LiTH IDA Ex 0081 - TEFO - 0111

Examensarbete
Powerplay in industrial sales A study of the potential of electronic marketplaces in manufacturing companies sales Tom Englund & Fredrik jdemark
LiTH-IDA-Ex-00/81 2000-11-06
Powerplay in industrial sales A study of the potential of electronic marketplaces in manufacturing companies sales
Examensarbete utfrt inom mnesomrdet Ekonomiska Informationssystem vid Institutionen fr Datavetenskap Linkpings Tekniska Hgskola
Av
Tom Englund & Fredrik jdemark

LiTH-IDA-Ex-00/81 2000-11-06
Examinator Universitetslektor Alf Westelius, IDA, LiTH Handledare Alf Westelius
Abstract
The emergence of electronic marketplaces (eMPs) on the Internet arena have led to an interest among companies on how they best can employ this new medium to their advantage. The study, performed at Atlas Copco Tools together with Andersen Consulting, aims to analyze how an industrial manufacturing company could use electronic marketplaces in its sales process. Tools sells its complex power tools for assembly and material removal, to a wide variety of customers, who must have high knowledge about the product before the purchasing moment. The customers vary in industry and size, from the giant car manufacturers to small size end customers and distributors. There are huge differences, in need for sales information and knowledge about the product, among the customers when purchasing. We have defined an eMP as a marketplace, which with the use of the Internet, connects more than one seller and buyer, providing means for electronic communication and collaboration, communication of product information and prices, and online ordering and auctions. The sales process of Tools, according to us, consists of seven steps:
Initial contact Presen-tation Demonstration Persuasion Cont. comm. Service/ Support
Test
Order
The sales process of Atlas Copco Tools (Englund & jdemark, 2000).
Where we see the greatest immediate potential for eMPs at Tools today, among the different activities in the sales process, is in the ordering process as a transaction tool. When more collaborative functions are added in future versions of eMPs, there will exist possibilities for their use in other activities in the sales process as well, such as in initial contact, presentation, persuasion and continuous communication and feedback. Therefore the eMPs of today, for Tools part, will not be the medium to find new customers, but rather to serve existing customers better. The complexity and importance of the development regarding eMPs create a need for coordinative actions to be taken within Tools to organize the interaction and information flow between the company, its customers, and the eMP. The second part of our results concerns the different wants and needs on the information on and functions of an eMP, depending on who the customer is. We see that customers will have different possibilities to express and execute their will depending on the relationship they have with Tools. We express this relationship as monetary and is decided upon two factors: How much represents
the customers purchase of Tools total sales? and Is Tools sales to the customer representing a large share of this customers total purchase?
High
Compatriots
Smaller corporations with importance for Tools. Tools and customer on par in negotiation power.
Dominators
Large corporations with great purchasing power towards Tools. Tools has obeying role.
Share of Tools sales
Followers
Smaller corporations with some importance for Tools. Tools has strong negotiation power.
Prospects
Large corporations who alone cannot set the rules. Tools role yet to be defined.
Low
Low Customer turnover Customer segmentation matrix (Englund & jdemark, 2000).
High
Dominators In this segment Tools has no choice but to follow the establishment of large buy-side eMPs, and see to it that all advantages possible for the suppliers are evaluated and employed. Tools does not have the opportunity of not participating since these companies well can do without Tools. An early participation can lead to increased collaboration and lock-in between partners as the buy-side eMPs develop further. Prospects The Prospects constitute a segment of opportunity for Tools. Either for increased sales to companies who buy large amounts of power tools from other suppliers, or in cost reductions of order handling when several of Tools customers in this segment team up. Tools must in each case evaluate the advantages and disadvantages of a potential participation. Compatriots The majority of distributors are found in this segment. Tools, together with the distributors, have to find an eMP that takes all parties demands into consideration. Preferred features of this marketplace are: a horizontal and MRO- focus, a supporting catalog mechanism, a lack of participating competitors, a seller focus, possibilities for future collaboration, possibility for distributors to use the eMP in their sales, and finally the possibility to integrate the business systems of Tools and the customer with the eMP. Followers The final segment constitutes a large number of Tools customers. They represent a low share of Tools total sales and have a low Internet penetration. It is Tools intention to serve these customers via distributors and we support this strategy. They need extensive help in their purchase, help that cannot be given only by an eMP. The Followers should today not be served by an eMP.
The development will not lead to an imminent death of all distributors as they add much value between the Tools and the customer. These should instead be included in a potential eMP initiative
Sommaire
Larriv des places de march lectroniques sur larne dInternet, a fait les entreprises se demander comment utiliser ce phnomne son advantage. Ce projet de fin dtudes, ralis chez Atlas Copco Tools avec la participation dAndersen Consulting, a pour objet danalyser comment des entreprises industrielles avec production, pourraient utiliser des places de march lectroniques dans leur commercialisation de produits. Tools produit et vend des complexes outils industriels dassemblage et de dplacement des matriaux, un grand spectre de clients, qui doivent possder une grande connaissance des produits avant lachat. Les clients varient en industrie et taille, entre les manufacteurs des voitures gants et les petits botes dartisanage et les distributeurs. Les diffrences entre les diffrents clients, concernant le besoin dinformation de commerce et de connaissance du produit, au moment dachat, sont normes. Nous avons dfini une place de march lectronique comme une place de march, qui, avec lutilisation dInternet, connecte plus dun vendeur et un acheteur, fournissant des moyens de communication et de collaboration lectroniques, communication dinformation de produit et prix, aussi bien que des commandes et enchres, en ligne. Les sept tapes du processus de commercialisation chez Tools, selon nous :
Test
Order
Le processus de commecialisation chez Tools (Englund & jdemark, 2000).
L, ou nous envisageons le plus grand potential immdiat avec les places de march lectroniques chez Tools daujourdhui, parmi les diffrentes tapes, est dans la commande comme un outil de transaction. Lorsquun fonctionnement collaboratif est ajout dans des versions de places de march lectroniques suivantes, la possibilit de les utiliser aussi bien dans les autres tapes sera disponible, comme par example dans le contact initial, la prsentation, la conviction, la communication continue et le feed-back. Les places de march lectroniques ne seront, par consquence, utilises que pour mieux servir les clients existants, et non pas comme un mdium pour trouver des nouveaux clients. La complexit et le grandeur du dveloppement crront un besoin chez Tools de sorganiser par rapport linteraction et le flux dinformation entre lentreprise, ses clients, et la place de march lectronique. La seconde partie de nos resultats concerne les diffrents besoins et volonts parmi les diffrents clients, sur linformtion accessible, et le fonctionnement dune
place de march lectronique. Nous prvoyons quil y a une diffrence de possibilit dexcuter sa volont par rapport Tools, parmi les diffrents clients, dpendant sur la relation entre le client et Tools. Cette relation est, notre avis, montaire, et elle se dcide selon deux facteurs : Combien est la partie dachat du client par rapport aux ventes totales chez Tools ? et Est-ce que la vente de Tools reprsente une grande partie de lachat total du client ?
High
Compatriots
Smaller corporations with importance for Tools. Tools and customer on par in negotiation power.
Dominators
Large corporations with great purchasing power towards Tools. Tools has obeying role.
Followers
Smaller corporations with some importance for Tools. Tools has strong negotiation power.
Prospects
Large corporations who alone cannot set the rules. Tools role yet to be defined.
Low
Low Customer turnover La matrice de segmentation des clients (Englund & jdemark, 2000).
High
Dominators Dans ce segment Tools na pas de choix que marcher sur les pas des grandes entreprises dans leurs crations des places de march lectroniques, et valuer comment profiter de tous les possibilits disponible pour les fournisseurs. Tools na pas lopportunit de ne pas participer, parce que Tools nest pas du tout indispensable pour ces entreprises. Par contre, une participation tt, pourra aboutir une collaboration et lock-in levs entre les partenaires dans le dveloppement de la place de march lectronique. Prospects Les Prospects constituent un segment dopportunit pour Tools. Soit par une vente augmente des entreprises qui achtent des grands quantits doutils industriels main chez autres fournisseurs, soit par des rductions de cot dans le processus de traitement des commandes grce aux rationalisations possibles avec plusieurs clients participants dans la mme place de march lectronique. Tools doit valuer les avantages et dsavantages probables, dans chaque cas de participation possible. Compatriots La majorit des distributeurs font partie dans ce segment. Tools doit chercher une place de march lectronique, tenant compte des besoins des distributeurs. Des aspects prfrs pour cette place de march lectronique embrassent : une concentration de lhorisontalit et de produits MRO, un mcanisme de catalogue, un support pour le vendeur, des possibilits de collaboration future, des possibilits pour les distributeurs dutiliser la place de march lectronique dans leur commercialisation, et finalement la possibilit
dintgrer les systme de gestion de Tools et les clients, et les systmes de la place de march lectronique. Followers Ce dernier segment constitue un grand nombre des clients de Tools, mais ces clients ne reprsentent quune petite partie de la vente totale de Tools. En plus, ils possdent une pntration dInternet trs faible. Cest lintention de Tools de servir ces clients via les distributeurs, une stratgie que nous supportons. Leurs besoins daide au point dachat sont trs grands, et cette aide est aujourdhui impossible de donner seulement par une place de march lectronique. Au prsent les Followers ne devraient pas tre servis par les places de march lectroniques. Le dveloppement nengendrera pas la mort immdiate de tous les distributeurs, grce au fait que la valeur ajoute des distributeurs reste toujours important. Au contraire, les distributeurs doivent tre inclus dans les initiatives des places de march lectroniques. Dans lavenir les distributeurs travailleront dans un rle plus concentr au service et support aux clients, plus ou moins abandonnant le contact commercial.
Foreword
The crafting of a Masters Thesis is a creative, eye-opening, experiencing, and amazing process bordered with intense learning. But the work can from time to time also be burdening and tedious. The advantage of being two when the level of enthusiasm drops below 99%, cannot be underestimated. The accomplishment of this study would have been impossible if it were not for a small group of helpful people. We have throughout our work been extensively supported by Fredrik Bergstrm at Atlas Copco Tools, Fredrik Srn at Andersen Consulting (to be Accenture), and Alf Westelius, our supervisor from the University of Linkping. We thank you for giving us the massive backup on an educational level, in turn helping us to substantially increase the quality of the final result. We also owe you a thanks for providing the means and resources for us to achieve our goals. Two fellow students to whom we owe gratitude as well are Tobias Palm and Karl Sandlund. They have been our opponents during these four and a half months and their advice, critique and general feedback on our work have helped to significantly improve the study. In the end of 1999, when discussing and deciding the subject of our thesis, we were intrigued by the awakening of B2B ecommerce through emarketplaces. Four and a half months after the commence of the work with the thesis, the B2B arena has quite a different look from what it had when we started. Our ideas about and interest in the subject are still though, extremely positive. We hope that our optimistic attitude towards studying the topic and its development is persistently reflected in the work you now hold in your hands. Enjoy the reading!
Tom Englund & Fredrik jdemark Linkping, November 6, 2000
Table of contents
1 INTRODUCTION TO THE THESIS 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 B ACKGROUND PURPOSE OF THE THESIS PARTIES OF INTEREST COMPANY PRESENTATION RESEARCH QUESTIONS DELIMITATIONS DISPOSITION READERS GUIDE 1 1 1 2 2 5 7 8 10 11 11 11 12 13 15 17 20 21 23 23 42 54 57 63 65 65 69 74 79 81 83 83 85 86 89
2 METHODOLOGY 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 LEARNING IN A WIDER PERSPECTIVE WHAT DO WE EXPECT FROM OUR RESULTS ? THE IDEA FROM THOUGHTS TO REALITY KEEPING AN OPEN MIND CHOICE OF METHOD DATA COLLECTION SOURCES OF ERROR THE CHALLENGE OF GENERALIZABILITY
3 THEORETICAL FRAMEWORK 3.1 3.2 3.3 3.4 3.5 INTRODUCTION TO EMP THE VALUE CHAIN ORGANIZATION THE VALUE NETWORK IMPACTS OF THE EMP SUMMARIZING THOUGHTS OF THE THEORETICAL FRAMEWORK
4 THE SITUATION AS WE SEE IT 4.1 4.2 4.3 4.4 4.5 B USINESS ENVIRONMENT SALES & MARKETING CUSTOMERS POWERFUL TOOLS DISTRIBUTION EATLAS COPCO TOOLS .COM
5 SALES TASKS BREAKDOWN 5.1 5.2 5.3 SALES AND AFTER SALES PROCESS DISCUSSING THE PROCESS MAPPING COST REDUCTIONS IN THE ORDER HANDLING
6 AC TOOLS IN THE BUSINESS LANDSCAPE
6.1 6.2 6.3
THE COOPERATIVE NATURE OF EMPS A MODEL FOR CUSTOMER SEGMENTATION ONE SIZE DOES NOT FIT ALL
89 90 92 93 93 100 103 112 113 113 113 114 114 117 117 117 121 123 123 125 126 127 127 127 129 130
7 THE POWERPLAY IN TOOLS UNIVERSE 7.1 7.2 7.3 7.4 DOMINATORS PROSPECTS COMPATRIOTS FOLLOWERS
8 CONCLUSIONS 8.1 8.2 8.3 8.4 CONCLUSIONS ON THE GENERAL DEVELOPMENT THE CUSTOMER ON THE EMP THE DISINTERMEDIATION AND CHANNEL CONFLICT ON THE EMP STRUCTURAL CHANGE AND COLLABORATIVE COMMERCE
9 RECOMMENDATIONS FOR TOOLS 9.1 9.2 9.3 RECOMMENDATIONS ON A HIGH LEVEL 4 GUIDELINES FOR 4 GROUPS OF CUSTOMERS FURTHER RECOMMENDATIONS FOR TOOLS
10 FINAL WORDS 10.1 INFLUENCE OF THE SOURCES OF ERRORS 10.2 RECOMMENDATIONS FOR FURTHER RESEARCH 10.3 CLOSING THOUGHTS 11 BIBLIOGRAPHY 11.1 11.2 11.3 11.4 M ETHODOLOGY LITERATURE OTHER LITERATURE INTERNET SOURCES INTERVIEWEES
INTRODUCTION TO THE THESIS
1 Introduction to the thesis

The following report is the last piece of work by the authors at Linkping Institute of Technology, Sweden. It represents the master thesis that completes a Master of Science in Industrial Engineering and Management International, a program attended by the authors.
1.1
Background
The business environment of today is a very changing one. Mergers between large groups take place and companies start using the Internet for communication. From everywhere you hear words about a new economy, with a magnitude of change compared to the industrial revolution. In the context of this change, and with the fast spread and development of the Internet, there are many possible domains within business that could be transformed. Transactions today executed by the use of EDI (Electronic Data Interchange) with physical communication lines between long term trading partners, might initially be replaced by Internet transactions, which are less expensive and more flexible in their nature. Another potential transformation is that of the traditional marketplace, with suppliers, manufacturers, distributors and customers integrated largely through physical, offline connection. New electronic marketplaces (eMP), with many different companies doing business electronically via the Internet, have already been put into use and many more are coming into being at the very moments of the writing of this thesis. In the light of the emergence of new eMPs, companies presently using traditional channels of business start to investigate how they should use these new opportunities. The eMPs present many impelling features which attract companies, both to participate, and initiate eMPs. Among the features participants and initiators seek to obtain, the most important are the improved market transparency creating an open marketplace, improved communication between trading partners and improved collaboration concerning for example design and co-ordination, between businesses (Nairn, 2000). Atlas Copco Tools is a part of the Atlas Copco Group and is one of the companies eager to find out what course of action should be taken in order to exploit the full possibilities from eMPs.
1.2
Purpose of the thesis
The purpose of our thesis is to give general conclusions of how an industrial manufacturing company can utilize electronic marketplaces in its sales. Atlas Copco Tools is our case company, and by examining its present situation, focusing both on the external and internal aspects of the sales process of Tools 1
POWERPLAY IN INDUSTRIAL SALES
today, we aim to draw the above mentioned conclusions, and give company specific recommendations. Clarification of the purpose The term industrial manufacturing companies refers to companies in the industrial market, producing and/or assembling products with an aim for other companies in industrial markets. By electronic marketplaces we indicate Internet sites acting as hubs for buyers and sellers in the transaction and information exchange. Finally sales is short for the sales process in its broadest sense, encompassing all activities from initial contact to after sales and support.
1.3
Parties of interest
Our entire work is supported by three parties. These parties all have expectations on the final result. The expectations may vary depending on who you address. Alf Westelius, our supervisor at the university, has demands on the report such as academic height, value for other people aside from the involved as well as insights on how to write an academic report. In being a consulting firm, Andersen Consulting, expects the report to provide insights on new ideas and theories within ecommerce as well as investigating new business cases. Last, but definitely not least, comes Atlas Copco Tools with their hopes on our accomplishments. It is of great interest for Atlas Copco Tools to be able to use our material in their future work with eMPs. They are the ones, together with us, who contribute the most in forming the purpose of the study. In the startup phase of our master thesis, all parties met and informed each other on their expectations with the work. We see this as a good way to avoid misunderstandings on the pursuit of our general goal.
1.4
Company presentation
In order to have a better overview of the situation before digging deeper into the eMP-pit, we here provide a shorter presentation of Atlas Copco Tools.
Atlas Copco
Compressor Technique
Construction and Mining Technique
Industrial Technique
Rental Service
Atlas Copco Tools

