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’ Ubiquité. L’internet transforme le mode de
fonctionnement des entreprises : tous les
acteurs du marché seront dotés d’une plus
grande connectivité
• Les réseaux stratégiques de partenariat
deviennent la meilleure façon d’être
compétitif.
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”
Eito-RIPE July 1999
Au
s
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Fr
an
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Sp
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Po ly
rtu
ga
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ee
ce
UK
Fin
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No d
rw
De ay
nm
a
Sw rk
Ne ed
e
th
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Sw lan
itz ds
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lgi
um
July 1999 Internet hosts per 100
population
e-penetration


innovation

10
9
70
8
7
60
6
50
5
40
4
30
3
2
20
1
10
0
0
Internet hosts
'99-'98 internet growth
Internet hosts per 100 population in Western Europe
80
Internet growth
Obstacles
privacy
cost
security
wait & see
0
5
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
Ethical 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
Portugal
Norway
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 DBMS’s
 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
Internal
Operations
Physical
Enterprise
Sales and
Marketing
Customers
Fulfillment
and Delivery
Virtual
Enterprise 2
Industry
network
Virtual
Enterprise
3
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
IT-services 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 don’t 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 bank’s public key.
4. The money is stored on the buyer’s PC and can be spent in any
store that accepts E-cash.
5. The software is used to transfer the E-cash to the seller’s
computer. The seller uses the bank’s and customer’s 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 customer’s 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 customer’s bank.
4. When the authorization is sent to the supplier’s bank,
the deal can be concluded.
5. The customer’s account is debited and the supplier’s
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 buyer’s 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 customer’s 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 through”giveaway”
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.