Creating a Business Universe: What the Next Generation Enterprise Looks Like
Gerhard Plenert, Senior Principal, AMS, Inc., Fairfax, VA 22033, 703-267-8318, Gerhard_Plenert@amsinc.com
86th Annual International Conference Proceedings - 2001
Abstract. The business universe is being transformed. We are moving away from the inward looking, self focused enterprise, to a new world of outward focused enterprises. Three events are shaping this change:
- Enterprises are becoming smaller, focusing on their core competencies
- Enterprises are forming partnerships to manage their non-competencies
- The emergence of eBusiness empowered information exchange
The result is that enterprises will no longer be competing against enterprises. We now have the emergence of networks of enterprises competing against other networks. This has created a new world of enterprise management, referred to as the Next Generation Enterprise. The Next Generation Enterprise (NGE) is where an integrated value network of enterprises compete against other networks. And the network with the most efficient integration and information network will win.
ECommerce and eBusiness will play a key role in the integration of the information that is required for the success of the NGE. Web based information accessibility will support the information integration, linking all the network elements together.
Introduction. The next wave of competitive changes will focus on technological enhancements such as eCommerce and Value Networking. With eCommerce, companies have achieved a new, high level of interconnectivity, both internally within the enterprise, and externally with suppliers and customers. Companies are able to transmit all types of data, from financial data to engineering drawings, at high speeds.
Value Networking redefines the structure of the enterprise based on technological enhancements. An enterprise is no longer a stand-alone entity with an authoritarian CEO at the head. Next Generation Enterprises (NGEs) require decisions to be made at as low a level as possible in the management structure. They require employees to communicate directly with counterparts both within and external to the organization. The Value Network is an environment where companies no longer compete against companies. Rather, we have supplier and customer networks all linked together, and competing against other supplier and customer networks. The enterprise finds itself sharing all information, including financial information, goals, capacity information, demand information, and so on, at all levels within the organization. The enterprise is customer-driven and finds itself as part of a competitive, integrated, Value Network.
Conventional wisdom, up until very recently, claimed that eCommerce will change everything; that the big corporate dinosaurs will face extinction; that life as we know it will not survive. To understand this concept better, let's take a look at what eCommerce really is.
In 1969 the United States Department of Defense established ARPANET (Advanced Research Agency Network) in response to a need to have an open line of communications between all nodes of a communications network. They didn't want the network to be dependent on a single physical line of communication. They wanted the communication system to be free and independent, allowing the network to establish flexible information routes regardless of any disruptions of any type. The result was a network of computers and communications lines that allowed universal access across multiple transmission routes. Originally intended as a military communications system, the network quickly developed into a messaging system that included civilian messages. By 1983, ARPANET had become MILNET and the remains of the original network became known as the Internet. By the mid 1990s the original four ARPANET sites had blossomed into 6.6 million Internet computer sites worldwide.
The Internet network of computers still required the users to be able to identify which computer node they wanted to address. This frustrated a British physicist Tim Berners-Lee who was trying to search for specific pieces of information without knowing which computer node to address. He established links called hypertext which helped users identify the information they were looking for. By 1990 he linked hypertext to an on-line addressing system called Uniform Resource Locator (URL) and he called the link the World Wide Web (WWW). In 1991 he made the WWW freely available to the public, and the internet age exploded.
By 1996, about 40 million people around the world were connected to an internet with 627,000 domain servers. By the end of 1997, more than 100 million people were connected and the internet had grown to 1.5 million domain servers. World wide internet commerce sales revenue had reached $10.6 billion. Internet traffic doubled approximately every 100 days for the last three years of the 1990s. By 2001, internet revenues are projected to reach $223 billion.i What had started as a simple, computer linked, message switching system was rapidly expanded into a system used to perform business transactions.
Business. We have entered a new competitive era of business development — web focused businesses. Not only were traditional business transactions performed through the use of the internet, but new methods of business and new types of business were rapidly developing. New companies have sprouted up in all the traditional avenues of marketing and operations. And the old dinosaur companies have felt the pain of rapidly loosing market share to these new upstarts. In order to hold on to markets that they traditionally dominated, these dinosaurs are now painfully moving into web based enterprises as well, even if it sometimes seems excessively expensive. This new era of business has been labeled eCommerce, or, as the more IBM indoctrinated would refer to it, eBusiness.
Initially, the definition of eCommerce follows the lines of the definition of commerce in general. ECommerce is the exchange of value across enterprises or between enterprises and consumers. But with eCommerce, this exchange is performed electronically. This exchange can include orders, bills, payments, entertainment, or information in many forms, including capacity information. And this is enabled by some simplistic, yet profoundly significant internet-related technologies like internet protocol, web browsers (free tools available to everyone), HTML/XML, and web application servers.