Figure 1: The Atlas Copco organization (Atlas Copco, 2000).
Atlas Copco Tools is a division of the Industrial Technique business area within the Atlas Copco Group. Before presenting the company today further, we first take a quick look back at the history of Atlas Copco Tools.
1.4.1
History of Atlas Copco
Atlas Copco was founded in 1873 and was at that time the largest manufacturing company in Sweden. Its mission was to manufacture and sell railway equipment and one of the founders was the financier A. O. Wallenberg. The Wallenberg family has ever since the founding been and is still up to this day associated with the company. Today the company has quite another focus than it had back in the 19th century. The important business areas are today, as seen in Figure 1, compressor technique, construction and mining technique, and industrial technique. Atlas Copco has also gone through substantial growth during the last 100 years. Today the revenues surpass 36 billion SEK1 and the number of employees amount to over 24000. Atlas Copco is represented in almost every part of the world, either by local sales offices or by distributors.
1.4.2
Multi-brand strategy
The Atlas Copco Group has got a clear multi-brand strategy that means that within each business area there co-exist competing companies each with different brands and different distribution channels. In Atlas Copco Tools case there are a number of brands competing with the Atlas Copco Tools brand. These include: Chicago Pneumatic, Desoutter, Georges Renault, AEG, and Milwaukee. In certain
At the moment of writing this report 10 SEK = $ 1.
cases they sell directly competing tools, and fight to get the same customers. No real collaboration exists between Atlas Copco Tools and its sister companies.
1.4.3
Atlas Copco Tools today
The division Atlas Copco Tools belongs to, bears in the organigram the name Atlas Copco Industrial Tools and Equipment (see Figure 1). The division is divided into two product groups, Atlas Copco Tools and Atlas Copco Assembly Systems. Tools is represented by sales companies in more than 50 countries and has a truly global presence. Its only production plant for air tools is located in Tierp, Sweden, where more than 2400 different models of handheld tools are manufactured. All products are delivered via a distribution center, Power Tools Distribution (PTD), in Hoeselt, Belgium. The distribution center is shared with other companies within the Atlas Copco Group. The vision of Tools is to be the number one supplier of industrial power tools and industrial services. The power tools manufactured by Atlas Copco Tools are all handheld and powered by air or electricity. Atlas Copco Tools constructs a wide range of power tools where nutrunners, grinders, impact wrenches, and drills are some of the examples. Some of these products are complex to their nature and require a relatively high amount of knowledge by the customer before the purchase. Aside from producing just power tools, Atlas Copco Tools also sells all the complementary products necessary for daily manufacturing operations. In addition to the manufacturing and selling of power tools, customers demand service and support on their purchased products. Certified Atlas Copco Tools service offices meet these demands around the world. In order to optimize the efficiency from a tool, as well as for a marketing purpose, the company sales force regularly trains potential and present customers in the handling of specific power tools. 1.4.3.1 The customer Atlas Copco Tools sells its products exclusively to industrial customers. The products are built to be used in industrial manufacturing, which means that the customers assume the tools meet their expectations. The primary customer area is the motor vehicle industry, which needs tools for its assembly lines. Other large customer segments are found in general engineering, aerospace, electromechanical and appliance industry, shipyards, and foundries, together named General Industry. Different industries buy different types of power tools. For example the MVI (motor vehicle industry) has a special need for advanced nutrunners whereas grinders and chipping hammers are mainly sold to foundries.
1.4.3.2 Core values Atlas Copco Tools aim to be the supplier of industrial power tools and also to provide excellent service and support to its customers. The company tries to sell its products with the productivity argument. Using power tools from Atlas Copco Tools shall result in increased productivity. This performance improvement is related to the characteristics of the product. The power tools are manufactured with very high quality, performance and durability and at the same time never forgetting the aspect of ergonomics. When talking to employees at Atlas Copco Tools, they mention this to be one of the most important factors to explain the companys success. By producing power tools of such high standards, it is inevitable that production costs are higher when compared with some of the competitors. Atlas Copco Tools sells one of the more expensive product ranges on the market and cannot, with their high standards, compete on price. They do not want to either. The different aspects of Atlas Copco Tools, and the identified area of the study, need to be structured in order to find reliable results. This is done through the identification of a number of research questions.
1.5
Research questions
As eMPs are a relatively new phenomena, there exist a lot of hypotheses and opinions on the subject, yet to be confirmed or rejected. We believe that if we are to answer the purpose of our study and give guidance to Atlas Copco Tools, we must study several major questions in different domains. Some of the questions are Tools specific while others are more general. Even if we believe that all the questions are necessary to form recommendations for Tools, the questions below can be of interest for other companies as well. The non-company related questions we believe can be of use for other instances than manufacturing companies, but also the company specific questions can provide guidance for companies of resembling size, sales, products and range to Tools. Questions that have to be addressed are:
1.5.1
General internal and external aspects
How does the nature of a product affect the way it is to be sold on an eMP? What is the nature of Atlas Copco Tools sales process? What are the competitors doing ebusiness wise? What steps towards ecommerce have already been taken by Atlas Copco Tools?
1.5.2
Customer related aspects
What type of customers does Atlas Copco Tools serve? What level of Internet penetration do the customers of a manufacturing company possess? What amount of knowledge does the customer need before buying a product at Atlas Copco Tools? Are there customers today not served by any sales channel of Atlas Copco Tools? How is the customer to a manufacturing company buying today? Is Atlas Copco Tools usually the only supplier of tools to a customer?
1.5.3
Manufacturing companies and eMPs
What customers should Atlas Copco Tools serve with an eMP? Is the eMP supposed to find new customers, make existing customers buy more or enhance the sales and purchasing process for the parties involved? What functions and services on an eMP can efficiently be used in the current sales and marketing process of Atlas Copco Tools? How does the Internet change the communication of a manufacturing companys values in the sales process? Do customers purchasing pattern of a manufacturing company give opportunities for an eMP? Is there a large risk for channel conflict for manufacturing companies when initiating sales via the Internet? How should Atlas Copco Tools position itself online towards its competitors? How can existing ecommerce projects at Atlas Copco Tools be incorporated into the recommendations? The answers to these questions can be defined into two categories. The first category are answers to fact seeking questions, where one more or less can claim to find the right answer to a stated question. The second category regards answers to questions where an analysis does not provide one single truth. By finding the correct answers to the fact seeking questions and at the same time present an analysis as thorough as possible for the questions with higher complexity, we believe we can provide well grounded answers to the research questions which in turn will contribute to answering our purpose.
1.6
Delimitations
The fact that this work is to be performed in twenty weeks with a time resources of two persons, makes the scope of the masters thesis quite limited, and even if we would like to, there is no possibility to include all influencing aspects in the study. Also, there are issues, which in light of the current activities at Atlas Copco Tools will not be of interest for us to investigate. This has led us to two different kinds of delimitations. First there are the matters, which are delimited in order to make our study easier to grasp. This we do to keep the focus and the depth of our study. In that way it becomes narrow enough for us to be able to draw correct conclusions from, thus producing viable recommendations. The second group of delimitations is the one we have chosen to make because it does not fit within the interest of the study.
1.6.1
Reducing the scope
First of all the obvious delimitation is to study only Atlas Copco Tools and exclude other manufacturing companies. This approach is explained further in the methodology chapter. Our following delimitations are to be viewed from a Tools point of view. Our focus for the study lies within the General Industry (GI), however, in some cases it will be difficult to separate GI customers and the motor vehicle industry (MVI) customers, and we will therefore use cases from the MVI industry. For the most part the MVI will be present in the case of the portal Covisint, an eMP initiated by Ford, GM and DaimlerChrysler, Tools largest clients, in which Tools has already decided to participate. A geographic delimitation is also chosen, in consultation with our supervisor at Tools. Due to a significant difference in the way Tools operates in the US and in Western Europe, and with reason of high travel expenses to distant countries, Western Europe was chosen as the market to study.
1.6.2
Keeping a business focus
There are a number of aspects that we find less important to investigate, given Atlas Copco Tools current involvement with eMPs. We have chosen to focus on the sales part of Tools business, but in this also further excluding a number of sales aspects. First of all, contractual issues among partners is one of the aspects and will not be a part of the study. We have also excluded legal issues as we do not have the time nor the competence to include those areas. In doing so, there is a risk for assumptions that everything will function legally once it has been decided upon organizationally. This might not be true. The technical architecture of current eMPs is another aspect which will not be investigated. The technical aspects concerning interaction between partners and/or eMPs must, however, be covered on a high level. As the purpose of the 7
thesis is associated to sales related activities within a company, we will not focus on different eprocurement solutions. We are however aware of the somewhat blurred distinction between the two as they can be seen as two different sides of the same coin. We feel nonetheless that the delimitation is important to make. Speaking of definitions, questions on the difference between ebusiness and ecommerce often emerge. We see ebusiness as looking at Internet as an enabling technology for creating efficiencies and new opportunities in all processes within a company. ecommerce on the other hand, is according to us a subset of ebusiness and concerns transactional related issues sprung from trading via the Internet. Another distinction that is made is that between B2B and B2C ecommerce, even if this distinction sometimes feels without purpose. With B2B ecommerce, we mean ecommerce between companies, and with B2C we indicate ecommerce to private consumers, which will be excluded in our study as Tools sale is aimed toward other companies.
1.6.3
Unconscious delimitations
Through our delimitations we hope to focus on the interesting parts of the research topic. However, it is possible that we, in the continuous work with the thesis, make such choices and decisions that we unconsciously delimitate otherwise interesting aspects. These unconscious delimitations could spring from us having an educational background which is not focused on areas such as for example finance, production management, or accounting. The risk is also at hand that the people we interview do not have the right knowledge from which we could draw the right conclusions. Where it is possible, we will try to find a comparable replacement for the missing interviewee. If that also poses a problem, it is our aspiration to instead speak with related people, who have complementary knowledge within the demanded domain. When doing this, the number of interviewees might have to be increased in order to find the proper answers.
1.7
Disposition
As the reader is sure to notice, our purpose and later also research questions suggest this study having a broad focus. Thorough work with structuring our text is key in order to present an easily comprehensible result. The disposition of the study looks as follows: 1 Introduction to the thesis In the introduction the purpose of our study is stated as well as the research questions presented. We give a brief description of the nature of our case company and also discuss the delimitations of our work. 2 Methodology 8
The methodology chapter aims to give the reader the necessary background on the method used for the study and how the method chosen affects our results. 3 Theoretical framework The presentation and exploration of ideas and knowledge closely related to our purpose is given room in the theoretical framework. 4 The situation as we see it By giving, you, the reader a description of the present internal and external situation for Tools, divided into five different perspectives, we present the fact basis on which to build a further analysis. 5 Sales tasks breakdown This chapter is devoted to analyzing how the parties in the sales process best can be used for the different tasks involved. We also discuss differences in transaction costs depending on whether the order handling is manual or electronic. 6 AC Tools in the business landscape Chapter 6 presents a segmentation model for Tools customers, around which the following analysis is based. 7 The powerplay in Tools universe The majority of our analysis on how Tools should use electronic marketplaces in its sales is found in this chapter. The analysis is structured in accordance to the segmentation model in Chapter 6. 8 Conclusions Our conclusions regard the results on a general level that we have achieved with this study. 9 Recommendations for Tools After the conclusion chapter, the company specific recommendations are given in this chapter. Some of these recommendations will be generalizable to other companies as well. 10 Final words As a final piece of the study we provide in Chapter 10 summarizing thoughts on the accomplished work, the influence on the result of sources of error and also suggestions on possible future research in the area. The disposition is meant to have a structured form. The methodology (Chapter 2) provides the basis for our work. The pillars of our study are the theoretical framework (Chapter 3), the description of the current situation (Chapter 4) and the analysis chapters (Chapters 5, 6, 7). The pillars create the necessary lifting force to support the roof, our Conclusions and Recommendations (Chapters 8, 9).
1.8
Readers guide
Today is the era of time shortage. People stress between tasks to find the most efficient thing to do, for the moment. Although we take pride in each sentence of the work you hold in your hands, we understand that you, when evaluating your personal usefulness over time ratio, might judge not to read the study from cover to cover. A guide is here presented, giving different types of readers the possibility to concentrate on the topic most related to their interests. Reader Students & ebusiness interested people The case company Andersen Consulting Friends & family A-Ekonomi
Table 1: Readers guide
Suggested reading Chapter 2, 3, 4, 5, 6, 7, 8, 9. Chapter 3.5, 4, 5, 6, 7, 8, 9. Chapter 3.5, 5, 6, 7, 8, 9. Abstract & Chapter 3.5, 8, 9. Abstract & Call us!
For readers who feel that Chapter 3 in the table of content looks interesting but do not have the time to devote attention to the entire chapter, we recommend you to read the summaries in the end of each subchapter of the third chapter. These subchapters together with the summarizing final chapter in the theoretical framework, Chapter 3.5, will give you a correct and solid picture of the entire Chapter 3, as well as provide you with the necessary theory and insight to maximize the return from the rest of the work. With the readers guide in mind, it is in place to devote a chapter to methodology and how we have been influenced and helped by it in our work.
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2 Methodology
Methodology is the foundation of research and in this chapter we build it as solid as possible. Discussions regarding learning and objectivity as well as the direction of our study are presented. The research method is described in depth including the argumentation for a qualitative or quantitative approach, treatment of data collection, sources of error, and discussion about the generalizability of the results of the research.
2.1
Learning in a wider perspective
Why does every man say that a pocket watch is circular, something which demonstrably is false, inasmuch as when seeing it in profile it constitutes a thin, elliptic rectangle, and why in hell did man notice its shape only at the moment when the clock face was interesting? (Alfred Jarry, translated from Asplund, 1977)
Depending on the way one look at a problem or a topic, different outcomes are possible, as the citation above illustrates. A general thought in traditional research has for a long time been that the world is a constant entity which can be observed with total objectivity. In consequence research has been performed by collecting large amounts of data, to be able to describe different phenomena in the world. In some cases laws have been stated to imply the static nature of the world. The world, however, is not constant in all aspects. There can exist multiple realities in which objectivity is difficult to maintain. Instead, reality is the notion and integration between people. The subjectivity of reality needs to be interpreted rather than measured. (Merriam, 1994) In our field of research the interaction and integration between people and organizations will be of great importance as no razor sharp answers to our research questions are expected. Interpretations of reality are then to be expected and no quantitative measurements will be performed. It is impossible to measure the accuracy and rightness of our recommendations. Afterwards, one can always say that it was a good or a bad result. But just how good/bad was it? Even if we find a solution that helps our case company and eventually makes the company prosper from it, how do we know that our recommendations were the optimal ones, the ones most correct?
2.2
What do we expect from our results?
Given the fact that the value of our report is hard to measure, we cannot give quantitative goals to our work. We want therefore, when finished with the master thesis, to feel that our accomplishment covers a topic yet to be extensively discovered. It gives a map of how the eMP landscape looks today, and will look in the future, especially from a manufacturing companys point of view. One of
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our goals is to try to make the study as holistic as possible, but in the same time not losing the scope and the academic height. In doing this, we believe that the report will be of value to many people outside the inner circle of interest, something important to our university but also to us. The holistic view at the same time lets us discover the many different aspects related to the impact of eMPs. Since the subject is one of greatest interest to us, the exploration will be much fun. In order to give well-grounded recommendations for Atlas Copco Tools, the holistic view is necessary. It is not until you have studied many aspects of a problem that you can give recommendations on the subject, and in turn affecting a number of these and other aspects.
2.3
The idea from thoughts to reality
The work with our master thesis has, already from the start, had a quite defined course of action. Already at an early stage the topic was more or less set as well as the plan to do the study at a company. To achieve lasting and high quality results we gave the selection of the case company a lot of consideration and time. We used a method to make a beneficial selection. The choice of topic decided early on in the process of defining our master thesis, included the fact that the study was to be made in one single company. The reason for the alternative with one case company was also that the scope of the topic was of such a kind that there was not enough time to do more than one study. We had also the intention from the beginning, to make a thorough study, as the field of research was not very documented. There were, at the time, no books written in that precise field of research. The lack of documentation led us to believe that our findings would be of an exploratory kind, and to some extent not already presented. Our aim was that, through an extensive study of a particular topic in a case company, be able to draw conclusions such that the findings could be some sort of guide lines to other companies in the same field of business as the case company. So, how did we then choose our case company?
2.3.1
Selecting a case company
In the process of finding a case, or a company, to study, different methods with different purposes can be used. Silverman (2000) defines two such methods, purposive and theoretical sampling. Purposive sampling is used when the case is chosen because it illustrates some predefined features that are of interest in the study. These features are identified, based on the knowledge the researchers have on the subject, and not on any
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specific theory. It also demands critical thinking about the parameters, which are found to be interesting within the population. In theoretical sampling the case, unlike the purposive sampling, is chosen based upon theory concerning the topic of the study. The theory is used in order to find certain criteria, which will help to find a suitable case for the study. As the topic chosen for the study was relatively unexplored at the time of deciding upon a case, we chose to do a purposive sampling. A number of criteria were identified. These criteria included computer literacy, Internet literacy, global presence and product range. The variables were not given any specific weight, and served merely as a means to get an overview of the companies at choice. According to these features we identified a small number of companies, which we contacted to see if there was any interest from their side. Two companies showed great interest and one of them was finally chosen for the study.
2.4
Keeping an open mind
When conducting a study at a company it is important to keep an open mind, and not leave the objectivity too far behind. Maintaining a balance between objectivity and subjectivity is of certain importance in our work. The objectivity must be there in order to produce a somewhat original work, and the subjectivity is inevitable as the company where the study is performed expects the outcome to be of use for them.
2.4.1
Different perspectives
In any kind of research, objectivity is the aim and goal of the researcher according to Silverman (2000). To try to be objective and to keep an open mind concerning the topic is of greatest concern when we conduct our study. Given the fact that the parties of interest vary from the university, to a consulting firm, and to a traditional industrial company, the ambitions on the results of our work differ. We feel that being fully aware of the potential conflicts of interest keeps us from losing our objectivity. We will also use companies within the same industry as our case company as outside reference points. The purpose of this is to be able to keep a more objective view on the issues within the case company. And when possible, in comparison with these companies, strengthen our recommendations. The different viewpoints possibly taken in our work must be carefully examined throughout the process. Yin (1994) emphasizes the need to view the case to be studied from multiple perspectives. He also points out the risk of not collecting all existing evidence when conducting a study from a specific point of view. If all possible perspectives fail to be examined the results may be challenged for not seeing the full picture of the topic. We intend to use our supervisors, which work 13
in different disciplines, to obtain different perspectives on our work and see the problem from different points of view. Researchers must also be aware of the possible distraction away from interesting evidence. Aspects outside of the frame can successfully contribute to the study. For example, an economic study might get useful input from studies made within other fields of research, sociology to take one example, and vice versa. (Pratt, 1978) As our topic is of a highly economic and strategic kind, the risk of sliding into a one-sided view is great. We will, both in our studies of literature and the empirical data collection, strive to include other disciplines, such as sociological, cultural, and technical.
2.4.2
Independent critical thought
The ability to keep an objective point of view also reflects on our ability to independent critical thought which is the basis of a studys originality (Silverman, 2000). Independent critical thought is shown by following the three procedures in Table 2: Procedure Developing a methodology Thinking approach critically about Definition From literature defining a methodology of how to conduct the study. the Discuss with the supervisors of the study about the approach. Question any changes made. Do not reinvent the wheel. Use studies and other reports as a foundation for the work.
Building on an existing study
Table 2: Procedures which contributes to independent critical thought, (Silverman, 2000).
We feel that the independent critical thought is important and imperative in order for us to reach valid conclusions. The methodology we develop is represented in this chapter. Continuously we will discuss with all our supervisors about what we will study and the discussions hopefully makes us think critically about the approach. The feedback from the supervisors is also of such a kind that we are led to question if the path chosen is the right one. Obviously we do not feel any need to reinvent the wheel and as much as possible we will base our study on other studies already performed. However, we will keep a critical thinking of the background of other studies and when possible find confirmatory or opposing studies. 14
METHODOLOGY
2.5
Choice of method
This chapter provides the base on which we will build the study. The base consists of choosing the appropriate method that we intend to use throughout our work. As Halvorsen (1992) points out, the method is more than an investigation technique. It is the science of collecting, organizing, analyzing, and interpreting facts in a systematic way so that others can verify the results. As we will see in this chapter, the choice between one method or another clearly can affect the final results and outcome of the work. In order to come to correct conclusions, as well as optimizing the results from the chosen method, thorough work on the method must precede the remainder of the study.
2.5.1
What is a case study?
The purpose of this study, as we described in the purpose statement, is to observe and try to describe an occurrence in a company in order to be able to later present an analysis of the situation and at the same time give recommendations to the company in question on a suitable course of action. This type of study is described by Yin (1994) as being a case study. According to Yin, a case study is an empirical inquiry that: investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident. The way in which you investigate the above mentioned phenomenon usually encompasses a wide range of methods and strategies (Yin, 1994). In contrast to the case study, we come to think the literature study. Here the study need not be empirical, it rather sets foundation on confirmed literature in a field and draws conclusions from the studied literature. The method used does not differ a lot from one study to another. In addition, the author does not seek to explore his focus in a real-life context, as he would in a case study. Given these short descriptions, one can state that what we are doing is a case study. This fact will later form the structure of the methods used in our work.
2.5.2
Qualitative or quantitative methods?
When conducting research, one usually sees two different main forms of methods: the qualitative and the quantitative approach. These are not as separate as they at first may seem, but even if there exists a certain amount of overlap between the types of information resulting from the different methods, the main rule is that you present different aspects of reality with the different methods (Halvorsen, 1992). The central theme in qualitative research is that the researcher shall collect different sorts of data in order to gain an understanding of a problem or 15
occurrence. Using this method, the researcher utilizes statistics, mathematics, and arithmetics only to a small degree. The data available does not make this possible (Andersen, 1998). Quantitative research puts its focus naturally on quantity, where the goal with the research according to Merriam (1994) is prediction, control, proof, and hypothesis testing. The two fields of methods differ in many aspects. One difference of importance can be found in the analysis. As mentioned above, the qualitative methods aim to gain understanding of a field in order to describe it in a adequate way. In that sense you can claim the method to be descriptive. Studies can be divided into yet two other categories, if the study is deductive or inductive in its nature? Merriam (1994) says that deductive researchers hope to find information that fits into a theory, while inductive researchers want to find a theory, which can explain the information they have. Qualitative methods are also inductive, as opposed to the quantitative method which are by nature deductive (Merriam, 1994). When you think twice about our work, you notice that the choice of doing a qualitative study was made long before the actual work began, because of our will to reach out to, and conduct our work on, one specific company. However, within this qualitative choice, we still can use quantitative methods, should we find this suitable. Halfpenny (in Silverman 2000) describes a number of claimed features by researchers for qualitative and quantitative methods in Table 3: Qualitative Soft Flexible Subjective Political Case study Speculative Grounded Quantitative Hard Fixed Objective Value-free Survey Hypothesis testing Abstract
Table 3: Claimed features of qualitative and quantitative methods (Halfpenny, in Silverman, 2000).
The considerations of the researchers may seem imprecise and evaluative as Halfpenny also points out. Here we also find the misunderstanding that a case study always is of qualitative nature. There is essence in Halfpennys opinion but our goal with this table is not to try to find the superior method for all cases, but
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rather to see how well the adjectives fit our study in order to name the appropriate method. Our study relies more on adjectives such as flexible, subjective, and soft than on the adjectives found in the quantitative column. The above mentioned facts point towards the use of a qualitative method. The nature of the complex problem, the data available, our work at the case company and the balanced subjectivity together are conditions for the qualitative study. When speaking of literature, it is of course a basis for both quantitative and qualitative methods. Our literature though, is not used to prove for example a mathematical significance. It is rather to personally understand a complex arena and system in order to reach viable conclusions and to present these, as well as the field of research, to the reader in a clear manner.
2.5.3
Qualitative case studies in a wider perspective
The chapters above have given a short presentation on the nature of a case study and of the two main forms of methods in research. As the alert reader is sure to notice, the similarities between a case study and the qualitative method are striking. We consider it therefore necessary to clarify the difference. According to Merriam (1994), case studies are not to be seen as equal to qualitative research. She believes that case studies more or less get their logic from the viewpoint of the basic approaches of the qualitative methods. Case studies are not only of qualitative nature either. Yin (1994) states that case studies can include, and even be limited to, quantitative evidence. With this in mind, we conclude that case studies can have any mix of quantitative and qualitative evidence and it is the researchers task to blend the methods to the most tasteful result.
2.6
Data collection
We are of the strong belief that a qualitative case study needs a good interviewing technique and a solid literature study. In order to be able to retain good input from the interviewees, who form our basis of primary data, we have decided on a model for how we plan to carry out our interviews. As secondary data, different forms of literature will be used to give strength to our results, by learning from work and research already performed.
2.6.1
Interviewing technique
If the interviews are not performed in the right way it would be very difficult to draw viable conclusions from the answers. According to Yin (1994) it is also of great importance to identify to what purpose the interviews are done, and how the answers will be treated.
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2.6.1.1 Interview approach Two distinct types of interviews are identified by Yin (1994), both of which will be used in this study. The first one is open-ended interviews where a few persons are continuously interviewed, often very informally. The questions and answers are often of a more general kind and the interviewee is asked of his opinion on matters concerning the study. These key respondents also serve in most cases as a guidance for us in the work with the study. For us these key respondents are mainly our supervisors both at Atlas Copco Tools and Andersen Consulting. The second type is the focused interview, where the respondent is interviewed at one single occasion, and for a limited time. This kind of interview can still be of an open-ended type with the respondent not only giving objective answers to the questions but also providing opinions and thought regarding subjects adjacent to the study. In the cases where obviously subjective answers are given, in these kinds of interviews, we ourselves are the judges of the reliability of the answers. Multiple interviews of this type will be performed during the primary data collection. Interviews at Atlas Copco Tools and at the companys partners will, for the major part, be of a fact-collecting type and only objective questions following a structured discussion material will be used. We will also perform a number of interviews with other companies where the questions will be concentrated on getting input of market tendencies and general thoughts on B2B. The inputs revealed by all the interviewees we believe will be treated differently, depending on the question and the source of the answer. For example, when speaking with employees at Atlas Copco Tools about specific facts, figures and processes at the company, we will treat those answers as more credible than the answers on general opinions on eMPs given by other interviewees in the industry. The interviewees will for the most part be chosen by Tools, often for the convenience of finding people close to the location of the international sales companies. Also, often the interviewees will be selected because of a good relationship with Tools, and when concerning the distributors interviewed they will probably be selected because of their relatively good Internet awareness. The basis of this selection process might influence our results and is further analyzed at the end of the report in Chapter 10.1. 2.6.1.2 Course of action when interviewing Arbnor and Bjerke (1994) identify four different courses of action when doing interviews, personal, by telephone, mail, and group mail. We will use personal interviews in almost every case. In order to avoid doing telephone interviews, we will do some traveling. The structure of the interviews is also of importance. Halvorsen (1992), and Arbnor and Bjerke (1994), identify the different degrees of structure and rigidity 18
METHODOLOGY
in interviews. They identify two main approaches. Structured, standardized interviews, one of the two approaches, where all respondents are given the same questions and little room for improvisation is granted, will not be used in this thesis. Flexible, not especially structured discussion-like interviews, based only on a few topics of discussion, will instead be the predominant type of interviews in our data collection. Yin (1994) also gives some characteristics of a good interviewer. These include having a good understanding and knowledge of the issue being discussed, being adaptive, flexible, and a good listener. We feel that we live up to these characteristics and feel confident that the interviews will give us a substantial amount of useful data to our thesis. As we retrieve more and more information and gain a wider knowledge of the subject, the questions we pose to the interviewees will change in nature. This iteration is natural and the aim is to gain a thorough understanding of our field of research in order to get maximum support to our analysis and conclusions. The process resembles the learning of the alphabet, the more characters you learn, the richer the writing.
2.6.2
Literature discussion
In a way the authors are novices in the field of research and this study is clearly the most extensive work we have done during our time at the university. When starting out exploring a relatively new field, a lot of time goes into reading related material. The more you read, the higher the understanding about the subject gets. During this process it is vital that you keep in mind the intentions and purposes of the literature you read. In the research process, it is also important to find out the empiric behind a work. Is the text intended as an eye opener mainly presenting ideas and new thoughts, or is the text based on a comprehensive data material, may it be quantitative or qualitative? As we have sorted out the vast literature material, we have tried to treat the sources differently based on our concerns above. For example, when digging into reports from consulting firms and other poll institutes, our will has been to find additional material, which supports or oppose the source. The former reports, we think, are not all written out of a truly objective view. One must therefore try to grasp the intentions behind the reports and find additional sources with similar topics. The search for alternative sources for verification is, however, not always easy to accomplish. As the topic is relatively new, it is often difficult to find high quality literature, which deals with the same things as the consulting reports. Articles from newspapers and magazines are sometimes hard to catalog. Newspaper articles we find sometimes to be less well founded. Articles from field specific magazines according to us are founded on more solid ground and in that case more valuable. It is important to emphasize that no clear line can be drawn 19
between what is good and bad literature. It can be very hard to see the hidden ideas and intentions with for example an article. One must therefore judge each article from case to case.
2.7
Sources of error
Our work with this study will include a lot of thinking, massive amounts of literature and important decision making along the road. All these actions will in some way affect the final result. Along the way, heaps of errors might emerge and affect our work and thus the conclusions. In order to try to avoid these errors, it is vital that there exists an understanding of different sources of error in order to be able to identify them and to avoid them. Lekvall and Wahlbin (1993) acknowledge that errors cause uncertainty in the information and summarize the sources of error into five different categories. Errors in the decision analysis Parties of interest all have expectations on the final result of the thesis. To successfully manage to reach those expectations, this means investigating the right issues and asking the correct questions. If the purpose is badly constructed, this might ruin the entire result of the study. Errors in the problem definition Many resear.ch questions arise, once you have stated the purpose of a study. Unsuitable delimitations or a bad aiming of the investigation does not need to entirely ruin the study but can narrow the clarity and use of the results. Errors in the choice of method If an inappropriate method is being used in the study, the findings might not be able to satisfyingly answer the purpose. Errors in the data collection The data collection can also insert errors, which in turn affect the result. In our case, the data collection regards literature and interviews. Errors in the analysis and the conclusions These errors occur when the data material is treated in such a way that wrong conclusions are drawn from it. The different categories of errors shortly presented above can, we say again, alone or together affect the final result. We will throughout the study work actively to minimize their influence on our results. In the end of the report, we provide a chapter where we discuss and evaluate to what extent we have been
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able to avoid errors in our study. We know that it will be hard to exactly determine the exact errors, their causes and their implications on our work. By keenly discussing potential errors and by keeping the problem in mind during our work, we feel that we are braced up for the challenge.
2.8
The challenge of generalizability
During our work at Atlas Copco Tools, we are trying to solve a problem and produce recommendations for this specific company. We know, though, that the field which we focus on is highly interesting for a number of other parties. In parallel, our university has certain demands on our work. One of the most important demands is the task to make the study of value to others, thus keep the academic height in our results. Subsequent to this there is a challenge for us to keep the results interesting both for our assigning company, and for other companies with similar needs and characteristics. The companies that would find the greatest interest in our results preferably have many similar characteristics with Atlas Copco Tools. Being an industrial manufacturing company with a global presence is important in order to identify with the situation of our case company. With respect to size, all industrial manufacturing companies with a turnover of about one billion SEK2 and above might have considerable use of our work. Finally, as Tools uses distributors in its sales, some conclusions might be most interesting for companies with a similar distributor structure. It is important that, to the maximum extent, work on the abstraction of our results from the assigning company. Thereby we will obtain generalizability, and in that way interesting to others than the aside from the closest involved. In some works you read complaints about the difficulties to generalize case studies to be valid for more than case. According to Yin (1994) the problem is the very notion of generalizing to other case studies. The person interested in generalizing should instead try to generalize the results of the case studies into theory, in the same way a scientist hopefully generalizes his experiments to theory, and not to other experiments. The research questions that we pose and the frame of reference that we build, we hope will make it easier for us in the end to find results which can be generalized into theory.
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THEORETICAL FRAMEWORK
3 Theoretical framework
This chapter is devoted to the exploration and presentation of the knowledge and ideas closely related to our purpose. If the methodology chapter was the foundation of our work, the frame of reference rather acts as the supportive structure later used for building the entire report. The frame of reference will discuss topics like emarketplaces, the sales and procurement process, the shift from value chain to value network, and implications of emarketplaces for the traditional company. To summarize the chapter we take a larger perspective of what has been said and summon up the aspects necessary to address if a company is interested in knowing how an emarketplace can help its business.
3.1
Introduction to eMP
Even if the hype has somewhat diminished, B2B ecommerce is still one of the hot fields of attention around the world today. Numerous reports from research firms claim that trade between companies over the Internet will represent significantly larger amounts than sales to consumers, B2C. Stock exchanges still seem to reward ecommerce initiatives, although not to the same extent as during the spring of 2000. These are some of the reasons why business executives for traditional companies feel the pressure to catch the eTrain by fear of being left behind. Companies launching catalogs, eprocurement sites, auctions and other web sites can be counted in thousands. With this chapter, we want to clarify the nature of emarketplaces and give guidance to what at first seem to be a brushier business landscape than the Amazons.
3.1.1
Background and history to marketplaces
Commerce between companies has existed long before the Internet existed, it just has not been managed electronically. With the growth of the Internet, we have seen an increase in attention towards electronic means of conducting business. Prior initiatives to ecommerce have circled around point-to-point data transactions such as EDI (Electronic Data Interchange) and centralized data aggregation provided by services like Sabres airline booking system used by several airline companies (Sabre Ltd., 2000). EDI has, since its birth in the 70s, helped companies by reducing the potential of errors and speeding up business processes. This has led to a decrease in the number of errors in the order handling process (Keen, 2000). Unfortunately, it has not proven to lower transaction costs, as the costs for implementing the solution have been high. As EDI has point-topoint characteristics, the system has not helped to expand the number of trading partners for each participant but rather to convert paper based transactions among known participants into electronic ones. (Ehrens & Zapf, 1999)
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The Internet does, among other things, provide a good complement to the existing EDI connections. To some extent Internet will even be used as the means of performing the transactions, in some cases overtaking the functionality of the EDI-connections, but what Internet can do, which the EDI-connections cannot, is to facilitate the exchange of information, low-cost access for all customer, and rich media support (Ehrens & Zapf, 1999). The most important aspect lies in the facilitation of communication both within and between firms, regardless of physical location (Chandrashekar & Schary, 1999). An important note is relevant here. Even if the Internet looks as a successor to EDI, this does not mean that EDI is to be counted out. EDI is expected to live on, performing batch-mode EDI transactions, often generated automatically out of an ERP system for a long time to come (Meeker & Phillips, 2000). We believe that the cost of integrating new systems to the often rigid business systems within companies will delay the use of Internet as a way to perform transactions, but it the use of Internet to exchange information and support the customers have already been initiated and will increase in use. 3.1.1.1 The evolution of B2B commerce The ease of communication provided by the Internet causes revolutionary consequences for companies (of course also for many others). One example is that the nature of interaction between companies has changed dramatically. Rayport and Sviokla (1994) want us to stop talking about a marketplace in a traditional sense when we now have a marketspace, which is something entirely different. The authors claim the marketspace to be different from the marketplace in three main aspects: the context and the content of the transaction as well as the infrastructure that enables the transaction to occur (Rayport & Sviokla, 1994). In order to facilitate for companies to safely navigate this marketspace, conduct transactions and exchange information (among other things), an entirely new breed of business structure has emerged. This new structure bears many names, and one of the more popular terms is emarketplace. The figure below shows how the evolution of the emarketplace is supposed to improve efficiency for B2B ecommerce. (See Figure 2)
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B2B ecommerce
Supplier Supplier B2B Buyer Buyer
Brochure-ware Basic ecommerce
EDI Networks
Supplier Supplier Supplier Supplier Buyer
Supplier
Buyer Buyer
MARKET EFFICIENCY
Time
1996
1997
1998
Figure 2: The evolution of B2B ecommerce. (reworked from Meeker & Phillips, 2000).
It is mainly this, totally web based, eMP-structure that has led to the ecommerce frenzy around the world causing the stock prices on the companies involved in building the emarketplaces, to surge. Even if the heated climate has somewhat cooled off, investors are still lured by statements from research firms like Forrester Research claiming that B2B ecommerce will represent $1 trillion by 2003. The executive editor of Wired, Kevin Kelly, goes on by saying that it is of diminishing relevance to speak about the size of the online market, because all commerce is jumping on to the Internet (Kelly, 1998). Instead of judging these statements, we intend to take a closer look at this new beast, destined to completely change business structures.
3.1.2
Definition of eMP
The marketplace is the place of exchange between buyer and seller. Once one rode a mule to get there; now one rides the Internet. (Leebaert, 1999, p. 4)
Marketplaces have been around for as long as man has done business with one another. Over the centuries its appearance has been changing greatly. The marketplace being a physical place of exchange and to which one rides a mule is currently turning into a something of a virtual site to which one rides the Internet. This new kind of marketplace is usually called an electronic marketplace, because the use of electronic architecture is essential for it to function. In this report, when we talk about an electronic marketplace, our definition is however more precise. We focus on certain kinds of virtual sites and call them electronic marketplaces (eMPs).
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3.1.2.1 The definition in literature Geoff Nairn (2000), a writer for the Financial Times, describes an eMP as a web site which enables businesses to buy and sell products and services over the Internet. The site aims to connect several buyers with many sellers. At this site buyers can request quotes from sellers, and the sellers can post catalogs. There can also exist additional features such as industry-specific news, auctions, and message boards. All authors we have read include the definition above in theirs, but add different additional aspects to the definition. Gartner Group stresses the fact that the eMP is managed by an independent third party, so called market makers, and that it focuses on a specific industry, geographic region, or affinity group. (Dataquest, 1999) Finally Kaplan and Sawhney (1999), both professors at management schools in the USA, put emphasis in the ability of the eMP to function as routers for transactional traffic. 3.1.2.2 Our definition In the definition we use in this thesis most of the opinions given above are included. Largely important is the fact that we exclusively treat the trade between companies, so called business-to-business commerce or B2B. Included is also the hub-like feature where many buyers and sellers are connected via the marketplace. Efficient and fast transactions between the participants is a characteristic of these connections. Unlike Gartner Group, we do not exclude sites where one or more of the participants is managing the marketplace, e.g. the previously mentioned Exostar, which is managed by BAE Systems, Boeing, Lockheed Martin and Raytheon. In our definition we also want to identify the high degree of information available both for buyers and sellers. Buyers have greater possibility to compare different products both concerning price and other features important for that product segment, while the seller can more easily gain access to the feedback from customers and also use the eMP as a sales and marketing channel. It is not possible to say that there are no risks involved, concerning for example brand dilution, when entering an eMP. In table 3 follows our definition of the eMP as seen from the dimensions: participants, number of participants, transactions, information, and ownership.
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Participants Number of participants Transactions Information Ownership
Only companies doing business with other businesses. Both sellers and buyers are numerous, i.e. more than one. Fast and efficient transactions are performed via the site. Participants have access to information on other participants. The site does not have to be neutral, i.e. powerful participants may possess equity in the marketplace.
Table 4: Our definition of an electronic marketplace (created by Englund & jdemark, 2000).
We would like to mention a few words concerning the term vortal and how this buzzword corresponds to the definition of an eMP given by us above. According to us, a vortal is a site with a clearly defined focus, and can be aimed both towards persons or companies. It can mainly be seen as a community and need not have a commerce dimension. An emarketplace, on the other hand, is aimed towards B2B ecommerce (according to our definition). We here emphasize the word ecommerce as activities on an eMP are aimed towards commerce, whether transactions are performed on the site or not. This means that an eMP can, but not necessarily, at the same time be a vortal or vice versa.
3.1.3
Functional profiles of eMPs
Even if the eMP-picture presented above seems not at all ambiguous, the many different properties of varying eMP-models soon blur the resolution. There exist many functional profiles and transactional mechanisms, which altogether create a very interesting geography. But first, a chapter has to be dedicated to the distinction between a vertical or a horizontal marketplace. 3.1.3.1 Vertical or horizontal emarketplaces One way of categorizing eMPs is by looking at their focus. Depending on what products you sell and to whom, one can have either a vertical or a horizontal focus. Having a vertical focus means that the marketplace serves a specific vertical industry. This industry can be for example energy, chemical, or electronic components. The main idea with having marketplaces serving a certain industry is the possibility to resolve the industry pain points; i.e. inefficiencies that lower margins (Dataquest, 1999).
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The horizontal focus, on the other hand, encompasses a function or a geographic region. This means that the focus of the eMP lies in providing the same functions or automating the same business processes across different industries (Sawhney & Kaplan, 1999). An example of a horizontal focus is an eMP providing a range of office equipment, i.e. non strategic material aimed towards a large number of companies. We see the horizontal focus resolving inefficiencies in the same way as the vertical, in for example aggregating a large number of suppliers in office equipment on one site, thus making the purchase of this material more efficient. Geoffrey Moore, stresses that eMPs first of all must focus on depth before expanding the breadth of the eMP (Moore, 2000). According to him, focusing on depth at first is the only way for eMPs to create the liquidity necessary for efficient ecommerce. However, this opinion is sprung out of a market maker perspective, and not seen from the customers point of view. From the perspective of the customer, the choice between a horizontal or a vertical eMP must be based on additional values than the prosperity of a particular eMP. The eMP can have different functional profiles, independently of the horizontal or vertical focus. These profiles differ with regards to the party in charge. Below we present three major types of profiles for an eMP: buy-side, sell-side, and neutral marketplaces. 3.1.3.2 Buy-side eMPs
Suppliers Suppliers
eMP
BUYER
Figure 3: Structure of a buy-side eMP.
A buy-side eMP is set up by a smaller number of large buyers (see Figure 3) who want to create a commonly used commerce mechanism together with their suppliers. Initially these eMPs were thought by many to serve as a means for these large buyers to aggregate their demand and increasing the buying power, thus squeezing the prices of the suppliers. This was not the case, both because of fear of resistance from the Federal Trade Commission in the USA, which looked skeptically on lack of competition, and also because the companies did not wish to alienate their suppliers by cooperating with their competitors. Instead the aim for the buyer is to reduce the cost of purchasing, increase the access to suppliers, ensure more uniform pricing globally, and to avoid rogue buying, a phenomenon where products are bought outside prenegotiated contracts. One example of a buy-side eMP is Exostar, an eMP for the aerospace and defense industry, set up by companies BAE Systems, Boeing, Lockheed Martin, and Raytheon. These companies have, together with a software provider, constructed their solution and more or less force their suppliers to participate. These 28
companies do not, however, intend to use the eMP as a means to increase their buying power, but to find efficiencies for all parties in the purchase/sales process. The eMP is public, as the founders try to attract other buyers in their industry. 3.1.3.3 Sell-side eMPs
Buyers Buyers eMP SUPPLIER
Figure 4: Structure of a sell-side eMP.
The opposite to a buy-side is a sell-side eMP (see Figure 4). Larger companies with a big market share, which at the same time have a fragmented customer base with many small customers, have special interest in this sort of functional profile. They might be better off managing the site themselves than trying to serve their customers through many smaller buyer exchanges (Meeker & Phillips, 2000). One example of such an exchange is Rooster.com, an eMP started by Cargill, DuPont, and Cenex Harvest. The eMP lets the three initiating companies sell their products to farmers in the US. Aside from the advantage with new channels for suppliers, sell-side eMPs can also provide sales or auctions of offspecification or secondary products, new products or products for which scarcity is driving up prices, and also transaction information (Dataquest, 1999). 3.1.3.4 Neutral or third-party eMPs
Buyer Supplier Buyer Supplier Buyer Supplier
eMP
Figure 5: Structure of a neutral eMP.
A neutral or third-party eMP is not governed by a buyer or supplier, but owned and managed by a third party (see Figure 5). The reason for managing the eMP through a third party is that the participating partners might feel uncomfortable giving away their company specific data to an eMP run by a company in their industry, and possibly even a competitor. This is why Endorsia, an MRO-hub owned fully by the bearing manufacturer SKF, to the greatest extent try to minimize the perceived connections to its owner, in order to attract interest from more players in the same industry. A trend underway in the US is that associations have started to create eMPs. Industry associations are clearly neutral and can handle the confidence problem easier (Vijayan, 2000). A concern neutral eMPs have to address is how to overcome the sellers channel conflict. Usually, sellers participate in these markets at the expense of normal
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distribution channels (Kaplan & Sawhney, 2000). We believe that this question also must be addressed in Atlas Copco Tools case. So, is there a best overall model to use? Buy-side, sell-side, or neutral? Well, as stated above, there are different solutions for different conditions. The concern that has been raised however, is the problems non-neutral marketplaces can get when trying to create liquidity in their market. If an interested future player (buyer or supplier) is not confident in the fairness and discreteness with which information is handled, then he might be reluctant to join a non-neutral exchange. In our opinion, fragmented markets will most certainly be served by neutral eMPs since the industry liquidity does not rely upon one or a few players. In the highly consolidated markets however, the market situation is heavily dependent on a few large players. They will be able to set the conditions for how to trade via the eMPs.
3.1.4
How businesses do business on an eMP
Now we will delve deeper into the mechanisms eMPs use for enabling buyers and suppliers to interact, and take a look on the different price mechanisms existing today on eMPs. There is a distinction between fixed price mechanisms and dynamic pricing mechanisms. Kaplan and Sawhney (1999) describe these mechanisms in four main titles. Nunes et al. (2000) have also given their view on the different transaction mechanisms on an eMP. We will try to fit the more detailed descriptions from Nunes et al. into the general taxonomy provided by Kaplan and Sawhney. 3.1.4.1 Catalog model The catalog model consists of catalogs presented on the eMP. Here the buyer can browse through, by the supplier, displayed products or services. A catalog model works best where demand is predictable with little price fluctuation. A good condition is also if most of the purchasing takes place with pre-qualified suppliers, and with predefined business rules. Companies confronted with the catalog model often object and question why they should expose their prices to everyone else, customers, competitors and middlemen. According to Sven-Olof Emanuelsson (2000-08-03) at Endorsia, this does not necessarily happen if the prices in the catalogs are only exposed to approved customers with prenegotiated prices. Still, it does not rule out the possibility that a biased or questionable eMP can sell or distribute price lists to interested parties. There are a few variations on the catalog theme: Static call A regular online catalog Dynamic call Online catalog with continuous price/attribute updates Price-tailored Prices change based on purchase history/loyalty 30
Product-tailored Offerings are tailored to meet individual customer specifications 3.1.4.2 Auction models If you have a one-of-a kind, non-standard or perishable product or service that you want to sell, the auction model might come into consideration. And if you also have different perceptions with the buyers on the value of your goods, the case for the auction grows stronger. The auction model is best suited for capital equipment, used products, unsaleable returned products and hard-to-find products. Auctions can be used to help solving the problem with lack of product availability in spot markets. Both buyers and sellers reach are extended to include distant sellers/buyers. The auction model can be divided into two: Seller auction Buyer bids determine final price of seller offerings Buyer auction Buyer requests price quotes from (multiple) sellers 3.1.4.3 Exchange models These models create greatest value in markets where demand and prices are volatile, such as for energy and steel. Products traded on an exchange are commodities or standardized products that dont need customization. The exchange model requires a real-time, bid-ask matching process and marketwide price determination. To close the deal, the model also needs a settlement and a clearing mechanism. The different themes on exchange models are: Spot Buyer and seller bids clear instantly Negotiation Negotiation supported by technology Reverse Buyer posts desired price for seller acceptance 3.1.4.4 Barter models The barter model creates value by matching two parties that possess reciprocal assets within an asset class or across asset classes. Some models include bartering manufacturing capacity, high-transportation cost assets etc.. Barter Buyer and seller exchange goods 3.1.4.5 Other exchange solutions Andersen Consulting has presented, in addition to the mechanisms mentioned above, other models on how companies can interact in the marketspace. We present these briefly:
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Continuous replenishment Ongoing fulfillment agreement under special terms Bundled Seller combines multiple products into a prepackaged offering Bulletin board/clearance Offerings limited by availability of product or discount Partnership Integration of seller process with those of buyer Referral Link to non-owned mechanism/commercial web site The mechanism mix Of course, a customer does not only favor one of the myriad of transaction mechanisms now seen on the web. The customer needs different mechanisms for different circumstances. In the future, eMPs will find it valuable to offer more than one market-making mechanism (Kaplan & Sawhney, 1999). There are additional reasons to why multiple exchange mechanisms are interesting on an eMP, aside from the fact that different purchasing/sales require different mechanisms. Price pressure can increase with the augmented use of eMPs. Sellers might experience lower prices and margins on open markets using one particular mechanism. This fact can make other exchange mechanisms more attractive. Another problem is that when having tightly coupled, partnership-based exchange arrangements, you are at risk if conditions shift. The last reason concerns supply volatility. Often the supply is highly volatile in an industry. Sellers then have to find new, additional channels for their excess supply, thus using multiple exchange mechanisms. (Nunes et al., 2000) The deep-seated desire for a low cost solution, which spans the range of possible exchange approaches and includes various open-market and partnering mechanisms, is driving the creation of a new market space we call all-in-one markets. (Nunes et al., 2000)
3.1.5
The interactivity of B2B2B in sales
It is our opinion that one must also take into account the other features, aside from the transaction aspect, on the eMPs. Many authors believe that since the transaction part quickly is becoming a commodity on eMPs, these marketplaces must lay their foundation on other differentiators. One aspect that will gain in importance is the content, or know-how, accessible on the web site. This is also the reason to why a lot of eMPs hire industry professionals to be able to provide valuable content. The opportunity to communicate with the buyer of products via the Internet is another interesting aspect.
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3.1.5.1 From manufacturer to customer Content can be distributed in many forms to the customer. The format of the content differs a lot depending on the focus of the eMP. The development goes towards more and different forms of information on the eMPs. This, we believe, is due to an attempt to try to imitate and facilitate the knowledge and information exchange during the sales process. Busch and Reisman (2000) write that only eMPs that can codify and automate their customers decision-support requirements will create lasting value. Examples of different forms of content to help the buyer in his purchase process can include: Plain searchable text The user can here browse through and read about topics of his choice. FAQ Here, the user can find answers to questions previously posted by other users. Blueprints To the user necessary drawings and blueprints. Downloadable expert guides Material previously contained in paper form here finds a new way of distribution. Configuration programs As in the case with Cisco, the large network hardware provider, the user is able to conclude product configurations with the help of programs earlier used exclusively by company salesmen. Other content Movies or instruction guides, help desks by video conference. One must not underestimate the importance of relevant knowledge distribution through an eMP. We think that in a foreseeable future the sales process will contain the same activities for products by tool manufacturers. A challenge though, will be how to enhance or renew certain tasks in the sales process with the help of the Internet. 3.1.5.2 and vice versa! In addition to the possibilities to distribute information to customers, Internet offers a chance to communicate with end-customers both ways. This two-way communication, and the management of the increased knowledge a company gains is often called Customer Relationship Management (CRM). An eMP provides a well suited venue for this communication to take place. One example of such an eMP is the MyPlant.com-marketplace set up by Honeywell, where customers to Honeywell can communicate with people at Honeywell via the site, instead of having consultants coming in person to provide help. This saves time and money both for Honeywell and its customers (Warner, 2000). Nairn (2000) also states that the eMPs improve the communication between trading partners, as well as enable more complex collaborations with customers and other partners. 33
Chandrashekar and Schary (1999) describe the communication between the customers and manufacturers via the Internet as well. In addition they also identify the possibilities of exchange of data between computers using languages such as XML (Extensive Markup Language) where data is tagged and consequently recognized by the system as, for example, an order. We feel that the possibility to communicate with both intermediaries and endcustomers can be very useful for Atlas Copco Tools, as a lot of the marketing is based upon communication with them. Of course, eMPs support the user with many other sorts of information in processes aside from sales. Collaborative tools for for example planning, design, manufacturing, and scheduling, all demand different types of information to flow between participating partners.
3.1.6
The eMP as a value adder for sellers
Creating value is extremely crucial to an eMP. The value proposition must be strong in order to persuade companies to join the eMP. There exists a number of ways in which an eMP can add value to a company. Different functional profiles add value in different ways. Let us first take a look at the different profiles. 3.1.6.1 Market roles of an eMP The tidal wave of new eMP that has hit shore, has left many different business models in its wake. Here comes a short list of some of these business models and how they create value for both buyers and sellers, as explained by authors Meeker & Phillips (2000): Capacity Brokers Rid the industry of excess capacity, thus creating value by trading previously non-tradable goods. One can presume that certain market segments, like the cellular phone components markets, will benefit massively from this model. Collaboration Platforms Enterprises use the exchange as an integration, and collaboration, platform for improved efficiencies and process visibility. Here the value is added when attacking industry inefficiencies. These inefficiencies can be unwieldy supplier catalogs, dearth of information in supply chains, and inefficient direct or telephone-based sales staff (Dataquest, 1999). Collaboration platforms can also help partners exchanging information in for example product development. We believe that this form of market role will be the most beneficial but also the hardest to implement, as it requires substantial integration between the eMP and buyers/suppliers. Spot Buying For emergency supplies and ad hoc needs for research. If you make the comparison of the drug store open 24 hours a day, these models will have to use massive stocks to be able to deliver everything that different companies might need in a hurry, which we believe could be a too hard task.
