by Amir Hartman and John Sifonis with John Kador
This article is an excerpt from Net Ready: Strategies for Success in the E-conomy and appears on TechRepublic through an exclusive arrangement with the authors. Today's installment in this series examines four more of the 12 strategies for e-business initiatives that are outlined in the book. Each of these strategies focuses on transforming a specific product or market segment within the e-commerce world. In the first excerpt we examined product and market transformation e-business initiative. The final installment will examine industry transformation.
In the previous excerpt, the authors considered four strategies for e-conomy success under the category of “Product and Market Transformation.” In this excerpt, the authors review the four e-business strategies that impact business process transformation.
Let’s shift our emphasis from the product and service components of the transaction to the business processes that enable those products and services. Embedded within those business processes are assumptions, inefficiencies, and redundancies that the e-conomy can redefine, transform, or eliminate. In this excerpt, we consider four general approaches to identify such opportunities and to exploit them.
Business process transformation
- Transform key process
- Take on infomediary role
- E-conomy storefront
- Trust intermediary
- Attention infomediary
- E-conomy channel enabler
- Community of Interest Networks (COINs)
- Compress the value of the delivery system
- Explore the price/performance ration
Transform key processes
McKesson Corp., the largest health care supply management company in North America, is an exception to the rule that the leaders in any particular industry are generally not the storefronts one would expect to take a leadership role in leveraging e-conomy opportunities. McKesson has done a remarkable job in redefining its value proposition and thereby further solidifying its market share and leadership position.
Tentatively, at first, McKesson took the initiatives expected of large organizations. It started putting its catalogs and product specification sheets online. It managed to launch a Web site before most of its competitors did and made it immediately more than just a site for brochureware. But then it made a leap of faith in realizing the enormous possibilities offered by integrating its customers and partners in a comprehensive intranet. The company integrated elements of decision support systems and other analytical tools into the site. Together, these tools and a new mindset converted sales people who had a more or less antagonistic relationship with their customers into sales consultants who are on the customer’s side.
In the traditional pharmaceutical sales environment, a salesman goes to a pharmacy and pitches the benefits of a set of products. Today, McKesson ties the pharmacy’s database into the intranet. By doing so, the sales rep can now demonstrate that if the pharmacy uses drug A, pharmacologically equivalent to drug B, the pharmacy would save $25,000 per year. Naturally, drug A is a product of McKesson. But the pharmacist is happy because he can deliver equal functionality at less cost. The intranet, by virtue of integrating the inventory and sales databases of McKesson and its customers, redefines McKesson’s value proposition from that of supplier to partner. It is no longer just pushing products, it is a 13,000-employee company whose interests are aligned with the pharmacy.
Take on one or more of the five e-business roles
Infomediaries, far from being killed by the e-conomy, have found a new birth of freedom. The opportunities for infomediaries are limited only by the imagination. Because they can be established quickly and inexpensively relative to brick and mortar businesses, e-conomy infomediaries are flourishing in every corner of the Internet. Some of these infomediaries respond to inefficiencies that exist in the system. Others aggregate information for the benefit of buyers and sellers. Some catalyze transactions by guaranteeing performance or installing trust. Still others create value by providing useful infrastructures. The e-business roles include:
- Infomediary. The most common and direct way to participate in e-conomy role is by becoming an infomediary. An infomediary adds value to a relationship by using the unique attributes of the e-conomy to streamline the delivery of products or services. The fundamental distinguishing element of an infomediary is that it facilitates the delivery or transfer of products or services between parties, but generally consumes nothing, inventories nothing, owns nothing.
- E-business storefront. The vast majority of enterprises we will encounter in the digital economy are e-business storefronts. These are often the storefronts of the Net; the entities with the dot com domain. The most exciting of these ventures have their internals so tightly aligned with the Internet that they would be absolutely unworkable in the traditional economy. In contrast to infomediaries, e-business storefronts actually make or create or add value to something and offer it to consumers over the Internet. Ideally, they interact directly with their buyers or information consumers, bypassing the various infomediaries who want to insert themselves into the value chain and extract a piece of that value for themselves.
