Digital Economy

In 10 years from now the term

will be completely obsolete.

They backbite about you

on the internet

Definition
What do we understand by business ?
All activities that have to do with buying, selling , providing,
paying, handling, administrating etc. of goods, services or
information.

What do we understand by E-business ?

IBM
E-business is what happens when you combine the broad
reach of internet with the vast resources of traditional
information technology systems. It is dynamic and interactive.

Automotive Industry Action Group

The application of advanced information technology to
increase the effectiveness of the business relationships
between partners.

Other Definitions

Electronic Commerce ( EC )
Narrower than electronic business
Limited to the pure trading activities

Electronic Commerce
A new concept covering buying and selling of products,
services and information via computer networks, including
the internet.
EC applies different technologies, varying from EDI till e-mail.
In fact we can also consider buying food at a POS automate
using a smart card as a form of electronic commerce.

B2B and B2C

Business to Business
Business to Customer

E-Commerce : B2B

B2b or not 2b
Internet changes the
way of doing
business.

4/2/2000

 B-2-B

Growth of commerce via Internet

Business
to
Business

Retail trade
Closed

The real impact of the Internet

at the long term?
The internet improves the transparency of the
economy
easier prise comparisons (buyers - sellers)
eliminates intermediaries
reduces the cost of a transaction
lowers the entry barriers

The internet brings economy closer to the

classical model of the free competition:
abundance of information
cost of transaction almost zero

What will be the real long-term

impact of IT and the Net?

The biggest winner will probably be the

consumers and the entreprises of the old
economy (the automobile sector, chemical
sector, ...) that use e-commerce B2B within
the framework of a business process reengineering effort
April 1, 2000

Strategic Networks !
Internet - The textbook model of perfect

competition: abundant information, zero

transaction costs and no barriers to entry.
The most important effect of the new
economy may be to make the old economy
more efficient
The Economist April 1, 2000
L Ubiquit. Linternet transforme le mode de
fonctionnement des entreprises : tous les
acteurs du march seront dots dune plus
grande connectivit
Les rseaux stratgiques de partenariat
deviennent la meilleure faon dtre
comptitif.
Le Monde 27/4/1999

Survival Guide

REORGANIZE YOUR
COMPANY CHANGE THE
OLD ENTERPRISE MODEL

March 22 1999

Example: US
Feb 1998

31/1/2000

The Economist Jan 14 2000

The US Job Machine

We woz wrong

Internet hosts per 100 population in Western Europe

e-penetration
innovation
10

70

60

7
6

50

40

30

20

2
1

10

Eito-RIPE July 1999

Internet hosts

'99-'98 internet growth

July 1999 Internet hosts per 100

population

80

Internet growth

Obstacles

privacy
cost
security
wait & see
0

10

15

20

25
EITO 99

30

Obstacles
Essentially Cultural
A generation of managers has to
redo their exams
Connect yourself, boss (BusinessWeek)

The public

The value of the network grows by the square of the

number of users

The Internet soap-bubble?

The railway companies in the 19th century:

most lines bankrupted over investments created
excess capacity and deadly competition
the good news: after the collapse of the shares, the
railways remained operational good for the whole
economy

Ethi cal e- business

mainly for self-defense

High standards of ethical conduct by businesses should be the main method of fostering consumer confidence in the Internet
US Secretary of Commerce Daley Global Business Dialogue On E-Commerce, Sept 13, 1999 Paris

non-transparancy :
not accepted by the consumer
100% data protection : extremely high cost
changing mentality: examples Dell-IBM
citizen follows more open society ?

Dot-Coms Needed a Double Dose of Reality...

Traditional commercial and legal precepts that govern capitalism
must also apply to the Net. High-tech entrepreneurs must
address these problems as the price for continued access
to capital:

Privacy.
Should be respected
Transparency.
About real cost
Patents.
Patenting widespread business methods to create a monopoly and inhibit
rivals. The US Patent Office changed its mind.
Monopoly.
The courts have ruled that Microsoft violated the 100-year-old Sherman
Anti-Trust Act. Investors sent Microsoft's stock down.
BUSINESSWEEK : APRIL 17, 2000

Dot.business ?
Most companies must become Internet firms

if they are to survive

The Economist 26/2/2000

Merely adding a
website on to an
existing business is not
enough : the whole

business needs to
be redesigned around
the cost-saving,
communication-easing
properties of the net

e-Economy Threshold Timing

Germany
Italy
UK
France
Denmark
Austria
Norway

Portugal

Belgium

Finland

Greece

Switzerland
Spain

Sweden

Netherlands
Ireland

U.S.
1998

1999

2000

2001

2002

2003

2004

Forrester Research - TM@B 18/5/1999

2005

Online markets
Seller beware

e-procurement to cut costs

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

e-Logistics
E-technology transition ...

