Driving E-Business Excellence

Anitesh Barua, Prabhudev Konana, Andrew B.Whinston, Fang yin

Presented By Vandana Janeja

The Internet Ecosystem

TM

w w w w w

Interdependent layers Can’t do it all by yourself Partnerships & alliances Strange bedfellows New business models

The Internet Economy

Layer 4: Online transactions Layer 3: Intermediaries Layer 2: Applications Layer 1: Internet infrastructure

TM Cisco Systems

Operation model for E-Business value creation
w Model’s premise: Achievement of E-Business Operational excellence will lead to improved financial performance w Need to know:
n n

What drives E-Business operational excellence(Drivers) Central components to E-Business operational excellence

Data collection
w A 74-item questionnaire developed by CREC researchers w Over 4500 U.S. and European firms contacted by MarketVision Research. w Approximately 1200 firms responded to the survey
Employee Distribution Industry Respondents

9% 31% 11% 45%

59% 10% 35%

Less than 100

Between 101 and 400

More than 400

Retailers

Manufacturers

Distributors

Wholesalers

Central Components w Measures of Operational Excellence n n Traditional E-business w w w w w Online Revenue Online Procurement New Customers Existing Customers Customer Service .

Central components to E-Business operational excellence .

Traditional measures w Inventory turnover w Order-to delivery cycle time w Mistakes in order fulfillment .

E-Business measures w w w w w % of organizations total business online % of goods purchased online from suppliers # of existing customers doing online business # of customers acquired online % of customer service requests handled online .

Companies with E-Business measures show w w w w Significant increase in revenue per employee Significant increase in gross profit margin Return on assets Return on investment .

How can a firm achieve high levels of financial benefits in e-business? (Table 1) w Comparison of driver levels of firms reporting increase in financial performance with firms reporting no financial gains E -business drivers System integration Customer Orientation of IT (Informational) Supplier Orientation of IT (quality) Supplier Orientation of IT (supply -continuity) Supplier Orientation of IT (relationship) Internal Orientation of IT Supplier Processes Customer Processes Supplier E -business Readiness Customer E-business Readiness * à significant at 10%. ** à significant at 5%. *** à significant at < 1% Revenue per E mployee * *** G ross M argin *** * ROA ROIC *** ** *** * *** *** *** ** *** * *** *** * *** * *** *** * *** *** *** .

4 19.Do operational excellence lead to improved financial performance? (Table 2 in the report) w Comparison of operational excellence measures of firms reporting increase in financial performance with firms reporting no financial gains Increase in Revenue O p erational Measures Per E m p l o y e e No % online revenue % online MRO procurement % online production goods procurement % service request resolved online % new customer acquired online % existing customer doing business online 10.8 Yes 40.8 10.1 21.3 16.6 40.2 19.9 19.3 .9 No 12.3 45.3 12.6 12.7 43.5 11.0 11.2 15.6 40.9 14.2 43.7 23.4 43.3 Increase in Gross Margin Yes 42.2 15.

2% 11.Effect of firm size on e-business impact (Table 3 in the report) w Comparison of average and median financial gains for firms with revenue < $1 million and revenue = $1 million. Average Increase for firms with revenue < $1 Million Mean Median Average increase for firms with revenue >= $10 Million Mean Median Financial Measure Increase in revenue per employee Increase in gross margin Increase in return on asset Increase in return on invested capital 46.3% 20.9% 5% 8% 5% 10% .9% 39.6% 47.6% 50.2% 40% 25% 40% 50% 13.8% 10.

Small companies with less than $10 million in annual revenue w Take more advantage of internet capabilities n n Have fewer problems with system integration Have Flexibility to make changes .

entering orders.Online Revenue w High % of revenue online. tracking shipments .leaner company w Size of sales staff reduces w Tasks shift to the customer like gathering info.

Online Procurement from suppliers w w w w w w MRO goods and Production goods Lower prices Better coordination with suppliers Fewer problems with stock outs Smoother production schedule Just in time operations w Importance of Online supply chain management .

