Many old economy companies have been quick to adopt new web-based technologies to diversify into new...
Many old economy companies have been quick to adopt new web-based technologies to diversify into new activities. Tesco, for example, has moved from a bricks and mortar operation to become the world's largest online retailer. It recently entered phase two of its deployment, investing over £2m in other retailers to develop the World Wide Retail Exchange.
Competition will increase as new competitors arrive from outside the 'traditional' sector, so it is vital that traditional companies transform themselves using the learning and technology of the better dot.coms.
The main advantages of the internet for these companies lie in the ability to increase revenue growth and cut costs. Internet opportunities fall into three segments. B2C are internet focused and enhance value for customers. The Woolwich transformed itself from a typical bank to organising the whole company around Open Plan. Within months, this staid high street institution had become one of the UK's most innovative financial service providers.
B2B is extranet focused to maximise the value of business partners. Blue Circle Industries, one of the UK's largest cement manufacturers, has pioneered an e-procurement marketplace bringing together some of the world's largest cement manufacturers and suppliers.
Their online vertical trading community site, e-cement.com, aims to transform the way in which a thousand-year old industry operates.
B2E is intranet focused to maximise the value of the workforce. Oracle has been at the forefront in this area. Larry Ellison's challenge to Oracle, to remove $1 billion from its cost base by using the Internet, resulted in approximately $200m savings by removing processes from individual countries and placing them in regional or global service centres.
There are many other examples of traditional companies using technology to enhance success, such as Ford and AstraZeneca.
With AutoXchange, for example, Ford became one of the first carmakers to look at putting supplier relations online. Today Ford has shifted its attention to Covisint, its B2B joint venture with GM, DaimlerChrysler, Renault and Nissan.
AstraZeneca is banking on growth in the B2C market in Europe, where relationships between patients and drug firms are constrained by regulatory and ethical considerations. National and EU laws prohibit drug companies from advertising or talking about their products to patients. B2C enables drug firms to understand the needs of the patients and AstraZeneca has taken tentative steps towards building such a business.
In Denmark, along with other investors, it is financing an electronic physician/patient hub for sufferers of asthma.
Some of the key findings from a recent survey of traditional companies by KPMG and the Economist Intelligence Unit, The eBusiness value chain: Winning strategies in seven global industries, indicate that the internet is transforming value chains.
Many electronics manufacturers are moving up the value chain to offer e-business advisory services and new web-enabled competitors are appearing at each point on the value chain, threatening companies' accustomed sources of value.
The survey also found:
l Intermediaries are changing, not disappearing. Instead, companies are searching for new ways of working with agents.
l For online distribution, companies are developing a 'portfolio of options'. Many chemical companies are enabling customers to buy through online marketplaces, corporate extranets and system-to-system connections.
l Online B2B exchanges will grow in importance. Online marketplaces such as ChemConnect and Global NetXchange are becoming an important sale tool.
l The greatest barriers to e-business lie within the corporation: a need to re-engineer business processes, a lack of e-business skills and a lack of integration between front and back-end systems.
l Companies are using e-business to expand products and services to meet escalating customer demand and keep products and services from becoming commodities.
l The internet is more than a sales and purchasing channel. E-business improves collaboration, a highly important objective for any strategy, as is improved knowledge management.
Tim Manasseh is a partner in eBusiness Innovations at KPMG Consulting
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