the e-business environment 3

8/8/2019 The E-Business Environment 3

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The E-Business Environment

Professor Feng Li

The Business School

University of Newcastle upon Tyne

E-Mail: [email protected]

© Feng Li, 2006



© Feng Li, 2006 2

The New Business Environment?

New global political & economic order Wars on terrorism Demographic changes (aging) and education The opening & development of new markets Offshoring and outsourcing Globalization & localization New pressure on public sector organizations European integration and enlargement Lowering of trade barriers (e.g. WTO, EU, APEC)

Environmental concerns The ICTs Revolution and the information economy Internet and e-business Others



© Feng Li, 2006 3

The Driving Forces?

The µICTs Revolution¶ andinformation economy

The Internet and Revolution inInteraction

The new digital, networkeconomy & E-business

Government initiatives? Others?



© Feng Li, 2006 4

The µICTs Revolution¶

Rapid cost reduction (30-40% per year for telecom; 12% for 1987-94, 26% for 95-99)

Rapid increase in power and capacity (Moore¶s law)

Convergence between computers, telecoms &

media Pervasive proliferation of ICTs in all sectors (8.3% of US

economy but contribute over 30% economic growth since 1995)

Heavy investment by private & public sectors (In US

$243bn/1995 to $510bn/1999)

Rapid development in infrastructure & services

Governmental initiatives Explosive growth of the Internet (304million in 2000, 80% increase from

1999 ± well over 1billion users now)

Others



© Feng Li, 2006 5

The Information Economy

Information, both as commodityand resource, become 'strategic

resource' Inf ormation content in all

economic activities

Inf ormation labour as a proportionof the overall workforce



© Feng Li, 2006 6

Information Economy

In 1967, 46% of US GNP from informationactivities, 50% of labour force as informationworkers earning 53% of labor income, grown to

62% in 1994 1981 UK, 45.2% workforce (58% in greater

London)

By early 1980s in OECD, 40-50% of workforce ininformation occupations. 60%+ today «

µW e are i nd eed i n a new economy ± an economy d riven by i nf ormation, research , k nowled ge and technology.¶



© Feng Li, 2006 7

Number of People Online « global

Number of People Online(in Millions)

Mar-99 Mar-00 Level

increase

Percent

Increase

Africa 1.1 2.6 1.5 136

Asia/Pacific 27.0 68.9 41.9 155

Europe 40.1 83.4 43.3 108

Middle East 0.9 1.9 1.0 111Canada & US 97.0 136.9 39.9 41

South America 5.3 10.7 5.4 102



© Feng Li, 2006 8

The New Economy? The productivity paradox ± µyou can see computer age

everywhere but in productivity statistics¶ The new economy arrived in the late 1990s in US

according to Mckinsey & Economic Report of thePresident 2001 etc.

Labour productivity increased from 1.4% (73-94) to2.4% (95-99) « 2.9% in 2000, 1.1% in 2001 and 4.8% in 2002

IT is of great, but nor primary importance (?) New economy emerged from business competition and

managerial innovations

Farrell, D (2003

) The real new economy.H

arvar d Busi ness Review . Oct 2003, pp 105-112 Adams, F Gerard (2004) T he E-Busi ness Revolution and

the New Economy . Thomson, Mason (Ohio)



© Feng Li, 2006 9

Intangible Assets

The total value of a company compare with the valueof its tangible asset (e-Bay is worth more thanMcDonald¶s; Microsoft worth more than the 3 carmanufacturers put together)

Employee¶s skills, IT systems and organisational

culture and company brands etc are worth far more tomany companies than their tangible asset

Intangibles are hard for competitors to imitate ±sustainable advantage ?

Intangible asset worth different things to differentpeople and organisations

BUT - Many existing management theories andtechniques geared toward managing tangible assets « Robert S Kaplan & David Norton (2004) Strategic Map.

Harvard Business School Press, Boston (also theirearlier book on µBalanced Scorecar d ¶; also HBR papers)



© Feng Li, 2006 10

µIT doesn¶t matter?¶

IT as infrastructural technologies ± others call it utility Companies can benefit from it by having superior

insight than competitors, but advantages will not lastforever

Commoditization of IT means most cutting edge

ITcapabilities quickly become available to all

The Internet has enabled universal access New rules of IT Management ± spend less; follow but

don¶t lead; and focus on vulnerabilities notopportunities

Criticisms everywhere « (check out) *** Carr, Nicholar (2003) IT Doesn¶t Matter. H arvar d

Busi ness Review May 2003: 41-49 Book in 2004 - Does I T Matter?



© Feng Li, 2006 11

General Implications

All industries became information-intensive

Accurate & adequate information crucial tosuccess of industrial & commercial

operations Fast growing ICTs & information industries

Profound impacts of on what activities arelocated where, how territories administeredor markets served, linkages maintained

between customers and suppliers etc. Need for Strategic and organisational

Innovations!



