To the thread, the following article is OFF-TOPIC. However, it is one of the better pieces of information I've seen on the web. It is extremely bullish long term for the Semi's. Enjoy, Jay
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Giving Users The E-Business
(12/20/97; 12:08 p.m. EST)
By Clinton Wilder, Bruce Caldwell, and Gregory Dalton, InformationWeek <Picture>Unless you've been in Fiji for the past few months, you've no doubt heard the latest computer industry buzz phrase: electronic business. But beyond the marketing hype and fuzzy definitions, leading-edge companies such as Boeing, Chrysler, and Chase Manhattan Bank are leveraging Internet-based and other information technologies to fundamentally change their businesses. It's not just about E-commerce; it's about redefining business models, reinventing business processes, changing corporate cultures, and raising relationships with customers and suppliers to unprecedented levels of intimacy.
Electronic business promises great payoffs by extending the best benefits of internal IT-streamlined processes, simplified sharing of critical data, lower organizational barriers-beyond a company's walls and into the operations of its customers, suppliers, and business partners. But despite what technology vendors may tell you, electronic business success doesn't come simply from choosing the right technology, Web-enabling the right process, or forging the right Internet links to legacy systems. It also requires fundamental changes in organizations, corporate behavior, and business thinking-both inside and outside IS.
"We restructured our entire company around the idea of connectivity," said Rob Rodin, CEO and president of Marshall Industries Inc., a $1.3 billion electronic components distributor in El Monte, Calif. "The Internet is not the end-all, but connectivity is."
Connectivity at Marshall means 24-hour call centers, 24-hour live help via interactive chat sessions on its Web site, and online supply-chain management among its buying and selling customers. Among a host of internal organizational changes to pave the way, Marshall scrapped all sales commissions and management incentives based on specific objectives in favor of one reward criterion: overall corporate profits. The idea was to prevent friction between its traditional sales processes and the new sales channel of cyberspace.
"That level of change is terrifying and gut-wrenching, but many organizations were set up for business the way it was done 40 years ago," said Rodin. "Internet technology is there to deliver what your customers want-timeliness, accuracy, lower cost. You can't let your organizational structure stand in the way."
Once electronic business takes hold, enthusiasm for it can be infectious. "When you first get a new technology, you still do what you're comfortable with, but now we're starting to see more out-of-the-box thinking," said Sue Unger, executive director of IS at Chrysler Corp. "People see one success and start asking, 'What else can we do that we couldn't do before?' With the Internet, nothing is sacred."
Electronic business means different things to different companies. Still, many practices are common across those companies, whether they sell jumbo-jet parts, financial services, or apple juice. They include unconventional thinking, flatter IT and business organizations, corporate cultures that openly embrace change-and above all, an understanding that extranets and Web links are not only a new sales channel, but also a fundamental challenge to existing structures and relationships.
"Asking how you make money on the Internet is a primitive question, like asking how you make money on the telephone," said Don Tapscott, chairman of the Alliance for Converging Technologies, a Toronto think tank whose backers include Andersen Consulting, General Motors, IBM, McDonald's, and Microsoft. The greater benefit of Internet technology, Tapscott said, is in "embracing the IT-enabled reinvention of the firm, commerce, and business relationships."
Virtually every major IT supplier has hopped aboard the electronic-business bandwagon. IBM has been the most aggressive with its broad strategy and $200 million ad campaign for "E-business," but Digital Equipment, HP, Microsoft, Oracle, SAP, and Sun Microsystems all have begun touting their products and services as electronic-business facilitators. IBM and HP have undertaken reorganizations in recent weeks to more sharply focus on the theme, though the changes could be more form than substance. "When all is said and done, there aren't too many IBM products that don't fall under the E-business umbrella," said Irving Wladawsky-Berger, general manager of IBM's Internet division.
As with any iteration of the Next Big Thing, IT executives must take vendors' electronic-business pitches with a large dose of caveat emptor. Internet standards have gone a long way toward solving age-old interconnectivity problems, but the integration of diverse platforms is rarely as seamless as promised. And the technology issues pale next to the difficulties of rethinking business models and partnerships.
"They're all talking a good marketing game, and I know they're working hard on these problems," said Randall Mott, executive VP and CIO of Wal-Mart Stores in Bentonville, Ark. "But I wouldn't believe too many of their ads with regard to their state of readiness."
Whatever the validity of the vendor claims, some users are taking the concept to heart. For example, Boeing, like many large companies, has used electronic data interchange for years to swap purchase orders, invoices, and other documents with partners. But EDI merely automates an existing process; in the past year, Boeing has learned how the Web can transform a business.
A year ago, Boeing launched the PART (Part Analysis and Requirements Tracking) Page, a secure Web site that its customers can use to order spare parts. The site is aimed at the 600 or so airlines that don't use EDI to order parts from Boeing. Of them, about 350 airlines use the site to order or locate parts. The aircraft maker estimates that the site, which processes 4,000 transactions a day, has eliminated 25% of order-processing costs in the form of faxing, phone calls, and data entry.
But cost-cutting is neither the main goal nor the key benefit. "This changes the way the airlines work with us," said Tom DiMarco, senior manager of airline logistics support systems at Boeing. "It frees us to concentrate on the problems, like helping customers locate hard-to-find or obscure parts." And it has shortened part delivery cycles to usually next-day, or same-day for emergencies.
The Web site also empowers airline mechanics and others close to the actual airplane maintenance function; they no longer have to ask their purchasing department to locate parts. "The mechanic can source it himself and sometimes order it himself," said DiMarco.