Conventional wisdom states that the dinosaurs of today's industry are:
- Too big
- Too cumbersome and therefore too slow to change — difficulty in reacting
- They have tiny little brains compared to their size — not smart enough to realize the changes around them
- ECommerce has made brick and mortar (storefronts, branches, buildings and equipment) became a liability rather than an asset
The comet called eCommerce had taken on breathtaking pace. The internet was adopted faster than telephones, radios, televisions, video recorders, or CDs. It is exhibiting a growth rate of 100% plus annually. Internet traffic internationally has been doubling every 100 days (first the year 2000). In 1998 there $300B in U.S. eCommerce which will expand to $970B in U.S. eCommerce by 2002 (Giga Information Group).
What kind of new life forms will emerge that will be adapted and suited to this new eCommerce environment? The ".com" type start-up firms soon became the new players, rapidly assaulting the market share of the traditional dinosaurs. The belief was that innovation would lead to many changes in the food chain, that you would have disentermediation in many cases, reintermediation, the rise of infomediaries, the rise of the virtual enterprise — whole new forms of business were being created. The characteristics of these new business are interesting and defy conventional wisdom. For example, when compared with the dinosaurs:
|High Earnings||No Earnings (on average)|
|Low Multiples||Infinite Multiples|
|Low Market Cap||Stratospheric Market Cap — belief in that what they are doing has some scalability|
Investors believe that the .coms are the future; that the .coms will be dominating market share in such a way that in spite of low or even negative profits, they hold the key to future industry domination. This has created a new investment model, one where investors are investing based on market share growth, and future corporate growth potential, rather than on current profitability levels. The dinosaurs are focusing on profitability, but losing the market share war.
The Evolutionary Process. Business evolution occurs as a series of stages. In the first stage (level 1) we see a Static information condition where enterprises are characterized by:
- Basic web presence with some brochure-ware
- Content delivered as static HTML pages
- Customer/user "pulls" data from site
- Vastly increases low-cost "reach" of information — information delivery was instantaneous and universal
The Web site is basically a publishing medium. The vast majority of company web sites, especially for the dinosaurs, would fall under this category. Even for .coms like Yahoo, was strictly a level 1 since it simply navigated you to other sites. This is a powerful tool and is a significant accomplishment for many companies.
Evolving to level 2, the interactive level, we find the following characteristics:
- Dynamic information delivery — databases behind the server
- Two-way communication — dialog
- Catalog searches
- Status Checking
- Personalized content
At level 3, the transactive level, we find characteristics like:
- Secure business transactions integrated with core systems / back-end systems
- Ordering — Business-to-Business (B2B) transactions
- Provisioning — Supply Chain Integration
- Billing and Payment
- Analytical tools and capabilities for customers like Cisco's configuration tools or Dell's tools which assist customers to select the correct computer model and accessories
- Personalized information services and offers like Broadvision's presentation of customized information
Evolving on to level 4, the Intelligent level, we find characteristics like:
- Transformational innovation: eBusiness...
- New products, services, even brands
- Changes to industry value chain
- Interaction driven by lifetime value of the customer like the interactive lending decisions some banks are offering
- Highly personalized services across all delivery channels
- Requires both systems integration and business integration because the old channels of communication cannot be eliminated
The last stage of evolution is the Adaptive level which brings us to the reference model of the Next Generation Enterprise. The reference model is the "ideal" in NGEness and is used as the reference point for comparison. In the adaptive stage we find the self-adapting organization. Here you are working with all your employees, partners, plus all your channels in order to learn from all your experiences thereby achieving knowledge across the entire enterprise. You now have a feedback loop which facilitates continuous learning in the decision making process. It's characteristics include:
- Self-Adapting Organization: eBusiness plus ...
- Extended knowledge leverage: knowledge management across partners and customers
- Customer value management is now achievable
- Value chain management — optimize the value for all members of the network
Can Dinosaurs Compete? Let's take a look at what the dinosaurs of industry have to offer. For example, they have an existing infrastructure, productive structure, and delivery capability which offers them the:
- Ability to create valuable products for customers
- Ability to deliver those products where and when needed
- They have "THE GOODS" — an essential part of Commerce (e- or not!)
They have intellectual property, like intellectual assets, which offers them:
- Well-known brands
- Own valuable content
Another strength of the dinosaurs is found in there existing, established relationships. This offers them:
- Networks of suppliers
- Networks of channel partners which can be eEnhanced
- Complementary business partners — related products
- Deal-making skills and assets
- Ability to work with others — teaming and partnership skills
Next, they also amassed a significant amount of knowledge or brainpower. Which offers them:
- Systems for managing customer relationships and production
- Skilled people
- Customer relationship managers
- Supplier and business partner relationship managers
- Existing and large marketing and sales networks
- Strategists, designers, implementors, managers ...
