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Industry Trends and Directions Scenario: Transforming the Enterprise Through E-Business September 18, 2000 Financial Executives Institute Forum on Finance & Technology Las Vegas, Nevada William S. McNee Gartner Fellow 1-203-227-7612 [email protected] Key Issues

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Industry Trends and Directions Scenario:Transforming the Enterprise Through E-Business

September 18, 2000

Financial Executives Institute

Forum on Finance & Technology

Las Vegas, Nevada

William S. McNee

Gartner Fellow

1-203-227-7612

[email protected]


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Key Issues

1. What are the key eBusiness trends that will drive new IT

investments during the next five years?

2. How will technology advances and changes impact IT

and eBusiness deployment decisions?

3. How can organizations harness and exploit eBusiness

despite ever-increasing complexity and volatility?

Business

Driving IT

E-Business

IT Driving

Business


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1 - 2%

88 - 93%

6 - 10%

Pure Play

Brick & Mortar

Hybrid

Global 2000 Business Model Distribution -- 2003

Key Issue

What are the key eBusiness trends that will drive new IT investments?

The $64 Trillion Question: Who is Right?

-- Global 10 CEO

-- Leading Venture Capitalist

  • “Dot Com Companies yield …

  • Completely new industries with new cost structures

  • Radical restructuring of industries

  • Real growth never seen before”

  • “Dot Com Companies have …

  • HR departments who hire without regard for real skills

  • Marketing people who spend millions to give away products

  • Executives who have never run a real business”


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Key Issue Analysis

E-Business: Drivers and Responses

Key Business Challenges:

  • Agility and speed

  • Focus on core competencies and processes

  • Customer centricity

  • Mass customization

  • Geographic scalability

  • Flexible IT architectures

  • Interoperability of infrastructure

Business Drivers of the

New Economy

  • Global financial interdependencies

  • Deregulation

  • Unrestricted capital flows

  • Global workforce sourcing

  • Digitization

  • Global communication and transportation systems

  • New geopolitical realities

  • New Business Models and

  • Structures:

  • Aggregators

  • Portals

  • Info-mediaries

  • E-tailers

  • Hybrids

  • Virtually integrated

  • Mega-mergers

E-Business

Integration


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Myth Truth

B2B E-Commerce Forecast ($B)

$8,000

$ 7,297

YE02

7,000

6,000

5,000

$3,950

E-Marketplace EC

4,000

Extranet/sell side/

Net EDI

3,000

$2,188

2,000

$953

1,000

$403

$145

$45

-

1998

1999

2000

2001

2002

2003

2004

YE02

YE02

YE02

YE02

Non-financial goods and services worldwide

YE02

YE02

Opportunity/Threat Model

YE99

YE99

YE99

YE99

YE99

YE99

YE99

Indep. Travel Agency

Retail Groceries

Retail Brokerage

Music

Very Low

Extremely High

Strategic Planning Assumption (s)

By 2004, B2B e-commerce will reach $7.3 trillion, representing 6.9 percent of the total global economy (0.7 probability).

By 2005, 70 percent of all product and service-based industries will be dominated by virtually integrated enterprises (0.7 probability).

Pure Dot-Com Business

Models Dominate

1st Mover Advantage

Critical for Success

Brand Is King

Internet Levels the

Playing Field

Portals Dominate

Share Beats Profit

Advertising as Primary

Revenue Driver

Digital Products/Services

Business Value

(and difficulty of “Webification”)

Attend Online University

Physical Products

Vote Online

Order Prescription Drugs

Conduct Financial Transactions

Local Services

Process Healthcare Claims

Schedule Surgery

Order Grocery Delivery

Media Transmittal

Schedule Auto Maintenance

Order Books

Download Music

Renew Driver’s License

Schedule Haircut

Book Travel (e-tickets)

Degree of Possible “Webification”


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50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

05

90

95

00

10

Strategic Planning Assumption (s)

By 2005, investments in e-business applications and infrastructure will drive average IT spending (in North America) beyond 10 percent of revenue (0.8 probability).

