ‘business’ rather than ‘consumer’ aspects of e-commerce

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What is E-commerce?

“E-commerce is the exchange of information across electronic networks, at any stage in the supply chain, whether within an organisation, between businesses, between businesses and consumers, or between the public and private sectors, whether paid or unpaid.”

Source: UK Government, PIU (2000) ‘E-commerce @ its Best’

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A problematic definition…some distinctions

The PIU definition is ‘inclusive’…

• E-commerce is a subset of the broader category ‘e-business’ (is PIU really defining ‘e-business’?)

• E-business incorporates a wide range of services and activities (data exchange, online catalogues and ordering, automated payments, process integration etc.)

• Should ‘e-commerce’ include only the elements of on-line business that directly involve commercial transactions?

• Beware conflation! Whilst the terms ‘e-business’ and ‘e-commerce’ are frequently used synonymously, the latter constitutes just one (albeit important) facet of the former.

• Consider ‘transactional’ (e-commerce) and ‘process’ (e-business) components

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E-business and e-commerce as ‘exchange’ (PIU)

What kinds of things are exchanged?• Information (relating to goods, services, markets and

persons) • Ordering and inventory data• Invoices & payments (automated payment via BACs

etc.)• Products (delivered online - in the form of software,

reports, music, multi-media, ringtones etc; delivered offline – almost anything!)

So…e-business is about exchanging information, products and payments via electronic environments

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E-business & e-activity in context -3 Key ‘use domains’ of digital technologies(transaction, process & exchange relationships)

E-Business

E-Governance

E-Citizenry

E-Commerce

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Electronic media - e-business & e-commerce technologies

What technologies are deployed in business communications and as e-business enablers?Communications media and systems

• Telephone (fixed line & mobile) and FAX • E-mail (via www and ‘closed’ systems)• Electronic Data Interchange (proprietary systems)• The Internet (and ‘World Wide Web’)

Communications devices• Personal Computers, PDAs & Games consoles• Digital television• Mobile - telephones, PDAs and laptop computers (the

Mobile Internet and wi-fi becoming increasingly important)

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Dimensions of e-business: B2B e-commerce world revenues (US$Bn)

(IDC and Gartner Forecasts from 2000)

0

1000

2000

3000

4000

5000

6000

7000

8000

1999 2000 2001 2002 2003 2004

IDC

Gartner

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Regional revenues (B2B e-commerce – On-line trade)

Forrester Forecast (for 2004)

On-line trade Billion US$ %

North America 3,300 51

Asia Pacific 1,500 24

Western Europe 1,400 22

Latin America 76 1.2

Africa – Middle East 48 0.8

Eastern Europe 14 0.2

Total B2B 6,335 100

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But…problems with measurement!• Significant divergence in forecasts (200-500%) – contrast

IDC, Gartner and Forrester!• Private sector forecasts – use of widely differing

methodologies & indicators - e.g., transactions ‘initiated’ or ‘completed’ on the Internet (or both)

• Include both B2B and B2C?• Include ‘company internal’ sales and each step in the value

chain?However – figures demonstrate massive regional differences and point to rapid growthIncreasing confidence in more recent figures?High quality official statistics only now starting to come on-stream (work on ‘new economy’ indicators and surveys at ONS, EC & OECD is bearing fruit)

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2002 2006 CAGR 2002-6

bn (€) % bn (€) % (%)

B2C 39 12.5 282 12.7 64.4

B2B 270 87.5 1942 87 63.7

Total 309 100 2224 100 63.8

E-Commerce in Western Europe (EITO 2003)

Projections – 7-fold increase in volume of e-trading

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2002 €bn 2006 €bn CAGR 2002-6 (%)