Data Sharer Electronic-business practitioners such as Boeing become evangelists for Internet technology by helping their customers overcome hesitation about doing critical business online. "We've only had one year of thinking outside the box that everyone's been thinking in for the last 40 years, but customers are gaining confidence in getting what they need when they need it over the Net," said DiMarco. "Before, they thought of it as a scary place to be. Now we find they rely on it."
While E-commerce focuses on transactions, electronic business also includes other exchanges of information. For example, Mott's North America in Stamford, Conn., doesn't yet take orders online, but it's making customers more efficient by sharing crucial business data on the Net. The $560 million maker of apple juice and other food products has created an extranet that lets independent salespeople check the status of their orders. The data sits in Mott's SAP R/3 system; brokers previously had to call a customer service agent, who would search for the information in the SAP system. The site also lets salespeople check the credit status of customers.
"Whenever you make it easier to give or get information, you always end up with better business relationships," said Catherine Riordan, Mott's director of business solutions. "For your customers, it means they are more likely to deal with you and not your competitors."
That's the kind of business payoff that can get a CEO's attention real fast. The reason: It's not fundamentally about the technology, it's about customers, costs, profits, and business change. "E-commerce walks straight into the office, talking to customers, partners, regulators," said Glover Ferguson, co-director of an 18-month-old E-commerce program at Andersen Consulting. "This is not some back-office 'dweeb technology'; this is the real enchilada."
Stock-brokerage firm Charles Schwab & Co. has seen that firsthand. Faced with the meteoric rise of Web-based stock trading, Schwab moved its dial-up online brokerage to the Web. "We believe that the Internet is in some respects the backbone of the brokerage experience," said Gideon Sasson, executive VP of electronic brokerage at the San Francisco firm.
Chase Manhattan, the largest U.S. bank, is looking at electronic business from all directions. "We think consumer to business, business to business, and government to business," said Joe Sponholz, Chase's chief administrative officer. Much of Chase's online investment is in electronic payments, including two smart-card ventures and a Web-based supply procurement system.
Processing payments is only half the equation. The other half is in the data gleaned from processing. The information can be used for very precise target marketing, to as few as perhaps 25,000 of the 3 million households Chase serves in the New York City region.
Connectivity is altering the materials distribution industry as well. Customers want more services from fewer suppliers, which calls for faster data transfer either through online ordering systems or direct access to the customer's ERP system for automated replenishment.
"There's no doubt in my mind that we have radically changed strategies," said Neil Novich, president and CEO of Ryerson Tull, the $3 billion materials management subsidiary of Inland Steel Industries in Chicago. Ryerson Tull connects with its customers through EDI over dedicated private lines, and it plans to build a database that can be accessed by its sales force anywhere in the world.
Electronic business can also lower longstanding barriers, such as those between competitors. The Big Three automakers this year took collaboration to an unprecedented level by launching the Automotive Network Exchange (ANX), an extranet that will establish a standard way for parts suppliers to communicate with manufacturers.
"The whole playing field is starting to change," said Chrysler's Unger. "Hopefully, we can lower the cost structure of the whole supply chain and everyone will benefit."
Not Ready Suppliers stand to benefit greatly from ANX, but they have to rethink their own roles and change their behavior. That can be a tall order. Many companies say their supply chains aren't ready for such change. IBM has pitched electronic business to Best Manufacturing, a textile and clothing maker in New York, to no avail. "We're not in a position to do anything with it because our vendors and customers are not ready," said James Decker, director of IS.
While retail IT pioneer Wal-Mart is moving cautiously on conventional E-commerce, it is moving aggressively in electronic business. Wal-Mart shares inventory data, updated daily, with 4,000 merchandise suppliers on a private network; it's rolling out an Internet versionthat it plans to complete by March. It's looking to do the same next year with its private network for freight haulers.
Meanwhile, technology vendors are scrambling to recast themselves as electronic-business suppliers. But beneath the veneer of their marketing campaigns, they look a lot like their old selves. "How they define electronic business depends very much on their core competencies," said Erina DuBois, an analyst at Dataquest. "To Microsoft, it's platforms and NT. To Oracle, it's a database. To IBM and HP, it's services."
Two years ago, IBM chairman and CEO Lou Gerstner conceded that IBM had lost the desktop battle to Microsoft. But starting with the $3.5 billion purchase of Lotus, he predicted IBM would dominate the next wave, which he dubbed network-centric computing and which IBM now calls E-business.
Java is a key technology for IBM's electronic-business push, fueling consulting and development services. Last week, IBM and apparel retailer Eddie Bauer said they completed a Java-based prototype for a revamp of Eddie Bauer's enterprisewide customer-service and customer-contact application.
IBM said electronic business was a $160 billion market in 1996, and will grow to $360 billion by 2000. But Gartner Group analyst Alyse Terhune doubts it will grow so quickly, citing year 2000 pressures and the difficulty of systems integration.
HP said it may have the key to overcome the integration problems. Its HP Changengine, unveiled this month, is object-oriented workflow technology for automating business processes (see story, "HP Bolsters Internet Software Strategy"). HP has applied it internally to cut $8 million a year from administrative costs and externally with its retail distribution channel to provide just-in-time delivery.
The core of SAP's strategy is helping Web middleware and E-commerce vendors develop links to R/3 over the Net. That strategy includes equity investments in startups CrossRoads Software and Commerce-One, the latter announced last week.
While there will be more vendor alliances, the biggest changes will occur on the user side. "I think we're at a new stage now," said Shikhar Ghosh, chairman of E-commerce software provider Open Market in Cambridge, Mass., which last week landed Analog Devices and USA Today as customers. "Companies are saying, 'The technology is here, the network is here. Now, how can I change my business model?'" That is the key question for IT and business executives to answer as electronic business takes center stage. |