By 2003, the central IS budget will represent only 40 percent of total IT spending for large enterprises in North America, and only 50 percent in Europe (0.7 probability).

By 2010, at least 50 percent of the corporate capital budget will be devoted to IT for large enterprises (0.8 probability).

Total IT Spending as a Percent of Revenue(Central IS Budget plus Business Unit and “Hidden” IT Spend)

Web-

Internet

10.0%

5.0%

0%

North America

Key Technology

Discontinuities

PC-

Client/

Server

Western Europe

Asia/Pacific (Dev.

Economies)

S/360

Mainframe

Accelerating

Business Unit

Spending

1960 1970 1980 1990 2000 2010

IT Capital Spending as a Percent of Corporate Capital Budget (U.S.-Only)

Warning: A baseline of

80 percent or higher

may mean you are not

investing in the

enterprise’s

future.

12.4%

21.8% is Discretionary

Spending (“Change”)

9.4%

10.6%

78.2% is IT

Baseline (“Run”)

45.8%

-

21.8%

New

Dev.

Major

Enhancements

Applications Support/Maint.

Mainframe

Midrange Servers

Distributed Computing

Wide-Area Data Net/Voice

Help Desk / End-User Support

Administration/Planning/Other


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Strategic Planning Assumption (s)

Global 2000 companies that are e-business-transformed before 2002 will have 10 percent fewer workers on their payrolls than today’s levels by 2005 (0.7 probability) and 30 percent fewer by 2010 (0.6 probability).

Through 2002, 70 percent of traditional enterprise e-business initiatives fail, by creating “quick-fix” Web sites that minimize the disruption of current operations (0.8 probability).

Through 2003, 75 percent of enterprises will under budget e-business transformation costs by 50 percent or more, especially when trading-partner-related (0.7 probability).

Four Phases of Web Activity

Exploitation

Presence

Exploration

Transformation

Who is in Charge?

Top

Management

Business

Leader

Various

Departments

Public Affairs

or Marketing

Business

Goals?

Add Value

for Customers

Vague or

Undefined

Explicit P&L

Targets

Reshape Our

Business

Augment

Existing

Channels

Full and

Equal

Channel

Function

as a Channel?

New Business

Model Exists

No

  • Channel Conflict

  • Incomplete Channel

  • Disconnected Processes

  • Effective Abandonment

  • Waste First Customer Interaction

  • Ignore Value Proposition

  • Inadequate Market Power

  • Stale Data

  • Difficult Navigation

Most Frequent Mistakes?


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Strategic Planning Assumption (s)

Through 2005, only 20 percent of companies will have correctly evaluated e-business projects based upon market and technical risk assessment, commercial payback and fit to the mission of the enterprise (0.8 probability).

Key Factors in Evaluating E-Business Projects

  • Risk

  • Financial

  • Legal

  • Organizational

  • Reputation

  • Environment

  • Technological

Strategic

Alignment

Payback

Period

High: Go with care!

  • Build markets and share

  • Get closer to customers

  • Simplify processes

  • Reduce cost of goods

Short

Low: Start these NOW

High: Move Slowly

Long

Short

High

Low: Do these

High: Stop these NOW

Low

Low: Do some of these

High: Stop these NOW

Long

Low: Rethink


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Strategic Planning Assumption (s)

By 2005, more than 500,000 companies will participate in marketplaces as buyers and/or sellers (0.7 probability).

By 2004, at least 75 percent of B2B e-market maker revenue will be derived by transactions, subscriptions, services, data-mining and software sales/rentals (0.8 probability).