France Total e-commerce 39 328 71

B2C 4.6 46 78

B2B 34 282 70

Germany Total e-commerce 89 676 67

B2C 10 72 66

B2B 78 604 67

Italy Total e-commerce 32 240 65

B2C 3 30 72

B2B 29 210 64

Spain Total e-commerce 14 123 72

B2C 2 15 68

B2B 12 108 72

UK Total e-commerce 59 377 59

B2C 10 53 53

B2B 49 324 60

E-commerce in top 5 European Countries (EITO 2003)

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Unpacking e-business

Business to Consumer

B2C(Internet, digital TV, games consoles &

mobile phones)

Business to Business

B2B(EDI and web e-business)

Consumer to Consumer

(C2C) and Peer to Peer (P2P)

85%15%

Growing fast: ebay, Bit Torrent, Napster etc.

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Classes of e-business

• B2C – big hype, big crash, then rapid growth in web/TV/mobile shopping (for goods and services) – dot.com crash and revival – success of Amazon

• B2G – electronically-mediated provision of goods and services to & from the public sector (auctions and on-line tendering in the UK – target driven?)

• G2C - ambitious targets for service delivery in the UK• C2C – e-auctions and e-marts - e.g., ‘ebay’ – a

phenomenon (233m users in 12 years)! • P2P – Napster & Gnutella etc. - from humble beginnings to

BitTorrent and beyond – but problems and regulation? • B2B – growing rapidly (from a significant baseline) across

a majority of market sectors and territories – the ‘big story’?

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Business CommunicationsB2B e-business & commerce

Overview• Defining B2B e-commerce & e-business • e-Business communications (forms) • The history and development of EDI & Internet-

based e-commerce• The organisation of markets• Perceived benefits of e-business• Possible dangers in e-business• The dimensions and future of B2B

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Defining B2B e-business & e-commerce (1)

“…in a loose sense, [e-business] means doing business over the internet, selling goods and services which are delivered offline as well as products which can be “digitised” and delivered online, such as computer software”Source: OECD, Economic Outlook, vol.67 (2000)

“B2B can be described as encompassing all e-commerce activities that do not address either a final individual consumer (B2C) or public authorities (B2G)”Source: EC, European Competitiveness Report (2000)

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Defining B2B e-business & commerce (2)(a preferred definition?)

“E-business is doing many business activities electronically using Internet-centric technologies. The focus of e-business is on the application of Internet technologies in the management of day-to-day business processes...[including] on-line marketing and sales, supply-chain and channel management, manufacturing and inventory control, financial operations and employee workflow procedures across the entire organisation. The intent of e-business is to apply the benefits of Internet technologies to better manage a company’s total value-chain with a focus on workflow, distributed workgroup computing and Internet-centric, knowledge-oriented operations at all levels”

Highlatitude.com/e-definitions

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E-business: Key Issues

Lots of business jargon but some useful points:

Emphasis on electronic trading…but,

• Management - Internet technologies for enhanced management, monitoring, and control of business processes (collection and use of data to assist strategic planning and improve efficiency and effectiveness of operations)

• Integration - processes and back-office functions within and between companies – enhanced co-ordination

• Automation - data flows and transactions (internally & externally)Also implicit…

• Knowledge - access to and use of knowledge across organisations - empowering employees & unlocking creativity?

• Novelty - opportunities for new business models, forms & channels

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History & Trajectory of Business Communications Technologies

1920s Telephone (telegraph?) - 1st electronic business tool?

1950s Telex (teleprinting & teletype) - 1st ‘non-voice’ electronic communications tools

1960s EDI1970s FAX 1990s email1990s Internet- or web-based e-business

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Business communications (1) : FAX

• FAX – available and widely used in business since the early 1970s

• Rapid take off in US and later in Europe (accelerated by reductions in equipment price)

• Facilitate the transfer of symbolic data (via manual intervention)

• Incremental development of ’phone service – intuitive and user-friendly

• Widespread access to terminals

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Business communications (2): e-mail

• Available in 1967/8 to a highly circumscribed community• Diffusion throughout the 1970s and ’80s but limited

(largely) to the defence and academic sectors (with the Internet)

• Rapid take off from the early-mid 1990s (with the expansion of desktop computing)

• The business communications tool of choice by 2000?• Some substitution but email and FAX are frequently

operated in parallel• But ‘overload’ and emergence of Skype and VoIP

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Business Communications (3):The arrival of EDI and (Internet-based)

B2B e-commerce

EDI – the first really significant form of eB2B?

