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Page 1: E-Business Firms · n Flexible manufacturing process for customization, bundling needs n Customer-driven merchandizing wDifferentiation vs. Customization wMass Customized Products

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EE--Business FirmsBusiness Firms

Prof. Lü Ting-Jiee-Biz Center of Beijing University of Posts & Telecom.

E-mail: [email protected]

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What is an E-Business Firm?

Any firm that applies digital technologies and networking to organize itself and manage its business operations and relationshipsTo a large extent, most firms rely on digital technologies and networkingA spectrum:n firms w/ an IT dept. => entirely “virtual” firms

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What is in the “E”? -- Proprietary vs. Open

E-firms exist for several decadesn “Just-in-time inventory” is not a new term after

the Internetn But traditional e-firms use proprietary technologyw VAN (Value-added Network) -- a proprietary networkw EDI (Electronic Data Interchange) --a proprietary format

for exchanging business data

w Expensive

Here, we only focus on Internet-based E-firmsn Open technology (e.g., Internet, XML)n Cost-efficient

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EDI vs. XML

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Smart E-firm -- Being Flexible and Responsive

Observe E-firms: Two Focuses

Internal Organizationn degree of virtualizationn internalize a function vs. outsourcen structure

External Relationshipn B2B: interaction w/ business partnersn B2C: interaction w/ customersn External relationship may force the changes in

internal organization

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E-firms: extend inward-focused processes outward

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Three Waves of E-firms

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Virtualization

An e-firm is networked (Internet/Intranet/Extranet)No time and physical constraintsn transact in real-timen customersn employees (telecommuters)n productsn processes

Can be Global

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What is a firm? -- An economic unit that n purchases inputs -- capital, labor and materialn produces outputs -- products and servicesn sell outputs to customersn profit = sales revenue - cost of production

A firm evolves when it offers a more efficient solution to certain resource allocation problems than the marketplace.

Internalize vs. Outsource

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Internalize vs. Outsource

Boundary of the firm depends onn cost of purchasing a service or product in the

market + transaction cost associated w/ the purchase (e.g., contracting, negotiation, monitoring)

n Vs. cost of internalize such a service (e.g., hiring, administration, internal controls)

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Internalize vs. Outsource

•Firms organize to take advantage of internal scale economy and reduce transaction costs

•When markets are more efficient, firms break down, or many of their functions are outsourced

Existence of an e-firm implies: it must have corecompetence and add value

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E-firms Internal Structure -- Control vs. Coordination

From rigid organization To a form like markets

•Emphasize communications and collaboration among its employees, suppliers and customers•Alliances and associations may function as extended corporations•Hierarchical controls vs. Coordination•Rapid, interactive response

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Characteristics of E-firms I: Customer-focused w/ flexible and responsive products/services

Physical Firms E-firms

•Focus on “Cost Minimization”

•Mass production

•Wholesaling & Retailing

•Focus on “Satisfying demands”

•Customization

•Direct marketing w/ responsive delivery

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Drivers of Customer Value

Innovation Management:New Product Development and Design

Value Creation

Supply-Chain Relationships:Operational Excellence in Order-Delivery Processes

Customer Relationships:Managing Market-Based Assets and Value Networks

Source: Raj Srivastava, 1999

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Front-office Automation & Agents for B2C

E-firms are adopting technologies forn Flexible manufacturing process for customization, bundling

needsn Customer-driven merchandizing

w Differentiation vs. Customizationw Mass Customized Productsw Customized Mass Products

n Comprehensive, easy-to-use product informationn Real-time response to customer needs

In most product markets, manufacturing accounts for 40%of total costs. The rest is for marketing and sales.