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Auctions Buyer and seller matching of unique items. Good market indicator on current supply and demand. Johan Ericsson (2000-08-15) at Seco Tools, though, claims that after initial trials with auctions on certain eMPs, the company quit participating in selling since it took too much time and the price charged by the buyer was lower than the price to break-even. Private Exchanges Closed communities; supply chains dominated by one anchor tenant; private sourcing networks, closest to EDI. Lower transaction as well as administrative costs and attacking of industry inefficiencies. According to us, not the primary model to use if the aim is to reach new customers. When Sven-Olof Emanuelsson, as mentioned in Chapter 3.1.4.1, describes how to only expose catalogs to approved customers with prenegotiated prices, he then refers to the private exchanges. We feel that this model can severely attack the existing industry structure, in turn making it to a lot more than just a new sales channel. Market Makers matching of buyers and sellers for real-time pricing of commodity items with known attributes. These commodities can be steel, paper, home mortgage and energy. Some of these exchanges challenge existing exchanges with a promise of more fluid, dynamic markets with lower transaction costs and more value adding services, i.e. Paradise on Earth. As the eMP geography changes very quickly, these models will expand in number and at the same time evolve. Private exchanges can be seen today in a number of industries. We believe that these in time will evolve to resemble collaborative platforms. These hybrids will have a higher value proposition, but also an increased level of lock-in. 3.1.6.2 What has the seller to gain from an eMP?
Lets see, you want me to put all my products and prices online so my customers can beat me about the head and shoulders, Then I can commoditize myself even more to take my razor-thin margins down to microscopic level. Finally, I get to pay transaction fees for this privilege. What am I missing? (Anonymous company in Meeker & Phillips, 2000, p. 35)
If we look out of a sellers point of view, some opinions have been brought up that sellers only gain marginally when joining an eMP, if compared to the buyers. Gartner Group, for example, raises cautions when discussing the topic of sellers advantages with eMPs. They say that eMPs have the hard task of satisfying both buyers and sellers and then claim that buyers have the most to gain from an eMP due to more perfect information, price, and quality in the clear, aggressive infomediaries and comparison bots. (Dataquest, 2000) It might be that sellers benefit less today than buyers on an eMP. We still think sellers today can gain significantly from an eMP in many ways. If you also look at some new market roles that are emerging, sellers seem to gain even more. But according to Lentz et al., only the eMPs that manage to give equal value to buyers and sellers, will 35
survive. Just focusing on buyers will not be attractive enough. Still, the authors referred to in the previous chapter, Meeker and Phillips, have listed a number of ways in which sellers today can benefit from an eMP: Aggregation of small orders - Suppliers can ship in bulk, either to distributors or end-customers, instead of serving small customers with small orders. Aggregation in eMPs we believe come in two kinds. First, there is an aggregation for a seller if some of his customers decide to jointly participate in an eMP, without adding together their purchasing power. The efficiencies for the seller by having a common interface towards some customers will not result in larger orders but smaller transaction costs per order. In the other case, when customers actually aggregate their orders, efficiencies of bulk shipping and minimizing of order administration come in mind on top of the decreased transaction cost. We think though, that the second example of aggregation only fits some particular industries, where the business situation works in favor for order aggregation. Lower customer acquisition costs - It has become easier for suppliers to contact new buyers with the entry of eMPs. This advantage we think mainly concerns the spot buying and the auction markets. Collaboration models and private exchanges, for example, mainly turn towards existing partners in the supply chain. The potential new customers gained in collaboration models and private exchanges we believe are those who are actors in buy-side eMPs and buy from a competing brand. Lower selling costs - According to Peter Keen (2000), around 20% of all orders and invoices contain at least one error. When configuring an order online this number drops. Though it is not necessary the case that an online order is as cheap to correct as an offline order. Anonymous posting of excess inventory - It is not always of interest to show that you have excess inventory. eMPs let both buyers and suppliers post excess inventory anonymously. We believe that this advantage will be very hard to use for Atlas Copco Tools because the manufacturing and assembly processes are product specific and since all tools are made to order, the excess inventory is limited. Market Intelligence - Suppliers can serve unfilled needs in a market as they learn more about the market through the exchange. For collaboration models, this learning of the market mainly concerns CRM and not how to find new niches with new customers, we think. Online collaborations could bring suppliers and buyers closer - If trading partners move their business online, it is possible that they with combined forces can streamline their entire supply chains. As we stated earlier, the work on integrating different companies processes we expect to be difficult. There
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can be a great win-win but there are different needs and wants depending on if you speak with supplier or buyer, of the desired content on the eMP. The degree of lock-in is high. Some sellers will see higher prices - If you have a product which price is dependent on how many buyers show up, for example an excess inventory at an auction, you will be more likely to receive a higher price at an exchange as you there have more initiated people interested in the product and knowing about the sale. The authors end the chapter by saying that sellers will view marketplaces as one more channel of many channels to discover customers and accept orders. There will exist simultaneous marketing on the sellers web site and through offline channels. Earlier the work of Nunes et al. (2000) was presented. They strongly claim that all-in-one markets will be the future, and so do we. We believe that in the refined market models coming in the next few years, the eMPs will have a blend of the above described advantages. However, there is always a trade off with breadth and depth on an eMP which will be reflected in the benefices provided for the sellers. 3.1.6.3 Integration with business systems In order to gain many of the advantages mentioned above, especially when lowering the selling costs by automating the ordering process and in online collaborations, integration between the business systems of participating parties is important. Meeker and Phillips (2000) present the necessity to integrate a companys business system with the technical solution of the eMP. This is also supported by Stump and Sriram at Morgan State University (1997), who claim that without large investments in the integration of systems, the efficiency gains in the automated ordering process are largely lost. We see the great possibilities in the ordering process as well, and are of the opinion that a high level of integration between business partners or between a company and the eMP is of great importance. EDI has earlier given the possibilities to exchange orders without human interaction. Integration between the business system and the eMP will enable the functionality of EDI and much more in the form of collaborative tools.
The Atlas Copco Tools case:
The reason that there exists such a large number of market roles for an eMP, is due to the different demands by diverse industries. It is too early here to tell the eventual model that would best suit Tools. But regarding the structure and products of the company, collaboration models, private exchanges and to some extent market makers, all show characteristics to possibly suit Tools, should the company decide to join an eMP.
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3.1.7
eMPs future development
Today is just the advent of B2B ecommerce. During the last year, thousands of different exchanges have sprung up to deliver services to companies in all types of industries. We find it hard to believe that all of these exchanges can profit from the same customer base. If we are true, a shake-out of many marketplaces, similar to the one currently under way in B2C ecommerce, is inevitable. The different exchanges use different technical solutions, and are often competing for the same customers. As a substantial amount of work has to be done in order to be able to truly benefit from an eMP, the lock-in effect for a company, once you have chosen the partners to work with, is also substantial. Therefore, since the success of the eMP is dependent on its trading partners, it clearly has network effects associated with it. Brooks and Cantrell (2000), researchers at the Andersen Consulting Institute for Strategic Change, have in a report described what they see as the logical extension of todays emarketspace. The authors present 4 different developmental phases which the emarketspace will go through over time: proliferation, expansion, consolidation and collaboration.
Proliferation Expansion Consolidation Collaboration
Number of emarkets rapidly increases
Average scope of e-markets increases
Network effect predominates
Connections between e-markets strengthen
Figure 6: Developmental phases of the B2B emarketspace (reworked from Brooks & Cantrell, 2000).
3.1.7.1 Proliferation The first stage, proliferation, consists of a massive rush by entrepreneurs, software providers and content providers who all want to create eMPs. According to Dave Bennett (2000), the number of eMPs has reached 10 000 sites, dispersed over different industries. These eMPs are in general fairly simple and vary in their functionality and focus. The basic things in common between the exchanges are their low transaction volume and the relatively few participants on the markets.
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3.1.7.2 Expansion What we now (autumn of 2000) are starting to see is the shift from proliferation to what Brooks and Cantrell describe as the expansion phase. In this phase, the actual creation of new eMPs slows down, but the eMPs are still in continuous fight over customers. Different strategies can be used to do this. One of these are partnering with the largest industry participants such as for example the automotive and mining industries, which in turn will attract their large base of suppliers of which Atlas Copco Tools is one, and also probably a fair amount of buyers. One of the largest companies in eMP infrastructure, Commerce One, is running down this road. Ariba, Commerce Ones main competitor, bet their money on independent non-industry sponsored eMPs with a less bureaucratic structure to the future connections between the eMPs. Independent of the outcome in the battle, this development will in the end, the authors think, result in a set of eMPs with relatively similar functionality which will either compete for the same potential participants or participants of competing similar eMPs. 3.1.7.3 Consolidation Analysts like AMR Research (AMR, 2000) mean, in accordance to our ideas, that when some eMPs achieve critical mass, the emarketspace will move in to its third phase, the consolidation phase. It is at this stage that competing eMPs will fight their battles over who will be the winner to take it all. This follows in harmony with the thoughts of Shapiro and Varian (1999), who in their book Information Rules explain the nature of network effects. According to them, the phenomena positive feedback, occurring in for example network markets, create an environment where only one player ultimately emerge as a winner. Brooks and Cantrell (2000) emphasize that there will always be space for eMPs that manage to differentiate themselves from the others. It is our guess that the phase of consolidation will start for real about half a year from now (spring of 2001). 3.1.7.4 Collaboration The final developmental phase is the collaboration phase. It is here that former enemies rule out the idea of eliminating each other and therefore instead increase the collaboration between eMPs in order to increase efficiency and flexibility between participants. Increasing collaboration means sharing processes and practices which requires a significant level of trust, aside from the technological hurdles. Advanced collaboration then, we believe, is expected more than a year away, even if there are today previews of what will come, in the work between PaperExchange.com and Impresse, an eMP for marketing materials. These two eMPs are working with solutions enabling them to dynamically share data. Another example of how eMP software providers start collaborating is the announcement that MRO, the technical provider to the previously mentioned
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eMP Endorsia, and Ariba will make their two technologies compatible, so that exchange of information between the two can be improved. Deeper collaboration with partners will lead to what Shapiro and Varian (1999) call lock-in. When an entity chooses a particular technology or collaborator and to a great extent becomes dependent on the product/partnership, then it will take a substantial effort to break the existing dependence in order to change technology/partner (Shapiro & Varian, 2000). Companies must understand that even if deep collaboration will have a high value proposition, it is always a trade off with respect to the will, from the companys point of view, to preserve its independence. Lastly we note that given that the collaboration phase will lead to higher interaction between eMPs, we still believe certain communities will prosper without having extensive connections to surrounding platforms. Even if the work of Brooks and Cantrell to a large extent is just projections of the current situation with a set of constraints, we still find it important to present this potential future scenario. If technology makes it possible to quickly create similar interconnections between companies web sites, much of the network effect will be lost. Then the winner takes it all scenario, resulting from strong positive feedback, explained by Shapiro and Varian (1999), will fade. The reason for taking the future into account is that if the consolidation phase will be as strong as Brooks and Cantrell predict, then it will be of great value to bet on the right horse. As Moore (1996) describes in his book Inside the tornado, when the tornado hits, i.e. when the majority of potential customers decide to choose one of many competing standards, the best choice for a soon-to-be customer is to go for the choice everybody else makes.
3.1.8
Summary of Introduction to eMP
We have in Chapter 3.1 given a description of different functional profiles of eMPs. These are buy-side, sell-side, or neutral marketplaces. Different transaction mechanisms have been discussed. The most common today are catalogs, auctions, and exchange models. The role of interactivity and its possibilities on an eMP has been examined. True interactivity and communication with customers will be of greatest importance for an eMP to thrive. The different ways in which the eMP can add value for sellers and manufacturers are given great attention. These features include collaboration, lower order handling costs, and aggregation of small orders. Some authors think that buyers have everything to gain and sellers all to loose on an eMP. Contrarily, we believe that a prospering eMP must be able to add value both for buyers and sellers which can be quite a difficult task.
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Finally, a section of the chapter is dedicated to the future development of eMPs and what consequences this has on the choices that in some circumstances are made today. Authors Brooks and Cantrell (2000) identify the four different developmental phases of eMPs to be proliferation, expansion, consolidation and collaboration.
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3.2
The value chain organization
In this section the process of selling and marketing industrial products will be discussed, from a literature point of view. The evolution of trade will be described. This evolution will show to have taken the road from comparative advantages, via value chains and value networks to business on the Internet.
3.2.1
Sales out of a historical view
Business has changed a great deal since the origin of economic activity. In the beginning all that was important was to be able to get hold of raw materials and means to transport it to those who did not have access. Comparative advantages were the only real notion and trade gave win-win business relationships. Soon however, when the ability to add value to the raw material was developed, the comparative advantages became less important. Initially this ability was confined in the access to energy resources, but soon knowledge became crucial. This production knowledge developed into the standardization and mass production era started by Henry Ford. His identical black T Fords were cheap enough to be purchasable for a mass market. In time more and more companies realized the greatness of mass production as well, and as competition grew larger the ability to sell ones products became central. Marketing knowledge, or the ability to enlarge the market, was the next step, and one that has been developed ever since. (Normann & Ramrez, 1994) In 1985 Michael E. Porter presented his model, the value chain (see Figure 7) for how a company is organized around different value creating activities. Together these activities create value for the buyers of the product. The difference between the total value and the costs of performing the activities is the companys margin. The value created is then passed along to the following organizations, which in their turn are value chains that create value. The linkages between the different organizations are termed vertical linkages and are similar to the linkages between activities within the chain. Porter means that linkage between firms can be improved in a win-win manner by, for example, making the exchange of information more efficient. He also points out that virtually all activities in all the value chains are supported by technology, and if the technology is used to increase the efficiency in the linkages between activities it will have a powerful effect on the competitive advantages of the company. The model has been widely accepted both by economic researchers and the business community.
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rdination & support service urces management ogy development ment of resources Outbound Marketing Customer service logistics & sales Customer Administrative coordination & support service Human resources management Technology development Procurement of resources Inbound logistics Operations Outbound Marketing Customer service logistics & sales Customer Administr Human Techn Procurem Inbound logistics Ope tio
Margin
Margin
service
service
Producer
Distributor
Buyer
Figure 7: Porters value chain and linkages between different organizations (reworked from Porter, 1985, p. 37).
We are mostly interested in the connections between the producer, in our case Atlas Copco Tools, the distributor and the buyer. Obviously the distributor is also a buyer but we wanted to distinguish the buyer as a company that buys a product for final use. Since 1985, when Porter presented this model, these connections have changed in both configuration and information content. These linkages between the companies are subject to possible change due to the more complex commerce environment, and certain conflicts of interest between the participants in the linked value chain could occur. All the different value adders role might change in the future, therefore it is important to define what their roles have been up until now.
3.2.2
The producer as a seller
Atlas Copco Tools core competence is the manufacturing and development of industrial products. Its products, as already described above, have got a reputation of high quality and good industrial design. In order to make the customers buy these products, however, the company must make them know the products are available and suited to help the them in their work. This work is performed by the sales force and the marketing staff. 3.2.2.1 The sales process The process of selling an industrial product involves certain tasks, from the point of initial contact to the closing of a sale. Friedman and Furey (1999) gives a very general model for the sales process including the five basic tasks: lead generation, lead qualification, selling & proposing, close of sale, and post-sales fulfillment & support (See Figure 8).
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Post-sales fulfillment & support
Lead generation
Lead Qualification
Selling & Proposing
Close of sale
Figure 8: The sales process five general tasks (reworked from Friedman & Furey, 1999, p. 183).
The lead generation consists of finding interested potential customers, lead qualification comprises the evaluation of the customer before an offer is made, selling & proposing is the actual discussions with the customers, the close of sale the signed contract, and post-sales fulfillment & support the placing of the order and after sale support. These tasks should only serve as an example of what the sales process generally consists of. Presently these tasks are usually performed by a companies sales force together with the distributors. At Tools there is a basic separation of responsibility, where the sales force primarily works towards the large customers and the distributors. The distributors in their turn work with the smaller customers. The sales force working with the distributors sometimes helps the distributor in his relations with the end-customer. The marketing staff are also part of the sales process in a way that they provide the overall picture of the market. Within a large portion of major companies, marketing has grown into a central function. Formally it is the art of creating and shaping a market. According to Levitt, marketing and selling differ in their focus, where marketing focuses on satisfying the needs of the customer, and selling concentrates on converting the sellers products into cash. (Levitt in Donaldson, 1998) The sales process, encompassing the sales force and the marketing staff, are involved with all the channels towards the customer and it is their job to make sure each channel penetrates the right customers. 3.2.2.2 Channel mix The sales force sells directly to large customers and provides support to the companys distributors. A company of Tools size does not have the sales force in the sales subsidiaries to serve small customers all around the world the way a local distributor can. The cost of keeping such a sales force would be very high. According to Friedman and Furey (1999) the cost of reaching a customer via a distributor compared with a sales force is between fifteen and forty per cent lower. Therefore parallel channels of distribution are used. In some cases, when the same customers are targeted, conflicts of interest may occur. These conflicts should not be avoided, but welcomed and handled strategically. Mulcahy (in Cohen, 2000) says, Those who dont aggressively embrace multiple channels for multiple products will get left behind. We feel that the use of multiple channels is crucial for a company in order to reach all potential customers.
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Meeker and Phillips (2000) argue that when integrating Internet, for example in the form of an eMP, in the channel mix, the new channel will find its place among the other channels and will not drive them out. Friedman and Furey (1999) give their model (See Figure 9) of how the costs of the different sales channels, including Internet, vary, as well as what kind of products are best suited for the different channels.
High High touch channels
Value add of sales
Sales force
Low touch channels
Distributor
Internet
Low Low
Cost of sales
High
Figure 9: The different channels and their respective costs (reworked from Oxford Associates in Friedman & Furey, 1999, p. 46 & 62).
When the customer has to physically view a product before the purchase, the sales force is needed in order to visit the customer in person and to demonstrate and let him test the product. It is important to realize the difference between transactions and sales operations. We feel that the model above (Figure 9) first of all represents the sales operations. The mere transactions could potentially be done via the Internet both for low and high touch products. The very low cost of the Internet transactions is very tempting for many companies, i.e. they see possibilities to cut transaction costs and reduce the need for distributors. 3.2.2.3 Disintermediation The Internet, with its relative ease of reaching customers and performing transactions, is the fuel of temptation for companies to start selling to their endusers, instead of through intermediaries such as distributors or retailers. When a company cuts off its intermediaries in the value chain, disintermediation occurs. There are different views on to what extent this will take place. Especially in the early days of ecommerce, researchers and other spokesmen foresaw the death of many intermediaries. Among these researchers Benjamin and Wigand, who described how all intermediaries between the manufacturer and customer may be threatened (Benjamin & Wigand, 1995, p. 62). Companies with the business idea to buy products directly from a manufacturer and sell it to customers on the 45
Internet sprung up in hundreds, but the vast majority went bankrupt. As an opposite to these ideas, Kevin Kelly (1998) maintains that the very structure of the Internet favors intermediation. Networks are a cradle for intermediaries since all nodes in a network are intermediaries. Marc Hayes (2000), associate partner with Andersen Consulting, states that the disintermediation of all middlemen is a myth, although the Internet will give the opportunity to bypass certain intermediaries. The majority of the middlemen will instead be incorporated in the companies sales network. Meeker and Phillips (2000) also express their believes in the co-existence of manufacturers and intermediaries. They mean that intermediaries always have, and will in the future, add value through aggregation of small orders, exception handling etc.. However, the picture is a lot different when comparing services and manufacturing industries. In the service industry disintermediation is a lot easier and is already more wide spread.
The sales process of Tools most certainly does not look like the general model we have presented in Chapter 3.2.2.1. We further have to investigate the nature of this process together with the possibilities of improved efficiencies, promised by eMPs. Tools uses multiple channels of distribution just as Donaldson (1998) describes. In all countries of interest the company have sales subsidiaries. These subsidiaries serve the distributors who in turn focus on the end customer It is our opinion that disintermediation will be difficult for Tools to achieve as many contacts with final customers are held by distributors.
3.2.3
Distributors in the chain
In addition to the ability of the distributor to handle small customers, he is often used by the international company as a means of entering a market, considering that a sales subsidiary is expensive to set up and the right personnel difficult to find. The reason for the use of distributors is mainly their good market knowledge and connections to the end-customers (Donaldson, 1998). However, as the volume on the market increases, the international company generally establishes a sales subsidiary in the country. The distributor often sees the establishment as a threat, as the subsidiary takes some of the business. This is often sited as the distributors dilemma: If he sells too well the company will establish a sales subsidiary and take the business, if he on the other hand sells too poorly he will be replaced by another distributor and looses the business altogether. (Moberg, 1990) According to Donaldson (1998) companies, once they have established the sales subsidiary, keep the distributor as an interface towards the smaller customers.
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Claes Hultman (1993), a researcher at Linkping University, describes in his work this link between producing and buying businesses. Depending on the product, this link or relation, is weak or strong. If the distributor has many interchangeable products to choose from, i.e. the brand is not vital, the producer depends on the distributor to sell his product. Hultman argues that the producer must use motivators, among others in the form of support in order to make the distributors devote more time to the companys products. Coercive actions are most unfavorable for the relation and do not improve or have little affect on the conditions of cooperation, i.e. the distributor will not increase his efforts to coordinate his actions with the producer. In a situation where the distributor is somewhat dependent on the producer, coercive actions can, in contrary to the opposite case, have some effect, but keeping a cooperative relation is often more pragmatic (Hultman, 1993). This cooperative relation will not be less important on the eMP. We believe, as some of the authors above, that disintermediation as a phenomenon, is not something that will mean the death of all middlemen. The distributors are likely to be more or less integrated in companies eMP-solutions and continue to do what they do well. This includes aggregating demand in order to create efficiencies in small orders, support small customers in their purchase, and perform service on the products. However, the integration into the eMP solution must not be abused by the distributors in such that they must continue to aggregate orders, and not let each small customer order automatically generate an order to the producer, giving the producer a myriad of small parcels to handle. If this situation occurs the producer must realize that the distributor no longer adds the same value and his position must be reconsidered. One could view distributors as a kind of offline eMPs and this ability and the knowledge gained should be used when forming new eMPs (Meeker & Phillips, 2000).
Concerning the case of Tools, the distributor usually does not have the power to change supplier, as the brand Atlas Copco Tools is well known and constitutes a large part of the sale for the distributor, and subsequently he cannot change to another supplier very often. The knowledge the distributors possess could, and should, be used when turning the sales force towards Internet.
3.2.4
The buyer and his needs
As every coin has got two sides, a seller is always connected in one way or another to a buyer. In some cases the buyer is, as we saw above, some sort of a distributor which in turn sells the product to someone else, often the end user. In other cases the buyer is the end user. The seller is consequently either a distributor or a producer, and in Atlas Copco Tools case both approaches are used. For the buyer there are certain needs that should be fulfilled in order for him to be able to purchase his products efficiently. 47
3.2.4.1 Buyers preferences in eprocurement In recent years there has been an increased focus on procurement. First of all because of the significant costs of purchased material and the potential profits a company can gain from cuts in its spending, and second of all in order to obtain, and use, the competencies of the companys suppliers more easily. (Christopher, 1998) In order to render the procurement more efficient, the use of Internet in purchasing is increasing drastically. According to Martin Christopher (1998), professor of marketing and logistics at Cranfield School of Management, Internet greatly reduces the costs of transactions, and information sharing. It also gives access to new, more remote markets, and simplifies the search for products. Following this development of the use of Internet in procurement, different types of software, enabling what has been called eprocurement, have been invented. With these softwares, industrial purchasing managers can shop items to the company in much the same way as consumers do at Amazon.com (Robinson, 2000). As more and more companies started using eprocurement the idea emerged of a few buyers combining their systems into what can be called a portal. The goal was to make all the suppliers connect to the portal and harmonizing their catalogs so that all suppliers, with their products and prices, would be displayed side by side as books are at Amazon.com. The hope of the buyers were obviously to be able to make purchasing more efficient as well. Bjur and Forslund (1999) have identified six important aspects for such an eprocurement solution to be successful. These aspects are featured in Table 5 below. 1 2 3 4 5 6 The supplier will maintain its own electronic catalog Full integration between eprocurement system, and both buyers and suppliers business systems. Procurement statistics must be presented easily. Different products must easily be compared. The eprocurement solution must be simpler to use than the traditional systems. Both buyers and sellers must gain on the solution.
Table 5: Six important aspects in eprocurement deployment (Bjur & Forslund, 1999).
We see that these aspects, important in traditional eprocurement solutions, in most cases are still valid for large buy-side eMPs, discussed in Chapter 3.1.3.2. One interesting point will be how to configure the electronic catalogs. As Philip
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Kotler et al. (1998) present in the book Principles of Marketing, there are three different levels of customer product choice: the core product, satisfying the primary needs of the buyer, the real product including the high quality etc., and the extended product including additional features such as better service etc.. Bjur and Forslund (1999) draw the conclusion that in eprocurement systems there is a difference between what the seller wants to sell and what the buyer wants to buy, in such that a system developed by a seller gives opportunity for the seller to presenting all three levels, whereas buyer developed systems prioritizes a standard way of presenting a product and only gives room for the primary level, and marginally the real level. One dimension where the eMPs differ from the aspects presented by Bjur and Forslund is that they are very cautious about the comparability as they do not want to increase the competition between supplier and thus not aggregate buyer power and squeeze prices (Bennett, 2000-09-20). 3.2.4.2 The process of purchasing According to Bjur and Forslund (1999) the purchasing process in a general company can be divided into two phases after the initial need has been identified. First the correct supplier and product must be chosen, usually from a predefined data base of products, where a contract has already been signed with the supplier. The choice is turned into a requisition, which after having been signed by the manager, is handed over to the purchasing department in the next phase. Usually people involved with the first phase are working close to the actual need. In the next phase, in the most cases, the purchasing department makes the actual call offs to the contracts. One problem often encountered is the rogue, or maverick, buys, where products outside the prenegotiated contracts are bought. With an eprocurement solution this problem is resolved as only products in the data base can be chosen in the requisite. This process, and the avoidance of rogue buys, was similarly identified by Dave Bennett (2000-09-20) at Exostar, a buy-side eMP initiated by BAE Systems, Boeing, Lockheed Martin, and Raytheon. Busch and Reisman (2000) attack the potential benefits from the avoidance of rogue buying and state that the problems of this sort are easy to handle. Although the potential returns from avoiding rogue buying is not enormous, they are, as stated both by Bennett, and Busch and Reisman (2000), easy to achieve, but they only present the first step in the development of the benefits of eMPs. We think that rogue buying is more complex than the mere existence of the possibility, or not, to order from a supplier. It is also a problem that has existed for a long time. We see a potential risk of sub optimization, as there probably exists needs for different products in different parts of an organization, and to stick strictly to a small number of suppliers might cause problems when workers are denied certain products. The functions supporting the development of eMPs the most, are the purchasing departments who see major advantages in cost savings. They 49
are not the ones destined to use the purchased product, which means that the work force will have their final say on the choice of supplier. We believe that some industries will have greater possibilities than others to reduce the cost of rogue buying, but the problem will not be eliminated due to the use of eMPs. 3.2.4.3 Different buyers, different focuses It is somewhat of a myth that all purchasers only have one goal: To cut costs! In his book Competitive Strategy, Michael Porter (1980), presents price sensitivity as only one of a few aspects of buyers take into account. When the products bought, depending on their performance in the production, can cause either drastic effects such as decreased product quality, or increased productivity, the buyer is much less price sensitive and focuses more on performance and quality. In most cases this applies to the products of Tools as they have differentiated themselves as a manufacturer of both high quality and productive products. Products being of less strategic importance and not as influential on the quality of the buyers final product are, however, exposed to a higher degree of price competition. A buyer also focuses on the stability of its supplier, often seeking a competitive long term partner. The reason being that the buyer often has substantial costs of changing supplier, and instead wants a supplier that can evolve and develop its products in such a way that the buyer can continue the business without disruption. The buyer, just as a supplier or seller, also seeks to limit the power the supplier can exercise in the relationships, by keeping alternative suppliers alive and competitive. Gadde and Hkansson, Chalmers University of Technology and Uppsala University respectively (1994), state that during the 1980s and especially the 1990s with just in time deliveries being dominant, this strategy is changing as more and more manufacturers realize that keeping many suppliers mean high costs, primarily administrative. Another reason for keeping few suppliers, at least when it comes to tools, according to Johansson at BT Industries (2000-08-08), is that one single brand simplifies both the use of the tools as the operators are used to them, as well as the fact that the service can be made more efficient as the in house service personnel only needs to know how to service one brand. The limiting of supplier and the building of relationships are usually two goals when initiating an eprocurement solution, like for example BAE Systems with Exostar and Covisint (Covisint, 2000). Finally, the bottom line for the buyer is always to lower his costs in one way or another, though usually not through price squeezes, but, for example, through cost reductions. 3.2.4.4 Different products, different ways of purchasing Kaplan and Sawhney (2000) also identify the needs and characteristics of purchasing. They classify the products companies purchase into two different categories, manufacturing inputs such as raw materials and components, and operating inputs or maintenance, repair and operating (MRO) goods, including 50
spare parts, tools and services. Two distinctions between the way products are bought are also made, systematic sourcing and spot sourcing. Systematic sourcing is often characterized by long term negotiated contracts and relationships between supplier and buyer and spot sourcing involves more of a fast procurement where a commodity like product is needed at the lowest possible cost without any relation between the parties, apart from the actual transaction. This division between indirect and direct goods and services, or operating and manufacturing input as Kaplan and Sawhney choose to term it, is quite important, and relevant, for example, in the work of BAE Systems intentions with Exostar, where the indirect suppliers are chosen as pilots and direct suppliers follows with a certain delay. The four distinctions compose a matrix in which different kinds of eMPs can be placed (see Figure 10).
How businesses buy Systematic sourcing Spot sourcing What businesses buy Operating inputs Manufacturing inputs
MRO Hubs Yield Managers
Catalog hubs Exchanges
Figure 10: The B2B matrix (reworked from Kaplan & Sawhney, 2000, p. 99).
MRO-hubs support continuous procurement of products such as tools, spare parts to machines, office supplies etc.. Catalog hubs are used when companies buy components to its production. (The transaction model most used for MROhubs is catalogs as well, but Kaplan and Sawhney (2000) use the term cataloghubs for the systematic sourcing of manufacturing input.) Yield managers provide a venue for things like production capacity, labor etc. not sold on a daily basis. Exchanges are stock market-like eMPs where for example raw material and energy can be bought, without any long term contracts between buyer and seller. Concerns about this matrix can be raised in light of the current development of large buy-side eMPs, which will support both MRO (MRO-hubs) and component (Catalog Hubs) purchasing. For example, Exostar focus initially on its MRO procurement, and in a second wave on the component procurement (Bennett, 2000-09-20). Small eMPs, supporting only either segment of the matrix will have to make sure they have a customer base interested in choosing them as partners, the risk being that their respective functionality is included in the large eMPs created by the largest corporations. Both the road map of Exostar (Bennett, 200009-20) and Nunes et al. at Andersen Consulting (2000) suggest that the large eMPs will support a very wide range of functionality, becoming a sort of all-in51
one markets in a not too distant future. In light of these all-in-one markets, we see that the matrix will not be valid for all eMPs, and especially not when dealing with large corporations. Concerning the business relations between less giant companies we, however, see a future for the matrix categorization with MROhubs etc.. The consolidation of eMPs that Brooks and Cantrell (2000) foresee is also relevant, as the ability for the small eMPs to communicate and integrate with the large eMPs is imperative in order for the potential customers to feel they can choose a small eMP without risking to be forced to redo the work of integration with other eMPs.
It is of Tools interest to try and maximize the richness of the presentation of an offer electronically. Systems developed with a seller focus will much likely be better up to the task than eMPs created by large buyers. As Tools uses both distributors as well as sales subsidiaries, and consequently sell both to distributors and to end users, any actions taken towards eMPs need to take the interests of both these buyer groups into account. It is not sure that they will need, or want, the same things in an eMP. These different needs might also result in conflicts in the way Tools chooses to deal with them. This will be treated further in Chapter 3.4.2.1: Channel conflicts. It is not evident to place the focus for Tools into the matrix of Kaplan and Sawhney. There are many aspects important to take into account when choosing partners or eMPs to join in order to gain in the proper processes. It might not always be Tools choice to decide the focus either. The development of large buyside eMPs by equally large customers to Tools, such as the aerospace and defense industry with Exostar, represent large portions of Tools revenue and cannot be ignored.
3.2.5
Summary of The value chain organization
In this chapter the actors in the traditional value chain are presented, from the producer via the distributor, to the end-user. The actors are described, both concerning their functions and their relations to the other players. The producer uses a multitude of channels to sell its products, including both online and offline channels in a deliberate mix. The possibility to disintermediate middlemen is discussed and the myth of the future death of all middlemen is killed. The distributor is identified as a value adder, which will continue to fill a function in the future. Finally the buyer and his different needs, including that of automation in the procurement process, are described. The discussion comprises the often mistaken price focus of buyers. Many buyers focus much more on quality, security of delivery, and the economic strength of the supplier. The way in how companies purchase differently depending on the product they buy is 52
mentioned. A framework by Kaplan and Sawhney (2000) on how eMPs will facilitate these routines with different business models is described. One conclusion drawn from the framework is that existing eMPs do not nicely fit into the model but often cover two or more of the four different market functions presented by Kaplan and Sawhney.
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3.3
The value network
In contrast to the value chain model Porter presented twenty years ago, people more and more have come to speak of value networks. We will now further explain the nature of these opinions.
3.3.1
Different ideas on an emerging model
Researchers in the 1990s have started to object to the sequential model Porter presented. Richard Normann, a former professor at Lund University and Rafael Ramrez, current professor at HEC in Paris (1994), present in contrast to the linked value chain what they call value constellations. They argue that the participants in the linked value chain no longer can be modeled in a unilateral and sequential form. Instead of adding value, one after the other, the participants now create value simultaneously in cooperative relationships. They present the example of the car industry in Europe, which from a general point of view can be associated to the organization of sales at Atlas Copco Tools. The manufacturer uses national distributors which represent the interest of the manufacturer in the different countries. In turn the national distributors own the connections with the dealers, who are the ones with the actual customer contact. Traditionally, the value chain was modeled by each participant passing on its added value to the following actor. Normann and Ramrez however, identify the more complex relationships and information exchanges, which take place between all the participants in the chain. They call these kinds of constellations cooperative relationships. (Normann & Ramrez, 1994) Ashok Chandrashekar and Philip B. Schary, at Oregon State University (1999), have also described these complex connections between different actors in the value chain. Their approach is mainly towards supply chain management but what they present about the virtual supply chain is also valid for our thesis and Tools. The cooperative relationships mentioned above by Normann and Ramrez, are described as networks of interdependent relationships, combinations of value-adding partnerships that are cooperating to manage the flow of products. These partnerships are however not very strong or of a long-term type. They are rather of a temporary kind, fulfilling a specific task or project. Product manager, Bjrn Torold at Intentia, states that eMPs are a fantastic foundation for cheating (Rydberg, 2000). Many voices have been raised that eMPs will erode loyalty between companies and create a condition where everyone is sleeping with everyone else. Torold goes on by saying that flexibility is enhanced all the time and companies do not lock themselves in a buyer-supplier relationship just because they share a common technical platform. This is opposed by the theories of Shapiro and Varian (1999) who discusses lock-in as a central switching cost whenever a choice of technology is made. This severely 54
limits the flexibility Bjrn Torold at Intentia describes. We agree with Shapiro and Varian, in such that initially there will be lock-in, but as eMP-technology evolves and integration between eMPs is possible, according to the consolidation phase presented by Brooks and Cantrell (2000), the switching costs will decrease and lock-in will be less relevant. There are also authors who do not think that eMPs pose such a big threat to the inter company relationships Bjrn Torold describes. Meeker and Phillips (2000) mean that the eMPs that will thrive are those who automate relationships. They go on by saying that buyers and sellers are more than just buyers and sellers. They are enterprises with a full range of interactions that lead to or stem from commerce. Forcing for example the buyer to separate the commerce element from all the other processes is inefficient (Meeker & Phillips, 2000).
3.3.2
Implications by Internet on B2B relations
The evolution of business into what Normann and Ramrez (1994) call value constellations with many complex relations between the participants will affect the way information, transactions, and all other forms of communication are executed. Fingar et al. (1999) indicate that Internet provides the business platform for realizing Porters vision on the linked value chain. We believe that eMPs can function as a sort of hub for all these different connections between all, or most, of the participants in the network. This is modeled in Figure 11 below.
Distributor Producer Electronic Marketplaces Distributor End user Distributor End user Producer Distributor End user
Producer
Figure 11: Electronic Marketplaces as hubs for connections between participants in business (created by Englund & jdemark, 2000).
Even though the eMP mostly will facilitate the connections between the participants in more complex value constellations, our opinion is that the eMP also will add value in the cases where the linked value chain persists. Meeker and Phillips (2000) argue that the eMPs will perform other services than just that of making transactions and sharing of information more efficient. The eMP will be the setting for the collaboration platform we presented in Chapter 3.1.6.1, and will be used for many services, such as information exchange in product development, FAQ, and configuration programs. Busch and Reisman 55
(2000), strategists at Freemarkets and Arthur Andersen respectively, identify this development, away from the transaction focus, towards the more business critical processes. Aside from the above mentioned services, they also present inventory reduction, parts rationalization, and order fulfillment as possible value adding services integrated into the eMP. Barba et al. (in Gattorna, 1998) also identify that providing information and services which add value beyond the product is, and will be, of great importance. The reason being that service and information have become very influential differentiators of products.
One could argue that long term partnerships are, or at least have been, necessary in the business environment in which Atlas Copco Tools operate. The future might change the approach. A more diverse and complex web of connections would transform the way business connections are upheld and maintained. The use of Internet will, with great certainty, be of importance both to change the existing relationships, but also later to be able to manage these complex relations. These relations include both connections with suppliers, competitors, distributors, and end users.
3.3.3
Summary of The value network
The relations between these actors are changing from the sequential thinking that the first part of the chapter is based upon, to a more network like model. In this model contacts are of a more complex and not always of a long term kind. These types of contacts are further made possible by the emergence of Internet and eMPs will serve as a kind of hub for all the different kinds of contacts taken.
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3.4
Impacts of the eMP
We have seen how the value chain of yesterday has transformed into todays value network. The role of the eMP in this value network has also been discussed. The emergence of the eMP presents many opportunities but also potential risks for companies. In this chapter, we investigate through a sales focus in what ways companies are affected by eMPs.
3.4.1
Positioning on the Internet
There are several ways for a company to gain competitive advantages over competitors. Positioning in relation to other competing companies is one important aspect. There are different tools to use in order to position a company towards the competition. Differentiation, branding, and pricing are discussed in this chapter. We also include how to deal with the market transparency often present in business on the Internet. 3.4.1.1 Differentiation Why can some companies charge a higher price than a competitor, for comparable products? The answer is that via differentiation, i.e. making a product different in some way, the customer is willing to pay more than for the other product. The ability to communicate the differentiation of a product is vital, in order to convince the customer to choose that product. William D. Bandt (in Leebaert, 1999) states that because virtually no boundaries will exist when comparing different products and prices on the eMP, differentiation will be of great importance. Partly this will be due to the collapse of differences in time, place, and information access. Only the companies with truly differentiated products and offerings will survive, and the struggle will be ongoing to keep the competitors behind. In addition, the communication of the differentiation will be very difficult, as the medium of communication often is one way. However, when the differentiation is successful, the reward reads competitive advantages. As Atlas Copco Tools concentrates on differentiation in its physical sales, this must be applicable in the sales on an eMP and a lot of thought must be given how to overcome the difficulties of communicating the differentiation on an eMP. Meeker and Phillips mean that competitive advantage will be discovered more quickly on an eMP. Strong suppliers with differentiation will welcome a centralized market. Like great athletes that can showcase their talent at the Olympics, a global marketplace is more opportunity than risk if a supplier has the goods. Businesses built around buyers ignorance of alternative choices will have to revamp (Meeker & Phillips, 2000). In contrast, Berryman et al. (1998) suggest that if a product stands out from competitors and is strongly branded, its producer should consider selling from its own web site, and not through big mall 57
like portals. We are bound to agree with what Berryman says. Even if a company has a clear competitive advantage, it can have difficulties in influencing the presentation of information on a web site not in its own possession. Porter (1985) also identifies the possibilities of differentiation that the value chain offers. Around each product there are a great number of processes, both within the firm as well as in the interface with the customer. They include activities such as service, transportation, customer information, and internal flows of information. As stated previously, technology plays an important role in practically all of these activities, and the way this technology is developed and used within, and between the activities, can be a powerful differentiator for the company. 3.4.1.2 Branding The brand name is a very important part of a product presentation. A lot of feelings and prejudice are associated with well established brands. Many firms have therefore strict rules for how the brand name should be used within a company on both a local and global scale. Lorenzoni and Baden-Fuller (in de Wit & Meyer, 1999) mean that the brand is a tool an international firm can use to exercise power over its subsidiaries and distributors, by imposing rules on how to use it and how products associated with it should be presented and developed. Before engaging a company in ecommerce, the companys brand strategy and the possibility of brand dilution must be thoroughly considered. The risk of diluting the brand name is present on the Internet in different ways. According to Cap Gemini Ernst & Young (2000), these risks include the lack of guidance a company can give to a customer at the point of sales, i.e. the risk exists that the customer does not buy the product best suited for his needs, and in case of problems blames the brand and the company behind. Another risk is that the company might have difficulties to communicate the values behind the brand on the Internet, as the customer will be on his own while comparing products of different brands. Meeker and Phillips (2000) also describe the importance of the brand on the eMP. In recent studies, prices on the Internet in B2B trade were still of lesser importance than quality and brand name. Though, even with high quality products and a strong brand name the price must still be set at the right level. 3.4.1.3 Pricing Of importance in the product offer, and also as part of the differentiation, is the price. The right price means not being as low as possible but a mirror image of what buyers are willing to pay for the product. Nessim Hanna (1995) defines price as the value a customer put on the quality and features of a product. The important thing for a company with high quality products is to avoid sliding into 58
price cuts or price wars, and the only way to do that is to differentiate the product (Hart, 1992) and to communicate this differentiation to the customer, as previously stated in Chapter 3.4.1. The high price that companies with differentiated products want to charge, must be set with great consideration of the whole package, including surrounding services, which must be valued by the customer to the price the company chooses to set. These considerations make up the companys pricing strategy (Hanna, 1995). The Internet gives new opportunities and threats for companies to defend and justify a price higher than their competitors. These new conditions, which will alter the trade landscape include first of all an increased market transparency. 3.4.1.4 Market transparency ecommerce is often predicted to open up the marketspace, thus contribute to an increasing price transparency. According to Hanna (1995), there exist companies who use the fact that customers do not have complete information on product technology, complementary products and competitors prices. This lack of information, and consequently difficulty to compare products, give the companies the possibility to charge a higher price thanks to the customers lack of information. With the Internet augmenting the possibilities of comparing e.g. product prices and quality, companies competing with strategies incorporating the above mentioned factors will have a harder time. Today, consumers see lower prices and easier shopping and there are fears that Internet will commoditize almost every product, leaving the profit margins deteriorated. Eventually, the worst pessimists claim, all prices will rest slightly above the marginal cost for a product. There are, however, opponents to the idea of price deterioration on the Internet. Brynjolfsson and Smith at MIT (2000) point to several examples of businesses of pure commodities, like Amazon, that are still extracting a price premium on their products. The reason for this, the authors speculate, is that the Internet heightens the importance of trust and brand awareness. Although this is an example taken from the B2C world, this does not mean that the thoughts are not applicable in the B2B space. Sinha (2000) repeats the wellcited phrase that the Internet makes a buyers search much more efficient. Given this, there exist many risks for sellers to be compared with other sellers on values out of their influence. A seller competing on other values than price, for example, is not keen on being compared on price with his competitors. The very reason to why companies differentiate, as seen in previous chapters, is that they can extract a price premium from their differentiation. If a companys prices are not viewed together with the values supporting these prices, the customer will get an unrealistic view of the marketspace.
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POWERPLAY IN INDUSTRIAL SALES The Atlas Copco Tools case:
Tools pursues, quite clearly, a differentiation strategy. The products have a high design standard and a lot of research is done in order to make the products as easy, efficient, and pleasant to use as possible. In addition to the products features and the high quality, Tools has a global organization that can serve customers with service and products with very short lead times. For this ability Tools manages to charge a premium by selling its products at a higher price than its competitors. Accordingly, competing on price is something Tools really wants to avoid doing. It will be vital for Atlas Copco Tools to communicate its differentiated products with equal talent on the eMP as through traditional sales. As Tools has an efficient distribution center and global service organization it has already used its value chain to increase the differentiation of the offering.
3.4.2
A new sales channel?
Without a doubt, one of the most important questions for companies will be how to resolve their product or service channel strategy (Lynch, 1994). Often these traditional companies use not only one distribution channel to reach their customers, but many. With the Internet now candidating as yet another sales channel, the well-established channels feel the wind of change, but not necessarily the presence of death. According to Friedman and Furey (1999), concur to what companies have already grasped, the necessity to use multiple channels in their sales. They go on by saying that if a company is to maximize the profits out of its multiple channels, these must be managed and controlled as a single smoothly functioning system. When serving the customers through different channels, channel conflict can occur. The new opportunities for coopetition on an eMP further adds to the complexity. 3.4.2.1 Channel conflicts According to Michael Dell, ingredients to a good ecommerce strategy include diving head first into the Internet, avoiding channel conflict and realigning the sales force (Wong, 1999). How does channel conflict emerge then? Channel conflict occurs when channels compete for the same set of customers. The reasons for the competition can be for example perceptual differences, communication difficulties, disagreement on decision domains, and goal incompatibilities (Lambe, 2000). True channel conflict, when the same customers are served by multiple segments, should not be mistaken for the sound, necessary friction of the business environment, which certainly can work as a positive force for the evolution of the company. When true channel conflict emerges, it can lead to such a deterioration of channel economics that the threatened channel either
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retaliates against the manufacturer or simply stops selling its products (Bucklin et al., 1997). Channel conflict is, according to Cohen, one of those explosive topics managers love to avoid. In todays eMP everyone from field reps to distributors believe they are being cut out of deals. But the channel conflict can be seen from a positive perspective as well, as a good sign that the company is adequately covering its turf. According to Tim Furey (in Cohen, 2000), channel conflict is just a cost of trying to extend coverage in the market. (Cohen, 2000) Finally, Bucklin et al. (1997) present three ways on how to manage channel conflict when two or more channels target the same customer segment. These are: 1. Differentiate channel offer 2. Define exclusive territories 3. Enhance or change the channels value proposition Mulcahy (in Cohen, 2000), president of Xerox General Markets Operations, says that using multiple channels, and in the same way risking a potential conflict, is a sign of a good, healthy company. Channel conflict is an important issue, and in all the cases where the Internet creates new sales channels its consequences must be analyzed an actions taken to control it. However, we do not think that selling via the Internet necessarily means that a new channel is used, and subsequently channel conflict will not always occur. We will analyze this further in Chapter 5. 3.4.2.2 Competitors on the eMP Positioning a company towards its competitors is discussed in this report. The venue for this positioning is changing with the emergence of eMPs. New ways of competing and new constellations might appear. Nick Earle, president of e-services solutions at Hewlett-Packard, (2000) means that companies will tend to team up and collaborate on the eMP. Signs of this cooperation have already been seen in the agreement between car-making competitors Ford, GM, and DaimlerChrysler, to build a B2B trading hub. He foresees more relationships of this kind, where competitors instead of beating each other up seek to find ways to find mutual benefits. The development has shown that these mutual benefits rest at sharing the technological platform, and the fierce competition will continue only with the exception of a shared infrastructure. The cooperation present in the start up and in the short term development of the eMP, obviously soon returns to the fierce competition, which was there before the eMP. Shapiro and Varian (1999) calls this tension between cooperation and
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competition coopetition, and mean that it is a natural stage in any network economy. From a seller point of view this teaming up with competitors is not without risk. Where buyers can push down prices, sellers stand the risk to potentially invite competitors to try to overtake customers. A company with an extremely strong brand and differentiated product stand to risk more than others. Berryman et al. at McKinsey (1998), mean that for such a business, a company ecommerce web site is to prefer over big mall-like eMPs. We feel that there are risks with such an approach as well, as there may emerge a major eMP, formed by smaller competitors collaboration, which add value in such a way that customers feel that going to the above mentioned company web site is not worth the inconvenience.
Atlas Copco Tools must address the questions of possible channel conflicts when increasing its presence on the web. If these questions are not handled in an appropriate manner, arising sales and distribution channel problems can severely damage the company. As the Atlas Copco Group consists of a multitude of brands, competing with each other on the market, Tools needs to address the issues regarding internal as well as external competitors future presence in the marketspace.
3.4.3
Summary of Impacts of the eMP
The latter part of this chapter has been devoted to the possibilities and problems arising when using eMPs as new sales channels. We have presented a strategy framework for how new sales channels can be incorporated in the company. Using a new sales channel can pose certain problems on existing channels if the new and old channels target the same customers. A company can avoid channel conflict by either differentiating the channel offer, defining exclusive channel territories or by enhancing or changing the channels value proposition (Bucklin et al., 1997). The final puzzle that has been discussed is how relations are affected between competitors when they are present on the same eMP. New types of relationships and collaborations will be formed, but also new ways of beating each other up.
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3.5
Summarizing thoughts of the theoretical framework
In this chapter we to conclude our theoretical framework, providing the necessary bridge for the analysis to come.
3.5.1
The role of the eMP
Deducing from the literature we have used in the construction of our theoretical framework, a picture of the eMP geography of today is forming. Today is the Jura age of eMPs, but the business world evolves faster than mother nature. Even though the evolution of eMPs need many more mutations before being able to create an environment with truly efficient markets, many companies stand to gain substantially, today and/or in the future, when joining or creating eMPs of today. We believe eMPs have an important and lasting position in the value network. The roles of eMPs will shift depending on industry and focus. Buyers but also sellers can receive value from participation in the eMP. Since some authors, as well as we, believe that commerce on eMPs will take on a more collaborative form, companies that are present on an eMP today might expect greater value propositions in the future. This development will probably also attract companies that currently see no business possibilities on an eMP on their behalf. We think that companies need to initiate an internal discussion on the prospective gains and the use of an eMP, to prepare for a possible presence on an eMP.
3.5.2
eMPs and the company: how and why?
An eMP can affect great portions of the company. There are therefore certain important aspects of eMPs to address and potential problems to discuss before any strategic decisions on how to address the opportunities the eMPs offer, can be made at all. 3.5.2.1 Q & A, Question and Analysis It is not of interest to initially question which eMPs to join or if an entirely new eMP should be constructed for a specific company. Rather, one should pose questions like: How can an eMP add value to us? Which business processes can the eMP improve? Who can we serve with the eMP, internal and/or external clients?
Companies that have implemented large ERP-systems often complain about the tremendous amount of work that goes into such an operation. We believe that 63
conducting sales through an eMP is not only a task for the sales and marketing department but the process encompasses other departments as well. Since we have a sales focus, procurement is not extensively discussed in this report. The procurement is observably always present on an eMP as a seller always has his opponent in the buyer, and we will therefore try to integrate the procurement thoughts in our focus on sales. Probably the work will not be as tedious as with ERP-systems, but one should not underestimate the efforts with an implementation process. 3.5.2.2 Selling on eMPs in reality The foundation of a change process is an analysis of the current situation. When speaking in terms of sales, the relations between customer, distributor and supplier must be thoroughly mapped. As investigated in the chapters above, disintermediation, often seen as the bless/curse of ecommerce, does not occur as easy as you think. Distributors play a greater role than acknowledged, according to most of the literature we have read on the subject. Stating Meeker and Phillips (2000) once again, distributors and channel partners will still be critical to fulfilling customer demand and only the weak middlemen will be eliminated. There are a few other twitches sellers must deal with once they have dug the new eMP-channel. Other sales channels will be affected, both in possible cannibalization but also in how information flows on a daily basis internally and externally. A new channel is born and with it new possibilities for customers/middlemen to interact with the supplier, giving the old middlemen a changing role. Sellers must also realize that market and price transparency can increase with the eMP and stand prepared for that challenge. With the use of eMPs, companies can sell in many different ways, not possible before. We have presented a number of transaction mechanisms and even if a company cannot use these other mechanisms in its current sales process, it now has a way of selling previously unsellable or unsold material. eMPs do not necessarily mean entirely new ways of selling but perhaps entirely new efficiencies in selling. Imitating and making more efficient the physical sales process on an eMP we believe can generate substantial benefits. By doing this we also believe interactivity between buyers and suppliers will improve, helping both parts. The fast evolution of eMP today will continuously change relationships and roles in the electronic sales process. We believe that sooner than you know of it, the eMP will be more than just another sales channel
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THE SITUATION AS WE SEE IT
4 The situation as we see it

