“Winning in the race for e-business”

“Winning in the race for e-business” Lecture Four - “Benchmarking global best practice” Presentation to Sheffield University Management School MBA Students 24 February 2005 Prof. Jim Norton Senior Policy Adviser UK Institute of Directors Former Director UK Cabinet Office PIU e-Commerce team www.profjimnorton.com

Issues to be covered • How much business is e-business? • Measuring national e-business capabiltity. • 2004 international benchmarking study results. • A challenge: Remember the “people” dimension…. • Final thoughts.

EU e-business revenues (both B2B & B2C): • 2001 revenues estimated to be $86bn; • 2003 revenues forecast at $382bn; and • 2005 revenues forecast at $1510bn. UK e-business sales revenues: • 2002 revenues were £19bn; and • 2003 revenues were £39.5 (up 108%); • of this £39.5bn, £11.45bn was B2C (29%) • goods at £27.26bn outpace services at £12.24bn. • UK businesses & consumers bought £195.6bn of goods and services over other ICTs (EDI, e-mail, automated telephone sales in 2003. • These figures all exclude the financial sector… How much business will be e-business? Source: Net Figures at Net Profit - March 2002 and ONS Nov 2004 http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=6645

Top Ten E-Commerce Sites in the UK - 12/04 Rank Domain Market share 1 ebay.co.uk/ 29.74% 2 amazon.co.uk 7.64% 3 uk.kelkoo.com 2.44% 4 argos.co.uk 2.44% 5 play.com 1.94% 6 euro.dell.com 1.8% 7 tesco.com 1.79% 8 ebaymotors.co.uk 1.64% 9 comet.co.uk 1.04% 10 currys.co.uk 0.94% UK Consumers spent £4bn online in 4Q04 out of total retail spend of £75.8bn Source: Hitwise http://www.hitwise.com & IMRG Jan 05

Businesses that placed orders online 2002-2004 Note: Business here means businesses representing x% of employment in the relevant country… Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 74 www2.bah.com/dti2004

Businesses that pay online 2002-2004 Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 76 www2.bah.com/dti2004

Resolution of the Solow productivity paradox Policy-makers and economists have long debated the role of information and communications technology (ICT) in the economy. The traditional view in the 1980s and 1990s was that its impact was limited. This was well characterised by the Solow Productivity Paradox that "you can see the computer age everywhere but in the productivity statistics". In the last year this paradox has been resolved. A confluence of new evidence based on analysis of US economic performance in the late 1990s demonstrates a strong inter-dependence and that ICT has had a substantial impact on GDP. This view has been supported by research by the European Commission that lies behind the claim by Erkki Liikanen, commissioner for enterprise and information society, in October 2003 that "there is more and more evidence that the adoption of ICT is a key to productivity growth. In the US, it has been unusually robust, and has spread to the wider economy." Evidence of a substantial impact on productivity and GDP growth in Europe is much more limited to date. For the first time since 1950 European catch-up ceased and the productivity gap between the US and Europe started to increase again after 1995. Innovation in ICT has a transformational impact on productivity and growth - in the US, ICT produced an estimated one percentage point increase in yearly GDP growth in the late 1990s. Evidence and reasoned argument point to this productivity and growth improvement continuing for many years to come. Applying the same logic to the European economy, ICT could increase our future GDP growth rate from 2 per cent to 3 per cent. ICT can do to our economy in the 21st century what railroads did in the 1800s and electricity in the 1900s. Sectors that are or will be particularly heavy users of ICT - retail, financial services, media and government - stand to benefit most, although the whole economy will profit indirectly. This raises the question of whether policy makers in Europe can do anything to improve Europe's relative productivity performance. Source: Andrew Heaney of Spectrum Strategy Consultants and Brian Williamson of Indepen, "Reaping the Telecoms Dividend" January 2004. Quoted in the Financial Times 18 Feb 2004

Issues to be covered • How much business is e-business? • Measuring national e-business capability. • 2004 international benchmarking study results. • A challenge: Remember the “people” dimension…. • Final thoughts.

Market-led approach Internationally agreed tax and regulatory frameworks A competitive and innovative environment Co-ordination and focus across Government Monitoring and evaluation A framework for analysis.. The UK is the leading centre for e-commerce activity within a strong Single European Market, based on openness and innovation by suppliers and customers, light touch regulation, and Government-Industry partnership Access Trust Understanding Source: PIU Report “e-commerce@its.best.uk”

Vision e-commerce@its.best.uk Access UnderstandingTrust • Individuals... • are aware of the benefits that they can gain from e-commerce and feel confident that they have the skills to exploit them. • are able to use routinely electronic means for Government transactions. Business and Government…. • use e-commerce as an integral part of strategic thinking in UK industry. • have embraced the tools of e-commerce to develop skills. • Individuals... • have ubiquitous, low cost, high bandwidth, fixed and mobile, access, with an “always on” capability. • are not e-excluded. Almost all, including the disadvantaged, have affordable access. • are no longer barred by limited literacy.. Business and Government…. • have access through broadband networks which are nearly ubiquitous throughout the UK. Individuals... • can use networks for e-commerce transactions with minimal risk of being defrauded. • have minimal risk of being ‘hacked’ or ‘spammed’. Business and Government…. • are fully confident in the use of e-commerce transactions. • have systems which are intrinsically secure. • Can protect their IPR. Source: PIU Report “e-commerce@its.best.uk”

Adopt Impact Environment Deploy People Aware Technology Processes Assembling the ‘Sophistication Index’ Based on a fusion of the ‘three pillars’ and ‘technology innovation lifecycle’ approaches with 50 sub-indicators. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 102 www2.bah.com/dti2004