© Feng Li, 200612

New perspectives

Zuboff & Maxmin ± Chasm between individuals andorganisations:

P eople have changed more than the commercial organisations upon which they d epend . And here is

the new opportunity «. New economic or d er (p8) T he chasm « is not limited to the busi ness worl d «

citizens and their public i nstitutions , « worshopersand their religious i nstitutions. (p9)

Corporations today continue to operate according to

a logic invented one century ago New logic needed ± a new support economy based

on new distributed capitalism ± critical role forelectronic communications (ICTs)!



© Feng Li, 200613

New perspectives « 2

Prahalad & Ramaswamy ± Co-Creating unique value withcustomers

From company-centric & customer-centric logic to networkcentric logic

Traditional notions of value creation no longer sustainable µ« joi nt eff orts of the consumer and the f irm ± the f irm¶s

extend ed network and consumer communities together ± areco-creati ng value through personalized experience that areunique to each i nd ivi d ual consumer.¶ (p.x)

Connected, informed and active consumers ± informationaccess; global view; networking/communities; andexperimentation

Interaction as basis for co-creation is at the crux of emerging reality

From products to solutions to experiences - The newexperience economy



© Feng Li, 200614

The Internet and

µ A Revolution in Interaction¶

Individuals & organisations interact to:

Find the right party with which to exchange,

Arrange, manage & integrate activities associatedwith the exchange

Monitor Performance

Interactions happen within & between firms - allthe way to end consumers

Examples - management meetings,conferences, phone conversations, sales calls,

problem solving, reports, memos etc. Purpose is to enable the exchange of goods,

services and ideas



© Feng Li, 200615

Share of Interactive Activities

Country Interactive

activities

Non-interactive

activities

USA 51% 49%

Germany 46% 54%

India 36% 64%

Source: Butler, P et al (1997) 'A revolution in interaction' in McKinsey Quarterly, No 1, 1997, available at

Http://www.mckinsey.com/pub/pubmain.html



© Feng Li, 200616

Transaction Costs

Cash transaction costs alone account forover half of all non-governmental GDP

µW e spend more money negotiati ng and

enf orci ng transactions than we d o

f ul f illi ng them. (p103)¶

Evans, Philip & Bob Wolf (2005)Collaboration rule. H arvar d Busi ness

Review , July-August, 96-105



© Feng Li, 200617

How Interaction Shapes Organisations

When setting boundaries & choosingfocus, firms trade off the value of

specialisation with the interaction costsassociated with external suppliers

Transformation costs of production & delivery

Interaction costs of arranging & coordinating exchanges



© Feng Li, 200618

Typically -

Interaction costs are lower within thefirm

Production costs are lower for specialistoutside suppliers

The structure of firm and industry at agive time is designed to minimise thetotal costs of transformation &

interaction - the boundary betweenfirms & markets



© Feng Li, 200619

McKinsey Predict:

Interactive capacity increase 2-5 folds in 5-10 years

Rate of data transmission increased four folds inpast 10 years - will increase 45 folds in next 10 years!!!

Efficiency of data gathering could increase by afactor of at least 3; written & oral communication by2; group problem solving interactions by 1.5

Straight forward searches can be conducted in afraction of the time they currently take

If current technology broadly applied, economiccapacity to search increase 10+ folds; capacity tocoordinate & monitor grow by a factor of 2-10!!!



© Feng Li, 200620

Potential impacts

Organisations - structures andboundaries - alternative configurations

Customers - extra costs of search &

marginal gains (perfect market?) Outsourcing and offshoring Emerging forms of organisations and

changing nature of firms and market µDeconstruction of integrated

organisations¶ as one way to respond torevolution in interaction



© Feng Li, 200621

The Networked Economy

Wealth come directly from innovation ±not optimisation (perfecting the known vs. imperfectly seizing the unknown)

Ideal environment for cultivating the

unknown is by nurturing the supremeagility & nimbleness of networks

Embrace the unknown means abandon thehighly successful known

The cycle of µfind, nurture and destroy¶

happens faster and more intense thanever before



© Feng Li, 200622

12 New Rules for the New Economy (1)

The Law of Connection - Embrace Dumb Power (the whole is

more than the sum of separate parts; dumb parts connected properly yields smart results)

The Law of Plentitude ± More gives more (Versus value come from

scarcity; things become devalued when things were made plentiful ± Standard)

The Law of Exponential Value ± Success is non-linear

The Law of Tipping Point ± Significance precedesmomentum (the lowering of tipping points)

The Law of Increasing Returns ± Make virtuous circles(more than economies of scale ± exponential growth)

The Law of Inverse Pricing ± Anticipate the Cheap(innovate faster than they are commoditized)



© Feng Li, 200623

12 New Rules for the New Economy (2)

The Law of Generosity ± Follow the Free

The Law of the Allegiance ± Feed the web first

The Law of Devolution ± Let go at the top

The Law of Displacement ± The net wins (info)

The Law of Churn ± Seek sustainable dis-equilibrium

The Law of Inefficiencies ± Don¶t solve

problems(do the job better versus do the right job)



© Feng Li, 200624

Organizational Innovations through ICTs

Organizations can and should beorganized and managed infundamentally different ways

New rules of game (Sword Vs. Machinegun)

Need for a new generation of organizational & management theories

for the new economy



© Feng Li, 200625

The future of the new economy?