Many definitions, but

Electronic Data Interchange

is generally defined as:

“the interfirm computer-to-computer communication of trade documents in a standard format that permits the automatic handling of transactions.”(Sokol, 1989; Kuhn Pedersen, 1995)

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…In more detail - what is EDI?

According to UK Department for Trade and Industry (DTI), EDI involves:

“Computer-to-computer exchange of structured data between two or more companies, sent in a form that allows automatic processing, with no manual intervention. It is relevant to any business that regularly exchanges information such as client or company records, but is especially relevant when they send and receive orders, invoices, statements and payments……EDI remains the dominant term in the UK for electronic trading [but is being substituted increasingly with e-commerce and e-business]”

Important development - introduces the notion of ‘AUTOMATION’ to business communications

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From EDI to Internet-based e-business

• 1960s – automated transfer of large & routine transactions in the auto industry

• Late 1960s – the emergence of ‘communities’ in the auto and banking industries

• Late 60s and early 70s – emergence of first ‘value-added networks’ (VANs) offering computing and data-transmission services

• 1980s – major expansion of EDI – government promotion and efforts to standardise transmission protocols

• Mid 90s – still only circa 100k EDI users (but COVISINT)• 2000 – Internet explosion and rapid increase in web-based

transactions – Mass Migration?

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Developments in EDI

• EDI - around since the 1960s but growth and expansion (into new sectors) slow until the 1980s

• Early EDI - reliant on proprietary systems/standards (e.g., ODETTE in the car industry) - some VANs incapable of dealing with non-standard protocols (absence of a uniform technology and software platform)

• Universal, international standard (EDIFACT) now ensures transmission compatibility

• EDI traditionally encompassed a few (large) players, but the Internet is opening up EDI and B2B opportunities to a wider range of businesses – Many more business entrants into electronic trading environments!

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What do e-Business technologies do? – Facilitating networked electronic

business relationships

• Facilitate electronic networks and relationships between a range of (supply-side) market actors

• These can include: producers (of goods and services); intermediate suppliers; business services; infrastructure operators; regulators; and, logistics and distribution agents etc.

• Crucially, e-business technologies bring supply-side actors into an electronically-mediated environment

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Organisation of the e-B2B ‘value network’

Tangibles:Suppliers of

Raw materials,Intermediate goods,

infrastructure and networks

Logistics &Retail Distribution

Channels

Producer of goods orServices

Intangibles:Business services

(Consultancy,Accountancy,

Design services etc.)

RegulatoryAgencies

(Government etc)

RetailCustomer

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E-business in the value chain: process integration within and across the firm and its partners

R&Dcollaborative & remote design -

shared CAD

Procurement

enhanced product sourcing and price transparency - search via e-markets SCM

Production

JIT, inventory control & concurrent engineering - SCM & ERP systems

Logistics

Efficient warehousing, stock handling and delivery - ERP

Sales

Online selling via websites & e-markets or auctions – liaison with retailers

Logistics

Efficient warehousing, stock handling and delivery - ERP

Customer Service

Marketing, customer care, marketing & data capture - CRM

Customer Service

Marketing, customer care & data capture - CRMSuppliers,

clients and partners

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Organisation of EDI & B2B markets

• Typically (and traditionally) organised around one sector (e.g., automotive, banking, chemicals, metals)

• New forms of (sectoral) markets are emerging (as are new forms of intermediaries) – markets may be organised by single (major) corporations; coalitions of businesses; industry associations; or third-parties (e.g., UDEX in retailing)

• EDI proprietary systems are giving way to Internet-based market systems – access to new/more players (expensive closed arrangement are replaced by relatively accessible systems)

• E-markets are diffusing into more sectors and are becoming larger – revenues from e-mediated business are increasing (rapidly?)

