Driving E-Business Excellence

Anitesh Barua, Prabhudev Konana, Andrew

B.Whinston, Fang yin

Presented By
Vandana Janeja
 The Internet Ecosystem TM

w Interdependent layers
w

The Internet Economy

Can’t do it all by yourself Layer 4:
Online
w Partnerships & alliances transactions

w Strange bedfellows Layer 3:

Intermediaries
w New business models 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 What drives E-Business operational excellence(Drivers)
n 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%

Retailers Manufacturers Distributors Wholesalers

Less than 100 Between 101 and 400 More than 400
 Central Components

w Measures of Operational Excellence

n Traditional
n E-business
w Online Revenue
w Online Procurement
w New Customers
w Existing Customers
w 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 % of organizations total business online

w % of goods purchased online from suppliers
w # of existing customers doing online business
w # of customers acquired online
w % of customer service requests handled online
 Companies with E-Business measures show

w Significant increase in revenue per employee

w Significant increase in gross profit margin
w Return on assets
w 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

Revenue per G ross

E -business drivers ROA ROIC
E mployee M argin
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%

 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 Increase in Gross

O p erational Measures Per E m p l o y e e Margin
No Yes No Yes

% online revenue 10.5 40.4 12.0 42.2

% online MRO procurement 11.3 19.7 11.6 19.1

% online production goods
12.3 23.6 12.9 21.6
procurement
% service request resolved online 16.8 40.2 19.2 40.7

% new customer acquired online 10.9 43.4 15.2 43.3

% existing customer doing business
14.8 43.9 15.3 45.3
online
 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

Average Increase for firms
firms with revenue >= $10
with revenue < $1 Million
Financial Measure Million
Mean Median Mean Median

Increase in revenue per employee 46.9% 40% 13.2% 5%

Increase in gross margin 39.6% 25% 11.8% 8%

Increase in return on asset 47.6% 40% 10.3% 5%

Increase in return on invested
capital 50.2% 50% 20.9% 10%
 Small companies with less than $10 million
in annual revenue

w Take more advantage of internet capabilities

n Have fewer problems with system integration
n Have Flexibility to make changes
 Online Revenue

w High % of revenue online- leaner company

w Size of sales staff reduces
w Tasks shift to the customer like gathering info,
entering orders, tracking shipments
 Online Procurement from suppliers

w MRO goods and Production goods

w Lower prices
w Better coordination with suppliers
w Fewer problems with stock outs
w Smoother production schedule
w 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 34% 41% 16% 9%

% of firms procuring production goods 42% 31% 20% 14%

online
 Acquiring New Customers

w Finding new customers easier

w Not constrained by geography, 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.
 Existing customers

w Getting existing customers to do business online

w Transfer of trust in the relationship to online one
 Customer service

w Provide much needed information online

w Speedy responses to questions
w Online communities
w 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
 Drivers of E-Business excellence

w Three areas
n E-business processes for customers and suppliers
n IT applications for customers, suppliers and
internal operations
n The E-Business readiness of customers and
suppliers
 Customer Related Processes:
Processing of information and execution of tasks

w Customer : Request or a complaint

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

w Exchange of information
w An environment of mutual trust for this exchange
w Type of information for exchange
w Level of precision required
w Frequency and channels of exchange
w Format and security of data
Example, CISCO : knowledge about product quality

w Installed software and test equipment at

manufacturing and supplier sites.
n Real time information
n Monitoring defect rates of products coming from
suppliers
 IT Applications: Customer orientation

w How to give customer info and how to get customer

info
n Comprehensive FAQs
n 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
“No” to increase in “Yes” to Increase
Customer Orientation Question (Informational)
Revenue per in Revenue per
Employee Employee
All product -related information is available online
56% 81%
(e.g., price, product description, catalog, etc.).
Customers can customize their orders online
33% 64%
without phone/face -to-face interactions.
A comprehensive FAQ section is available online. 45% 58%
Customers can interact using online forums and/or
23% 33%
communities (e.g., chat rooms, bulletin boards)
Customers see personalized content (e.g.,
products, prices, order history, order stat us, etc.) 27% 40%
when they log onto the web site
 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 “No” to Increase in “Yes" to Increase in

(Transactional) Revenue per Employee Revenue per Employee

No Yes No Yes

Customers can submit orders online 46% 54% 18% 82%

Customers can modify orders online 70% 30% 43% 57%

Customers can pay online 64% 36% 32% 68%

Customers are notified of their order

70% 30% 47% 53%
status automatically
Customers access a secure website for
54% 46% 26% 74%
ordering and other interactions
 IT Applications: Supplier orientation

w Online communities
w FAQ’s
w Supplier Evaluation reports
w Automatic ordering
w Online Invoicing
w Order Status tracking
w Electronic payments
 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

“No” to Increase in “Yes” to Increase in

Supplier Orientation of IT Applications
Revenue Per Revenue per
(Transactional)
Employee Employee

No Yes No Yes

Systems allow automated invoice

64% 36% 63% 37%
transmission and processing

Systems track status of orders online 74% 26% 71% 29%

Payments are electronically sent to

70% 30% 72% 28%
suppliers.

the numbers are low while differences are minimal Which means most firms
have not tapped into the vast potentials for efficiencies. This is consistent with
lack of synergistic processes and readiness
 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 “Yes” to Increase in

Revenue per Revenue per
Employee Employee
Method of sharing product roadmap and demand
26% 28%
forecast with suppliers is well defined.
Information exchange policies with suppliers (e.g.,
frequency, precision, real-time or delayed, format, 29% 38%
and channel) are well defined.

Supplier selection criteria are well documented. 43% 52%

Supplier quality monitoring process is well defined. 37% 45%

 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
 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 “Yes” to Increase

Revenue per in Revenue per
Employee Employee
Employees can retrieve required information
51% 52%
through corporate intranet.
Employees manage administrative processes
38% 41%
online.
Best practices/project management information is
28% 33%
available through the corporate intranet.

Firms have not benefited from ubiquitous Internet infrastructure. There is no substantial
differences between firms who say “yes” and “no.”
 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
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, led to building costly
warehouses
 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 “Yes” to Increase

Revenue per in Revenue per Overall
Employee Employee
Customers feel comfortable regarding
security and privacy in electronic 52% 78% 69%
commerce
Customers consider it important to engage
49% 76% 67%
in electronic commerce
 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 “Yes” to Increase

in R e v e n u e p e r in Revenue per Overall
Employee Employee
Suppliers have Internet-b a s e d s y s t e m s t o
47% 59% 56%
engage in electronic commerce.
Suppliers feel comfortable (regarding security,
41% 55% 49%
privacy etc.) engaging in e-business
Suppliers are willing to share information
53% 65% 62%
electronically with us.
Suppliers consider it important to engage in e -
47% 56% 53%
business.
Suppliers consider it important to improve
65% 66% 65%
coordination and collaboration.
 Model of E-Business Value
Revenue/employee, Financial
Gross Profit Margin, Measures
Return on Assets, etc.

% Online Business,
% Online Procurement,
Operational
% Customer Service Provided Online Excellence
Order Delivery Time, etc. Measures

IT E-Business
Processes
Applications Readiness E-Business
Drivers
Customers Customers Customers
Suppliers Suppliers Suppliers
Internal Internal
? Copyright Barua, Konana, Whinston and Yin 2000, 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, http://www.ecom.or.jp/ecom_e/latest/ecomjournal_no3/wg6_e03.htm