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Digital Economy
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  1. Digital Economy • In 10 years from now the term will be completely obsolete.

  2. They backbite about you on the internet

  3. Definition What do we understand by “business” ? • All activities that have to do with buying, selling , providing, paying, handling, administrating etc. of goods, services or information. What do we understand by E-business ? • IBM • E-business is what happens when you combine the broad reach of internet with the vast resources of traditional information technology systems. It is dynamic and interactive. • Automotive Industry Action Group • The application of advanced information technology to increase the effectiveness of the business relationships between partners.

  4. Other Definitions • Electronic Commerce ( EC ) • Narrower than electronic business • Limited to the pure trading activities • Electronic Commerce • A new concept covering buying and selling of products, services and information via computer networks, including the internet. • EC applies different technologies, varying from EDI till e-mail. • In fact we can also consider buying food at a POS automate using a smart card as a form of electronic commerce.

  5. B2B and B2CBusiness to BusinessBusiness to Customer

  6. E-Commerce : B2B « B2b or not 2b » Internet changes the way of doing business. 4/2/2000

  7. ‘B-2-B’ Growth of commerce via Internet Business to Business Retail trade Closed

  8. The real impact of the Internet • at the long term? • The internet improves the transparency of the economy • easier prise comparisons (buyers - sellers) • eliminates intermediaries • reduces the cost of a transaction • lowers the entry barriers • The internet brings economy closer to the classical model of the free competition: • abundance of information • cost of transaction almost zero

  9. What will be the real long-term impact of IT and the Net? “The biggest winner will probably be the consumers and the entreprises of the old economy (the automobile sector, chemical sector, ...) that use e-commerce B2B within the framework of a business process re-engineering effort” April 1, 2000

  10. Strategic Networks ! • Internet - The textbook model of perfect competition: abundant information, zero transaction costs and no barriers to entry. The most important effect of the “new” economy may be to make the “old” economy more efficientThe Economist April 1, 2000 • L’ Ubiquité. L’internet transforme le mode de fonctionnement des entreprises : tous les acteurs du marché seront dotés d’une plusgrandeconnectivité • Les réseaux stratégiques de partenariat deviennent la meilleure façon d’être compétitif.Le Monde 27/4/1999


  12. Example: US Feb 1998 31/1/2000 The Economist Jan 14 2000 The US Job Machine “We woz wrong”

  13. e-penetration  innovation  Eito-RIPE July 1999

  14. Obstacles EITO 99

  15. Obstacles • Essentially Cultural • A generation of managers has to redo their exams” • ”Connect yourself, boss” (BusinessWeek) • The public • The value of the network grows by the square of the number of users

  16. TheInternet soap-bubble? • The railway companies in the 19th century: • most lines bankrupted  over investments created excess capacity and deadly competition • the good news: after the collapse of the shares, the railways remained operational  good for the whole economy

  17. Ethical e-business • mainly for self-defense • ‘High standards of ethical conduct by busi-nesses should be the main method of foste-ring consumer confidence in the Internet’ • US Secretary of Commerce Daley Global Business Dialogue On E-Commerce, Sept 13, 1999 Paris • non-transparancy : •  not accepted by the consumer • 100% data protection : extremely high cost • changing mentality: examples Dell-IBM • citizen follows  more ‘open’ society ?

  18. Dot-Coms Needed a Double Dose of Reality... Traditional commercial and legal precepts that govern capitalism must also apply to the Net. High-tech entrepreneurs must address these problems as the price for continued access to capital: • Privacy. • Should be respected • Transparency. • About real cost • Patents. • Patenting widespread business methods to create a monopoly and inhibit rivals. The US Patent Office changed its mind. • Monopoly. • The courts have ruled that Microsoft violated the 100-year-old Sherman Anti-Trust Act. Investors sent Microsoft's stock down. BUSINESSWEEK : APRIL 17, 2000

  19. ? Most companies must become Internet firms if they are to survive The Economist 26/2/2000 Merely adding a website on to an existing business is not enough :the whole business needs to be redesignedaround the cost-saving, communication-easing properties of the net

  20. e-Economy Threshold Timing Germany Italy UK France Denmark Austria Portugal Norway Belgium Finland Greece Switzerland Spain Sweden Netherlands Ireland U.S. 2003 1998 1999 2000 2001 2002 2004 2005 Forrester Research - TM@B 18/5/1999