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The business case for EDI/e-business:operational benefits (firm level)

• Precision timing – speed and control; 24 hour trading; advanced notification and early warning in the supply chain (facilitates JIT etc.)

• Improved cash-flow – savings in inventory management; reduced stockholding (and thus ‘working’ capital); rapid payment authorisation

• Financial savings – reduced expenditure on postage, paper and administration (and personnel)

• Data accuracy – reduced risk of error(?)• Improved accountability and document tracking

(availability of ‘audit trailing’ mechanisms)• Improved knowledge management (and use) –

sophisticated data-mining – learning about suppliers and customers

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The business case for EDI/e-business: strategic benefits (firm level)

• Competitive advantage – image; reduction in number of suppliers (increased reliability?)

• Closer trading relationships – partners gain a deeper understanding of needs and practices of suppliers and clients

• Increased customer satisfaction – prompt, error-free delivery; fewer delays (establishment of CRM systems)

• Simplified business processes – improved levels of efficiency and competitiveness

• More effective exploitation of personnel – staff freed from routine administration (reconciling orders & invoices etc.)

• More effective exploitation of data – facilitates use of MIS and search for new opportunities

• Network externalities - enhanced opportunities for co-innovation activity

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Potential problems e-business and EDI trading environments (1)

• Power - large clients can assert significant control over suppliers (accusations concerning grocery retail industry in the UK?)

• Monopolisation of markets - the emergence of cartels & exclusion of certain players is a fear (original opposition to COVISINT in US motor industry – anti-competitive activity in the form of price and production fixing?)

• Standards – technology and interfacing standards are still not settled (greater difficulty with rapid technological development and accelerating globalisation – legacy systems and system friction?)

• Regulation – an issue in global market-places – some regulatory regimes are less stringent than others (US versus EU and Japan – see EU directives on transparency, liabilities, dispute resolution, location data)

• Access – accessing networks as a ‘qualified supplier’ – smaller companies may be unable to afford technology investments

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Potential problems e-business and EDI trading environments (2)

• Taxation – application of VAT to all e-commerce transactions in Europe?

• Financing - investor uncertainty on the back of the (B2C) dot.com crash (largely reconciled) – differential availability of venture capital across regions

• Trust and Confidence – technology oversell (CRM and DBM fiasco – Sky v EDS)

• Availability of skilled workers – technology skills shortages expected across Europe

• Security – fear of hacking, breaches, malicious attack, loss or theft of critical data constitutes a brake on development

• Sustainability - emergence of many new electronic markets and market mediators – can all survive – effect on confidence?

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E-business - the future?

• B2B e-commerce revenues are growing (with migration into the environment and new markets)

• Regional difference in e-revenues are expected to remain strong

• Despite growth, B2B e-commerce is still estimated to represent a fraction of global GDP (OECD) – 7% in 2003

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Conclusions

• E-commerce has grown rapidly and looks set to continue this trend (however, associated hype has been enormous and possibly damaging)

• B2B is the locus of the ‘real story’ (at least economically) – it may grow less rapidly than B2C (especially if DTV, web commerce & m-commerce accelerate rapidly) but will remain more significant if less visible

• Existing metrics and instruments have been inadequate for the job of measuring e-commerce – the picture is improving but is it possible to measure intangible benefits?

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Exercise

1. What are the key issues that surround any decision (at firm level) to launch into B2B e-commerce environments?

Think about company internal and external factors – key drivers, resources and finance, capabilities and skills, organisational issues, infrastructure, markets etc.

2. What are the key issues that surround any decision (at firm level) to launch into e-B2C e-commerce environments?

Again, think of key drivers and potential difficulties – skills, markets, competition, security, regulation, branding etc.