Peter Schwartz ± 4 scenarios(http://www.gbn.org/public/gbnstory/scenarios/columns/june2000column.htm)

S1 ± The new economy

A world of winners, lots of new players;incumbents fall

S2 ± Incremental scenario Modest transformation, incumbents recover

and mostly win

S3 ± The illusion

Some old winners and very few new winners S4 ± Crash

Everyone is a loser ± crash and burn



© Feng Li, 200626

S1 ± the New economy

Fundamentally it is about thereorganisation of the economy intonew ways of working and living

Future is much richer driven by newknowledge

Enormous potential

We had that before ± beginning of the 20th century: electricity, phone,railway, cars, steam power «



© Feng Li, 200627

S2 ± Incremental transformation

Something new is happening but it is going totake a long time to establish

Old players and the old rules will slow thingsdown

In the transition period ± many big oldcompanies are likely to make the transitionsuccessfully into the new economy

E.g. a company with physical presence and aphysical brand is probably able to make the

transition cheaper, better and faster than onestarting from scratch (toys¶R¶us versus e-Toys)



© Feng Li, 200628

S3 ± New economy as an illusion

The potential is just an illusion

Most productivity gain is focused on theIT industry itself ± Robert Gordon of Northwestern University

By getting IT to knowledge workers, weare working longer and harder, not moreproductively ± Steve Roach of Morgan

Stanley

Productivity of services ??



© Feng Li, 200629

S4 ± Crash and burn

The new economy is just a hype

So are most of the newtechnologies

No gain in productivity and stockmarket tumbling down

Bring down the world economyand the average consumers



© Feng Li, 200630

Implications of the scenarios

Telecom infrastructure makes sense in allscenarios (cisco, lucent, nortel, nokia etc)

New economy ± Internet investments

(Amazon, eBay etc) Incremental ± old brands that can exploit

the new world ± Mototola, Wal-mart etc

Illusion ± buy old blue chips (DuPont,P&G, Ford etc)

Crash ± get out of the stock marketquickly; cash and bonds will be king



© Feng Li, 2006

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Peter Schwartz¶s bet?

The safest bet ± the incremental scenario:be ready for the new economy or theillusion and hedge against crash

Available evidence weigh more towardsthe new economy, and he is prepared tobet on it ± but watch to make sure it isn¶t just an incremental scenario (many oldnames coming back with the help of theInternet).

Another article in 2002 -http://www.gbn.org/public/gbnstory/articles/ex_nextdecade.htm



© Feng Li, 2006

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Questions

Is there a new businessenvironment?

Key processes - Driving forces andfacilitating factors

New rules of the game?

Implications for organisations -

strategies, business models andorganisational innovations



© Feng Li, 2006

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What is e-Business? How the Internet Transforms Organisations

Chapter 3. The µICTs Revolution¶ and the Information Economy

Chapter 4. The Network Economy:New Rules of the Game

Chapter 5. How the InternetRedefines Organisational

Boundaries: A Transaction CostAnalysis



© Feng Li, 2006

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Suggested Reading:

Burtler, P, Ted W Hall, A M Hanna, L Mendonca, B Auguste, JManyika and A Sahay (1997) 'A revolution in interaction' T heMcKi nsey Quarterly , 1997 No.1: 4-23

Kelly, Kevin (1997) New Rules for the New Economy: Twelvedependable principles for thriving in the turbulent world,W ired , September 1997, pp140-197,http://www.wired.com/wired/archive/5.09/newrules.html(also book in 1999)

Schewartz, Peter (2000) The future of the new economy,http://www.gbn.org/public/gbnstory/scenarios/columns/june2000column.htm

Surowiecki, James (2002) The New Economy Was a Myth,Right? Wrong! Wired. Issue 10.07 - Jul 2002 http://www.wired.com/wired/archive/10.07/Myth.html

Martin, R L & M C. Moldoveanu (2003) Capital versus Talent:The battle that¶s shaping business. Harvard Business ReviewJuly 2003: 36-41

Evans, Philip & Bob Wolf (2005) Collaboration rule. H arvar d Busi ness Review , July-August, 96-105



© Feng Li, 2006

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Reading « continued

Carr, Nicholar (2003) IT Doesn¶t Matter. H arvar d Busi ness Review May 2003: 41-49 (also check outresponses in following issues and elsewhere on theInternet)

Farrell, D (2003) The real new economy. H arvar d Busi ness

Review Oct2003

Adams, F Gerard (2004) T he E-Busi ness Revolution and the New Economy . Thomson, Mason (Ohio)

Peter Schwartz (2003) Inevitable Surprises: ThinkingAhead in a Time of Turbulence.http://www.gbn.org/ArticleDisplayServlet.srv?aid=14200

Robert S Kaplan & David Norton (2004) Strategic Map.

Harvard Business School Press, Boston (also their earlierbook on µBalanced Scorecar d ¶) Zuboff, Shoshana & James Maxin (2004) T he Support

Economy . Allen Lane, London Prahalad, C K & Venkat Ramaswamy (2004) T he Future of

Competition. Harvard Business School Press, Boston

the e-business environment 3

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