B2B E-Market Maker Types

Transactions

Are Enabled

Dynamic

Marketplace

Efficient

Commerce Hub

- Streamlines the Process Surrounding E-Commerce Transactions

- Builds Efficient Markets and Assists in Market/Price Discovery

Neutral

Exchange

Buyer

Advocate

Seller

Advocate

Transaction Enablement

Channel

Enabler

Content & Community Portal

  • Prepares the Existing Channel forE-Commerce

  • Brings Together Communities of Buyers/Sellers

Transactions

Not Enabled

Low

Impact

High

Impact

Impact on Pricing & Sales Models


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E-marketplaces and their buyer and supplier customers will coexist in dynamic ecosystems in a “hub-spoke-web” model.

biz service

marketplace

Supplier

Buyer

commodity

marketplaces

commodity.

marketplaces

Integration

Service

Marketplaces

Supplier

Buyer

commodity

marketplaces

commodity.

marketplaces

commodity

marketplaces

biz service

marketplace

Supplier

Buyer

biz service

marketplace

Strategic Planning Assumption (s)

By 2005, three dominant e-marektplace business models will survive: business services, commodities, and integration services (0.8 probability).

By 2003, market markers wil need to remain technologically agnostic, as no single vendor will be able to provide all of the components necessary for success (0.7 probability).

Hub-Spoke-Web Model


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60% + coexist in dynamic ecosystems in a “hub-spoke-web” model.

50%

50%

40%

40%

30%

30%

2001

2002

2003

2005

<20%

<20%

2007

2010

Key Issue

How will technology advances and changes impact IT and eBusiness deployment decisions?

Emerging Technology Radar Screen

Technology

Prevalence

(% of enterprises that really need to care)

Digital

Authorization

Natural Language Processing

Wearables

Text

Mining

E-Payment

Flex. & LEP Displays

Embedded Miniature

Computers

ASPs

Now

2003

2006

Speech Recognition

Bluetooth

Smart Cards

NLP & Retrieval

Post-lithographic

Computing

Wireless Web

Biometrics

Webtops

Voice

over IP

Voice Portals

Enterprise

Portals

XML

Personalization

Affective

Computing

Synthetic Characters/ Avatars

2001

2002

2003

2005

Take-off Point

(Inflection)

2007

2010


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Internal coexist in dynamic ecosystems in a “hub-spoke-web” model.

Intelligence

Competitive

Intelligence

Business

Intelligence

Inc.

Strategic Planning Assumption (s)

If Microsoft is forced to split, the applications company will become the strategic heir to Microsoft, with a market capitalization at least twice as much as the “Windows” company (0.8 probability); or Microsoft may be forced to equalize the split by moving development tools, certain middleware or cash to the Windows company (0.2 probability).

Infrastructure Trends

  • Fragmentation

  • Personal access technology such as PCs, NCs, PDAs, and phones

  • ASPs

  • Concentration

  • Networking

  • Servers

  • ERP

  • DBMS

  • CRM

“Supranet”

E-Services

Scope

Typical Access Via:

B2B Market, Global Enterprise

XML/HTTP

E-Services

Small Enterprise, Complex

Application

MOM

Services

Homogeneous Application

ORB

Components

Program

Granularity

Objects

Data Mining

Text mining

DW

Coarse

NLP

Knowledge Map

Loosely Coupled

Tightly Coupled

Request/Reply


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Strategic Planning Assumption (s) coexist in dynamic ecosystems in a “hub-spoke-web” model.

Through 2005, application deployment to support e-business transformation will be at least twice as complex as yesteryear’s ERP environment (0.8 probability).

Through 2005, no single packaged application source will represent more than 40 percent of a company’s application requirements (0.8 probability).

By 2003, 30 percent of demand for enterprise application functionality will be met through ASP channels (0.7 probability).

Business Process Sourcing and Integration

Type B

Market-wide

Type A

High

C-Commerce

SCM ‘05

Type

C

“Pure

Web”

‘99

Business to Consumer

CRM ‘05

“Pure

Web”

‘05

Frontoffice /

CRM

CRM ‘99

CRM ‘99

Process Scope

Integration Intensity

Supply Chain Mgmt. / B2B

SCM ‘99

SCM ‘05

ERP ‘05

Backoffice / ERP

ERP ‘99

Enterprise-wide

Low

Template / Component

Configured Package

Application Subscription

BPO

Built

Package

More

Customized

More Commoditized

Source


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Domain coexist in dynamic ecosystems in a “hub-spoke-web” model.