An excellent example of this is IBM, Corp. a dinosaur which had a late start in the eCommerce world, but which rapidly made up for it's lack by invoking its brainpower to create the eBusiness initiative which rapidly moved it into the eCommerce space.
Possibly the biggest attribute that dinosaurs have is their survival instinct. They tend to have high net incomes. For example:
|Dinosaurs Profits||.coms Profits|
|Microsoft — $ 7 Billion||Amazon.com — $ -300 Million|
|IBM — $ 8 Billion||Yahoo — $ 50 Million|
|Cisco — $ 2 Billion||EBay — $ 7 Million|
Dinosaurs have the ability to generate cash and to make net income.
Last of all, dinosaurs have a large, existent customer base.
Given, these advantages, the real threat that the dinosaurs face is found in the perception of the rapid growth of eCommerce. In reality, the U.S. GDP is about $32 trillion and in 1998 the eCommerce share was about 3%. Even with rapid growth through 2002, not more than 10% will be eCommerce. The real action will be in eBusiness solutions, making companies more responsive to customers and their partners using eCommerce and internet type technologies. For example, the leading technology web sites are Microsoft, IBM, Dell, and Cisco. All of these are not .com startups. They are not new companies. Rather, they are companies that vigorously adopted the new eCommerce frame of mind and went after it.
If we look at the portal sites, we find the dinosaur leaders to be Microsoft's MSN network, and America On-Line (AOL). AOL is a dinosaur because, for a long time they sat on the fence trying to decide if they would use proprietary technology or move to web browsers and become an open framework type of company. In the .com areana for portals we find Yahoo and NetCenter.
Moving to financial services, we find the dinosaurs to be Schwab, Fidelity, Citibank, and Bank of Montreal. In the .com arena we find eTrade and Security First. In the arena of information transmission, the dinosaur winners are CNN, New York Times, Library of Congress, Weather Channel, and ZDNet and the .com counterpart includes the search engines and Pointcast.
Dinosaurs Will Survive. Dinosaurs need to make the evolutionary step into the new eMedium. The pace is rapid and the dinosaurs need to evolve quickly. The key steps toward their adaptation will require:
- The develop new business senses
- Growing bigger and better brains
- Adding new capabilities to thrive in a new medium
In the area of developing a new business sense, dinosaurs need to develop a customer intimacy via Web/Internet in addition to their other existing channels. Additionally, they need to partner integration via extended intranet and other Internet tools. And they need to harness their legacy customer and partner data. It's the smart companies that survive, not necessarily the big ones. Companies need to develop new business senses. How do the dinosaurs create new antenna? How do they develop a compound eye? This answer is in finding the tools that offer you customer intimacy.
Dinosaurs need to develop new eBusiness and eCommerce brains. This starts by strengthening channel relationships with customers and partners. It is "Building a Digital Nervous System", as Bill Gates refers to it, that allows you to react instantly to new information. For example, product development and product delivery cycle times are extremely detrimental to dinosaur performance. Cycle times need to come down in order to improve responsiveness. Dinosaurs need to be able to deal with brokers directly and they need to be responsive and consistent in the information that is coming across all the channels, whether the channel is over the web, through the telephone, or in person.
Dinosaur brains begin with the appointment of a Chief eCommerce Officer (or similarly empowered "Chief") that can grow the e-relationships. Then they need to use eCommerce to strengthen existing relationships and create new ones. Dinosaurs would develop multi-channel relationships by integrating their web/Internet with other existing channels of communication. They also need to use the intranet to create a "digital nervous system" within and external to their organizations.
Dinosaurs can use tools like decision analytics to develop new e-business instincts? This way they would take advantage of "Information Economy." This offers organizations the tools to analyze that data that is coming through, and possibly to perform statistical analysis or simulations on that data, in order to optimize the response. This can be extremely valuable in environments that have some level of risk.
Dinosaurs need to harness technology to integrate the functionality of their business. They would build "virtual" capabilities where vertical or horizontal integration is unnecessary. This tells you something about who your valuable customers are and what their requirements are that make them unique.
The Dinosaurs can indeed strive and survive. The sky is not the limit, nor are current capabilities. And today's dinosaurs can easily become tomorrow's eagles.
Summary. Dinosaurs fear change, especially when it costs enormous amounts of money and time, and especially when it will not necessary do anything more than help them maintain their current position in the marketplace. As the web grows, it's market share will also increase. The next wave of competitive enterprise development for the dinosaurs will require:
- A focus on core competency efficiencies
- A web presence
With this, dinosaurs can indeed catch the vision and be taught to fly.
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