E-ruption of the global economy
• destruction of value chains
• break up of large corporations
• instability of supply chains
• strong CRM, mass customisation & faster innovation
• economic uncertainty especially for high wage low
capex countries
The speed will be devastating for some
Stephen Aitken, Industrial Secondee, DTI 1st June 2000
Software Engineering & Information Systems Network Net,
Innovation unit
•
•
•
•
•
•
24 industrial secondees
research and publish best practice
many partners
events and support and panels
support SMEs
influence government policy
“Market leaders” - arrogance
The e-Bible
Unleashing the
Killer App
Larry Downes & Chunka Mui
1997
• The laws
– Moore’s law
– Metcalfe’s Law
– Coase’s Law
Coase law
costs of transactions
•
•
•
•
•
•
Search costs
Information costs
Bargaining costs
Decision Costs
Policing costs
Enforcement costs
The law of the diminishing firm
Economies of scale before the
Internet (Coase Law)
Customers
mass production
Large firm (vertically and
horizontally integrated)
Raw Materials
Economies of scale after the internet (Coase Law)
Customers
CRM
Merger
repetition
Customer focused firm
- marketing, sales & R&D
Acquisitions
Internet Exchange
Tier 0 Suppliers
Internet Exchange
Tier 1 Suppliers
Raw materials
Mass
customisation
The Diminishing Firm
• Jobs provided by Fortune 500 companies
– 7.8m in 1954
– 16.2m in 1979
– 11.9m in 1994
Mass customisation
• Creating a variety of highly specific products
out of pre-existing components
• assumes a high degree of interchangeability in
product design set - needs CAD CAM
• starts with assembly of web pages “on the fly”
to provide unique customer experiences
• Levi’s Original Spin:
– 227 waist/hip, 25 leg, 6 colors, zip/button = 68,000
Levi’s 1to1experience
•
•
•
•
•
Losing market share to designer jeans
made to measure jeans in selected stores
web based made to measure jeans 1998
web based design your own jeans
Business benefits
– 40% buy again vs. 12% for ordinary jeans
– up to 4 extra pairs of jeans
– will be 25% of Levis business in 5 years
Economies of scale after the internet (Coase Law)
Customers
CRM
Merger
repetition
Customer focused firm
- marketing, sales & R&D
Acquisitions
Internet Exchange
Tier 0 Suppliers
Internet Exchange
Tier 1 Suppliers
Raw materials
Mass
customisation
Oracle Auto Exchange - Metrics
•
•
•
•
Ford purchases $90b per annum
Total supply chain is a $300b economy
30,000 suppliers
6,900 dealers
Auto Exchange
•
•
•
•
Agreement November 1999
Over 400 developers
Live 31 Jan 2000
Ford expects to hold further auctions for about
$300m of supply business in February
• The venture is expected to generate as much as
$1B in revenue within 18 months
AutoXchange - Results
 First auction :
–
Scrutinised by analysts
–
9 hours of auction, no technical issues
–
Tier 1 suppliers
–
Target price : $93M
–
Final auction : $78M
–
Savings = $15M!!!
The Snowball Effect...
“Motor giants link to form online supplies exchange”
“The move by General Motors, Ford and
DaimlerChrysler will create the world’s largest electronic
market place ….”
“… it may displace new business to business
intermediaries that are already trying to bring the
Internet to industry”
Financial Times - February 28th
Retail - GlobalNetXchange
“The open, international GlobalNetXchange, based on
Oracle's e-business marketplace platform, initially will
focus on Sears and Carrefour's combined $80 billion
supply chain purchases from 50,000 suppliers, partners
and distributors.
Sears and Carrefour expect GlobalNetXchange will
significantly reduce their purchasing expenses and
greatly enhance supply chain efficiencies with their
trading partners.”
Wall Street Journal, 28 February
The Snowball Effect...
“The global inline exchange for the retail industry
launched by Sears and Carrefour yesterday signed up two
new equity partners: Metro of Germany and UK
supermarket group J Sainsbury
The news came as it emerged that GlobalNetExchange is
in advanced talks with a string of other retailers”
Financial Times, 24 March
Electronic Marketplace for Greater
China
• The new Electronic Marketplace is expected to be the
largest, independent, open marketplace for Greater
China, offering a variety of ebusiness services across a
broad range of industries and their buying
organizations and suppliers.
Another exchange 17 May 2000
Chemical companies, Atofina, BASF AG, Bayer AG, BP
Amoco, Dow, DuPont, Mitsui Chemicals, Mitsubishi
Chemicals, Rhodia, Rohm and Haas, Sumitomo
Chemical and Van Waters & Rogers,
have announced they are forming a B2B e-commerce
company which will control an online marketplace for
the chemicals industry. Start July and operational by
the end of the year.
A Full Featured Vertical Marketplace
• Real-time visibility across supply chain
• Collaborative supply chain planning
• Build-to-order production models
• Optimized inventory management
A multi-tier,
integrated supply
chain
Marketplace
Transformational
product development
• On-line product development
environments
• Collaborative design
• Interactive program schedules
E-enabled, dynamic
trading communities
• On-line auctions, RFQs
• Consortium buying & Intelligence
• Liquid market for surplus materials
• Catalog purchasing
What is the opportunity?