Levels of Online Procurement (Table 15 in the report) n Average level of online procurement of all firms % Online Procurement 0% 1% to 20% 21% to 50% > 50% % of firms procuring MRO items online % of firms procuring production goods online 34% 42% 41% 31% 16% 20% 9% 14% .

. or physical office in a location w Marketing expenses reduced w Web to reach small companies w Acquiring new territory without a lot of financial input.Acquiring New Customers w Finding new customers easier w Not constrained by geography.

Existing customers w Getting existing customers to do business online w Transfer of trust in the relationship to online one .

Customer service w w w w Provide much needed information online Speedy responses to questions Online communities Interactive features for customers to help themselves .

Companies with significant financial gains w Have high % of online revenue w Have high % of online procurement w Have high % of online new customer acquisition .

The Bottom Line On Operational Excellence .

Drivers of E-Business .

suppliers and internal operations The E-Business readiness of customers and suppliers .Drivers of E-Business excellence w Three areas n n n E-business processes for customers and suppliers IT applications for customers.

manufacturing.Customer Related Processes: Processing of information and execution of tasks w Customer : Request or a complaint n n n n n Providing a single point of contact Coordinated internal processes for immediate response Quick response Processes in place for smooth information flow Customer feedback incorporated into the processes: design. QA .

Supplier Related Processes: Processing of information and execution of tasks w w w w w w Exchange of information An environment of mutual trust for this exchange Type of information for exchange Level of precision required Frequency and channels of exchange Format and security of data .

Example. n n Real time information Monitoring defect rates of products coming from suppliers . CISCO : knowledge about product quality w Installed software and test equipment at manufacturing and supplier sites.

IT Applications: Customer orientation w How to give customer info and how to get customer info n n Comprehensive FAQs Details about products .

.Customer orientation of IT – Informational (Table 5 in the report) w Comparison of informational capabilities(providing info to customers) of firms reporting increase in financial performance with firms reporting no financial gains % Agree Customer Orientation Question (Informational) “No” to increase in Revenue per Employee “Yes” to Increase in Revenue per Employee 81% 64% 58% 33% All product -related information is available online (e. prices. order stat when they log onto the web site us. Customers can customize their orders online without phone/face -to-face interactions. products.g. order history. chat rooms. etc.).) 56% 33% 45% 23% 27% 40% . bulletin boards) Customers see personalized content (e.. price. product description. etc.g. catalog. Customers can interact using online forums and/or communities (e.. A comprehensive FAQ section is available online.g.

Customer orientation of IT – Transactional capabilities (Table 6 in the report) w Comparison of customer transactional capabilities(online order) of firms reporting increase in financial performance with firms reporting no financial gains Availability of Transactional Feature Customer Orientation Question (Transactional) “No” to Increase in Revenue per Employee No Yes 54% 30% 36% 30% 46% “Yes" to Increase in Revenue per Employee No 18% 43% 32% 47% 26% Yes 82% 57% 68% 53% 74% Customers can submit orders online Customers can modify orders online Customers can pay online Customers are notified of their order status automatically Customers access a secure website for ordering and other interactions 46% 70% 64% 70% 54% .

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IT Applications: Supplier orientation w w w w w w w Online communities FAQ’s Supplier Evaluation reports Automatic ordering Online Invoicing Order Status tracking Electronic payments .

This is consistent with lack of synergistic processes and readiness . 64% 74% 70% Yes 36% 26% 30% No 63% 71% 72% “Yes” to Increase in Revenue per Employee Yes 37% 29% 28% the numbers are low while differences are minimal Which means most firms have not tapped into the vast potentials for efficiencies.Supplier orientation of IT – Transactional capabilities (Table 8 in the report) w Comparison of supplier oriented transactional capabilities of firms reporting increase in financial performance with firms reporting no financial gains Availability of Transactional Feature Supplier Orientation of IT Applications (Transactional) “No” to Increase in Revenue Per Employee No Systems allow automated invoice transmission and processing Systems track status of orders online Payments are electronically sent to suppliers.

frequency. real-time or delayed. and channel) are well defined. format. 26% 29% 43% 37% 38% 52% 45% . Information exchange policies with suppliers (e. Supplier quality monitoring process is well defined.g. precision. Supplier selection criteria are well documented.E-business processes – Suppliers (Table 12 in the report) w Majority of the firms have not leveraged the Internet and other IT for supplier relationship management % Agree (somewhat to strongly agree) Supplier Processes Related Measures “No” to increase in Revenue per Employee “Yes” to Increase in Revenue per Employee 28% Method of sharing product roadmap and demand forecast with suppliers is well defined..

