Why in the Digital Age, is e-business causing some of the biggest companies with such a headache? Friday 6 April 2001 PDF Print In the book ‘The Origin of Species’ Charles Darwin describes a world in which only the ‘fittest’ survive, a world which requires species to adapt constantly to changing environments in order to grow and flourish. This can also be applied to the business world where companies are required to evolve and develop to meet the changing demands of their markets. A Report released from Insead recently concludes that if only the fittest survive they need to adapt to the digital age and develop a greater understanding of e-business. Terms such as online, surfing and e-whatever are as synonymous with the 21st Century as Hoover is with vacuum cleaners. However, despite living in the digital age the report ‘Measuring the Competitive Fitness of Global Firms 2001’ concludes that there is a huge variance in the e-business capability of many of the world’s largest firms. A select few such as Oracle, IBM and Compaq are leading the field but many are struggling to create and implement successful strategies. The Report is authored by Jean-Claude Larréché, Alfred Heineken Chair of Marketing and presents the results of a survey, which has traditionally used a methodology designed to monitor twelve fundamental capabilities that influence the effectiveness of a firm in its markets. An addition to the 2001 report is the measure of a firm’s e-business capability. This capability has been defined as ‘a firm’s ability to exploit electronic technologies in all aspects of its operations’. In order to measure the capability, twenty-six indicators were added to the Survey regarding various elements of e-business. The indicators cover a broad range of topics pertaining to e-business ranging from the availability of employees’ access and training on the use of the Internet, to the integration of the firm’s Internet strategy with its other core business functions. In general, the firms surveyed achieve far lower scores when compared to the other capabilities. A select few, particularly those f! rom North America or in the Computers & Electronics sector scored well on this capability and appear to have fully harnessed the benefits of e-business. The average e-business capability rating for firms who have more than 60 per cent of their revenue from North America was 58 compared with 47 for firms who acquire less than 20 per cent from there. However, despite these high performing firms, the average score for this capability was just 51 which is at the low end of average. Each capability in the Report uses a selection of questions or drivers to determine a firm’s level of achievement. The highest rated drivers in the e-business section were those relating to the internal aspects of e-business such as employees’ access to the Internet, the impact of e-technology on internal communication and project teams effectiveness through e-technologies. However, what firms must realise is that e-business is becoming more pervasive every day and the impacts are more far reaching than supplying staff with email or adding a company’s URL to letterhead or business cards. Optimising e-business means rethinking the organisation to identify where technology can make a difference. Companies utilising the e-business capability must have the willingness and desire to let technology improve every aspect of its business processes. As Oracle, the best performing firm in terms of e-business found, the key to a successful e-business strategy is globalisation. A succes! sful e-business uses a global network and global database to integrate all aspects of the business. The American firm Oracle led the field in terms of e-business capability with a score of 89, which is 24 points above the world-class level of 65 and 38 points above the industry average of 51. IBM and Compaq who achieved scores of 87 closely followed Oracle. The lowest performing company achieved a score of 21, which is ranked as 14 points below critical. Of the 67 firms in the report, which achieved an overall rating of world class (65 and above) only 27 per cent managed to achieve the same rating in the e-business capability section. Oracle is an example of a firm, which has learnt from the inside out. In the mid ‘90s a handful of digital pioneers such as Cisco and Dell were putting into place e-business strategies – Oracle was nowhere to be seen. In 1998 Oracle Chairman and CEO Lawrence Ellison became dissatisfied with its performance. Oracle was recording profit margins of 16 per cent, which was healthy in most industries, but lagging behind other successful software firms. Ellison realised that part of the reason that Oracle was lagging in performance was due to the fact it had been slow to harness the benefits of the Internet and to implement a total e-business strategy. At the start of the fiscal year 2000, Oracle announced that they would become an e-business and in doing so would save one billion dollars. In other words Oracle pledged to practice what they preach and implement their own application software – the Oracle E-Business Suite – to integrate every aspect of the business using the Interne! t. As this report identifies, Oracle’s e-business strategy has had a major impact on the firm particularly in financial terms. Benefits such as cost savings, revenue growth and customer satisfaction are primary gains, which can be achieved through e-business in its simplest sense. This was supported by the Competitive Fitness of Global Firms 2001 Report. The Report clearly illustrates a direct correlation between those who have successfully adopted e-business and those whose current annual growth rate of revenue exceeds 15 per cent. The average capability rating for the firms experiencing revenue growth rates in excess of 15 per cent was 62. This is compared to 42, 51 and 52 for those experiencing revenue growth rates of below five per cent, between five and ten per cent, and between 10 and 15 per cent respectively. This could be thought of as a ‘chicken and egg’ scenario. In other words do the firms with higher revenue growth rates have the resources available to adopt e-business or has e-business had a direct positive effect of revenue? If Oracle is used as a case study it can be assumed that e-business is a key driver in increasing revenue as since they adopted an e-business strategy their revenue has increased dramatically. Maintaining stronger relationships with customers is an obvious advantage of implementing an e-business strategy. After all, without customers businesses would be doomed. In the new digital age the consumer is king and is driving businesses like never before through direct and constant interaction with suppliers. Despite this, the lowest rated drivers in the Report are those relating to using e-business to increase customer loyalty and adapting e-business strategies to different groups of customers. Good customer relationship (CRM) is key to recruiting and maintaining customers and e-business can be used to create positive and effective CRM. The main goal of CRM is to create a synergy among sales, marketing and customer service activities within an organisation. In an e-business world web technology can be used to create synergy between teams and the fundamental business aspects. The second highest rated firm in terms of e-business IBM, was one of the first companies to use! e-business to improve CRM. In the early 90s IBM and other similar firms saw benefits in exchanging information between field technicians and sales groups as they abandoned carbon-paper forms and dove into email and automated reports. The 2001 Report saw e-business as an important capability and key to successful performance. However, just as firms begin to catch their breath from the e-business storm, new clouds are forming on the horizon bringing with them new and exciting technologies. If a firm is to become an e-business market leader and sustain such a position it needs to ensure that they constantly look towards tomorrow. A successful e-business strategy will not have a clearly defined beginning or end but is part of an on going and evolving process which seeks to maximise opportunities brought about by new technologies. For further information or to set up an interview with the author or any of the sponsors of the Report contact Sarah Roberts on 020274627962. 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