Defining the sophistication index • The technology innovation lifecycle approach: • Awareness - the ability to make an informed decision based on ‘knowledge’; • Adoption - decision making, ‘ownership’ of, or access to, particular resources; • Deployment - ‘usage and optimisation’ of particular resources; and • Impact - the ‘outcomes realised’ from the adoption and deployment of particular resources. • The three pillars approach: • People - the leadership, skills and culture of business; • Technology - ‘online’ platforms and applications; • Processes - ‘buy-side’, ‘sell-side’, and ‘inside’ processes, which support specific business functions; • and surrounding them all environment - competition, government, customers, suppliers and other influences. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 103 www2.bah.com/dti2004

E-Business benchmark winners 2004 Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 105 www2.bah.com/dti2004

Overall sophistication index scores - 2004 Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 107 www2.bah.com/dti2004

Sophistication index - numerical results 2004 The absolute score differences between nations are generally quite close, in most cases within ten percentage points. Overall the leading nations are Sweden, Ireland, and the UK. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 104 www2.bah.com/dti2004

Year on year sophistication index change Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 106 www2.bah.com/dti2004

UK ICT sophistication index Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 17 www2.bah.com/dti2004

Its strengths are environment, adoption, technology process and deployment… • Environment - A sharp improvement (six index points) on 2003. Driven by rise from 8 to 18% of in businesses making payments online to Government, and rise from 22 to 35% of businesses interacting with Government through e-mail. • Technology - Very high internet connection speeds, two thirds of businesses use mobile or remote terminals (up 9 percentage points since 2003 and Swedish businesses are the most consistent implementers of advanced ICT. • Process & Deployment - 65% of businesses make payments online (up ten percentage points since 2003), 54% of businesses allow customers to order online (up three percentage points), 33% of businesses allow customers to make payments online (up 14 percentage points since 2003). Sweden tops the league table Swedish people have a strong affinity for new technologies and a familiarity with e-banking and e-shopping. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 108 www2.bah.com/dti2004

…followed by Ireland • Doing the basics very well… • People - Irish businesses are among the most confident that their IT skills are meeting the needs of business and their staff have very positive attitudes to new technologies. 78% believe that their IT skills mostly or completely meet business needs; • Awareness - 54% of Irish businesses measure the benefits of technology this is up 13 percentage points on 2003. • Technology & Adoption - the key to Ireland’s high score is the high level of basic connectivity among businesses: there is almost total saturation of Internet and e-mail access. Connectivity amongst small and micro businesses is amongst the highest measured. Ireland also excels in the adoption of more advanced ICT such as WAN, LAN and VoIP. Ireland’s main liability remains the low penetration of broadband access resulting from low levels of infrastructure competition. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 109 www2.bah.com/dti2004

…along with the UK • UK’s strengths are across the board, without any specific leadership: • People - 53% of UK businesses now measure the benefits of ICT, up 15 percentage points on 2003, They are also being much more proactive about skills development, 69% of businesses that identify skill gaps now use regular or ad hoc training up 19% points on 2003. • Technology & Awareness - UK businesses have shown a marked improvement in the adoption of advanced ICT, broadband access - doubled in the year, they have also enthusiastically adopted Wireless LANs, VoIP and desktop video conferencing. • Process & Deployment - UK businesses are deploying ICT more deeply into their processes and operations. Of businesses with an internal network 70% already have or intend to integrate their internal systems to improve information sharing - up 8 percentage points on 2003. Percentages using online banking and invoicing have also increased sharply. Source: UK DTI Business in the Information Age: International Benchmarking Study 2004 Page 109 www2.bah.com/dti2004

Technology of course makes an excellent servant but a poor master… As an engineer and director my strong concern is with the process by which increasingly rapid change in technological capability diffuses out into society and the economy… Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03

The people dimension…part one Networked information systems can be either (or both!) a benefit and a curse… • Major scope to improve quality and lower cost in product manufacture and service delivery… • Potential for SMEs to “level the playing field” with large companies… • Immense potential in sharing “knowledge” across divisional boundaries… • But poor track record in building systems which align people, systems and processes. • But in the UK SMEs Were slow to adopt e-business seriously. • But how to overcome the “knowledge is power” barriers and reward knowledge sharing? Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03

The people dimension…part two Networked information systems can be either (or both!) a benefit and a curse… • Potential for enhanced information flow and more responsive management exploiting e-mail… • Opportunity to codify explicit knowledge into attractive expert systems… • Potential to tailor private and public sector services to individual consumers… • But widespread poor practice leading to information overload and excessive hours worked. • But increasing premium on tacit knowledge strengthens ‘clusters’. • But major absence of the ‘trust’ required to permit the holding and use of personal data. Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03

Structural change proves challenging… Organisational change has been slower than I expected.. • Some very successful pioneers - e.g. Oracle (trial financial balance each day).. • Much scope for more ‘virtual’ organisations and for portfolio working; greater empowerment of individuals. • Great scope for e-Government initiatives to improve accessibility… • But an enormous number of failed ERP and e-CRM system implementations • But little sign of serious implementation (or new support structures such as Guilds) • But very low take up of e-Government services, particularly in the UK… Source: Jim Norton, COGS Network Meeting, University of Sheffield, 20/01/03

Some final thoughts…. • E-business has not gone away! • The excess of gloom on the ‘downside’ was just as wrong as the earlier excess of ‘hype’. • Normal ‘Darwinian’ processes have removed from the market those who had wacky business plans and little common sense… • E-business is now being integrated into ‘traditional’ business, bringing major cost savings, service enhancements and new business opportunities. • Remember that, in e-business, people and processes are much more of a challenge than technology…

And remember the law of unintended consequences….

Questions & Answers Slides (in portable document format) available to download from: www.profjimnorton.com/shef05mba4.ppt

“Winning in the race for e-business”