In theory, there is no difference between theory and practice. But, in practice, there is. " (Jan L.A. van de Snepscheut)
In order to provide final conclusions and recommendations, we must analyze the situation as we see it from five points of focus. We generate our five points from our research questions. By doing this, we hope to cover all the issues related to the questions in a small number of focus points. These are respectively, business environment where the progress and trends among the competition is described and analyzed, sales and marketing describing the respective processes, customers where the buyer of Tools products are defined, PTD a description of the logistics solution of Tools and the opportunities it presents, and eAtlasCopcoTools.com where we present the current ecommerce initiatives at Tools. We have made a simplified model of the relationship between the five points of focus in order to visualize how we have structured our data collection. The model is presented below in Figure 12. Internet
eACT.com
Customers
End-user
Sales & Marketing PTD

Distributor
Legend:
Cooper Sandvik Seco Tools
Information flow Product flow
Business environment Figure 12: A simplified model of the five points of focus (created by Englund & jdemark, 2000).
4.1
Business environment
Of great importance when setting up guide lines for a companys future development is the business environment in which the company act. This
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involves both competitors and other companies within the same industry segment.
4.1.1
Competitor environment
Atlas Copco Tools has got a multitude of competitors. However, an in depth competitor analysis will not be put together in this report. We will only give a broad view on the largest competitors with a focus on their ebusiness initiatives. The reason for this focus is primarily that we feel that it is important to see if the competition appears to have the qualifications to initiate a vertical eMP within the power tools segment. We also want to concentrate on the needs and wants of the customers instead of the competition. Lack of time and difficulty to find good input have also been a factor in this choice. Many of the competitors to Tools are niche players without the wide range of products that Tools has. Often a competitor only competes with Tools on one of the product lines. Large companies in the size of the Atlas Copco Group, and bigger, are quite few within the segment of power tools. In the USA it is primarily Ingersoll Rand and Cooper Industries who are the big players. Though, their penetration in Europe is fairly low, and the product palette is not as wide as Tools. On the Asian market there are also a few large companies, which are struggling to get a good penetration on the European market. The few large players and the numerous niche companies, give a market which is quite fragmented and hard to model in terms of market shares. For the power tools market we will not go farther than saying that Atlas Copco Tools has got a big market share and is an important player. Ingersoll Rand and Cooper Industries both present a very wide range of power tools and even manufactures and sells compressors and other complementary products, just as the Atlas Copco Group. Neither company has, what we in the theoretical framework call a sell-side solution, running on their Internet sites, but Cooper Industries says that it plans to initiate such a solution by the end of the year 2000 (Cooper Industries, 1999). However, both companies have got a ecatalogs with a lot of product information, much in the same way as Atlas Copco Tools has got on their web site. Having developed a functional ecatalog is one important and time consuming project, which is a prerequisite for any future ebusiness solutions. Another important player is Alliance Tools, the constellation of sister companies within the Atlas Copco Group, consisting of Desoutter, Chicago Pneumatic, and Georges Renault. Together they represent a quite wide range of handheld power tools. Their Internet initiatives are so far non existing, and according to our supervisor Fredrik Bergstrm (2000 continuously), Tools is the leading division within the business area Atlas Copco Industrial Technique concerning ebusiness. The impression of their competitiveness product wise depends on who you talk 66
to within the Group. According to the marketers at Tools, Tools products are superior in every aspect, information we primarily treat as personal opinions and company patriotism. However after having talked to ke Larsson (2000-08-24) at the distribution center in Hoeselt, Belgium, Alliance Tools is very competitive, although not on such a broad basis as Tools. According to ke both Desoutter and Georges Renault steal orders from Tools, and he sees them as quite aggressive in certain aspects. Chicago Pneumatic do have certain problems with its product development, and are struggling. Finally we can say that there are no competitors to Atlas Copco Tools who are using ebusiness in their daily work, and accordingly we see no obvious or immediate signs of other companies forming an eMP. Other companies in the business environment has come a longer way towards ebusiness.
4.1.2
Machine tools manufacturers
A major part of the business environment is also other manufacturers of industrial tools, though not competing, but rather complementing products. We have been in touch with Seco Tools and Sandvik Coromant, which both produce different kinds of milling cutters and other related products. There are many common denominators between these two companies and Atlas Copco Tools: they are manufacturing companies making tools, they sell to the same kind of professional customers, they are Swedish, they sell their products both directly to the end-customers and via distributors, they all have products that the customers need help to buy, and they are dependent on the motor vehicle industry as a big customer. These similarities make them fit into the group of companies to which this study is aimed. In light of this, we wanted to use their experiences, and compare them with the input we get from Tools. 4.1.2.1 Attitude towards ecommerce Since several years both Seco Tools and Sandvik Coromant have got a company web site where company and product information is presented. Both companies have running ecommerce solutions where big customers and distributors can place orders via the Internet. Both companies also use EDI-connections with many customers. Their records of utilization are impressive, but the real benefits have not yet presented themselves as the customers systems and the ecommerce solution are not integrated, i.e. the process has not been made much more efficient and no additional features help the customers. The numbers show however, an important factor, the customer Internet penetration. The ability of the customers to use Internet is very important in order to enable future, more sophisticated, ebusiness-solutions. Both companies rely quite heavily on EDI transactions with their largest customers; a transaction method that they in the near future do not see any reason to change or disrupt. Meeker and Phillips 67
(2000) also see a future use of existing EDI solutions, primarily because they have been integrated with the transacting companies business systems. Just as Mulcahy (in Cohen, 2000), and Meeker and Phillips (2000), who see a future use of a multitude of channels to connect with the customer, they have identified the need for different ebusiness solutions to different customers in order to adapt to their diverse needs. (Ericsson, 2000-08-15 and Fredriksson, 2000-08-08) At Sandvik a deliberate strategy of trying many different existing ecommerce solutions are being carried out. They are for example present on verticalnet.com a site with some fifty different vertical marketplaces and at Endorsia, a horizontal MRO electronic marketplace. Sandviks trade at Verticalnet though is smaller than a thousandth of a per mil (Fredriksson, 2000-08-08). The aim of this strategy is to augment the ebusiness knowledge within the company. These efforts follow the steps of business utilization of Internet in Figure 13, where presence mean that information is given on a web site, experimentation that experiments with different kinds of Internet initiatives is performed, integration that Internet is used in an integrated way in the companys business, and transformation that Internet is used to do business differently.
Transformation Integration Experimentation Presence Figure 13: Four steps towards business utilization of Internet (reworked from Brehmer, 2000).
Sandvik Coromant and Seco Tools both are at the experimentation phase on the verge of integrating Internet into their respective daily routines. 4.1.2.2 Development in agreement with the distributors Both companies use distributors all over the world, in Europe mainly to smaller customers. The main reason is that it is very expensive and difficult to keep a sales force with the network of connections local distributors have established over several years. Another motive for using the distributors are the strong need for help needed by small customers when they buy these kinds of products. Just as Hayes (2000) and Meeker and Phillips (2000) states that distributors add a certain value and will co-exist with the larger corporations sales forces, Ericsson and Fredriksson say that they have no wish to disintermediate their distributors. On the contrary they want to develop the their ebusiness solutions in collaboration with the distributors so it will suit their needs and render the communication between product company and distributor better and more efficient. Keeping good communication with the distributors and in turn the customers is absolutely crucial in sales and marketing. 68
4.2
Sales & marketing
For a product company such as Atlas Copco Tools, customer contacts, via the sales force, the marketing personnel, and the distributors, are necessary in order to sell the products. The cooperation between the three groups is also an important factor in order to give the customer competitive products and good service.
4.2.1
The sales and after sales process
At Tools all people involved with the sales of the products, internally as well as externally, are focused on personal contact with the customer, which means spending a lot of time with the customer and letting him test the products. Presentation Christer Blow, marketing manager at Demonstration Tools (2000 continuously), describes the cyclic process in use by the company in its Test customer contacts (See Figure 14). This includes a presentation of the product, a Order hands-on demonstration of the product at Figure 14: The sales cycle the company, a test in the customers (Blow, 2000 continuously). production line, and finally, hopefully, an order acquired from the customer. Between the testing and the actual order there usually is a period of persuasion where the customer asks questions and negotiations take place. The whole sequence, which normally has a span of two to three weeks, is then repeated with new customers and with the same customer but with other products. Both the sales personnel at Tools, and the distributors sales personnel, are trained in this method, and the idea is that the whole sales force should be able to physically demonstrate all he different tools. The reason for this hands-on approach is that it is of great importance to first and foremost persuade the production technicians and blue-collar workers of the benefits of the tools, and only in second hand the purchaser. At BT Industries, for example, the purchasing department is only notified of the purchase after the production technician have placed the order with Tools (Johansson, 2000-09-08). After the physical presentation has taken place, customers normally place order to the in-house sales force. This personnel, situated at each sales company, handles orders and answers customer queries. Less than half of the time is devoted to order handling and the rest for customer information says Roger Kangur, manager for the in-house sales force at the Swedish sales company. He goes on by saying that a lot of smaller customers phone often but in the same time his job is to serve the customer so its a tricky problem. He believes that even if Tools would provide customers with self-helping software, it would still remain a lot of questions for the in-house sales force, since the Internet 69
penetration and the will to change is low among certain customers. The most common questions from customers for the sales-force regards time of delivery, price inquiries, stock availability and parcel tracking (Kangur, 2000-09-26). After sales activities towards the customer are included in the end of the sales process. After sales consists mainly of physical service of products in need of renovation or repair. In some cases this could also include certain product modifications. The after sales is performed both by the sales companies and the distributors. 4.2.1.1 A model of the sales and after sales process After having in word presented the sales and after sales process, we want to visualize all the for us relevant steps, or activities, in a model (Figure 15). This model includes the cyclic customer contact model with the addition of the initial contact, the continuous feedback after ordering, and finally the service and support in the after sales process.
Test
Order
Figure 15: The sales and after sales model (created by Englund & jdemark, 2000).
We have made the deliberate decision not to explicitly include logistics, payment, and installation in our model. The information content of logistics is an ingredient of many of the activities in the model above, but the physical transportation of products is excluded. Payment is excluded in our delimitations, and installation is to some extent included in service and support. 4.2.1.2 Online information exchange In the theoretical framework we present several examples of the information content possible to communicate online on an eMP. The exchange of information online can help the interaction of several steps in the above described sales process. This online communication would not eliminate the need for a physical sales force but instead increase the efficiency in the sales process by mixing the parties in order for them to perform the task they are best suited to perform. The use of the Internet in the sales process will be further analyzed in Chapter 5.
4.2.2
A complex product to sell
Atlas Copco Tools has a product range of over 2,400 models ranging from tiny air motors to large chipping hammers. The customer does not always know what model he must buy, even if he might know the type of product to purchase. The
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sales force of Tools, as well as the distributors, have an important role in educating the customer before selling the product. Buying for example an air motor requires knowledge and opinions on lubrication, rotation, air pressure, torque and speed. And when the product is worn out, it is even more difficult for the customer to himself know what spare parts to buy. Tools has facilitated this process by providing self helping software like ServAid in order to give the customer more information on the spare parts available. Personnel at Tools also use air motor configuration software to dimension a desired air motor for the customer. Another type of product that requires a lot of knowledge before a purchase are the tools in the Tensor line. Tensors are electrically driven nutrunners attached to a computer. The computer steers the tool motor and makes sure the bolt is fastened to exactly the torque decided on by the operator. Tensors are often placed in larger networks, where the tools speak to each other via cable, which makes installation of such a tool largely a network technicians task. These installations must be made by special personnel from the Tensor division at Tools. It is correct to say that the entire product range of Tools requires thorough knowledge before a purchase, although in different fields. The customer often has an idea of the type of tool to buy, but not the model. It is the task of the sales people to teach the customer about the different criteria that decide the final choice of product. The sales people also help the customer with choosing the right spare part or complementary product, such as for example the grinder disc to a newly bought grinder.
4.2.3
The sales organization
On the Swedish market the sales force is divided between the motor vehicle industry (MVI) and the general industry (GI) which includes other industries. The MVI is served directly by Tools sales force and the GI is served via distributors, i.e. the sales force within the GI have contact with distributors and not directly with end-customers. Normally each sales person actively support between ten and thirty customer contacts. (Holmlund, 2000-08-07) The organization concerning the division between GI and MVI is similar on the German and the British market. There is however, a difference in such that the GI sales people in Germany also support end-customers. In summary, Tools sales force aims reach large customers and distributors. Small customers are supposed to be supported by the distributors. In reality there are many small customers who keep on placing their orders directly at Tools. There are no obvious customer segments that the sales organization fails to penetrate even though potential customers presently served by competitors always are difficult to reach. The really small customers are not interested in Tools products 71
since their need better can be served with other less expensive tools like the AEG brand from Atlas Copco Group. The deliberate strategy is therefore not to focus on customers with approximately less than 10 employees (Holmlund, 2000-0907). 4.2.3.1 Trends in the sales structure During the last decade Atlas Copco Tools has had an international structure with sales companies on all important markets where each sales company was an independent unit with responsibility for the order handling and sales on that market. This is currently being replaced by an organization with customer centers for larger regions. A central European customer center has been created in Essen, Germany covering the German, Belgian, Dutch, Austrian, and Swiss markets, and a Nordic customer center in Stockholm, Sweden for the Swedish, Danish, Norwegian, and Finnish markets. The idea is to enable a better coordination between the markets towards important customers. Each customer center will have one person in charge of each product segment instead of one per country. (Dahlgren, 2000 continuously)
4.2.4
Tools profile according to themselves
The image Tools wants to communicate to its customers in the sales work is, according to Christer Blow, based on productivity, performance, logistics, ergonomics, quality and campaigns, further explained in Table 6.
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Aspect Logistics
Comments The fast and reliable logistics solution with PTD in Hoeselt is a great competitive advantage. The continuous marketing campaigns give a solid, continuous perception of the company. High quality is of great importance, but less than before as more and more manufacturers have attained a high level of quality. All Tools products must do the job fast and with a high rate of efficiency. The customer must be shown the gain in productivity achieved by using Tools products. The products all have been designed to improve the operators professional use.
Process/Product Process
Campaigns
Process
Quality
Product
Performance Productivity
Product Product
Ergonomics
Product
Table 6: The company-specific aspects Tools focuses on in its customer contacts (Blow, 2000 continuously).
As shown in the table two out of six aspects are linked to processes within Tools. Michael Porter (1985) identifies the possibilities technology creates, acting as an enabler for greater efficiencies in current value activities. We feel that Internet could be the technology further enhancing these two aspects. In logistics, information to the customers regarding transports and parcel tracking, could be provided via the Internet. Information about marketing campaigns could also be distributed in a more efficient manner using the Internet. We also see a possibility of Internet enabling new processes that serve as important differentiators for Tools.
4.2.5
Marketing aspects
The marketers at Atlas Copco Tools are responsible for the communication of the above presented values to the customers. In order to do so, they function as coordinators of the global marketing work within each product group, making sure that the global sales force work in a consistent Tools-manner. They also serve as technical experts providing support to the sales force.
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In their coordinative work they set up an action plan for the whole year, where the sales companies are informed of the following years product releases and the planned campaigns. A campaign within Tools is a period of focus on a product, or product group, with lower prices and demonstrations of the items. The sales companies always have the choice whether to participate or not in the campaigns. The campaigns serve as a way to increase the sales of certain products momentarily, but also to continuously communicate the important and differentiating aspects of Tools. The marketers also act as product experts, providing the sales people both within Tools and at the distributors with technical support and training. The technical input they receive from the sales companies and customers is relayed to the construction department with which they collaborate in order to develop new and/or better tools.
4.3
Customers
The customer is often to high degrees affected by changes in their purchasing structure. It is therefore vital to take into account the customers point of view and the reality he is living in. In this chapter we investigate what the customers look like and how they buy.
4.3.1
The spectrum of customers
As any company, Atlas Copco Tools serves a wide array of customers, divided by industry, focus, size, geography etc.. In order to present the large differences between the customers, we will now discuss three different groups of companies; large corporations, distributors, and finally small businesses. 4.3.1.1 Large corporations During recent years large corporations have grown even bigger by either mergers, such as the one between Daimler and Chrysler, or acquisitions, as in the case of Ford buying Volvos car manufacturing unit. These multinational, giant corporations, present within most industry segments, have started to realize the possibilities of Internet and ebusiness as well as the potential for the coopetition described by Shapiro and Varian (1999) in the theoretical framework, i.e. competitors cooperating in pursuit of a common goal. According to managers at Thyssen Krupp Steel (Kratz, 2000-08-23) the main target of the coopetition is not to squeeze prices, but to coordinate the development of the infrastructure in order to facilitate the communication both with customers and other marketplaces. They will also try to aggregate orders in the way we described in the theoretical framework (Meeker & Phillips, 2000), where they do not aggregate buyer power, but adding up their joint purchase in one technical solution.
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When these large corporations start eMPs, they put an enormous amount of pressure on their suppliers, who stand to lose a major customer if he does not cooperate. This ability to dictate the conditions for the suppliers is a very privileged position and there are not many companies which can mount this kind of power alone. In a joint effort though, both large and moderate sized companies can be powerful enough to force their suppliers into joining. Tools is more or less forced into these kinds of eMPs. The companies altogether constitute a large portion of Tools sale and can fairly easily find other suppliers of tools, should they want to. Exostar personnel (Bennett, 2000-09-20) and the four aerospace companies try to convey a win-win scenario. They mention the advantage to be one of a few selected suppliers to participate from the beginning. They go on by emphasizing the cost reductions due to elimination of inefficiencies in the sales process and the benefits caused by increased earnings as rogue buying can be at least limited in significance. They also include the key aspects presented by Bjur and Forslund (1999) in the theoretical framework with emphasis on the need for system integration and the usability of the technical solution. One important issue concerning the cost reductions is the integration between the eMP and the suppliers business system. The large buy-side eMPs have also identified this aspect. Guy Harris, representing the supplier of the technical solution Commerce One (2000-09-20), presented on a high level how the integration with Commerce One-powered eMPs could be done, with different degrees of complexity ranging from manual transfer of data from one system to another, to a full technical integration. The effort needed to establish the full integration is estimated by Commerce One to 8-12 man-weeks. One of the questions for Tools is whether this investment is important. However, it is misleading to speak in terms of a general, fast move towards Internet procurement in all companies. Not all divisions in larger corporations aggressively embrace the idea of using the Internet as a facilitator. When speaking to production technician Rune Johansson (2000-09-08) at BT Industries, a manufacturer of fork lifts, he says that he does not at all use the Internet in his work, which to some extent consists of purchasing. A large portion of Tools sales goes to the MVI. The company must therefore act on the wishes of the car giants and provide them with the desired material when these want to set up a marketplace like Covisint. A natural trend in this is also that the large players want just one single connection with the supplying company. In the case of Ford, the car giant demand that all their orders pass from their purchasing department directly to the distribution center of Tools in Belgium. The most common objection from the sales companies of Tools, is that in doing so, Ford will not get the necessary aid and service needed to conduct the purchase. When speaking to ke Larsson (2000-08-24) he thinks that this is just unjustified fear from sales company personnel. The large corporations who buy a lot from Tools know what they want from the Tools range, and if they have any 75
doubts or want to be instructed on a new product, they can easily contact a sales person within the sales companies at Tools (Larsson, 2000-08-24). Distributors in some countries sell to quite large customers. In these cases, in certain situations, they act more as an obstacle than a value adder. This includes the communication between the product company and the development department where it would be much easier if the information could be communicated directly. According to Ray Feasy (2000-09-20), sales manager general industry at Atlas Copco Tools Great Britain, the only part the distributor should play in these relationships is to perform some customer modifications and service. 4.3.1.2 Distributors Distributors come in many shapes and forms. A distributors main task is to serve those customers that are so small that it is inefficient for Tools to serve them themselves. This is exactly as the case Donaldson (1998) describes. Tools takes care of the bigger customers themselves and lets distributors handle smaller customers. Distributors are therefore initially faced with the distributors dilemma (Moberg, 1990) as Tools moves in to a market that has proven to be lucrative and takes over larger customers from the distributor. Most distributors, aside from selling tools, also offer service and after sales to their customers. The margins on those types of supplementary services are high and it is the distributors wish to continue the business with services and after sales (Quensel, 2000-06-21). Different distributors also have different relations to Tools depending on how large a share Tools sale represents of their total sale and the interchangeability of the product for the distributor. If the distributor can easily change supplier or not, he will interact in different ways with the existing supplier, as Hultman (1993) argues in the theoretical frame work. The possibility to change supplier for the distributors to Tools vary widely depending on which country you are in. The sales structures differ a great deal from country to country. In the US, practically all sales goes through distributors, whereas in Germany the largest portion of customers is handled by the German sales company. The strategies of the sales force in the different countries vary. In Germany the distribution network is based on very local distributors with expert knowledge about the air tools. In Sweden, one big distributor (Tibnor) is ruling the market geographically with a horizontal focus. But since Tibnor sells such a large quantity of air tools, the company possesses the necessary product knowledge. In the case of Tibnor industrivaruhus (IVH), the distributor is a company of comparable size to Tools. A few other distributors, aside from Tibnor IVH, are in this position. These companies have often launched their own sell-side solutions for their customers. Tibnor IVH insists on relying on current EDI transactions as
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long as there are no faster ways of placing an order, in other words they see no further efficiencies in order processing on an eMP or on Tools ecommerce phase II. On the other hand they are very interested in the increased information available either on an eMP or via phase II. If an eMP were to be useful it would demand an integration with Tibnor IVHs business system (N. Brandt and G. Brandt, 2000-10-19). The wishes are about the same when speaking to smaller suppliers. Mr. Schading, president of Schubert und Salzer, a distributor to Tools on the German market, expressed his desire to be able to place orders and accessing information about the products via the Internet as well as having his system notified when putting an order into the system of Tools (Schading, 200008-23). A smaller customer is however not in a position to put any pressure on Tools regarding his demands. Our general view is that distributors usually have deep Internet penetration whereas the distributors customers often lack of computers and in computer skills. 4.3.1.3 Small businesses At the other end of the spectrum are the small businesses without the power to influence the development in the way large corporations and distributors can. This group of companies represents a large portion of the total amount of customers to Tools. However, the sales generated by the segment is very low. According to Sren Holmlund (2000-09-07), smaller businesses are best taken care of by distributors, just as theory also indicates. Tools tries to convince the smaller businesses that distributors will serve them better and give them more added value such as better prices, free delivery, and local service presence (Holmlund, 2000-09-07). Smaller companies express, in the same way as larger corporations, wants on how transactions should be performed in order to help them. They also point out what kind of information they would like to find on web pages related to Tools. Tools will have to listen to this group of customers in order to find a way how to treat these customers in the most efficient manner. Even if small customers are not using the Internet in their procurement today to the same extent as large corporations, the future will look different. We further see that this group of companies will, in a foreseeable future, have difficulty aggregating their orders in such a way that the volumes would give any important negotiation power with Tools in order to get special conditions. This is due to the large amount of small customers needed for the aggregation to be efficient and also the feeling among customers that long lasting relationships and aggregated buyer power do not go hand in hand.
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4.3.2
How different customers buy
The products sold by Atlas Copco Tools do of course not distribute evenly on all customers. The size and type of purchase depend on which industry the buyer is in, the size of the customer, if the customer is served by a distributor or sales company among many things. 4.3.2.1 Purchasing for large customers When the customer for the first time is in contact with Tools, he does not know what to ask or look for concerning product information. In time, he will get more sophisticated and educated on the product range of Tools, especially if he buys the same set of products all the time. According to ke Larsson (2000-08-24) customers with a large purchasing volume know what they want. But Larsson goes on by saying that these customers in the same time put more demands on Tools regarding terms of delivery and frequency of sales visits. These customers are rather price insensitive since the purchased tools significantly help the customers productivity, exactly in line with what Porter (1980) says, but have demands on the terms mentioned above, since tools play an important role in their distribution chain. Hans Bergstrm (2000-08-22) tells us that just because a customer has a large purchasing volume at Tools, he is not necessarily doing many repetitive purchases, i.e. purchases of the same model as an already purchased product to be used for about the same task. Repetitive purchases depend more on the type of industry the customer is in. Foundries often buy only material removal tools whereas the procurement of contract manufacturing industry is differing widely in models from each purchase. A trend in purchasing is that large corporations try to minimize the number of suppliers for both their production critical and non-critical material. They see the advantages in having deeper relationships with selected suppliers (Gadde & Hkansson, 1999) BT Industries (Johansson, 2000-09-08) mentions the facilitation for service personnel to keep spare parts and go through training on just one tool brand. The CMS agreements also show the intention of the car giants to reduce the number of suppliers and intensify relations with remaining. Finally Seco Tools and Sandvik have been selected to participate in a buy-side solution constructed by a big customer to them both. The reward of being selected, with a potential increase in sales since only a few competing suppliers are invited, massively outweighs the fears of being viewed upon as just an item number and a price in an ecatalog (Ericsson, 2000-08-15).
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4.3.2.2 Purchasing for small customers Tools tries to divert smaller customers to distributors who can serve them better (Kangur, 2000-09-26). One of the reasons to why Tools does this, aside from the reasons already mentioned in the theoretical framework, like for example the difficulties of administrating these customers, is that smaller customers tend to be more horizontal in their purchases. When one of these customers buys a grinder, he is often also searching for grinder hoses, nipples and discs. Larger customers instead keep in contact with Tools for the tool purchase but more often use direct purchasing at the manufacturer for the necessary complementary equipment. Small customers require a lot more effort than large customers from the sales personnel in the teaching about the product. It is also harder to close a deal with a small customer since, even if educated, he tends to rest unsure that the purchased product is right for him. When the deal finally is closed, the value of the order is often minor. (Holmlund, 2000-09-08) These are some of the reasons to why the sales company in Sweden has a lower limit of 500,000 SEK 3 when deciding which customers to provide with personal sales personnel. Unofficially, if a customers purchase with Tools is below this limit, he cannot depend on personal service. The smaller customers do not have the power to influence service or delivery terms of Tools either.
4.4
Powerful Tools Distribution
Purchasing could be seen as the first step in a chain of events that leads to the physical existence of the product in the customers processes. Since the products sold by Atlas Copco Tools often are production critical material, it is essential that the right tools are delivered to the right customer at the right time. In order to manage this task, PTD was created.
4.4.1
What is PTD?
PTD is short for Power Tools Distribution and is the distribution company for Atlas Copco Industrial Technique. Centrally situated in Hoeselt, Belgium, it delivers tools to 120 countries on a regular basis. Every finished tool passes through PTD before it is sent to the customer. The warehouse contains more than 60,000 items where 3,500 of them are complete products. PTD has as aim to deliver to Europe within 24 to 48 hours, and to other continents in a maximum of 72 hours. It is not the goal of PTD to have the fastest delivery times, but rather to have accurate delivery times and high delivery precision. Often, the customer can wait sometime for his tool but he must be sure to get it when agreed upon. In a discussion with Warehouse Manager Patrick Poncelet (2000-08-24), he mentions
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the future demands on PTD being not at all to deliver as fast as possible, but to in a more accurate way know exactly when the customer needs the product in order to prioritize the distribution in such a way that urgent customers get the proper attention. An overview of the flows of goods and information of PTD is presented in Figure 16.
Figure 16: Flows of goods and information to and from PTD (Atlas Copco, 2000).
A somewhat special feature of PTD is that it not only ships just Tools products but also the tools of Alliance (Desoutter, Georges Renault, Chicago Pneumatic) and those of the Copco brands AEG and Milwaukee. Some of Tools biggest competitors are actually using the same distribution system! This collaboration has proven to be extremely successful with cost reductions for all parties due to economies of scale. However, the introduction of the common distribution center has not been frictionless. There was initial skepticism that the distribution of all brands would be ruined and that weaker brands would not get the same service as the best selling brands. ke Larsson (Larsson, 2000-08-24) says that this has not been the case and that other companies now are studying the solution with intentions of applying it to their business. This relationship between competitors is just another example of how to gain mutual benefits, which Earle (2000) discusses in the theoretical frame work, even if their cooperation is offline. The Atlas Copco Group has seen to it that PTD does nothing aside from its core business being to some extent order handling but mainly the distribution of tools. The facility has increased in size the over the last years and now measures more than 16,500 square meters. With its distribution focus, the center also has gained important knowledge in order handling and warehouse flows to name a few examples. A new warehouse has just been bought close to PTD and the facilities are situated on a large site where there is plenty of room for expansion. 80
4.4.2
PTD as an enabler
Initially, PTD was created to cut costs and to enhance the distribution of Atlas Copco Tools products significantly. These goals have been met by far. One unexpected effect this has led to is that the codistribution substantially has helped all the brands competitiveness. Tools has together with Ford agreed on serving all factories of Ford Europe with the necessary tools, even if this means distributing a tool from a competitor. A competitor means here not only a corporation delivering from PTD, but in fact any company that produces tools. This agreement called CMS, or Commodities Management Supply, could be realized much because of PTDs ability to swiftly distribute a number of brands. Ford is placing all its order directly to the PTD via EDI and the order handling is taken care of by PTD personnel. This solution is very appreciated by Ford and the trend points towards more agreements of this kind. No competitors can offer the same distribution concept in the way Atlas Copco can, which has led to a major competitive advantage for the company. PTD General Manager ke Larsson (2000-08-24) thinks single point ordering has many advantages and that it is natural for the party best suited for order handling to deal with it.
4.5
eAtlasCopcoTools.com
The PTD will to a high degree be involved in the initiatives concerning Internet now underway at Atlas Copco Tools. The company has for three years worked with Internet related projects that to some different extents affect the PTD. We feel that it is necessary to give a brief presentation of the nature of these projects.
4.5.1
Phase I & II
Phase I & II are the work names of the first two projects underway at Atlas Copco Tools for the facilitation for customers in the ordering process. Both projects aim to let the distributor place his orders via the web instead of phoning or faxing them in and are what we in the theoretical frame work call sell-side solutions. The selling party is the initiator and driver, and has total control over the system. Phase I, or Webtrade Phase I, started out already in 1997 and gave partners (customers registered in the business system) a chance to place their orders via a web form. Partners must submit an application to Tools for a login and password before using the system. The web form contains fields for customer number, item number, quantity etc.. When the form is completed and submitted, the order is transformed into an EDI order and processed directly into the business system. This can be seen as an advanced form of EDI and no customer queries aside from order history can be made. With the launch of ecommerce Phase II underway at Tools, the value added for the partner is intended to increase. Possibilities to search for products, check on 81
availability and prices including rebates, and getting help on spare part choices, among many things, will be added. At first regard, Phase II pretty much resembles an ordinary webshop like CDNow.com in its structure, but underneath there is a solution with high integration to Tools business systems. Tools uses a system called BPCS, an AS/400 system, as its business system, and PTD uses SAFIR as its logistics system. A middleware, called IBOS, is currently being developed to ensure reliable communication between the web site of Phase II and the company specific systems, see Figure 17. The idea is to make the IBOS as generic as possible in order to facilitate the integration and communication with other Internet applications, such as perhaps different eMPs (Rolf Carlsson, 200010-02). Initially Phase II will be used with prescreened customer, mostly distributors.
IBOS
AC Tools
BPCS Phase II
PTD
SAFIR
Figure 17: The function of IBOS (created by Englund & jdemark, 2000).
4.5.2
ServAid
Another interesting project going on at Atlas Copco Tools is the work with ServAid. Tools products are used by professionals who regularly service the tools and replace defect or worn down parts. With over 2,400 models, the amount of spare parts possible to order is huge. Tools has, as a help for its customers, produced a CD-rom where the user can click on the desired product and then get lists of spare parts numbers and blueprints for that particular tool. The content on the CD-rom can now also be found on Tools web pages for everyone to use in the search of a particular spare part. Having presented and explained the five dimensions (Sales & marketing, Customers, eAtlasCopcoTools.com, PTD and Business environment) we see as important for the further analysis, we will now take a deeper look at the sales process of Tools.
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SALES TASKS BREAKDOWN
5 Sales tasks breakdown