  21. Online markets • ‘Seller beware’ • e-procurement to cut costs and speed supplies (General Electric and Wall-Mart) • third-party exchanges: independent firms that bring together many buyers and sellers to create a genuine market (auction market) • giants of an industry create large virtual markets: General Motors, Ford, DaimlerChrysler, Toyota, Renault, Nissan abandon stand-alone efforts and join forces • markets intellectual property: TechEx (Yale) 400 inventions looking for a licence

  22. e-Logistics E-technology transition ...  EDI era – Large companies – Proprietary – Batch – Bilateral – High cost Internet era – All companies – Public – Online – Networks – Low cost … Results in cost (and quality) discontinuity: Cost to process an order: >10x improvement, plus better quality!!

  23. The Zero-Latency Organization

  24. Zero-Latency • Enterprises or organizations that can act quickly on new information have a competitive advantage and deliver better services. • Latency is the time it takes for a system to respond to an input • all parts of the organization can respond to events as soon as they become known to any one part of the organization. • Requires reengineering the business processes. • Zero-latency strategy is needed.

  25. Zero-latency Strategy A zero-latency strategy requires: • A network and software infrastructure that is capable of quickly exchanging information across technical and organizational boundaries • End-user interface tools and other application programs that are capable of sending and receiving information in a timely fashion • A business strategy that leverages fast action to achieve a real business benefit (by managers) • A set of business policies, processes and product offerings that have been engineered to implement that business strategy • it can affect the way tasks are done or goods are delivered • An organization that can implement the new processes • function of workgroups and departments may change

  26. Zero-latency Strategy • A zero-latency strategy is any strategy that exploits the immediate exchange of information across technical and organizational boundaries to achieve business or organizational benefits. • Technical boundaries • different operating systems • different DBMS’s • different programming languages • Organizational boundaries • inter-department • inter-organizational

  27. The Virtual Enterprise Source: Gartner group Inside report June 1998

  28. Virtual Organization • Cooperation between independent organizations that operate to the outside world as a unit. • Temporary cooperation to gain competitive advantage or to make up from arrears (Airbus) • Works well if the objective is clear • Legal problems can occur in case of conflicts • Intensive but non-definitive relationship • Essential is that partners can survive after a divorce • e.g. Toyota with partners is not a virtual organization • Seen from user point-of-view • Clients and suppliers are seen as part of the network • organization is not seen as a unit of buildings and resources, but is always and everywhere accessible via IT • networking organization

  29. Focussing on Core Competencies • Increased customer access to information allows them to search among product and services to select the best-of-breed • enterprises narrow their focus on core competencies • add customer value • differentiate products and services in the marketplace • add value across multiple products and services over time enterprises narrowing the focus + Virtual companies need to offer broader product range

  30. Virtual Company Basic set of ideas • outsourced non-core competencies • focus on core strength or business • little or no physical presence or infrastructure • network of business alliances • heavy reliance on telecommunications. The combination of independent enterprises required to fulfill a defined customer need.

  31. The IT-enabled Virtual Enterprise Virtual Enterprise 1 Business Partners Customers Internal Operations Virtual Enterprise 2 Physical Enterprise Product and Service Creation Fulfillment and Delivery Suppliers Industry network Sales and Marketing Virtual Enterprise 3 Source: GartnerGroup

  32. Types of Virtual Companies • Project oriented (airbus) • Competence based • Kernel partner (Mc Donnalds) • With or without mission overlap

  33. IT-enabled • Existed for a long time as a business concept • Made feasible by IT • A chain of enterprises is required to deliver a single product • Some enterprises offer multiple bundles of products and services • Enterprises rely on a virtual enterprise of coordinated service providers (value web) • IS departments must be ready to provide necessary IT-services to rapidly changing partners • Need for rapid IT infrastructure, application development capabilities and security strategies

  34. Could you check my agenda and tell me who are the people with whom I'am having this lovely lunch ?

  35. Elements usually present alliances brand identity knowledge base marketing strategy problem solving research and development Elements usually absent Human resources Inventory Manufacturing Materials Offices Storefronts Characteristics and examples • Examples: • Airbus: Aerospatial, DASA, Aerospace, CASA, SABCA • Virgin • Construction companies