EDI era

Large companies
Proprietary
Batch
Bilateral
High cost

Internet era
All companies
Public
Online
Networks
Low cost

Results in cost (and quality) discontinuity: Cost to

process an order: >10x improvement, plus better quality!!

The Zero-Latency Organization

Zero-Latency

Enterprises or organizations that can act quickly on

new information have a competitive advantage and
deliver better services.

Latency is the time it takes for a system to respond to

an input
all parts of the organization can respond to events as soon as
they become known to any one part of the organization.

Requires reengineering the business processes.

Zero-latency strategy is needed.

Zero-latency Strategy
A zero-latency strategy requires:

A network and software infrastructure that is capable of quickly

exchanging information across technical and organizational boundaries

End-user interface tools and other application programs that are capable
of sending and receiving information in a timely fashion

A business strategy that leverages fast action to achieve a real business

benefit (by managers)

A set of business policies, processes and product offerings that have

been engineered to implement that business strategy
it can affect the way tasks are done or goods are delivered

An organization that can implement the new processes

function of workgroups and departments may change

Zero-latency Strategy

A zero-latency strategy is any strategy that exploits the

immediate exchange of information across technical
and organizational boundaries to achieve business or
organizational benefits.

Technical boundaries
different operating systems
different DBMSs
different programming languages

Organizational boundaries
inter-department
inter-organizational

The Virtual Enterprise

Source: Gartner group Inside report June 1998

Virtual Organization

Cooperation between independent organizations that

operate to the outside world as a unit.
Temporary cooperation to gain competitive advantage or to
make up from arrears (Airbus)
Works well if the objective is clear
Legal problems can occur in case of conflicts

Intensive but non-definitive relationship

Essential is that partners can survive after a divorce
e.g. Toyota with partners is not a virtual organization

Seen from user point-of-view

Clients and suppliers are seen as part of the network
organization is not seen as a unit of buildings and resources,
but is always and everywhere accessible via IT
networking organization

Focussing on Core Competencies

Increased customer access to information allows them

to search among product and services to select the
best-of-breed
enterprises narrow their focus on core competencies
add customer value
differentiate products and services in the marketplace
add value across multiple products and services over time

enterprises narrowing the focus

+
need to offer broader product range

Virtual companies

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

The IT-enabled Virtual Enterprise

Virtual
Enterprise
Business
1
Partners

Product and
Service Creation

Suppliers
Virtual
Enterprise
3

Internal
Operations

Physical
Enterprise

Sales and
Marketing

Customers

Fulfillment
and Delivery

Virtual
Enterprise 2

Industry
network

Source: GartnerGroup

Types of Virtual Companies

Project oriented (airbus)

Competence based

Kernel partner (Mc Donnalds)

With or without mission overlap

IT-enabled

Existed for a long time as a business concept

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

Could you check my agenda

and tell me who are the people
with whom I'am having this
lovely lunch ?

Characteristics and examples

Elements usually present
alliances
brand identity
knowledge base
marketing strategy
problem solving
research and
development

Elements usually absent

Human resources
Inventory
Manufacturing
Materials
Offices
Storefronts

Examples:
Airbus: Aerospatial, DASA, Aerospace, CASA, SABCA
Virgin
Construction companies

Knowledge: Key Differentiator

The virtual company will:

constantly scan the environment
constantly scan own internal processes
identify opportunities and challenges
sense changes among its suppliers, competitors,
customers,
innovate products, services, communications,

Constant mutation and change will be the norm

Knowledge Based

Critical Success Factors

Extensive interoperability between constituent parts

Subsume non-differentiating business processes for key

functions that facilitate application interoperability
packaged solutions: Baan, Oracle, Peoplesoft, SAP,

Standards for the meaning and presentation of information

Key technology enablers
application interoperability (interenterprise, intraenterprise )
high speed networks
rapid application development
terabyte database management systems
interenterprise collaborative computing
security

Electronic Commerce

Interorganisational Systems

Information flow between two or more organisations

efficient transaction processing
no bargaining, only execution
pre-defined formats, no telephone calls nor paper

Drivers
reduced cost for routine business transactions (SWIFT)
improved quality of the procedures because of less errors
reduced processing time (Singapore)
lower cost for paper handling
business process easier for the users

Types
EDI, EFT, e-mail
shared databases

Establishing Trust

Without trust between parties online, the value

of electronic transactions remains limited.