Average
• 76% time providing low value •
operational support
•
• 2% time performing high
value strategic activity
World Class
“Touchless Procurement”
Greater than 50% time
performing high value
strategic activity
• Spend $175 / procurement
transaction
• Spend $15 / procurement
transaction
• Pay 1% of total spend in
procurement costs
• Pay .3% of total spend in
procurement costs
• Replace procurement systems • System that supports
every seven years
continuous transformation
Source: The Hackett Group © 1998
AMR Research
Twelve principles of Killer App
• Reshaping the landscape
–
–
–
–
outsource to the customer
cannibalise your markets
customers as a segment of one (CRM)
create communities of value
• Building new connections
–
–
–
–
replace rude interfaces with learning interfaces
continuity for the customer, not yourself
give away as much information as possible
make partnerships
• Redefining the interior
–
–
–
–
treat assets as liabilities
destroy your value chain
manage a portfolio of innovations
hire the children
Benefits from “Hire the Children”
• Financial
– new products and services
– understanding youth markets
• Culture
– open and outward looking
– learning and coaching culture
• Image
– with employees, potential employees, community
– links to other organisations
1000 Millennium Products
• Customer intimacy
– helplines and complaints
– user community and e-groups
– customers as team members
• Culture
–
–
–
–
–
leadership - restless company
passion about the product
recognition
crazy guys
avoid people who know too much
Fords plans - BWHE
•
•
•
•
•
Understand customers’ needs for mobility
market the brand
outsource all manufacturing
hard bargain with tier one
envelop its distributors / own the channels
own the front end of the supply chain - Nike
Strategic planning vs. Digital Strategy
•
•
•
•
•
•
•
•
•
Static
physical
analytic
3-5 years
five forces
value chain leverage
strategists, top management
technology enables
plan
•
•
•
•
•
•
•
•
•
Dynamic
virtual
intuitive
12 -18 months
new forces
value chain destruction
everyone + partners
technology disrupts
killer apps
Key actions for Corporates
•
•
•
•
•
•
•
Disrupt - a restless organisation
customer focus and culture of CRM
invest in mass customisation capability
buy an operation in USA and Scandinavia
corporate venture some dot coms
use the twelve principles in a digital strategy
work with government on future of corporations
Actions for SMEs
• Install CRM systems - on web, in office
• Evolve strategy to deliver tailored products and
services in niche markets
• adopt technology to enable participation in
global electronic exchanges
• use e-procurement (save £24bn - GroupTrade)
• find right SW Houses or ASPs partners fast
Opportunities for Software
Houses
• deliver CRM systems
– identify, differentiate, interact, customise
• deliver internet exchanges
• deliver mass customisation systems
– CAD, CAM, MRP, JIT,
– Logistics
• become an ASP delivering above
E-ruption of the global economy
• destruction of value chains
• break up of large corporations
• instability of supply chains
• strong CRM, mass customisation & faster innovation
• economic uncertainty especially for high wage low
capex countries
The speed will be devastating for some
UK’s needs
• Prepare for e-ruption and globalise
• understand Coase, Moore & Metcalfe
• all firms identify new more specialist positions in the
global value chains
• firms to aim for value chain leadership
• implement “CRM” (C2B and B2B)
• government intervention - corporates and SMEs!
• Up the capex, join the Euro, $ or yen?
Key components of 1to1 Nation
• Web sites & Call Centres with CRM
– multi cultural, multi lingual, multi currency
• Mass customisation of products and services
• global logistics
• culture that serves and manages customers, not
products
• multinational relationships and reputation
UK as a CRM Nation
• Strengths
–
–
–
–
400 mother tongues
centre for international call centres
bridge between USA, Japan and Europe
high use of internet, good base of internet + WAP
technology
• Weaknesses
– poor service culture
– CRM not widely understood, little mass customisation
Identify customers






Entice registration
Publish strong privacy statements
Recognise returning customers
Provide third party privacy protection
Make bargains explicit
recognize company / family linkages
Differentiate customers
• Collect customer preferences
• Organise site by user needs
• Integrate online / off line data (i.e. from different
channels)
• Use collaborative filtering (match customers with
similar preferences)
• Integrate all relevant customer data
• Learn detailed customer profiling needs (multiple
profiles)
Interact with customers
• Offer customer service / support online (e.g. FAQs
with search)
• Promote effective e-service (email, chat rooms)
• Track orders on line
• Provide 1-click ordering
• Drip irrigation for more customer information
• Use push communications
• Offer non-web payment options (phone, fax, mail)
Customising for customers
•
•
•
•
•
•
•
Personalise information
Integrate with partners to meet customer needs
Provide multiple billing / shipping options
Personalise product recommendations
Customises web experience
Personalise wish lists
Configure online products and services
Documents and Web sites
• E commerce report September 99- 60 actions
• The Victorian Internet -Tom Standage
• Crossing the Chasm, Living on the fault line - Geoffrey
Moore
• www.innovation.gov.uk
• www.killer-apps.com
• stephen.aitken@iudti.org.uk.
– DTI Innovation Unit, 151 Buckingham Palace Road, London SW1 9SS
– 0171 215 1044, fax 1997, mobile 0410 57 90 87