E-Commerce

C-Commerce

Business

Paradigm

Dept.

Productivity

ExternalTransactions

Collaborative Interaction

Application

Focus

Status Reporting

Manage

Transactions

Share Intellectual

Capital

Application

Architecture

Hard-Wired

Systems

Web-Enabled

Systems

Web-centric/Web-

Aware Systems

Data/Application Integration

Pre-builtIntegration

Point-to-Point

XML/EAI Adapters

Seconds/

Real-Time

Information

Latency

Weeks/Days

Hours/Minutes

Strategic Planning Assumption (s)

By YE02, collaboration enabling will become the primary – and a required – value proposition of B2B e-business marketplaces (0.7 probability).

By 2004, 80 percent of ERP users will have shifted the focus of their application integration investments from synchronizing internal data to enabling trading partner collaboration (0.7 probability).

Collaborative Commerce: New Rules for IT


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Key Issue coexist in dynamic ecosystems in a “hub-spoke-web” model.

Key Issue

How can organizations harness and exploit eBusiness despite ever-increasing complexity and volatility?

Top Ten E-Business Success Imperatives 2000 - 2001

#1: Never Plan More than 24 Months Ahead

#2: Do Not Develop an E-Business Strategy Independent of the Full Business Strategy

#3: Use Separate Strategies According to Industry, Geography and Culture

#4: During Analysis, Give Equal Weight to the Internal and External Processes

#5: Obtain Total Buy-In From the Board

#6: Deliberately Execute Alternatives to Buy, Spin Off or Transform the Business Model

#7: Play By the “New” Rules

#8: Enhance or Eliminate Distribution Channels Based on Their Power and Value

#9: Establish a Metrics Program That Measures the True Effectiveness of the E-Business Initiative

#10: Speed and Ruthless Execution Are Everything


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Redo Existing Processes coexist in dynamic ecosystems in a “hub-spoke-web” model.

(Improve to

Survive)

Redefine Business

(Invent to

Outdo)

Strategic Planning Assumption (s)

By 2003, 50 percent of e-business project initiatives will be based upon consensus-seeking committees – minimizing their business impact and value (0.8 probability).

By 2002, the most successful e-business efforts will be czar-driven, but only when enterprise revenues are at severe risk and when the czar has unqualified, direct access to the CEO (0.7 probability).

Organizational Options for E-business Transformation

Total Funding

Process Efficiency

New Business

Competency Center

Czar

Completely Separate (dot-com)

Committee

Partial Funding

Competency Center:a centralized team dedicated to the task of e-business+ Yields better return on resources, since all are ‘connected’- Moves responsibility from individual business units to embrace e-business; funding more available

Committee: a loose association of managers from various parts of the enterprise+ Does not threaten the rest of the organization- Moves slowly; generally does not have power to enforce recommendations

Czar:a single individual who leads all enterprise e-business projects+ Promotes consistency across all enterprise projects- Has potential to create conflict with individual business units

Completely Separate:a separate, spun-off (dot-com) legal entity to implement a new business model+Faster implementation; attracts talent and funding- The enterprise loses intellectual capital


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Strategic Planning Assumption (s) coexist in dynamic ecosystems in a “hub-spoke-web” model.

By 2002, the primary focus of IT management shifts from operational efficiency and effectiveness to information exploitation and extraenterprise operability (0.7 probability).

By 2002, more than 60 percent of large enterprise CIOs are sourced from “the business” or ESPs, facilitating business/IT fusion and e-process innovation (0.7 probability).

By 2003, 75 percent of Type A and 40 percent of Type B enterprises will have integrated IT planning and governance as key elements of their mainstream management processes to implement strategic business goals (0.7 probability).