The act of selling and supporting a product is costly, and it is important to use the best and most cost efficient medium possible for each part of this act. We have modeled the fulfillment of each activity for four different media within Atlas Copco Tools: field sales force, in-house sales force, distributors, and the Internet. The model and the following discussion are presented in this chapter.
5.1
Sales and after sales process
The structure of Tools sales and after sales process consists according to us of eight different tasks described in Chapter 4.2.1.1, and differ somewhat to the generic sales process described in the theoretical framework. The included tasks are, in Table 7, presented as tasks mapped on the different parties involved with the sales and after sales process. Our sequential model of the tasks is not identical to all companies, but the main ideas with the mapping we believe to be generalizable to other manufacturing companies. The four different parties, field sales force, in-house sales force, distributors, and the Internet, we have identified at Tools as existing and relevant. The distributors role is, in this table, supposed to be the role towards his clients, i.e. Tools end-users, and not towards Tools. The table, inspired by Friedman and Furey (1999), presents how well a certain sales party at Tools performs all of the included tasks in the process, in relation to the cost of the activity each party performs. We have chosen to not put any values on the different parties activities, but rather keeping them on a relative level, in accordance to the estimations in Friedman and Furey. For different reasons, such as for example cost or performance, not every party is appropriate for every sales activity. The performance is graded from 1 to 3, where 1 means unsuitable or uneconomical, 2 is capable of performing, and finally 3 says unique contribution i.e. best performance or lowest-cost alternative. A comment to the table is that we have not included the service function of the sales companies. It is a necessary function for direct customers without their own service department and therefore scores a 3.
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Service & support 1 1 3 1
Persuading phase
Continuous communication / Feedback
Ordering (New tools, repetitive orders, spare parts)
Task
In-house sales force Distributors Internet
1 3 2
1 3 2
1 2 1
1 2 1
2 3 2
1 2 3
3 2 2
Table 7: Sales tasks mapping (created by Englund & jdemark, 2000).
When having given grades to the different parties performance for each task in the sales and after sales process, we now intend to present the different parties characteristics and discuss how to use them properly in the process tasks.
5.1.1
The field sales force
Atlas Copco Tools has a very physical sales process up until the moment of ordering the product. The customer, who can take many shapes within a company, often must have a physical presentation and demonstration of a tool in order to have the necessary information for a purchase. The field sales force is here used to work on the customer for a potential order. Salesmen on the field make up the most expensive sales channel in use by Tools today. Therefore, they should not be used in tasks where other sales parties can perform better and/or cheaper. The best way to use the sales forces strengths, according to Friedman and Furey (1999), is to limit its role in post-sale fulfillment and customer support, either partially or completely.
5.1.2
The in-house sales force
Today the in-house sales force in the respective sales companies works as both order receival and customer information center. A lot of time, between 40-50 %, is devoted to order handling and the rest to customer questions (Kangur, 2000-0926). ke Larsson (2000-08-24) manager of PTD, says that he doesnt understand why orders are handled by each sales company. The competence for order handling sits in Hoeselt, he means. The questions regarding order handling can most efficiently be dealt with from PTD Hoeselt (Larsson, 2000-08-24). We feel
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Low
High
Field sales force
Test
Parties
Cost of activity
Demonstration
Initial contact
Presentation
that the step taken by Ford in the CMS agreement, to order single point to Hoeselt, is pioneering and will be followed by other large players. The task for the in-house sales force will then be to act purely as a customer center, with no order handling capacity. Customers will also relieve each customer center from the order handling questions now relayed to PTD, Hoeselt.
5.1.3
The distributors in the sales process
The distributors are supposed to be the equivalent to the company sales force towards the smaller customers, performing similar actions when it comes to the process of making the customer want to order the product. Aside from this sales focus it is our belief that they in the future will focus even more than today on acting as support to the customers, as well as providing service on the products. They will also, as Phillips and Meeker (2000) states, add value to the product company by aggregating small orders, in order to give the product company the opportunity to concentrate on larger orders and parcels.
5.1.4
The Internet
We see the Internets role in the business process of today primarily as a channel for order handling. The cost efficiencies of order handling on the Internet is supported by both Bennett (2000-09-20) at Exostar, and Furey (1999), and Keen (2000). Via the Internet, orders can be placed and a lot of information related to the order can be communicated to the customers where they otherwise would call the in-house sales force. This information includes price data, parcel tracking, times of delivery, and stock availability, all of which can be transmitted both faster and more cost efficiently via the Internet. Internet technology can be used as a complement and instrument for the sales force when dealing with the customers, as the customer can look at information and presentations of the products on his own when the salesman is not there. The Internet can also be a medium for interaction with the customer and used to exchange information on products or collaboration projects. Both Nairn (2000) and Warner (2000) state that Internet will facilitate this communication and the collaboration between companies. Feedback and discussions could also be supported by Internet, even though the telephone will in a foreseeable future persist as the prime tool of discussing product related problems.
5.2
Discussing the process mapping
When looking at the scores in Table 7 we see that there is a clear division of responsibilities between the different parties. The more expensive physical sales force, both of the sales companies and the distributors, should be used early in the process to generate sales. The cheaper and more cost efficient electronic
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resources, here mainly represented by Internet, should be used later in the process when the more routine like work of processing the order is executed. The argument could be raised that Internet can do so much more than just transacting orders. We see great possibilities in the use of Internet and eMPs as platforms for information exchange between collaborating companies in their projects, the exchange of ideas, drawings, etc.. An example on this development is MyPlant (Warner, 2000), an eMP sponsored by Honeywell and focused on long distance problem solving for plant related issues. In the service and support activities of the process, we believe that the distributors will take on a greater responsibility. The in-house sales force, which currently processes orders and answers customers questions, will become a customer center, focused on guiding the customer with answers to product specific and product range related questions. In the mapping of the sales and after sales process, Internet is identified as being the best alternative of processing orders. The Internet is a very broad phenomenon, and we intend to take a closer look on the eMP as the venue for the ordering process in the next chapter.
5.3
Cost reductions in the order handling
The most noticeable quantitative improvement is, by eMP software providers, claimed to be the reduction of transaction costs. They argue these savings to just be the appetizer of what is to come with the improved functionality promised in later versions of the software. The commoditizing of a transaction see as inevitable, which implies that all eMPs in the future will be forced to provide cheap transactions. We think that companies will be able to save money, both by automating the actual order receiving, and also by aggregating many customers into one technical solution. Aggregation of payment might also be a future way of streamlining this process. One has to be very cautious though, when discussing differences in transaction costs. The predictions by the eMP software providers often assume a full integration, i.e. no human intervention after the submitting of the order, between the buyer and the seller. Exostar for example, aims to charge $1.50 for each transaction via the eMP. However, as soon as a human manually must handle one or several steps in the process, the cost for the transaction increases. We have tried to calculate the present transaction costs for Tools, in order to compare the received values with what the eMP software providers claim their transaction costs to be and to evaluate the potential cost reductions. First, though, we want to establish what we include in the transaction cost. Only the actual work with receiving and executing an order, plus the cost of having the information system running is included. According to our calculations, the cost for processing a standard customers order amounts to significantly more than 86
the $1.50 charged by Exostar.4 This figure has been calculated based on information from Tools accounting department, consisting of estimations of the cost of the order handling in different sales companies, and by comparing this with the number of orders handled by each sales company we could extract the transaction cost per order. Tools receives a large amount of orders each year to the in-house sales force at the sales companies in Sweden, Great Britain, and Germany. The cost reductions from technically integrated eMPs, providing the automation of the order handling process, we believe would offer substantial savings globally.5 We feel that one must take into account the costs for implementing the new technology, which today is impossible do to with any degree of exactness. We believe the cost reductions only to be the first tangible effect of the more efficient administration processes made possible by the eMPs. It is very hard, and therefore we will not try to, calculate the possible cost reductions and/or efficiency gains resulting from the use of more collaborative tools, available on future eMPs. After having analyzed the suitability of each sales party for the respective task in the sales and after sales process, we briefly have discussed a potential cost reduction in the transaction costs when moving the sales onto an eMP. The next part of our analysis has a customer focus. Just as there are different media taking on different tasks, these different media will work differently towards different customers. We feel that these customers must be examined regarding their future use of eMPs, and this discussion follows next.
4 5
Due to company specific data, we cannot in precision further discuss our calculations Due to company specific data, we cannot present the exact numbers
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AC TOOLS IN THE BUSINESS LANDSCAPE
6 AC Tools in the business landscape