  36. Knowledge: Key Differentiator • The virtual company will: • constantly scan the environment • constantly scan own internal processes • identify opportunities and challenges • sense changes among its suppliers, competitors, customers, … • innovate products, services, communications, … • Constant mutation and change will be the norm Knowledge Based

  37. Critical Success Factors Extensive interoperability between constituent parts • Subsume non-differentiating business processes for key functions that facilitate application interoperability • packaged solutions: Baan, Oracle, Peoplesoft, SAP, … • Standards for the meaning and presentation of information • Key technology enablers • application interoperability (interenterprise, intraenterprise ) • high speed networks • rapid application development • terabyte database management systems • interenterprise collaborative computing • security

  38. Electronic Commerce

  39. Interorganisational Systems • Information flow between two or more organisations • efficient transaction processing • no bargaining, only execution • pre-defined formats, no telephone calls nor paper • Drivers • reduced cost for routine business transactions (SWIFT) • improved quality of the procedures because of less errors • reduced processing time (Singapore) • lower cost for paper handling • business process easier for the users • Types • EDI, EFT, e-mail • shared databases

  40. Establishing Trust • Without trust between parties online, the value of electronic transactions remains limited. • The concept of a certificate authority, trusted by all parties involved in electronic transactions, is at the heart of new security practices for E-business. • Outsourcing trust is not always the best solution; it has consequences for vulnerability and the degree of comfort.

  41. E-commerce Buying, selling products, services or information via a computer network • EDI • SWIFT • Tradenet • ... Seller Purchaser Electronic Market Order Purchase order • Reply on information request • purchase confirmation • shipping note • payment acknowledgment Order reply Approvals by Trusted party Payment authorization request Payment approval EFT Bank of the purchaser Transaction Handlers bank bank Supplier

  42. Role of the certificate Authority • Facilitate E-commerce among parties. • Identify and authenticate certificate requesters and users. • Maintain records on certificates issued. • Audit itself and (as appropriate) its subscribers. • Where possible, avoid or resolve disputes due to the use of certificates. • Absorb risk and take fiduciary responsibility for certificate issuance.

  43. Electronic Market • Clients and providers negotiate on an on-line or off-line sales transaction. • Network of interactions and relations where information, products, services and payments are exchanged. • The business center is not a physical building but a network-based location. • Participants: sellers, buyers, brokers, providers, clients • they are on different locations • sometimes they don’t know each other • Push and Pull possibilities

  44. Advantages for the Organisation • Lower cost for handling, creation and storage of paper information • electronic purchasing system • electronic payment 95% cheaper than check • Reduced stock and overhead with “pull-type” delivery • Reduced time between sales and payment • Supports BPR efforts , leading to higher efficiency

  45. Advantages for the Client • More alternatives from various vendors • Cheaper products and services • Often immediate delivery • 24 hours service • Relevant information can be obtained after seconds instead of after days

  46. Constraints • Lack of security standards • Insufficient bandwidth • Problems with Interoperability • Accessibility of the internet • Remaining legal aspects (digital signature) • Still in full evolution: code of conduct • Clients do not like changes • Still limited number of buyers and sellers • Problems with human relationships.

  47. SET Secure Electronic Transaction 1. Client initiates a transaction by sending a request and a signed, encrypted authorization. The supplier can not access the credit card number because it is encrypted. 2. The supplier passes on authorization. The bank can decrypt this and see the credit card number. It can also check the signature. 3. Acquiring bank checks credit card with card issuer. 4. Card issuer authorizes and signs transaction. 5. Bank authorizes merchant and signs transaction. 6. Customer gets goods or service and a receipt. 7. Supplier asks to capture the transaction and get the money. 8. Supplier gets paid according to its contract. 9. Customer gets monthly bill from card issuer.

  48. E-cash Electronic Cash 1. Customers open an account with a bank and either buy or receive free special software for their PC,s. 2. The customers buy electronic money by using the software. Their accounts are debited accordingly. 3. The bank sends an electronic money note to this customer, endorsing it with a digital signature (made with its private key). Customers then inquire whether the money is available by using the bank’s public key. 4. The money is stored on the buyer’s PC and can be spent in any store that accepts E-cash. 5. The software is used to transfer the E-cash to the seller’s computer. The seller uses the bank’s and customer’s public keys to verify that the money belongs to the specific buyer and is indeed at hand. 6. The seller then deposits the E-cash in the bank, crediting his regular or electronic account.