Alliance between Home Depot and GE systems w Web based alliance between home depot and GE w Home Depot wanted to offer more products while keeping less inventory w Home depot can have goods directly delivered to purchasers from nearest GE warehouse w Link between HD point of purchase data to its accounting processes and to GE business systems .

IT Applications: Internal orientation w Access to internal information w Intranet w Quality library(repository of internal documents) w Example GE Capital: 50% reduction in time spent in obtaining access to project information .

Best practices/project management information is available through the corporate intranet. There is no substantial differences between firms who say “yes” and “no. Employees manage administrative processes online.” . 51% 38% 28% Firms have not benefited from ubiquitous Internet infrastructure.Internal Orientation of IT (Table 13 in the report) w Majority of the firms have not leveraged the Internet and other IT for internal operations % Agree (somewhat to strongly agree) Internal Orientation of IT Applications “No” to increase in Revenue per Employee “Yes” to Increase in Revenue per Employee 52% 41% 33% Employees can retrieve required information through corporate intranet.

Systems Integration w Customer. Supplier and internal applications w Seamless interactions w Tying together internal and external systems w Home Depot – complete integration of online and backoffice capabilities w Lack of integration between online and back office systems created major order fulfillment headaches for Toys-R-US .

led to building costly warehouses .E-Business Readiness of Customers and Suppliers w Weakest link in the value chain w Solve by committing resources to the problem w Example : Dell: Online supply chain management application n to help component suppliers to get direct access to customer order information w Amazon: lack of readiness.

E-business readiness – Customers (Table 14 in the report) w Customers of firms with observed increase in financial measures are generally more ready for e-business % Agree (somewhat to strongly agree) Perceived Readiness of Customers “No” to increase in Revenue per Employee Customers feel comfortable regarding security and privacy in electronic commerce Customers consider it important to engage in electronic commerce 49% 76% 67% 52% 78% 69% “Yes” to Increase in Revenue per Employee Overall .

Suppliers consider it important to engage in e business.) engaging in e-business Suppliers are willing to share information electronically with us. Suppliers consider it important to improve coordination and collaboration.E-business readiness – Suppliers (Table 14 in the report) w Suppliers of firms are generally NOT ready for e-business % Agree (somewhat to strongly agree) Perceived Readiness of Customers “No” to increase in R e v e n u e p e r Employee Suppliers have Internet-b a s e d s y s t e m s t o engage in electronic commerce. Suppliers feel comfortable (regarding security. 47% 41% 53% 47% 65% “Yes” to Increase in Revenue per Employee 59% 55% 65% 56% 66% 56% 49% 62% 53% 65% Overall . privacy etc.

Financial Measures Operational Excellence Measures IT Applications Processes E-Business Readiness Customers Suppliers Internal Customers Suppliers Internal E-Business Drivers Customers Suppliers ? Copyright Barua. etc. % Online Business. etc. Whinston and Yin 2000. Gross Profit Margin.Model of E-Business Value Revenue/employee. Return on Assets. Konana. % Online Procurement. % Customer Service Provided Online Order Delivery Time. CREC The University of Texas at Austin .

.Conclusion w Every piece of the puzzle is equally important w Encouraging participation from all players w Focusing organizational resources in areas of opportunity w E-business transformation by complimentary investments in all arenas.

Increase in Internet Users: 2000-2001 Factors of Success by Segment: FY2000 Survey Ref:The E-com Journal.htm .or.ecom. http://www.jp/ecom_e/latest/ecomjournal_no3/wg6_e03.