In the previous chapter we make a case for the Internet in the sales and after sales process as an excellent tool to cut transaction costs and eliminate efficiencies in the order process. We believe that the transaction function in the future will be a commodity, offered by numerous eMPs. The collaborative model will prove to add more and more value continuously. In a collaboration, naturally the two parties buyer and seller are involved. How Atlas Copco Tools should treat and interact with its different customers in different occasions will be of importance. We will now explain how to do this.
6.1
The cooperative nature of eMPs
Many authors mean that the probable evolution of eMPs is a model which adds value for both sellers and buyers, and so do we. Phillips & Meeker emphasize that online collaborations on an eMP will be a way for partners to make the supply chains more efficient. Partners in this sense do not necessarily mean customers or clients. The basis of a company rests on the interaction between entities, both internally and externally. You behave differently toward each of your competitors and customers depending on your needs and wants and the needs and wants of that particular partner. As in all negotiation, it is vital to listen to what your opponent has to say, even if that does not mean meeting all his demands.
6.1.1
Development in harmony with customers
The purpose of this thesis is to investigate how a manufacturing company can use eMPs in its sales. Atlas Copco Tools sells highly specialized power tools for professional users and does not aim its products towards the consumer market. This often means that once a potential customer has chosen to purchase Tools products, he is likely to stay longer with his supplier. The initial contact, may it be Tools or the customers initiative, is in but a few cases always dealt with on a meeting basis. An initiative from Tools part to change the existing sales structure could lead to the gain of new customers. Tools cannot, however, create a change in the sales process in order to reach potential new buyers, even if that could be a possible side-effect. The company must instead listen closely to the parties, customer and partners, who to a high degree are affected by a change. But, as we have said earlier, listening to the demands and needs of customers is not the same thing as acting on them, not always anyway.
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This chapter aims to provide a segmentation model for customers. The model has a collaboration focus and rests upon the fact that Tools cooperates differently with different customers.
6.1.2
Different customers, different wants
Few things in real lift are either black or white, in business even less so. When developing a strategy for the use of ebusiness within a company, the differences when it comes to opinions and wants are numerous and of very different kinds, both among the company employees, and the companys customers, which often are of different kinds, for example distributor or end-user. The gray scale between these opinions is continuous and it is difficult to deduce compartments where the different wants can be placed. However, in order to be able to study a matter on a higher level certain generalizations have to be made and models constructed. We will try to segment these different wants according to the existing differences in the customers of Atlas Copco Tools Tools, given the nature of its products, have a very fragmented range of customers. From the giant car manufacturing companies to small national companies, including both end-users and distributors. The customers obviously also vary when it comes to order quantities. Size and order quantity do not always correlate, i.e. large corporations are not always big customers and vice versa. The way Tools interact with these different customers will be different in many cases, and the final solution will be depending on the incitement to join forces in a loose or tight partnership. This incitement is always pragmatic and the economic value added from the partnership will be the driving force. It will be important for Tools to identify the customers which are reliant on them and use this exposure to lead the development, and at the same time be ready for the changes initiated by customers of great importance.
6.2
A model for customer segmentation
Given the need for Atlas Copco Tools to identify the different degrees of dependence of the customers, we have identified two dimensions from which we will model the different groups of existing customers. Purchasing volume with Atlas Copco Tools The first dimension is the purchasing volume a customer has with Tools. A customer with a high volume will have a greater influence over Tools as they represent a major part of Tools sales volume and therefore it is important take their preferences into account. Smaller customers are individually less important and Tools have a greater possibility to control the development of these ebusiness relations.
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AC TOOLS IN THE BUSINESS LANDSCAPE
Customer turnover The customers turnover is the second dimension. It represents a simplification of the more correct total purchasing volume of customers. In general, companies with a high turnover are more powerful and are able to put more pressure on its suppliers. Smaller companies have a tendency for more dependence on its suppliers, especially if the supplier is a larger company such as Tools, and they are more likely to follow the development initiated by the supplier rather than leading the progress. Compatriots
High
Smaller corporations with importance for Tools. Tools and customer on par in negotiation power. E.g Schaefer, Tibnor
Dominators
Large corporations with great purchasing power towards Tools. Tools has obeying role. E.g. Ford, GM, Alstom
Followers
Smaller corporations with some importance for Tools. Tools has strong negotiation power. E.g Exotek, small distributors
Prospects
Large corporations who alone cannot set the rules. Tools role yet to be defined. E.g Thyssen Krupp, Ericsson
Low
Low Customer turn over
High
Figure 18: Customer segmentation matrix (created by Englund & jdemark, 2000).
This model is applicable for all Tools customers. We have come to the conclusion that all customers have different needs. As a means of focusing our analysis, the division into the different customer segments is made so that our recommendations will better suit the given customer. It is important to understand the context of the model. The model is meant as a use for further analysis and not as a conclusion. As we have previously stated, all customers are different and it is not entirely correct to fit them all in a model, the curse of all models. The four categories Dominators The customers in this segment have the favorable position of dictating the conditions on the relationship with Tools. As they stand for a substantial part of Tools sale, they know that Tools is interested in their business, even if they demand more than the ordinary customer.
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Prospects These companies are used to getting their will through, but they do not buy many tools. How Tools shall react to these companies whistle is a tricky question. Compatriots A customer segment that is somewhat dependent on Tools. But the dependency is twofold as the segment brings in a lot of money to the company. Here, the partnership consists of getting the greatest win-win. Followers This segment can be described with words such as multitude and diversity. Many smaller customers with low turnover are in contact directly with Tools, instead of through distributors. Distributors all have different sizes, and the smaller of those are found in this segment. These customers alone have a very weak position when propagating their ideas and wants to Tools.
6.3
One size does not fit all
Even if we would like to, it is impossible to do a full covering analysis of all the four customer segments. One conclusion already now possible to draw from our model is that Tools will have a weaker position towards the really large corporations, present in the right side of the model. These corporations will want to lead the development of the partnerships, as any strong player is leading the weaker. Tools will have different incitements to follow, whether the large corporation leading, is an equally large customer. With customers of a more moderate size, Tools will be in a more desirable position, where it to some extent can be the party taking the initiative. These customers can be found on the left side of the model.
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THE POWERPLAY IN TOOLS UNIVERSE
7 The powerplay in Tools universe