The concept of a certificate authority, trusted

by all parties involved in electronic
transactions, is at the heart of new security
practices for E-business.

Outsourcing trust is not always the best

solution; it has consequences for vulnerability
and the degree of comfort.

E-commerce
Buying, selling products, services or information via a computer network

Purchaser

EDI
SWIFT
Tradenet
...

Order

Purchase order

Reply on information request

purchase confirmation
shipping note
payment acknowledgment

Payment authorization request

Payment approval

Bank of the purchaser

Seller

Electronic
Market

Order reply

Approvals by
Trusted party
EFT

Transaction Handlers bank

bank Supplier

Role of the certificate Authority

Facilitate E-commerce among parties.

Identify and authenticate certificate requesters and

users.

Maintain records on certificates issued.

Audit itself and (as appropriate) its subscribers.

Where possible, avoid or resolve disputes due to the

use of certificates.

Absorb risk and take fiduciary responsibility for

certificate issuance.

Electronic Market

Clients and providers negotiate on an on-line or off-line

sales transaction.

Network of interactions and relations where information,

products, services and payments are exchanged.

The business center is not a physical building but a

network-based location.

Participants: sellers, buyers, brokers, providers, clients

they are on different locations
sometimes they dont know each other

Push and Pull possibilities

Advantages for the Organisation

Lower cost for handling, creation and storage of

paper information
electronic purchasing system
electronic payment 95% cheaper than check

Reduced stock and overhead with pull-type

delivery

Reduced time between sales and payment

Supports BPR efforts , leading to higher

efficiency

Advantages for the Client

More alternatives from various vendors

Cheaper products and services

Often immediate delivery

24 hours service

Relevant information can be obtained after

seconds instead of after days

Constraints

Lack of security standards

Insufficient bandwidth

Problems with Interoperability

Accessibility of the internet

Remaining legal aspects (digital signature)

Still in full evolution: code of conduct

Clients do not like changes

Still limited number of buyers and sellers

Problems with human relationships.

SET Secure Electronic Transaction

1.

Client initiates a transaction by sending a request and a signed,

encrypted authorization. The supplier can not access the credit
card number because it is encrypted.

2.

The supplier passes on authorization. The bank can decrypt this

and see the credit card number. It can also check the signature.

3.

Acquiring bank checks credit card with card issuer.

4.

Card issuer authorizes and signs transaction.

5.

Bank authorizes merchant and signs transaction.

6.

Customer gets goods or service and a receipt.

7.

Supplier asks to capture the transaction and get the money.

8.

Supplier gets paid according to its contract.

9.

Customer gets monthly bill from card issuer.

E-cash Electronic Cash

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

Electronic Credit Cards

Encrypted payments
1. Customer sends the encrypted credit card information
and digital signature to the supplier.
2. The merchant validates the customers identity as the
owner of the credit card account.
3. The supplier checks the information with his own bank
or credit card processor. Authorization is obtained by
contacting the customers bank.
4. When the authorization is sent to the suppliers bank,
the deal can be concluded.
5. The customers account is debited and the suppliers
account is credited.

Electronic checks

similar to regular checks, secured by public key cryptography.

1. The customer establishes a checking account with a bank.
2. The customer contacts a supplier, buys a product or service and emails an encrypted electronic check.
3. The supplier deposits the check in his account; money is debited in
the buyers account and credited to the seller,s account.

E-checks carry an encrypted digital signature and additional

information.
Can be exchanged between financial institutions via electronic
clearinghouses.
Can be used as payment instruments in EDI-applications.
The NetCheck system.
Accept paper checks in exchange for crediting customers NetCheck
account.
Integrated with financial institutions.

Electronic Payment Cards

Traditional bank cards

Payment cards for specific companies

(transportation)

Smart cards: electronic purse

Information Services

Evolution in information services

Information Broker

Content Specialist

Electronic Market
Facilitator

Information Broker

Identify an unfilled need for high-value

information contentthat is difficult to access
through available channels

Build a community of interest between

suppliers and customers

Penetrate quickly throughgiveaway

strategies, contracts and partnership
arrangements

Deliver value toall parties initially through

linkages, information collection and
categorization, and transaction coordination.

Content Specialist

While paying careful attention to private rights,

collect information on market transactions

Create organizational capabilitiesto make

sense of information and use it to add value to
products and services

Distribute value to to all members of the

community

Electronic Market Facilitator

Build a web of alliances to extend scale and

scope of community
Develop interactive tools to establish closer
links with community members and to facilitate
linkages among community members
Develop intelligent agents and filters to
customize the experience of all members of the
community
Build organizational capabilities to deepen
commitment and loyalty of all community
members.