- Trust Infomediary. We have tried to draw distinctions among trust infomediaries and their various permutations. At this juncture, we will simply remind ourselves that trust is an indispensable ingredient to success in the e-conomy. The success of one-on-one marketing and intense personalization, we learned, depends on trust. It turns out that once we feel that a partner is trustworthy, we are perfectly happy to tell them anything it needs to know about us to provide better, more personal service. We believe that trust has more to do with a perception of competence than security. For this reason, a class of enterprises organized around creating and enforcing trust will prosper.
- E-business enabler. An e-business enabler uses its technology or competencies to facilitate or enable another set of business processes to whose end users it is frequently transparent. Thus when Federal Express provides the back-end outbound fulfillment logistics for an organization, it is playing an e-business enabler role. Onsale is also evolving into the role of e-business enabler. Whatever competitive advantage Onsale derived from its auction technology is long gone. In response, the company extends its strategy by taking on another e-conomy role, in this case the role of e-business enabler. For example, Onsale is the auction engine for VerticalNet, enabling VerticalNet sites to auction merchandise.
- Community of Interest Networks (COINs). Aggregating communities of interest around a common value chain is not a radical proposition. Businesses with common interests have long created communities in the forms of trade associations, cartels, guilds, and other legitimate and occasionally unlawful alliances. What makes a Community of Interest Networks (COINs) so compelling is the Net as a collaboration platform and the role it plays in their infrastructure and value delivery systems. As their value chains depend on the Internet as the underlying service infrastructure, COINs enable the creation of new value by reducing market fragmentation and leveraging an entirely new set of service opportunities. COINs bring suppliers and consumers together and allow them to securely initiate and settle transactions on the Internet. They reduce prices and transaction costs, minimize inefficiencies, and make allies of competitors—as everyone in the value chain derives benefit from completion of transactions.
Compress the value delivery system
The Web, by virtue of its ability to bring buyers and sellers together, is a perfect medium for compressing aspects of the value delivery system such as purchasing, global sourcing, help desks, and e-commerce. This strategy is especially pertinent for business-to-business models. Let’s look at two e-business initiatives from General Electric and Ford Motor Company.
GE’s Trading Process Network (TPN) Post is an Internet-based trading network that enables buyers and sellers to do business-to-business e-commerce. Since its inception in early 1995, GE TPN Post has grown from an internal GE Corporate initiative, to a commercial offering from GE Information Services. TPN pays for itself by allowing GE divisions around the world to pool their purchases and price reductions of approximately 20 percent on more than $1 billion of goods procured online. GE expects to buy more than $5 billion of goods on the Web by 2005. GE companies have found TPN a boom for compressing delivery cycles. Cleveland-based GE Lighting has reduced the time it takes to process quotes from suppliers for machine parts from between 18 and 23 days to nine days.
Explode the price performance ratio
“Buy low and sell high” remains a bedrock principle of all economic activity. But Buy.com is chipping away at this certainty and in so doing is exploding the price/performance ratio of retailing. Buy.com is determined to compete by offering the lowest retail price on every possible kind of product, at cost or even below cost if necessary. The company will profit through the ad sales and partnerships that follow all the traffic to its site. In this way, Buy.com explodes the price/performance ratio by recognizing that the information about a transaction is often more valuable than the transaction itself. In a Net Ready world, the information that Buy.com generates from the sale of a digital camera can be much more lucrative than the spread between its cost and sales price for a product.
Buy.com is a paradox in the Net Ready world. The company is betting that its brand of lowest prices will make it a logical destination for any shopper and that advertising dollars will follow those shoppers wherever they go. So even if Buy.com loses a few cents on each e-conomy transaction, it will more than make it up with ad sales. We have noted that as the Net eliminates information inefficiencies and rationalizes prices, competition on the basis of price alone cannot be sustained. Now here comes Buy.com to challenge that conclusion. Is it possible to build a brand completely on price? Will a value discipline predicated on low prices alone be sufficient to ensure Buy.com’s success? Will consumers put up with the ad serving and privacy issues inherent in the Buy.com business model? Can Buy.com execute its customer service and fulfillment promises as well as it executes its pricing strategies? These are open questions that will determine the company’s success.
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