7.1 Dominators
The Dominators is the segment consisting of customers with large turnover and in the same time representing a large share of Tools sale. We here intend to present how we see the future of Tools in this arena, what Tools could gain from it, the effects it can have on Tools organization and lastly the existing risks with the development.
7.1.1
Events to come for Dominators
It is our opinion that large corporations find the advantages of creating an eMP, alone or together with competitors, so convincing that we will see more of the industry sponsored marketplaces. These marketplaces we see in a near future consist of private exchanges, as described by Meeker and Phillips (2000) in Chapter 3.1.6.1. Of course there will next to the buy-side eMPs still be room for eMPs sponsored by third parties, but we see them mostly for fragmented markets. The greatest interest for Tools lies, though, in markets like automotive, aerospace and defense, and white goods, which all are major markets for Tools and characterized by consolidation, both in a merger as well as a cooperative context. The large buy-side eMPs aim to have an all-in-one market focus, where several transaction mechanisms are incorporated into the marketplace, in pretty much the same way as Nunes et al. (2000) describe. If mapped onto the segmentation model presented by Kaplan and Sawhney (2000) in Figure 10, one can see that these buy-side eMPs eventually aim for the entire area of the matrix. Today, though, the transaction model present on the eMP are mainly catalogs and auctions. It is our conclusion that the catalog model will suit Atlas Copco Tools best in sales through eMPs, independently on the focused segment. The company possesses the characteristics in favor of the catalog model mentioned by Kaplan and Sawhney (1999), which are relatively small transaction sizes, frequent transactions, prequalified business rules and suppliers, and predictable demand. From our discussions with customers to Tools, they are both used to and prefer searching and ordering Tools product with the help of a catalog. It could be a future opportunity for Tools to sell products via auctions. The commerce will then probably concern used tools, which will exist more numerously because of increased revenue in the rental services division. Since more and more large players of importance for Tools will, alone or together, create or join eMPs, the company should respond to their demands, as they represent such a large share of the total sale of Tools.
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The company must respond in a quick fashion to the wants of the giants, both because they demand it for the sake to rapidly gain a large partner base, but mainly because it is in the interest of Tools to not just reactively act to their will, but to try and use the advantage of being one of a few selected suppliers to proactively shape its presence on the eMP. It will also be important for Tools to the greatest extent in an early phase start using the existing functions of the eMP, in order to try and see what functions suit them and what do not. With this proactive behavior, Tools has the possibility to reduce the dependence by the Dominators by trying to shape the manner in how to work on the buy-side eMPs.
7.1.2
The opportunities for Tools
Even if the large customers are dictating the conditions for the participation in the eMP, we see no reason that the suppliers will not be able to gain from the new way of selling to the giants. One of the Dominators two main arguments for joining, communicated to the suppliers, is that the elimination of rogue buying within their organization will lead to increased sales for the selected suppliers (Bennett, 2000-09-20). Tools is a strong player and often the losing part in the phenomenon of rogue buying. A rogue buyer not buying from Tools in most cases chooses another brand because he thinks the price premium charged by Tools is not affordable within his personal budget. What he then does not consider are other aspects in favor of using the decided brand, such as reduced service and training costs, as further explained in Chapter 3.2.4.3. This concerns the fact that Tools has been able to persuade the purchasing department of its total offer, but the purchasing department has in turn not forwarded this information to all personnel making the small daily purchases. We do not think that rogue buying will be eliminated, but instead limited in extent. One can note that the large buy-side eMPs have taken into account many of the aspects considered important in eprocurement deployment, by authors Bjur and Forslund (1999) in Table 5, even if they now are in their early development phase. One of the aspects that the initiating large companies using buy-side solutions say they do not want to incorporate into their marketplace, is the ability to easily compare products between competing companies. It is our strong belief that they desire to do just this, but the possibility of scaring suppliers away hinders them to say it explicitly. These contradictions evolve around the difference in how sellers want to present their offer and what the buyer wants to see and sees (Bjur & Forslund, 1999). 7.1.2.1 Do eMPs imply increased sales? The size of the sales increase for Tools when joining an eMP governed by the big players, is extremely hard to estimate and will vary depending on industry and supplier. Therefore we will not make a guess. BAE Systems point towards a 10%-
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36% sales increase overall for selected suppliers (Bennett, 2000-09-20), which is a figure that should be seen as highly uncertain. One could argue that there are possibilities for Tools to increase their sales to other customers on the eMP, today not using the companys products but buying from Tools competitors. In Chapter 3.1.6.2 for example, we name one of the sellers benefits on an eMP to be lower customer acquisition costs. As long as the customers on these eMPs consist of large players or the eMP are of the private exchange type with few participating partners, we believe this to be hard. The large players know about the existence of the other tool suppliers and have in one way or the other already screened them. They often have long lasting relationships with the suppliers invited to the marketplace and these relationships do not break easily overnight, which makes it hard for Tools to make a case for their products in the mentioned environment. Large corporations also, as stated in the theoretical framework (Chapter 3.2.4.3), include numerous parameters in the process of choosing supplier. Since many of these parameters are not to be found on the eMP, information provided on the eMP alone cannot be used to change supplier, not for now anyway. The space for the supplier on the buy-side eMPs, for Tools consisting of an electronic catalog, provides limited possibilities for Tools to market its products, which makes it hard for a seller to get his message through. Sufficient information for purchasing decisions must consist of a combination between data found on the eMP and the work of the physical sales force, as we showed with Table 7 in how different tasks in the sales process are best performed by different parties. Even if there are restrictions on the marketing activities transmitted via the eMP, participation on the eMP of the large partners still can bring positive impressions externally. One trend we have mentioned is that large corporations buying many tools have started (only Ford yet) to negotiate so called CMS agreements. The agreement lets Tools serve all of Ford Europes factories with tools, even if this means buying a tool from a competitor. In a few months, when Covisint hopefully is up and running, every Ford factory in Europe will then be able, with just a few clicks, to buy whatever tool it needs from the brands agreed on by the agreement, and have it delivered with the precision of PTD the next day. 7.1.2.2 Using single-point connections in integration In the near future, the benefits of joining the eMP will be mainly associated with the efficiencies in certain activities in the sales and after sales process identified in Chapter 5.1. The reason for this is that there is a certain inertia in larger companies to change the existing structure, but also because the present versions of the software constituting the eMP are not yet sufficiently elaborated to provide more than the necessary functions. As eMPs develop technically, partners will be able to reach the phase of collaboration, identified by Brooks and Cantrell (2000).
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What the collaboration phase will really mean for companies engaged in commerce via an eMP is too early to tell. We have earlier identified processes aside from sales and after sales that can benefit from collaboration tools, such as planning, design, manufacturing and scheduling. One thing that this collaboration between companies will mean though, is that the lock-in between partners will increase. More collaboration requires more coordination, exchange of information, and matching of processes between each party. Agreeing on that collaboration will constitute a high degree of lock in, it will then be of great advantage to be present early on in the development as a partner. Some of the reasons to this are an increased ability to influence the development of the eMP, a longer adaptation time to the new environment, the opportunity to take an initial large share of customers purchase etc.. We think that it is important for Tools to realize this fact and to work as actively as possible in the relationship with the large and powerful customers. Today, these eMPs take the form of private exchanges, as mentioned in Chapter 3.1.6.1. With more collaborative functions, a development visible today, they will soon take the shape of collaboration platforms. Hypothetically, one can raise words saying that it is too early to tell which of the eMPs that will remain after the shake-out during the consolidation phase. Therefore, the argument can continue, it should not be of interest to work at a number of partnerships, since some of them eventually will be terminated or merged with other eMPs. We believe this argument to be defective. The goal for Tools is to maintain or preferably increase its sales to the large customers. Who will stand out as a winner after the consolidation phase is not for Tools decide, and due to the companys small size, not to heavily influence. Tools has as primary goal to increase its sales and serve the customer. We strongly agree with Johan Ericsson (2000-08-15), who says that the advantages of joining clearly overshadow the risks associated with participation.
7.1.3
Organizational change
eMPs sponsored by large players are here to stay, we believe. Some of these companies are so important for Tools that it will have to adapt to the new order and make the best out of it. Since the quake is of major strength, the ripples from it will penetrate its near surroundings, i.e. the partnering companies will see changes in their interior structure because of the advent of the eMPs. The large players demanding Tools to join their eMP are corporations with global presence, often buying from Tools from a number of sales companies or distributors around the world. It is their aim with the eMP, to coordinate their purchasing by using only a few selected suppliers. Today suppliers, or at least Tools, can have different contracts with a global customer depending on country. This situation will not be sustainable as these customers move onto the marketplace. They will demand one global price for every product at Tools. These
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prices will then be posted on the eMP for the partner to see. A price harmonization program is already under way at Tools in order not to see prices deteriorate with the help of eager distributors and cross-border trading. According to Tomas Dahlgren (2000-06-29), Tools has as intention to have one Key Account Manager (KAM) per large customer. This KAM will get an increasing responsibility to coordinate the course of events in the Internet arena for his customer. He and representatives from each concerned sales company must cooperate in order to be informed, avoid double work and put up a united front towards the customer. 7.1.3.1 Using single-point connections in integration To reap the full benefits today from making more efficient the sales and after sales process, it will be important to, to the greatest extent, seamlessly coordinate the systems of the involved parties. Today, as earlier stated, many large companies put their orders to sales companies or distributors in each country. The CMS agreements provide a means for the customers to have single-point ordering location, situated at PTD in Hoeselt. A logical extension of this trend, is that when the large players set up their eMPs, already having CMS-like agreements, they will also want to have the eMP connected directly to the PTD. This constellation has one large advantage. If multiple eMPs want to connect to PTD, using the same technical solution, the integration to these systems is more easily performed. We believe that there is no risk that the sales companies are not rewarded for the sales work they perform. The business system in use by Tools have the functionality to track the origin of an order. The CMS agreement with Ford has proven this, as Ford Europe now places all its orders directly to the inhouse sales force in PTD. Tools later work out the commissions for each sales company. With the large customers in the future coordinating all their orders to one location, the transaction and order handling today carried out at each sales company will diminish. By aggregating the order handling to one location (PTD), customers can be given first hand information and the in-house sales force can focus on its role as customer service and support center. This development goes hand in hand with the intentions of Tools to create customer centers over larger regions to be a sales support for its customers. For the customers in this segment, it will be necessary for Tools to provide a full integration towards the eMPs of their customers. The reason is partly to maximize the benefits of the system, but also because the large customers demand it. In a discussion with Stefan Bishop (2000-09-20), Supplier Adoption Manager for BAE Systems, he says that he takes for granted that Tools go for the full integration alternative provided by the technical supplier.
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7.1.3.2 The need for standardized catalogs The technical solution providers of the buy-side eMPs must have uniformity in the material provided by each supplier in order to easily present it on the eMP. Therefore describing codes are used to classify the products. In Europe, the most common code in use is UN/SPSC. This is also code chosen by Exostar and Covisint. When they ask their suppliers to submit their catalogs, they want them coded in UN/SPSC to obtain a uniform structure for searching items on the eMP. Tools has for now (autumn 2000) not transformed its catalogs to the mentioned code. We stress that the work with building the UN/SPSC catalog should start immediately, even if there are ways to get around the shortcoming. If this is not made, it can affect the way in which Tools is presented on the eMP, as well as providing competitors with a chance to be more easily found and searched in the catalogs. If the task of transforming the catalog is divided between each product group at the product company, the work should not be overwhelming. Spare parts will prove a somewhat more vast problem, but the leaves of the structure of UN/SPSC are generally on a fairly non-specific level. Tools will probably be able to classify groups instead of particular spare parts. A small suggestion from us is for Tools to join the Technical Advisory Group of UN/SPSC, in order to be able to influence the development of the code to suit Tools needs. Unfortunately, not all big customers will choose UN/SPSC. There is strong evidence that the largest German car manufacturer, found in this segment, will use a code named eClass. We have not had the possibility to investigate the differences between the two, but we see no choice for Tools but to accept the situation and providing this customer with the desired data. The work with the UN/SPSC, eClass, and other classifications, will probably be a one-time effort, as future eMPs presumably will be based on a small number of standards. The work to integrate the eMPs with the Tools business system will also be short project like tasks, which in time will demand less and less effort as the responsible people will gain experience and the technical solutions will be reusable to a certain extent. The work with classification and integration will demand a lot of human resources under a period of time starting now, autumn 2000. However, the work to update the catalog and the price lists will be a continuous activity demanding resources in the long term. These resources must either be acquired or liberated from within the current organization. Processes concerning this work with the databases must be defined in order to assure the dependability of them, they must always be fully updated as the sales to the largest customers depend on it. One way of limiting the work to update the catalogs would be to use some kind of data warehouse solution, where the primary, raw data is found in one single database, and then collected with links to different applications such as an electronic catalog.
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There will be necessary to have a responsible in the product company coordinating the activities of the KAM for the concerned company and the personnel responsible for the continuous technical work. It is he who will report to the managers in charge on the course of events and who will be the medium to the KAM and technical staff for communicating the will of the same managers.
eMP technology providers Managers SC & Prod. comp. Technical staff eMPcoordinator KAM/Salesman Distributor Customer KAM Customer
Figure 19: A possible future organizational structure explaining the eMP coordinators role (created by Englund & jdemark, 2000).
7.1.4
Associated risks with Dominators
The short-term needs for the large customers with eMPs are that their suppliers start providing them with the necessary catalogs and price lists. The short-terms risks would therefore be that Tools loses its costs for supplying the customers in this segment with the needed material. We have already explained the verticality in large customers purchase and since they buy a lot of products from Tools, it is highly probable that they will find what they look for in the electronic catalogs and price lists. If they have further question, for example concerning freight problems, they are to phone the in-house sales force where they put their order. There is limited reason for Tools to worry that a potential sales opportunity will be lost due to the fact that the catalog does not convey the basic marketing values explained in Table 6, not for the large professional customers anyway. Tools should keep in mind though, that even if it is the only supplier to BAE Systems on Exostar, with BAE specific price lists for no one else to see, Tools will be displayed in the general catalog with the list price for all invited parties side by side with its competitors, if these have been invited by someone of the other three large companies. The risk of price deterioration for players on the eMP, we for the time being, see as minor. As Meeker and Phillips (2000) declared in Chapter 3.4.1.2, and also as Porter (1980) says, price transparency is not a big problem for large customers since the price is only on parameter in the supplier evaluation. Price harmonization will be more widespread as global contracts are agreed on and cross border trading augmented. We see a risk that the large companies
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negotiating their global prices, will drive the prices for tools to the lowest price level charged within the company. Tools must in response as fast as possible harmonize its prizes towards the large customers with prize gaps, before they grasp the picture themselves, and also be prepared to defend their prizes when the question arises. A problem which is outside of our scope, is the situation for the distributors in the US. The American market uses distributors to a great extent and they are often much larger than Tools. The structure of the large buy-side eMPs does not work in favor for distributors to large companies. If and when large customers approach Tools with wants to communicate and order directly with Tools, the large distributors will most probably dislike the situation. Tools are relatively dependent on the large distributors because of their knowledge of and relation to the customer. How to proceed in this minefield must be on the agenda for sales company personnel and concerned managers in the product company. We think that there is a smaller possibility for the eMPs sponsored by the large players to shut down. First of all they most probably by themselves create the liquidity necessary for the eMP to operate satisfactorily and if they do not, they are most often capital strong and alone, instead of changing to another solution, will bear the cost of integrating their weak eMP with a more prospering one.
7.2
Prospects
The Prospect segment represents customers to Tools with a large turnover constituting a small part of Tools total sale. How this segment will interact with Tools and what relationships Tools should have with these customers is treated in this chapter.
7.2.1
The future for Prospects
We have stated, that it is our strong belief that buy-side eMPs will be an important influence in the future of online commerce. The work associated with customers eMPs is easily justified, when dealing with the important customers, which are creating a substantial revenue for Atlas Copco Tools. When the same kind of eMPs are initiated by customers that only have marginal purchase volumes with Tools, and they are making the same kind of demands on the suppliers, the decision to invest time and money is not as obvious. One example of such an eMP is cc-markets, a joint effort by the chemical giants BASF AG, Henkel KgaA, Degussa-Hls AG, and SAP AG as the technical supplier (cc-markets, 2000). All the three initiating partners are customers to Tools, but their collective purchase is marginal in comparison with, for example the aerospace customers. Initially the eMP will focus on technical products and services, thus potentially interesting for Tools. cc-markets is not the last buy-side
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eMP to emerge in segments where Tools is not a major supplier. The size of this segment is hard to estimate. It is much probable that the customers in the segment sooner or later will take an eprocurement initiative, and then an alternative could be an eMP. If a set of customers start purchasing through an eMP, it is even harder to estimate the involvement of Tools in these initiatives, since they might not be the largest supplier to these companies. We still believe this segment to constitute a big opportunity for Tools. If Tools can show its use in handling electronic catalogs together with its known quality in its support (logistics, order handling) processes, it has the opportunity to benefit from the electronic arena. These large companies too, will chase rogue buying, something that will also work in favor for Tools, as we already explained.
7.2.2
Tools in the powerplay
There are many aspects important for Atlas Copco Tools to take into account, when working out a strategy for how to treat these customers. A central matter is that Tools is seldom dependent on these customers individually. Even aggregated in small groups they will not be powerful enough to push Tools into any agreements against its will. With this not said that Tools should not cooperate with the eMPs. It is our opinion that they in most cases will reduce costs for Tools and can be seen great opportunities for sales increase. These opportunities are of two different kinds. First of all in the cases where Tools is a supplier to all participating companies, and neither of them is a big buyer of power tools, then the aggregated volume could add up to a considerable amount, and if Tools could be fast in its work to integrate its systems to the market, it stands a great chance to take the combined purchase of the involved buyers. The purchasing departments of the organizations in this first case are often professional but not really used to buying large quantities of power tools. Here the physical sales force together with the eMP can influence the customers to buy more power tools from Tools or change power tools supplier to Tools. In the second situation where the purchasing companies are important buyers of power tools, but the majority of the volume currently is taken by the competitors, Tools would be offered a good opportunity to win over a portion of this volume. In Chapter 5 we indicate in what sales tasks Internet should be used. We graded the initial contact and presentation of the product as twos, i.e. not best choice, and we consequently do not think that the sales will explode via the eMP, but rather that the twos present an opportunity to a somewhat increase sales over the Internet. We also believe that an eMP, with the better collaboration abilities, will enable these grades to be increased in the future. However, as these are large corporations with professional purchasing departments often having a good idea of the supplier structure, the relationships with the current suppliers will be difficult to break. The goal for Tools must be to strive to nudge the customers in this segment into being large enough entities to become Dominators. 101
In both cases we identify two ways of gaining as a seller on an eMP. In the theoretical framework we identified both the aggregation of orders in on eMP, and the decreased customer acquisition costs (Meeker and Phillips, 2000), both of which will be important for Tools to make the most of. If the aggregated purchasing volume of the companies reaches a high level, Tools can justify increased work and for example a tighter integration with the eMP to further gain from the situation. After what we have seen of the existing technical solutions there will always be a choice for the supplier of the extent of the integration. With Commerce One (Harris, 2000-09-20), for example, a simple web browser alternative can be chosen without any integration needed, the work consisting solely of composing an electronic catalog and price list. Hopefully the use of standards, such as the UN/SPSC, will win recognition among the buy-side solutions, and the extra work of having many different standards will not be a problem. The use of widespread standard technical solutions such as Commerce One or Ariba will also give Tools an opportunity to avoid double work and to integrate with eMPs not consisting of extreme purchasing volumes for Tools. If possible, Tools should try to support a small number of standards in order to facilitate the future work.
7.2.3
Changes within Tools
Dealing with these eMPs will, no matter the level of integration with Atlas Copco Tools business system, demand a lot of work from Tools. We discussed the amount of work needed in the previous chapter, and we believe that a lot of the work will be of a one time kind, where a lot of effort can be reused. The important thing will be to find systematic ways to handle all this work and define responsibilities for the work. In Chapter 4.4.2 we mention the use of the PTD in Hoeselt to handle orders and keep a single point connection to certain eMPs. This will demand a lot of changes within the responsibilities of the organization. Concerning customers with a buyside eMP, which purchase small amounts of products, it is not imperative to keep the order handling at Hoeselt, and keep it within the sales companies. The use of Hoeselt as order handling location should also be dependent on the ability of the customer to purchase products independently, as Hoeselt does not posses the same knowledge as the in-house sales force when it comes to customer support and guidance.
7.2.4
Risks concerning Prospects
The risks facing Atlas Copco Tools in this segment mainly concern the expansion phase, described by Brooks and Cantrell (2000), which is currently (autumn 2000) under way. Many buy-side eMPs, are currently being developed, for instance ccmarkets (2000) and Exostar, and we believe many others will come. One risk 102
consists of the possibility of a large number of buy-side eMPs, which each will demand a catalog from Tools, and in certain cases a substantial amount of work concerning the integration of the eMP technology and the company specific business system. We feel that there are ways to control these risks. The work with the different catalogs must be done in a systematic and organized way in order to facilitate the reuse of material submitted to other eMPs. As we stated above a data warehouse solution with data in only one basic database would facilitate the work to keep the catalogs updated. The work with the development of a middleware enabling the company specific systems of Tools to communicate with external systems, will result in reduced work with the integrative work towards eMPs. In the theoretical framework we discuss the importance of managing a brand name. Cap Gemini Ernst & Young (2000-06-27), identified this risk especially with products where the buyer is in need of a lot of guidance and help when buying a product. In this segment the customers are professional and used to purchasing complex products, but usually, as they do not buy a lot from Tools, they are quite unfamiliar with the power tools products and there exists a risk that they buy the wrong model for a specific task. This could mean that the customer becomes unsatisfied with the performance of the product, which is not suited for the task. This risk is difficult to control or avoid, but minimized by using the full possibilities of each eMP, including the use of punch-outs to the Tools own web site, in order to give the customer as much information as possible and in turn keeping the customers positive towards the Atlas Copco brand. More physical selling via the field sales force will also prevent the customers to buy the wrong things, and at the same time hopefully make them buy more products.
7.3
Compatriots
We now move on to focus on a customer segment where Tools have a greater circle of influence towards its partners. The customers in this segment consist of companies who have a smaller turnover than the Dominators and at the same time make up a significant amount of Tools total sale. The majority of distributors is found in this segment.
7.3.1
The development for Compatriots
We have said that a part of the development in eMPs, goes towards large buyside eMPs, with major players taking the initiative. These large scale solutions are not focused on serving, neither the selling participants, nor smaller companies and distributors in their purchase. Selling companies often want a more extensive product presentation than the one possible within the templates of the buy-side eMPs, and smaller companies and distributors often has a more horizontal
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purchasing behavior, and therefore need eMPs set up differently, with more complementary suppliers. Smaller customers are also in greater need of the product information as they often have less knowledge about what product they need, than the professional people at the large corporations. For the distributors the product information is needed to be able to find, both products to order, but mostly to find spare parts from a number of suppliers, as they often perform service on the products sold. Both advocates of the manufacturing industry (Ericsson, 2000-08-15 & Fredriksson, 2000-08-08) and more theoretical strategists (Hayes, 2000 & Meeker & Phillips, 2000) argue that the distributors must be part of initiatives in the eMP arena, and disintermediation must be avoided. In light of the need for an eMP for the smaller companies and the distributors, and in identifying no signs of these smaller companies joining forces to set up its own eMP, we see an opportunity for Atlas Copco Tools to take on a more leading role than the one it has been forced to take in the two segments above. Taking a leading role is supported by Fredriksson at Sandvik Coromant (2000-08-08) whose strategy is to take the lead and dare to take the risk of not doing exactly right from the beginning, i.e. experimenting with different Internet strategies, and thus act in a proactive way towards the customers.
7.3.2
A chance to make a difference
In this segment, companies of a more moderate size, like Atlas Copco Tools, can make a difference of how ebusiness is, and will be, conducted. However, the initiatives taken by Tools must be very delicate and take all parties interests in concern, as the companies potentially involved are both smaller than Tools but also of the same size and larger. Therefore the solution need to be of a more winwin kind than the buy-side eMPs. We have found in interviews with customers that a horizontal eMP is to prefer when dealing with distributors and smaller customers, as they often buy complementary products at the same time as purchasing tools, where larger companies have separate contracts with different suppliers. An important comment to the horizontal eMPs is that, according to Berryman et al. (1998), a strong player with a sound brand name should not take initiatives to invite competing brands on an eMP. The lowered selling costs we present in the theoretical framework, will also be of some importance initially. We also identified the link between this horizontal focus and MRO-products, and see a horizontal eMP for MRO-products, based on electronic catalogs, as a target for Tools use of eMPs for this segment. There are different roads to take in order to get a solution the best suited as possible for the company. First there is the possibility to develop and start a new eMP, and another solution is to find an existing eMP, started by a third party company with the industry competence or an industrial partner company with similar needs and intentions. Considering the substantial investment of starting a
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new eMP, the know-how needed, and the difficulties to attract both buyers and other sellers, it is our strong belief that if a suitable eMP can be found, which satisfy all the requisites for the companys business, this eMP should be used in favor of creating a new one. In a group like Atlas Copco, such a creation initiative should also be a joint effort between the business areas, and such an alliance would be very difficult to achieve, and according to Christer Blow (2000, continuously) this will not happen within a foreseeable future. 7.3.2.1 A seller focus For Tools to fully benefit from the eMP described above, there is the important aspect of how the electronic product presentation will be made that need to be given attention. Bjur and Forslund (1999) describes how the product presentation differ between what the buyer thinks he needs when purchasing and what the seller wants to present, in eprocurement. A model made by Kotler was used to illustrate what aspects of a product are perceived by buyers and sellers. We see a strong need for Tools to present all three levels of a product, including the extended level where all the for Tools important aspects, presented in Chapter 4.2.4, can be included. Furthermore, as Bandt (in Leebaert, 1999) states the differentiation will be very important when selling on the Internet, the possibility to present a product in a sufficient way will be critical when dealing with customers not previously familiar with the product. For Tools, with its quite differentiated product this will be vital. As the opportunity to fully present a product is somewhat limited in the standard templates used in the buy-side eMPs, we see that they will not cover all the requirements for companies like Tools, and can subsequently not be used towards the customer in this segment. This poses problems for Tools when dealing with the smaller customers as there are certain aspects which are of importance to communicate. On the horizontal MRO-eMPs there are templates for how information can be displayed as well, but the freedom of what to present, and the space available for product presentation, are larger than the buy-side eMPs. Some of the eMPs, e.g. Endorsia, do not demand any specific structure, or standard, to be respected concerning the content of the catalogs from each supplier in the same way, but the possibilities to present the product is limited to what the technical solution enables. The reasons for this, according to Sven-Olof Emanuelsson (2000-07-25), are the crudeness of the existing classification standards and that each product category has its own criteria to take into account when presenting the product (Emanuelsson, 2000-0725). The first supplier of a new category pretty much sets the standard for the competing suppliers to follow. Today, there is no power tool supplier present on Endorsia.
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7.3.2.2 A distributor focus eMPs of a more horizontal kind is also needed in order to get a good interface towards the distributors. They take on an important role for companies like Tools. It is of great importance to provide them with efficient ordering routines and easy to access information. Aside from the Internet based ordering routines, which we identified in sales tasks breakdown in Chapter 5, we believe that the exchange of information between the distributors and Tools could be made more efficient through online collaborations as described by Meeker and Phillips (2000). Making this collaboration valuable for the distributors will also, as Hultman (1993) argues, serve as a motivator for the distributors and they will devote more, or at least not less, time to Tools products. As we have stated it is difficult to foresee what collaboration will include via the Internet. We think that towards the distributors, it will primarily mean increased information exchange. Via the eMP Tools could, for example, present better information about what spare parts to use, a project Tools already is working on (See 4.5.2), FAQs, blueprints, and configuration programs. With the increased interaction we predict on the eMP in the future, other more collaborative functions such as increased communication regarding customer feed-back, production planning, cooperative development of new products, forecasting etc. will hopefully add to the functional plethora of the eMP. What the distributors need, according to our interviews with different distributors (Schaefer, 2000-08-22 and Moss, 2000-09-19) is a horizontal eMP where they can place orders both for tools and other complementary products. Both in Germany and Great Britain, Tools has chosen to work with small specialized distributors. These small companies normally do not want to set up their own web site, neither do they have the capital to develop it. Barry Moss (2000-09-19) said that his company did not want to make something half amateurish, instead he had confidence in Tools to provide a site he could use, or a template for him to use to set up a company individual site. The possibility for the distributors to sell via the eMP is another important aspect to take into account. For the same reasons as for the web site, they would welcome an eMP solution giving them a suitable template which they could use towards their clients, such an eMPs functionality is presented in Figure 20.
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Seller Seller Seller
Distributor Distributor
Buyer Buyer
eMP Figure 20: Function of eMP for distributors (created by Englund & jdemark, 2000).
However, all distributors will not be as forthcoming in their view of its supplier setting up an eMP. Big distributors with a size comparable to Tools will be cautious before joining an eMP set up by the suppliers. They will surely be quite reluctant and see risks in selling its products via the eMP and in the process expose its customer base. In Sweden the large distributor Tibnor IVH is considering these very issues, and are mean that the future still is uncertain whether eMPs, voluntarily, will be a part of their strategy. They mean that the large cost reductions are to be found on the buying side of relationships. (N. Brandt & G. Brandt, 2000-10-19) In some cases these large distributors might choose to set up their own ebusiness web site. This is something Tools will have great difficulty to avoid and therefore must be ready to confront. Tools must also be observant to the quality of the ebusiness solutions potentially initiated in order to avoid that the distributors fail to communicate the aspects of the products prioritized by Tools. Also as long as Tools supervise the price picture and the distributors respect their designated territories, we do not see this potential development as a major threat. For Tools it will be of utmost importance to convince these large distributors of its intentions to include them in the future business, and the future neutrality of the eMP. The disintermediation we discuss in the theoretical framework (Hayes, 2000 and Meeker & Phillips, 2000) is not a wish of Tools and it will communicate this to the distributors. The eMP will only serve as an infrastructure to make the relationship between Tools and its existing partners more efficient. 7.3.2.3 ecommerce phase II vs eMP Tools already has existing Internet projects under way, as we explained in Chapter 4.5.1. ecommerce phase II is a tool for direct customers to place their orders via the Internet. The distributors will have the possibility to search and order products, check on availability and price, get help in the purchase with additional product and user information, look up and buy spare parts for his tools, etc.. It is a legitimate question to ask why Tools, instead of using its newly developed ecommerce solution, should go through the effort of connecting to an 107
eMP, and in that way not be in full control of the information on the site. We have, throughout the work with this study, identified certain aspects that make an eMP a most different solution, compared to a webshop, endorsed by the one company hosting it. The first difference is the horizontality offered by a well functioning eMP aimed towards MRO-selling. If a participating party, or the company behind the eMP, manage to generate a fair amount of interest and will to participate, customers who generally make many purchases with many different suppliers (e.g. distributors), will feel that having all their suppliers on one site, highly increases the efficiency in their administrative work. There could be some distributors arguing that they do not need the extra suppliers coming with the eMP, since they only buy Tools anyway. But there is nothing that keeps them from using the eMP to only buy Tools products. They will also be given the possibility to purchase via ecommerce phase II in the future. Tools could also argue that they could, with some effort and substantial technological development, to provide phase II with the functionality for complementary suppliers to sell via the Tools site. The problem with this is that we believe the complementary suppliers to be reluctant to sell via a Tools branded site. ecommerce phase II is also not designed technically to interact with more than the business system of Tools. A question we have received, when speaking to numerous suppliers during our work, is how the distributors systems in the best way can be integrated with the systems of Tools? We feel that the integration question is one of the hard arguments for small customers perhaps buying horizontally, to purchase via an eMP and not via a webshop. If the customers complementary and/or industry suppliers can be found on the eMP, there is only need for the supplier to have one interface with many of his close partners, instead of having separate connections with each of them. The opportunity for the distributors to have their own website as part of an eMP, towards the distributors customers, is also one major difference between ecommerce phase II and an eMP. Many distributors have their own thoughts and ideas on ecommerce or are approached by customers who have. Some are already taking their own initiatives in ecommerce by starting webshops on their home pages, as described in the chapter above. By giving the distributors the possibility to create their webshops, following rules determined by Tools and/or the technical supplier to the eMP, many advantages can be obtained. The look of the distributors web initiatives will be familiar and can be designed with influences from Tools. The solution we believe will be significantly cheaper compared to creating something custom made. There is also a psychological aspect as the distributors feel that they are part in the Internet initiatives of Tools, thus not left to be disintermediated, and last but not least, Tools will have better control on what their distributors are up to in the Internet arena.
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The final aspect which according to us divide the eMP and ecommerce phase II is the continuous augmentation and refinement of functionality. The functionality of phase II is pretty much already set. It consists of a certain set of functions designed to help the buyer in his purchase. When looking at the technical architecture of eMPs, value adding functions are included with very frequent intervals. The amount spent on functionality by the technical suppliers to eMP is vast. When ecommerce phase II is introduced to the customers of Tools, it might certainly be that its specific functionality aimed towards those customers, is higher than that offered by the eMPs. One then has to take into account other advantages of the eMP, such as allowing purchasing from multiple suppliers and ability for distributors to sell via the solution. Later on, we believe that the money spent by eMPs to create value adding functions for their partners, will pay off to their benefits to a larger extent than phase II. 7.3.2.4 How horizontal is horizontal? We have up until now argued that Tools smaller customers purchase horizontally and should therefore be served by an eMP with a horizontal focus. Each distributor has his unique set of suppliers, and they vary a great deal from distributor to distributor and country to country. Particularly this is true for complementary products to Tools being commodities. According to Christer Blow (2000, continuously) Tools has selected a few suppliers as being preferred with Tools products, but usually a distributor ignore these suppliers and go with a cheaper and more local supplier. It would therefore seem impossible to create an eMP with participants to suit every party. And indeed, it is. It is a utopia to create the perfect eMP for every party. One must though understand that already with a few suppliers used by a set of distributors, there are efficiencies to gain. Another reason is that if an initiative is taken early, while many suppliers are still easily influenced, these can be persuaded to go for a suggested initiative, and will by doing this create an even larger incentive for other suppliers to join. The positive feedback, presented by Shapiro and Varian (1999), which is the dynamic process where the strong get stronger, will create more and more participating suppliers and buyers, and the eMP will gain recognition and liquidity. Who is then to be responsible for the marketing towards other suppliers? We think that by clearly showing the potential gain to the distributors, when doing a large part of their purchasing through an eMP, they can in turn act as ambassadors to their other suppliers and influence them to join, all explained by positive feedback. 7.3.2.5 Integration focus The choice of eMP will very much be dependent on the technical solution chosen. For Tools, other partners, as well as the customers to Tools, the integration between the eMP and the company specific business system is often vital in order 109
to gain the full benefits from the eMP, and a technical solution not used by any other eMPs will create a lot of extra work, as in prior integrative work made to other eMPs cannot be used. As we identified in the theoretical framework, the integration must not be set up in such a way that the system generates many small orders, as if all the orders the distributor receives from his customer were relayed automatically to Tools, creating a lot of work with small parcels. The distributors must continually be required to aggregate orders from its customers. We have seen that partnerships have been agreed upon between eMP solutions providers and business system companies, for example Commerce One and SAP (Commerce One, 2000) and MRO.com and Intentia (Emanuelsson, 2000-08-03). We see these partnerships as necessary and see potential for further partnerships to be made. In order to avoid lock-in into one single eMP in the consolidation phase (Brooks & Cantrell, 2000), where no communication can be made to eMPs supported by other technical providers, the provider of the technical solution ought to enable the integration to other technical solutions. According to S-O Emanuelsson (2000-08-03) at Endorsia the actual solutions to these cross platform integrations are at least two years away.
7.3.3
Associated risks with Compatriots
There exist risks for Tools when initiating ecommerce towards its smaller customers. For Tools the risks in this segment can be arranged in two different groups. The first one is not as much a risk of losing money as it is a risk of not getting the change within the sales channel to happen. Some of Tools customers and distributors are not as familiar with the use of Internet as is required in order to draw the benefits from eMPs and ebusiness. One example of this is Rune Johansson, a production technician at BT Industries AB buying power tools (200009-08), who do not use the Internet at all, and at age sixty one see no personal reason to start now. For the direct customers it will fall upon Tools to put a little pressure on them and demonstrate the ease of use as well as the increase in speed an efficiency. On the next level, the distributors customers, the Internet penetration is even lower. Both Barry Moss (2000-09-19) and Andre Schaefer (2000-08-22) described their customers Internet awareness as very, very low, and did not see themselves selling a major part of their products via the Internet within the next two to three year period. This does, however, not hold them back, as they want to be ready when their customers start to use the Internet. Secondly, as we have already discussed, the distributors will fear disintermediation and potential channel conflicts. In this situation the challenge will be to convince the distributors of the benefits they stand to gain from the eMP, and the fact that Tools realize the value they add in the process. One could reason that it is essential for Tools to take the initiative in this segment. Otherwise, the customers in this segment might create a technical solution 110
together, and then forcing Tools to participate. The statement about the low Internet penetration among the Compatriots customers, together with the fact that the customers in this segment are fragmented geographically and that they individually are small, implies that the possibility of the suppliers initiating their own common buy-side eMP, is low.
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7.4
Followers
In the final segment of our model we find the customers who have a small turnover and also represent a minor part of Tools total sale. These customers have rather loose bonds to Tools and are not the primary focus of Tools sales force. The last segment, we will only discuss briefly. In this segment we find small distributors and small direct customers to Atlas Copco Tools. These represent a fairly minor part of the total sales of Tools. We have discussed how an Internet solution aimed at selling Tools products, should aim towards the existing customers primarily. Even if Tools were to be able to generate more sales in this segment, it would probably cost more than was gained. Tools strategy is also to focus mainly on existing customers (Dahlgren, 2000-06-29). Last but not least a potential sales increase in this segment would probably cannibalize from the sales of the larger distributors, causing a channel conflict. It is Tools aim for the sales companies to reduce the number of direct customers as much as possible, only leaving the really large players, and in that way serve small direct customers through distributors. We believe that Tools should pursue this goal in the future as well. Even if eMPs or other Internet solutions aimed towards selling in many ways can help the customer in his purchasing as we showed in Table 7, small customers will still require a higher percentage of offline help throughout their entire contact with Tools. This also has to do with the notably low Internet penetration among small customers. It will be up to the distributor to then decide how he best can serve his customers, offline or online.
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CONCLUSIONS
8 Conclusions
We have now reached the Grande Finale of our study. The conclusions summarize in a short manner our entire work and aim to answer the purpose of the study. The context of our purpose can be condensed to: How a manufacturing company can use electronic marketplaces in its sales? The problem, as we have showed in this study, is extremely multifaceted and comprises almost an entire company. It is therefore a difficult task to present our findings in a short and at the same time easily comprehensible way. We have chosen to divide our conclusions and recommendations into different chapters. Chapter 8 describes our view on how the eMP arena will develop in the near future. The next chapter, Chapter 9, discusses how Tools should act in response to the eMP development.
8.1
Conclusions on the general development
We have in this study tried to give an insight into the nature of eMPs and how they can be used by manufacturing companies. The vast array of different functional profiles of eMPs, existing or under construction, gives a hint on the differences between the needs of different industries and/or companies. Therefore, a solution taking all these needs into consideration is very hard to envision. Rather, we will see industry and/or function specific eMPs serving companies, in much the same way as Brooks and Cantrell (2000) describe. If looking from a single companys point of view, it is not obvious that this company should use just one eMP in their sales and procurement. It might be the most efficient and least expensive thing to do, but the company is influenced by many other forces affecting the final choice on sales and purchase structure. If viewed from a manufacturing perspective, for example all customers cannot be served by the same solution as they themselves can be strong enough to dictate the conditions for several or all suppliers.
8.2
The customer on the eMP
A discovery we have made regarding customers, is for a manufacturing company initiating sales via an eMP to focus on the existing customers rather than trying to find new ones. According to Chapter 5, the Internet should not be used to find new professional customers. This is a task for the physical sales force. The trend today points towards the use of different channels in different tasks during the sales and after sales process. To find a way in how to use the different channels of the sales force as efficiently as possible, can represent a competitive advantage toward the competitors.
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To try and target new customers by the eMP, not today served by existing sales channels, is uninteresting and impossible. Uninteresting due to the fact that these customers do not comprise a large niche and that they are not professional users. Impossible since this potential segment often is computer and Internet illiterate. When having said that the focus should be on existing customers, it is imperative that a solution to the greatest extent meets the demands these certainly will have. The customers we have spoken with, who also often are customers to other manufacturing companies, all express their horizontal wishes on an eMP. We do not see the potential for a vertical Powertools.com, even if power tools are considered strategic indirect material.
8.3
The disintermediation and channel conflict on the eMP
The existing customers in focus for the eMP have demands on their supplier known to the supplier today. These demands are today served by different players in the value network. Our study has shown that all these players to a greater or lesser extent all add value for the customer. We do not see disintermediation as a big potential problem in manufacturing companies. The fear that eMPs will cause channel conflict is exaggerated. The reason for this is that eMPs are to focus on potential customers and initially help the sales force in its work. It can be discussed whether eMPs for manufacturing companies really is a new channel.
8.4
Structural change and collaborative commerce
The eMPs help to the sales force and its primary focus on existing customers will act to change the functional structures of todays marketing and sales processes (and maybe even other processes as well). The roles of distributors, field sales force, in-house sales force among others, are bound to change. We see that cost reductions in the order process to be just the first gains of eMPs. Collaborative commerce promises to deliver the biggest value proposition, mainly for strategic products. Collaborative functions will constitute a large part of the differentiation of an eMP, commoditizing the actual transaction. Collaboration is though bound to increase the lock-in, both to partnering companies but also to the eMPs on which the company is present. The collaboration will follow the expansion of eMPs with a certain delay. Increased collaboration between companies through the eMP will put demand on the system integration between companies and eMPs. True, efficient, collaboration stands or falls with efficient integration between the parties involved.
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CONCLUSIONS
As collaboration increases in importance, the seller will not have such an exposed position to price squeezes or buyer aggregation as predicted by many analysts and researchers. Concerning the primary focus on existing customers in turn not targeting new niches as well as the increased collaboration we foresee, eMPs will not alone be the tool with which to drastically increase market share. There will not be a sudden redistribution of market shares as manufacturing companies enter eMPs. In the sentence above we claim that companies in general will enter eMPs. A few years from now, companies will have realized the benefits of eMPs and in turn initiated contact with them, to different degrees. All sales will not, however, go to the player most visible on the eMP arena, even if a presence on the eMP will be a demand and not a competitive advantage. Rather, we see Internet mature companies with an ability for background fulfillment (logistics, background systems, payment etc.) to be the winners. In order to make collaboration work in the long run, fulfillment will be necessary.
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RECOMMENDATIONS FOR TOOLS
9 Recommendations for Tools