Evolution of CIO Role and Enterprise Governance

  • Mainframe Era:

  • Conventional Plus

  • Functional Head

  • Operational Manager

  • Deliver on Promises

  • Advisor on ‘How to’ Not ‘What to do’

  • On-Time delivery

  • Reliable operations

  • Automate for Efficiency

  • Alert Line-Mgmt. to IT Investment Opportunities

  • Distributed Era:

  • Transitional, Shifting

  • Strategic Partner

  • Expectation Manager

  • Technology Advisor

  • Align IT with Business

  • Access to the Executive Invited ‘Seat at Table’

  • Manage IT Department

  • Provide Infrastructure

  • Manage vendors

  • Reduce Business Process Cycle-time

  • Set Direction and Secure Benefits from “Selective” Outsourcing

  • Web-based Era:

  • Hybrid, Emergent

  • Business Visionary

  • Technology Opportunist

  • Drive Channel Strat.

  • Member of Executive Team or Assumed ‘Seat’

  • Jointly Develop Bus./ IT Model; Leverage Extra-structure

  • Integrate Client/ Supplier Value-Chain

  • Define Office-of-the Future; Lead effort to Customer-centricity

CIO Role

Key

Responsibility

Business

Input

Major Tasks

System

Objective

Leadership


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Total cost of ownership coexist in dynamic ecosystems in a “hub-spoke-web” model.

vs.

monthly cash flow

Rampant

merger and

acquisition

activity

Financial

Buy vs. rent

ASP Architecture Layers

Network

Platform

Applications

Operations

End solutions

Strategic Planning Assumption (s)

The worldwide ASP market will grow from $1 billion in 1H00 to $20 billion by YE03 – with Global 2000 enterprises representing at least 50 percent of ASP revenue (0.6 probability).

By 2004, 90 percent or more of the ASPs that exist today will disappear, either by consolidation or business model failure (0.8 probability).

ASP Revenue

IT skill shortage

Cost of ASP

services

Broad

competition

Escalating

for similar

Staffing

salaries

skill base

Number

of ASPs

High staff

turnover

Explosion

Can not be held back

by the legacy IT

Market

Initiation

Business/

Market

Consolidation

Software as

a service

The need

for speed

Restructuring

Extend the

business boundaries

1998

1999

2000

2001

2002

2003

2004

2005

2006

ASP Trends

ASP Drivers

  • Point solutions

  • Contextual integration

  • XML interfaces to business providers

  • Remote hosting

  • Medium cost

  • Low volume

  • Application mgt. is key

  • Client/server

Pure plays: Corio, Applicast, USinternetworking, eAlity, Aristasoft and eOnline

Net-dynamic

Net-exploitive

  • Remote hosting

  • Co-location

  • Software as a product

Qwest Communications, AT&T,GTE Internetworking,

British Telecom, Equant and Sprint Communications

Net-native

  • Just-in-time software

  • Other dynamic models

Cisco Systems, Intel, Candle, Citrix Systems, Sun

Microsystems, Xevo and BMC Software

  • Distributed service model

  • Application neutral

  • Deep integration of network and software

  • End-to-end monitoring, billing, metering

Web-enabled

SAP, Oracle, PeopleSoft, Microsoft and eAlity

  • Mass volume

  • Lower cost

  • Software as a service

IBM, Exodus Communications, Verio, Digex, Hewlett-

Packard and Intel

Hosting

KPMG Consulting, Taylor Group, Deloitte & Touche,

Ciber and PricewaterhouseCoopers

Vendor Segments (examples)

2000

2002

1997

1998

2004

ASP Evolution: Long Term


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Summary coexist in dynamic ecosystems in a “hub-spoke-web” model.

  • Recommendations

  • Business Strategies

  • E-business initiatives must be based on sound business strategies

  • Avoid the common mistakes that condemn Web initiatives to failure

  • If your strategy aims for high customer focus, then your organization and processes should be re-engineered

  • Technology Strategies

  • Focus attention on the emerging technologies and diversifying industry segments driven by new alternatives

  • Build competencies in the key areas of enterprise application integration and collaborative commerce

  • IT Management Strategies

  • Align your governance and motivators with the new workforce realities

  • Manage expectations as IT budgets increase as a percentage of revenues

  • Ensure that your ASP strategies include contingencies for the coming disappearance of many of today’s service providers


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