Our conclusions about the future development of eMPs are here followed by recommendations concerning how Atlas Copco Tools should act to this evolution, and try to influence it. Initially there are certain general recommendations valid for Tools sales.
9.1
Recommendations on a high level
Our focus has been on Atlas Copco Tools sales and it is in sales that the use of eMPs will start for Tools, partly because the large customers are demanding it and partly because the purchasing department of Tools has not started exploring the possibilities of eprocurement yet. In the future, we think, Tools could use eMPs in their procurement as well. The sales eMP is intended to be a tool, or an aid, in the relationship with current customers, not a substitute for the fields sales force or a means to attract new customers. One could imagine Tools teaming up with the other divisions within the Atlas Copco Group and setting up an Atlas Copco eMP. We have not investigated the actual possibilities within the Group to do this, and we are of the opinion that it is not imperative for Tools to include the Group in their plans for the eMPs. This is because the major large advantage with a Group project would be the possibility to share the development costs. An Atlas Copco eMP would not though be the best choice for Atlas Copco Tools as the other products within the Group attract a different clientele, and Tools, being a strong player on the power tools arena, does not benefit from an eMP with competitors, some of which can be found within the Group. An Atlas Copco branded eMP would also have difficulty attracting complementary suppliers to Tools products, as neutrality is of some importance. Tools has got a very fragmented customer base, differentiated both in size, power tools knowledge, ebusiness awareness, and last but not least in opinion of how the eMP should be set up. This renders the eMP strategy difficult to establish for all customers. For this reason we have developed a customer segmentation model in.
9.2
4 guidelines for 4 groups of customers
Our segmentation model in Figure 21, first presented in Chapter 6.2, divides the customers to Atlas Copco Tools into four different segments. The Dominators, upper right, are huge corporations representing a large portion of Tools turnover, i.e. very important customers. The Prospects, lower right, are equally large corporations, but they do
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not buy a lot of products from Tools for different reasons. As a result of their low purchase volumes they are not as important for Tools. The Compatriots, upper left, are the middle sized, and smaller, customers and the distributors. These are very important customers for Tools, but are not as powerful as the Dominators, and therefore Tools can influence the eMP development towards these customers. The last segment is the Followers, lower left, which are the small customers representing a small portion of Tools sales and not very essential to keep as direct customers. Compatriots
High
Smaller corporations with importance for Tools. Tools and customer on par in negotiation power. E.g Schaefer, Tibnor
Dominators
Large corporations with great purchasing power towards Tools. Tools has obeying role. E.g. Ford, GM, Alstom
Followers
Smaller corporations with some importance for Tools. Tools has strong negotiation power. E.g Exotek, small distributors
Prospects
Large corporations who alone cannot set the rules. Tools role yet to be defined. E.g Thyssen Krupp, Ericsson
Low
Low Customer turn over
High
Figure 21: Customer segmentation matrix (created by Englund & jdemark, 2000)6.
As we stated, each segment will require a particular strategy and we will here present the key aspects to take into account for the four segments. The Dominator segment In this segment Tools do not have any choice but to follow the development and establishment of large buy-side eMPs, and see to it that all the advantages possible for the suppliers are evaluated and employed. These advantages are best exploited if Tools act early in the up-start of the eMP, by setting up the basic internal processes to support the eMP, giving the opportunity to engage in more complex collaborations over the eMP faster than its competitors, furthermore, by giving support to different standards suitable for Tools products. The power of these corporations, especially when they team up, such as the case with Exostar, makes the choice of not participating on the eMP unavailable as they with little difficulty could make do without Tools. For Tools image it is also of importance to show good intentions early on in the work with the eMP. This will result in
6
For reasons of clarity we present the figure in Chapter 6.2 again.
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better relations and the possibility to extended relationships via CMSagreements, using the competitive advantage in the PTD. The Prospects segment This segment presents the greatest opportunity for Tools concerning eMPs. This opportunity consists both increased market share and sales, and in cost reductions. When large corporations in this segment set up an eMP, Tools can gain fast advantage over its competitors if it acts quickly and has all the background processes tuned to this new way of interaction between companies. The advantage can be used, either to take market share from competitors with regard to customers buying a lot of tools, but where Tools has got a weak market share, or to take a bigger combined market share form the participating customers at an eMP, where each participant does not buy large volumes of power tools. Many eMPs will emerge within both this segment and the previous one. In the previous Tools does not have an option not to participate, but in this segment Tools could theoretically deny participation without any major implications regarding overall performance. We are, however, of the strong opinion that Tools should see these eMPs as prospects of great sales without any major risks, given that they screen participants and are directed towards established customers, and prepare itself to serve many eMPs in a routine like manner. If the potential of an eMP is not large, there is always the possibility to delay the often costly technical integration, and use the eMP as a means of getting the orders in an electronic form, and make use of the surrounding opportunities of the eMP such as for example collaboration tools. In order to be able to treat the eMPs in a routine like manner, processes need to be set up for both catalog updates and technical integration. A standard form for Tools catalog, such as for example following the UN/SPSC, is imperative. The catalog must follow a specific form in order to facilitate the updates. If each catalog is set up individually for each eMP the task of updating the catalogs will eat up a lot of the early advantages of the eMP. A defined technical solution, in the form of a middleware between Tools business systems and external systems, enabling integration with different technical solutions is also a necessity if the integration will ever be easy to do. This is something we know Tools, is working on, but feel it important to mention anyway. The Compatriots segment Tools is largely dependent on the performance of its distributors towards smaller customers, and initiatives regarding eMPs must conform with the needs of the distributors, even though Tools can be, and should be, the initiating party. The large buy-side eMPs cannot serve these customers, and therefore Tools must find
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an eMP which includes all the features Tools seek to use towards this segment. The key features are: Horizontal MRO Catalog The eMP must be horizontal, including complementary suppliers. It is supported by suppliers of MRO-products. Fixed price mechanisms are to prefer, and catalog based eMPs are best suited for Tools. Auction models may be used on the eMP as well, but Tools is not supported by dynamic price mechanisms. Competing brands on the site does not help Tools, having a strong brand itself, and the aim should be set on an eMP without competitors. The eMP must enable the seller to present its products quite extensively, giving the seller a lot of information and supporting him in his purchase.
Competition -
Seller focus -
Collaboration - Future possibilities of collaboration with the participants on the eMP is important in order for Tools to draw the full long term benefits from the eMP. Distributors Enabling the distributors to use the eMP in their sales is important, to influence the distributors to start using it when purchasing from Tools. Must enable integration with the business systems of Tools and those of the customer.
Integration -
Tools is an important player on the power tools arena, and many of these middle sized customers and the distributors are, for the moment, awaiting the initiatives Tools takes towards ebusiness. They will not wait forever though, and therefore it is very important for Tools to take the lead and set the course for how the industry will use ebusiness and eMPs. This will also give the opportunity to steer the development in a direction that is beneficial for Tools. The Followers segment This segment constitutes a very large number of Tools customers, but the turnover they generate is very modest. A large portion of these customers are much better served by distributors and Tools is determined to maneuver them over to distributors. In most cases they have very limited experience from buying Tools products and need a lot of help in their purchase. Therefore they generally cost more money than they generate, for Tools to continue to serve directly. A good opportunity to compel these customers to approach the distributor is when the ordering process is redirected to the eMP, where the distributor will be selling 120
his products. This will, however, only be possible with customers with a minimum of Internet knowledge. The low Internet penetration among within this segment is another reason for trying to readdress their orders to the distributors.
9.3
Further recommendations for Tools
By a number of reasons given above, there will be no imminent elimination of the actors in the value network of Tools. The fact in the previous chapter, concerning organizational change due to eMPs, will most certainly affect Tools as well. The in-house sales force can focus less order handling and more on customer contact regarding training and support. The sales companies will, with the help of eMPs, become true customer centers. Tools has a great strategic asset in PTD in Hoeselt. The distribution center is a cornerstone in the total offer by Tools to the customer. It will be even more important in the future, fulfilling the demands by Tools and its customers, using more collaborative tools providing higher transparency in the value network. The increased work with the eMPs will demand a higher degree of control by Tools. A function has to be created handling the coordination of information, updating of catalogs, collection and distribution of data, contacts with eMP technical providers etc.. This work has to have close relations with key account mangers and technical staff in order to present a united face toward the customer. On a technical level, IBOS is a step in the right direction towards a middleware providing an easy interface with which other technical solutions, for example eMPs, can integrate, illustrated in Figure 22.
EXOSTAR AC Tools BPCS IBOS Phase II
PTD
SAFIR
MRO-eMP
Figure 22: Future function of IBOS (created by Englund & jdemark, 2000).
The final recommendation we would like to give Tools concerns the mindset of the organization. We have during our work pushed for proactive behavior from Tools point of view, and we do it once again. Tools should work with interest and curiosity toward all four customer segments. We still are in the end of the beginning of eMPs and all the rules have definitely not been set, even if the eMP technical providers insist on it. Tools can, as a strong player in its industry, to a 121
greater or lesser extent influence the situation, especially in the left segment of our customer model. It is up to Tools to shape the companys position on the future eMP scene.
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FINAL WORDS
10 Final words
In this final chapter we seek to round off our study by discussing how sources of errors might have or have affected our work. A section is also devoted to a presentation of other interesting subjects possible for interested students to further study.
10.1
Influence of the sources of errors
In Chapter 2, we identified a number of areas which would represent different sources of errors. When the study now has been done, and the report written, we want to discuss in what ways these errors might have influenced our results. We have chosen to keep the structure from Chapter 2 and present each source of error below. Errors in the decision analysis As we have been able to keep the same purpose of the study throughout our work, we have not been forced to do any major changes in our plan. The only adjustment we have done is the change in our delimitations from focusing on GI in the US and Western Europe, to a focus on GI only in Western Europe. We did this out of a reason that the US market is so different from the European market within GI, mostly depending on the completely different distributor situation, and therefore must be treated separately. Our results must be seen from a European point of view even if certain aspects can be valid for the US market as well. Errors in the problem definition By trying to approach the purpose stated in our thesis, you soon notice how broad a subject you have stepped into and the numerous dimensions of the company that are contributing to the complexity of the problem. In the definition of the purpose and research questions to the study, we realized that there we risked loosing the academic depth in our work. We felt that this broadness was necessary in order to reach viable conclusions and pursued that road, not changing the purpose. Standing afterwards looking back at the result, we feel that the accomplished work has an academic depth, although not with the same profundity throughout the report. The help we got from our supervisors when structuring the research questions has also helped us in asking the right questions, in that way steering the boat in the proper direction.
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Errors in the choice of method The method we have used for our study has been of a qualitative nature for the major part, with discussion interviews and literature studies, in order to reach our aim, which is to live up to, and answer, the purpose of the study. When evaluating the transaction costs of Atlas Copco Tools, we have of course done some number crunching, which can be seen as a quantitative element in the qualitative carpet. Errors in the data collection We have largely used interviews to collect data, both from Atlas Copco Tools, its customers, and other parties of interest such as eMPs and other companies within the same industry. When doing this kind of qualitative data collection, there is always a risk of subjectively distorting the data collected. In order to minimize this risk, we each took individual notes during the interview, and by immediately creating documents of our notes, and comparing our impressions, we hope to have avoided any mistakes concerning facts and biased impressions form the interviewee. There is also the risk of interviewing the wrong people, and for that reason get the wrong data. We have essentially relied on Tools to set up the interviews with customers and distributors. When it comes to employees at Tools and other parties not directly linked to Tools, we have taken the contact ourselves. We feel that this has worked out well, and see no potential risks with not reaching the people of interest for us. The problem occurs when we ourselves do not realize the importance of including a particular interviewee into our study. We have, as stated above, had a great help from Tools to choose the interviewees. Other interviewees have been included after a first round of interviews, since the first round provided us with more questions to analyze. When studying the subject closely and reading a lot of literature related to the purpose, the knowledge about the development increases, and you realize that aspects previously excluded, now must be included, thus adding names to the interview list. Now at the end of our study, we feel that the people included in our interviews represent a sufficient basis for us to draw conclusions from. If we would like to extend our recommendations to a deeper level, more interviews must certainly be preformed. When doing the calculation of the transaction costs in Tools sales process, the data used was taken from the business system BPCS. We are confident in the accuracy of these numbers and see no reason to question their correctness. Errors in the analysis and the conclusions The analysis of our study is based on many interviews, a lot of different sources of literature, and our own thinking. We have tried to use the data delicately. Our hope is also that it is absolutely clear in the text when we give our own thoughts
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FINAL WORDS
to an event or problem, and when we refer to other sources. A few written sources have been used more than others in the report, but at each point we have tried to get complementary sources to verify the stated information. By adding the complementary sources, we feel that we limit the possibility where one single literature source influenced our analysis and conclusions in an improper way. We feel confident about our findings. This fact encompasses both the findings for Tools as well as the general findings. By having a broad focus and in the same time keeping the research questions fairly non company specific, we dare to say that our conclusions are interesting for other companies as well.
10.2
Recommendations for further research
After having read the purpose of our study in the introduction, one could imagine that there would be no questions left to answer on the topic after the work has been done. We acknowledge that our study is quite wide and therefore lacking in depth in some parts. This is a very deliberate act and is necessary in order to get a sufficiently big picture for us to draw conclusions from. This leaves, however, a lot of holes to widen and deepen, to further evolve the conclusions we have presented in this report. The cost of technical integration In order to fully take advantage of an eMP, a technical integration between the companys business systems and the eMP must be made. This would enable orders to be transacted and information to be displayed more easily without the need for human intervention. The cost of this integration will in many cases be, we think, substantial and must be put in perspective of the potential profits a company can gain from such an integration. That type of study would give details regarding the technical potential or disadvantage of interacting with multiple eMPs. Lock-in for participating companies This integration, if it is substantial, could quite possibly mean that a company gets locked in into one eMP, without the possibility to leave when, for example the conditions on the eMP change. How such lock-in could be avoided, or what implications it has on the choice of eMP, would give further understanding to what risks a company is subject to, especially towards important clients where the interest of the eMP is subjective towards these large corporations. Purchasing and sales in cooperation We have focused on the sell-side of a companys value chain, exploring how eMPs could support the sales process within a company. During our work we have identified the possibilities for the purchasing function of the company to use
125
the eMPs in its role as receiving end of Tools sales efforts. It is our belief that it is possible for these two functions, within the one company, to use the same eMP. The possible rationalizations, cost reductions and improvements in efficiency with such an arrangement, we feel would be very interesting to investigate, as we see many possible areas of cooperation between the two functions. Internal organizational changes In the near future, companies will be to different extents affected by the existence of eMPs. The substantial change for companies we believe will occur when more fulfillment and collaboration tools are available on the eMPs. However, already with the present situation, there will be changes in the way companies organize themselves towards eMPs. With additional functionality the change will be even greater and to study the nature of the necessary change, and how organizations are affected by eMPs and this change is something we see a need for. Possibilities of differentiation on an eMP One aspect, which we saw as a possible area of focus early in our work, had to do with the possibilities and risks with a companys ability of differentiation on an eMP. We identified risks concerning the possibility to pursue a clear differentiation strategy on an eMP, and subsequently difficulties in charging a premium price. This risk also involves the delicacy of keeping different prices for one client in different parts of the world. How companies are affected by these issues are areas of immediate concern for companies engaging in eMPs, and should be studied further.
10.3
Closing thoughts
There is a lot left to write and investigate on the subject of eMPs, and we could easily go on for another Masters Thesis with the research. At the same time, our present results put a natural end to the thesis. We wish that our work can be of interest to a large number of people working in different fields. We also hope that some of our readers are not content with the sufficiency of what we have produced, but continue by themselves to augment the knowledge about eMPs. The challenge is not how to successfully navigate with the use of a map, but the creation of it.
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BIBLIOGRAPHY
11 Bibliography
11.1 Methodology literature
Andersen, I. 1998, Den uppenbara verkligheten, Studentlitteratur, Lund. Arbnor, I. & Bjerke, B. 1994, Fretagsekonomisk metodlra, Studentlitteratur, Lund. Asplund, J. 1977, Om undran infr samhllet, Argos Frlag AB, Kalmar. Halvorsen, K. 1992, Samhllsvetenskaplig metod, Studentlitteratur, Lund. Lekvall, P. & Wahlbin, C. 1993, Information fr marknadsfringsbeslut, IHM frlag, Gteborg. Merriam, S. B. 1994, Fallstudien som forskningsmetod, Studentlitteratur, Lund Pratt, V. 1978, The Philosophy of Social Sciences, Methuen & Co, London. Silverman, D. 2000, Doing qualitative research, A practical handbook, Sage Publications, London. Yin, R.K. 1994, Case Study Research: design and methods, Sage, Thousand Oaks, Cal.
11.2
Other literature
Benjamin, R. & Wigand, R. 1995, Electronic Markets and Virtual Value Chains on the Information Superhighway, Sloan Management Review, Winter 1995. Berryman, K. et al. 1998, Electronic commerce: Three emerging strategies, The McKinsey Quarterly, Number 1 1998. Bjur, A. & Forslund, L. 1999, Internetbaserade inkpssystem p den svenska marknaden, Masters Thesis, Linkping Institute of Technology, LiTH-IDA-Ex99/75. Brooks, J. D. & Cantrell, S. 2000, Developmental Phases of the B2B e-Market Space, Research Note, Andersen Consulting Institute of Strategic Change, June 1, 2000. Bucklin, C., Thomas-Graham, P., Webster, E. 1997, Channel conflict: When is it dangerous?, The McKinsey Quarterly, Number 3, 1997. Busch, J., & Reisman, L. 2000, B-to-B Exchanges: Know your domain, The Industry Standard, July 17, 2000. Chandrashekar, A. & Schary, P. 1999, Toward the Virtual Supply Chain: The Convergence of IT and Organization, The International Journal of Logistics Management, Volume 10, Number 2, 1999. Christopher, M. 1998, Logistics and supply chain management; Strategies for reducing cost an improving service, Financial Times Professional Limited, Harlow.
127
Cohen, A. 2000, When channel conflict is good, Sales and Marketing Management, Iss. 4, Page 13, Apr. 2000. Dataquest 1999, The E-Market Maker Revolution, Sept. 27 1999. de Wit, B. & Meyer, R. 1999, Strategy Synthesis: resolving strategy paradoxes to create competitive advantage, International Business Press, London. Donaldson, B. 1998, Sales management; Theory and Practice, Macmillan Business, London. Earle, N. 2000, The future of B-to-B is C-to-C, The Industry Standard, May 1, 2000. Ehrens, S. & Zapf, P. 1999, The Internet Business Report, Bear Stearns & Company. Inc., Sept. 1999. Friedman, L. G. & Furey, T. R. 1999, The channel advantage, ButterworthHeinemann, Oxford. Gadde, L-E. & Hkansson, H. 1994, The changing role of purchasing: reconsidering three strategic issues, European Journal of Purchasing and Supply Management, vol 1, 1994. Gattorna, J. 1998, Strategic Supply Chain Alignment: Best Practice in Supply Chain Management, Gower Publishing Company. Hanna, N. 1995, Pricing: Policies and Procedures, MacMillan Press Ltd, London. Hart, R. 1992, Competitive Opportunity, Kogan Page Ltd, London. Hultman, C. 1993, Managing Relations in Marketing Channels for Industrial Goods, Linkping, Linkping Studies in Management and Economics, Dissertation No 25. Kaplan, S. & Sawhney, M. 1999, Lets Get Vertical, Business 2.0, September 1999. Kaplan, S. & Sawhney, M. 2000, Ehubs: The New B2B Marketplaces, Harvard Business Review, May-June 2000. Keen, P. 2000, ITs value in the chain, Computerworld, Vol. 34, Iss. 7, Page 48, Feb.14, 2000. Kelly, K. 1998, New Rules for the New Economy, 10 Ways the Network Economy is Changing Everything, Fourth Estate, London. Leebaert, D. 1999, The future of the Electronic Marketplace, The MIT Press, Cambridge, Mass. Lynch, R. 1994, European Business Strategies, Kogan Page Limited, London. Moberg, C. 1990, Marknadsetablering i Europa, Sveriges Exportrd, Stockholm. Moore, G. 1996, Inside the Tornado, Capstone Publishing Ltd. Moore, G. 2000, Approaching the Chasm, The Industry Standard, May 15, 2000.
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BIBLIOGRAPHY
Nairn, G. 2000, Winds of change sweep through the marketplace, Connectis, pff. 10, Issue 4, July 2000. Normann. R., Ramrez, R. 1994, Designing Interactive Strategy: from value chain to value constellation, John Wiley & Sons, Chichester. Nunes, P., Wilson, D., Kambil, A. 2000, Endless shelf space, Outlook Special Edition, Andersen Consulting, May, 2000. Porter, M. E. 1985, Competitive Advantage: creating and sustaining superior performance, The Free Press, New York. Porter, M. E. 1980, Competitive Strategy, Techniques for Analyzing Industries and Competitors, The Free Press, New York. Rayport, J. F. & Sviokla J. J. 1994, Managing in the Marketspace, Harvard Business Review, November-December, 1994. Shapiro, C. & Varian, H. 1999, Information Rules, Harvard Business School Press, Boston, MA. Sinha, I. 2000, Cost Transparency: The Nets Real Threat to Prices and Brands, Harvard Business Review, March-April, 2000. Stump, R. L. & Sriram, V. 1997, Employing information technology in purchasing, Industrial Marketing Management, Vol. 26, March, 1997. Vijayan, J. 2000, Manufacturing group launches B-to-B hub, Computerworld, March 20, 2000. Wong, W. 1999, Dell gives advice on online selling, CNET News.com, May 12, 1999.
11.3
Internet sources
Atlas Copco, 2000, Available WWW: URL : http://www.atlascopco.com (Accessed June, 2000). cc-markets, 2000, Available WWW: URL : http://www.cc-markets.com (Accessed September, 2000). Commerce One, 2000, Available WWW: URL : http://www.commerceone.com/sap/default.html (Accessed September, 2000). Brehmer, P.-O., 2000, Researcher at Linkping University, Available WWW: URL : http://www.eki.liu.se/indek/grundutbildning/teie65/files/Forelasningsunderl ag/ EIE65pobrehmer.pdf (Accessed September, 2000). Cooper Industries 1999, Annual report 1999, Available WWW: URL : 129
http://www.cooperindustries.com/inv_center/annual_report/annual99.pdf (Accessed September, 2000). Covisint, 2000, Available WWW: URL : http://www.covisint.com (Accessed September, 2000). Fingar, P., Kumar, H. & Sharma, T. 2000, 21st Century Markets: From Places to Spaces, Available WWW: URL : http://131.193.153.231/issues/issue4_12/fingar/index.html (Accessed August, 2000). Hayes, M. F. 2000, The eCRM Extended Enterprise: The Myth of Disintermediation, Available WWW: URL : http://www.crmproject.com/crm/wp/hayes.html (Accessed April, 2000). Lambe, J. 2000, Some causes of channel conflict, Available WWW: URL: http://www.ba.ttu.edu/mktg/lambe/s99mcchpt10/sld003.htm (Accessed July, 2000) Meeker, M. & Phillips, C. 2000, The B2B Internet Report: Collaborative Commerce, Avaialble WWW: URL : www.msdw.com/techresearch (Accessed July, 2000) Robinson, E. 2000, Battle to the Bitter End -to-End, Business 2.0, Available WWW: URL : http://www.business2.com/content/magazine/indepth/2000/07/11/14151 (Accessed July, 2000). Rydberg, J. 2000, Industrin flyttar ut handeln, Ny Teknik, Available WWW: URL : www.nyteknik.se/pub/pub26_3.asp?art_id=3930 (Accessed July, 2000). Sabre Ltd. 2000, Available WWW: URL : http://www.sabre.com (Accessed September, 2000). Warner, J. 2000, Business-to-Business Communities, iQ magazine, Available WWW: URL : http://www.cisco.com/warp/public/750/iq/iqmagazine/honeywell/1.shtm (Accessed July, 2000).
11.4
Bennett, D.
Interviewees
2000-09-20, Executive Officer, Exostar Europe. 2000 continuously, Project Manager Business Development Internet, Atlas Copco Tools AB. 2000-08-22/23, Marketing and Service Manager, Atlas Copco Tools Germany GmbH. 2000-09-20, Supplier Adoption Manager, BAE Systems. 2000-10-19, Purchasing Manager, Tibnor IVH AB.
Bergstrm, F. Bergstrm, H. Bishop, S. Brandt, G.
130
BIBLIOGRAPHY
Brandt, N. Blow, C.
2000-10-19, Financial Manager, Tibnor IVH AB. 2000 continuously, Marketing Manager, Atlas Copco Tools AB. 2000-10-02, IT Manager, Atlas Copco Tools AB. 2000 continuously, General Manager, Atlas Copco Tools Sweden AB. 2000-08-03, Business Development Manager, Endorsia. 2000-08-15, Electronic Commerce Development, Seco Tools 2000-09-19/20, Sales Manager General Industry, Atlas Copco Tools Great Britain. 2000-08-08, Director Internet Business Development, AB Sandvik Coromant. 2000-09-20, Project Manager, Commerce One Europe. 2000-08-08, Sales Manager General Industry, Atlas Copco Tools Sweden AB. 2000-09-08, Production technician at BT Industries AB. 2000-09-26, In-house Sales Manager, Atlas Copco Tools Sweden AB. 2000-08-23, Senior Purchasing Manager, Krupp Thyssen Nirosta. 2000-08-24, General Manager, Power Tools Distribution. 2000-09-19, Manager, Ray Moss Ltd. 2000-08-24, Warehouse Manager, Power Tools Distribution. 2000-06-21, Product Manager Tensor, Atlas Copco Tools AB. 2000-08-23, Manager, Schubert & Salzer GmbH. 2000-08-22, Manager, Schaefer Drucklufttechnik.
Cap Gemini E. & Y. 2000-06-27, presentation of case. Carlsson, R. Dahlgren, T. Emanuelsson, S-O. Ericsson, J. AB. Feasey, R. Fredriksson, A. Harris, G. Holmlund, S. Johansson, R. Kangur, R. Kratz, B. Larsson, . Moss, B. Poncelet, P. Quensel, S. Schading, K. H. Schaefer, A.
131
Complete table of contents

1 INTRODUCTION TO THE THESIS 1.1 B ACKGROUND 1.2 PURPOSE OF THE THESIS 1.3 PARTIES OF INTEREST 1.4 COMPANY PRESENTATION 1.4.1 HISTORY OF ATLAS COPCO 1.4.2 MULTI-BRAND STRATEGY 1.4.3 ATLAS COPCO TOOLS TODAY 1.4.3.1 The customer 1.4.3.2 Core values 1.5 RESEARCH QUESTIONS 1.5.1 GENERAL INTERNAL AND EXTERNAL ASPECTS 1.5.2 CUSTOMER RELATED ASPECTS 1.5.3 MANUFACTURING COMPANIES AND EMP S 1.6 DELIMITATIONS 1.6.1 REDUCING THE SCOPE 1.6.2 KEEPING A BUSINESS FOCUS 1.6.3 UNCONSCIOUS DELIMITATIONS 1.7 DISPOSITION 1.8 READERS GUIDE 2 METHODOLOGY 2.1 LEARNING IN A WIDER PERSPECTIVE 2.2 WHAT DO WE EXPECT FROM OUR RESULTS ? 2.3 THE IDEA FROM THOUGHTS TO REALITY 2.3.1 SELECTING A CASE COMPANY 2.4 KEEPING AN OPEN MIND 2.4.1 DIFFERENT PERSPECTIVES 2.4.2 INDEPENDENT CRITICAL THOUGHT 2.5 CHOICE OF METHOD 2.5.1 WHAT IS A CASE STUDY? 2.5.2 QUALITATIVE OR QUANTITATIVE METHODS? 2.5.3 QUALITATIVE CASE STUDIES IN A WIDER PERSPECTIVE 2.6 DATA COLLECTION 2.6.1 INTERVIEWING TECHNIQUE 2.6.1.1 Interview approach 2.6.1.2 Course of action when interviewing 2.6.2 LITERATURE DISCUSSION 2.7 SOURCES OF ERROR 2.8 GENERALIZABILITY/ABSTRACTION 3 THEORETICAL FRAMEWORK 3.1 INTRODUCTION TO EMP 3.1.1 BACKGROUND AND HISTORY TO MARKETPLACES 3.1.1.1 The evolution of B2B commerce 3.1.2 DEFINITION OF EMP 1 1 1 2 2 3 3 4 4 5 5 5 6 6 7 7 7 8 8 10 11 11 11 12 12 13 13 14 15 15 15 17 17 17 18 18 19 20 ERROR! BOOKMARK NOT DEFINED . 23 23 23 24 25
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COMPLETE TABLE OF CONTENTS

3.1.2.1 The definition in literature 3.1.2.2 Our definition 3.1.3 FUNCTIONAL PROFILES OF EMP S 3.1.3.1 Vertical or horizontal emarketplaces 3.1.3.2 Buy-side eMPs 3.1.3.3 Sell-side eMPs 3.1.3.4 Neutral or third-party eMPs 3.1.4 HOW BUSINESSES DO BUSINESS ON AN EMP 3.1.4.1 Catalog model 3.1.4.2 Auction models 3.1.4.3 Exchange models 3.1.4.4 Barter models 3.1.4.5 Other exchange solutions 3.1.5 THE INTERACTIVITY OF B2B2B IN SALES 3.1.5.1 From manufacturer to customer 3.1.5.2 and vice versa! 3.1.6 THE EMP AS A VALUE ADDER FOR SELLERS 3.1.6.1 Market roles of an eMP 3.1.6.2 What has the seller to gain from an eMP? 3.1.6.3 Integration with business systems 3.1.7 EMP S FUTURE DEVELOPMENT 3.1.7.1 Proliferation 3.1.7.2 Expansion 3.1.7.3 Consolidation 3.1.7.4 Collaboration 3.1.8 SUMMARY OF INTRODUCTION TO EMP 3.2 THE VALUE CHAIN ORGANIZATION 3.2.1 SALES OUT OF A HISTORICAL VIEW 3.2.2 THE PRODUCER AS A SELLER 3.2.2.1 The sales process 3.2.2.2 Channel mix 3.2.2.3 Disintermediation 3.2.3 DISTRIBUTORS IN THE CHAIN 3.2.4 THE BUYER AND HIS NEEDS 3.2.4.1 Buyers preferences in eprocurement 3.2.4.2 The process of purchasing 3.2.4.3 Different buyers, different focuses 3.2.4.4 Different products, different ways of purchasing 3.2.5 SUMMARY OF THE VALUE CHAIN ORGANIZATION 3.3 THE VALUE NETWORK 3.3.1 DIFFERENT IDEAS ON AN EMERGING MODEL 3.3.2 IMPLICATIONS BY INTERNET ON B2B RELATIONS 3.3.3 SUMMARY OF THE VALUE NETWORK 3.4 IMPACTS OF THE EMP 3.4.1 P OSITIONING ON THE INTERNET 3.4.1.1 Differentiation 3.4.1.2 Branding 3.4.1.3 Pricing 3.4.1.4 Market transparency 3.4.2 A NEW SALES CHANNEL? 3.4.2.1 Channel conflicts 3.4.2.2 Competitors on the eMP 3.4.3 SUMMARY OF IMPACTS OF THE EMP 3.5 SUMMARIZING THOUGHTS OF THE THEORETICAL FRAMEWORK 3.5.1 THE ROLE OF THE EMP 26 26 27 27 28 29 29 30 30 31 31 31 31 32 33 33 34 34 35 37 38 38 39 39 39 40 42 42 43 43 44 45 46 47 48 49 50 50 52 54 54 55 56 57 57 57 58 58 59 60 60 61 62 63 63
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3.5.2 3.5.2.1 3.5.2.2
EMP S AND THE COMPANY: HOW AND WHY?
Q & A, Question and Analysis Selling on eMPs in reality
63 63 64 65 65 66 67 67 68 69 69 70 70 70 71 72 72 73 74 74 74 76 77 78 78 79 79 79 81 81 81 82 83 83 84 84 85 85 85 86 89 89 89 90 90 92
4 THE SITUATION AS WE SEE IT 4.1 B USINESS ENVIRONMENT 4.1.1 COMPETITOR ENVIRONMENT 4.1.2 MACHINE TOOLS MANUFACTURERS 4.1.2.1 Attitude towards ecommerce 4.1.2.2 Development in agreement with the distributors 4.2 SALES & MARKETING 4.2.1 THE SALES AND AFTER SALES PROCESS 4.2.1.1 A model of the sales and after sales process 4.2.1.2 Online information exchange 4.2.2 A COMPLEX PRODUCT TO SELL 4.2.3 THE SALES ORGANIZATION 4.2.3.1 Trends in the sales structure 4.2.4 TOOLS PROFILE ACCORDING TO THEMSELVES 4.2.5 MARKETING ASPECTS 4.3 CUSTOMERS 4.3.1 THE SPECTRUM OF CUSTOMERS 4.3.1.1 Large corporations 4.3.1.2 Distributors 4.3.1.3 Small businesses 4.3.2 HOW DIFFERENT CUSTOMERS BUY 4.3.2.1 Purchasing for large customers 4.3.2.2 Purchasing for small customers 4.4 POWERFUL TOOLS DISTRIBUTION 4.4.1 WHAT IS PTD? 4.4.2 PTD AS AN ENABLER 4.5 EATLAS COPCO TOOLS .COM 4.5.1 P HASE I & II 4.5.2 SERVAID 5 SALES TASKS BREAKDOWN 5.1 SALES AND AFTER SALES PROCESS 5.1.1 THE FIELD SALES FORCE 5.1.2 THE IN-HOUSE SALES FORCE 5.1.3 THE DISTRIBUTORS IN THE SALES PROCESS 5.1.4 THE INTERNET 5.2 DISCUSSING THE PROCESS MAPPING 5.3 COST REDUCTIONS IN THE ORDER HANDLING 6 AC TOOLS IN THE BUSINESS LANDSCAPE 6.1 THE COOPERATIVE NATURE OF EMPS 6.1.1 DEVELOPMENT IN HARMONY WITH CUSTOMERS 6.1.2 DIFFERENT CUSTOMERS, DIFFERENT WANTS 6.2 A MODEL FOR CUSTOMER SEGMENTATION 6.3 ONE SIZE DOES NOT FIT ALL
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COMPLETE TABLE OF CONTENTS

7 THE POWERPLAY IN TOOLS UNIVERSE 7.1 DOMINATORS 7.1.1 EVENTS TO COME FOR DOMINATORS 7.1.2 THE OPPORTUNITIES FOR TOOLS 7.1.2.1 Do eMPs imply increased sales? 7.1.2.2 Using single-point connections in integration 7.1.3 ORGANIZATIONAL CHANGE 7.1.3.1 Using single-point connections in integration 7.1.3.2 The need for standardized catalogs 7.1.4 ASSOCIATED RISKS WITH DOMINATORS 7.2 PROSPECTS 7.2.1 THE FUTURE FOR P ROSPECTS 7.2.2 TOOLS IN THE POWERPLAY 7.2.3 CHANGES WITHIN TOOLS 7.2.4 RISKS CONCERNING P ROSPECTS 7.3 COMPATRIOTS 7.3.1 THE DEVELOPMENT FOR COMPATRIOTS 7.3.2 A CHANCE TO MAKE A DIFFERENCE 7.3.2.1 A seller focus 7.3.2.2 A distributor focus 7.3.2.3 ecommerce phase II vs eMP 7.3.2.4 How horizontal is horizontal? 7.3.2.5 Integration focus 7.3.3 ASSOCIATED RISKS WITH COMPATRIOTS 7.4 FOLLOWERS 8 CONCLUSIONS 8.1 8.2 8.3 8.4 CONCLUSIONS ON THE GENERAL DEVELOPMENT THE CUSTOMER ON THE EMP THE DISINTERMEDIATION AND CHANNEL CONFLICT ON THE EMP STRUCTURAL CHANGE AND COLLABORATIVE COMMERCE 93 93 93 94 94 95 96 97 98 99 100 100 101 102 102 103 103 104 105 106 107 109 109 110 112 113 113 113 114 114 117 117 117 121 123 123 125 126 127 127 127 129
9 RECOMMENDATIONS FOR TOOLS 9.1 9.2 9.3 RECOMMENDATIONS ON A HIGH LEVEL 4 GUIDELINES FOR 4 GROUPS OF CUSTOMERS FURTHER RECOMMENDATIONS FOR TOOLS
10 FINAL WORDS 10.1 INFLUENCE OF THE SOURCES OF ERRORS 10.2 RECOMMENDATIONS FOR FURTHER RESEARCH 10.3 CLOSING THOUGHTS 11 BIBLIOGRAPHY 11.1 M ETHODOLOGY LITERATURE 11.2 OTHER LITERATURE 11.3 INTERNET SOURCES
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11.4 INTERVIEWEES 130
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Examensarbete

Tom Englund & Fredrik jdemark

Examinator Universitetslektor Alf Westelius, IDA, LiTH Handledare Alf Westelius

Share of Tools sales

Le processus de commecialisation chez Tools (Englund & jdemark, 2000).

Share of Tools sales

Tom Englund & Fredrik jdemark Linkping, November 6, 2000

6 AC TOOLS IN THE BUSINESS LANDSCAPE

6.1 6.2 6.3

INTRODUCTION TO THE THESIS

1 Introduction to the thesis

Purpose of the thesis

POWERPLAY IN INDUSTRIAL SALES

INTRODUCTION TO THE THESIS

Construction and Mining Technique

Atlas Copco Tools

History of Atlas Copco

At the moment of writing this report 10 SEK = $ 1.

POWERPLAY IN INDUSTRIAL SALES

Atlas Copco Tools today

INTRODUCTION TO THE THESIS

General internal and external aspects

POWERPLAY IN INDUSTRIAL SALES

Customer related aspects

Manufacturing companies and eMPs

INTRODUCTION TO THE THESIS

Reducing the scope

Keeping a business focus

POWERPLAY IN INDUSTRIAL SALES

INTRODUCTION TO THE THESIS

POWERPLAY IN INDUSTRIAL SALES

Learning in a wider perspective

What do we expect from our results?

POWERPLAY IN INDUSTRIAL SALES

The idea from thoughts to reality

Selecting a case company

Keeping an open mind

POWERPLAY IN INDUSTRIAL SALES

Independent critical thought

Building on an existing study

Table 2: Procedures which contributes to independent critical thought, (Silverman, 2000).

What is a case study?

Qualitative or quantitative methods?

POWERPLAY IN INDUSTRIAL SALES

Qualitative case studies in a wider perspective

POWERPLAY IN INDUSTRIAL SALES

POWERPLAY IN INDUSTRIAL SALES

The challenge of generalizability

At the moment of writing this report 10 SEK = $ 1.

Background and history to marketplaces

POWERPLAY IN INDUSTRIAL SALES

Brochure-ware Basic ecommerce

POWERPLAY IN INDUSTRIAL SALES

Participants Number of participants Transactions Information Ownership

Functional profiles of eMPs

POWERPLAY IN INDUSTRIAL SALES

Figure 3: Structure of a buy-side eMP.

Figure 4: Structure of a sell-side eMP.

Figure 5: Structure of a neutral eMP.

POWERPLAY IN INDUSTRIAL SALES

How businesses do business on an eMP

POWERPLAY IN INDUSTRIAL SALES