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Characteristics of E-firms II: Smart Alliance and Association

Hyperlinksn References and Redirectionsn e.g., the ability to leverage the Internet for

information & knowledge based cooperation with “advantaged partners”w e.g., Encarta of MSN with Smarterkids.com

Shared ownershipMarket-like coordinationShort-term and incentive-basedn vs. a fixed number of business partners with long-

term contracts

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Alliance & Association Relationships

Quasi-integrated groups of firmsn vs. a tight corporationn w/ temporary relationship to provide customized

products on demandn e.g.,

Portfolio productsNeed-based coordination

or intermediaries

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Alliance & Association Relationships

n Demand for standardization, compatibilityw to smooth out bundling and integration in both vertical

and horizontal dimensionsw e.g., standardized interface for hardware, standardized

protocol for software

Coordination through Intermediariesn intermediaries are not only useful for B2C, but

also for B2Bn B2B needs an easy way to find qualified suppliers

in real-time

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Examples of Flexible Alliance & Association Relationships

Contracting & outsourcing n inventory separated from marketing, e.g.,

Amazon’s alliance w/ Target, Toy’R’Usn however, Dell doesnot outsource core process --

manufacturing

Quick response replenishmentn Just-in-time/short-term supply chain managementw e.g., distributor checks Walmart’s inventory online in

real-time

n bar code, EDI --> Commernet’s OBI (Open Buying on the Internet

Distribution and logistics, integrated logisticsn efficient warehousingn e.g., Amazon

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Customer Sales Ordering

Procurement

Integration

Bank

Portal

Supplier 1

Supplier nDigital Inventory

CAAssurer

. . .

1

2, 23

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4, 166

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78

9, 17

9,17 11, 18

11, 1811, 18

Marketing

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9, 10, 17

Intermediary

e.g., An e-business process model for a digital content (e.g., Linux package) distributor

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1. Customer fills in request forms with specifications, preferences and credit card information.2. Sales checks the customer's credit through banking systems.3. If the customer has good credit, sales checks the digital inventory to see if it has all the necessary components to fulfill the customer request.4. If further purchase is needed, sales forwards the corresponding requests to procurement.5. Procurement queries digital inventory about who are the existing suppliers that can potentially supply the components.6. If new suppliers are needed, procurement launches search agents, who search portal sites, find best match, and make up a list of URLs of new suppliers.7. Procurement obtains assurance of suppliers.8. If the supplier has good credit, procurement obtains the cert ified public key of the supplier from a creditable certificate authority.9. Procurement makes requests to suppliers, both existing suppliers and new ones, and notifies the integration department.10.Procurement provides assurance and public key information to integration.11. Suppliers provide product and service information, includingprice and availability etc., to integration. Integration obtains existing component information from the digital inventory.

Procedure:

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E-firm Competitiveness

First mover advantage and reputationn First to achieve flexibility and responsiveness, gets

reputation and succeeds, but late-comers can duplicate their success (Netscape vs. Microsoft)

n Needs a stream of innovations

Entry costn Low barriers to entry, more competitionn Open, interoperable environment lowers costs

Innovations edgen Can small firms continue to innovate? Or only big

companies can afford R&D?

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12. Integration briefly bundles component information into different final product packages and calculates the costs, delivers the package information to market ing.13. Marketing decides price, creates a catalog customized to the customer's request and forwards the catalog to sales.14. Sales delivers the catalog to the customer.15. Customer selects and orders.16. Sales notifies procurement of the final order.17. Procurement notifies necessary suppliers and guarantees future payment to them.18. Suppliers provide components to integration and integration obtains other necessary components from the digital inventory.19. Integration bundles components into the package that the customer ordered and delivers the final package to the customer.20. Integration notifies sales about the successful delivery.21. This step is needed in case there is a need for the supplier to directly offer its services to the customer as part of the order fulfillment.22. This step is needed if step 21 is executed. The supplier notifies the sales of the fulfillment of its direct services.23. Sales receives payment from customer's bank.

Continued...

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Implementation issues --without integration, applications are separate

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Integration and Standardization are Important

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How to integrate? -- find the right infrastructure

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How to integrate? -- find the right infrastructure

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Traditional Strive for Efficiency --Business Automations Reside in

ERP (Enterprise Resource Planning)n Leaders: SAP,Oracle, J.D. Edwards, PeopleSoft,

Bann

CRM (Customer Relationship Management)n Siebel, SAP, Oracle, PeopleSoft, Baan

SCM (Supply Chain Management)n i2 Technologies, SAP, Manugistics

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Traditional Strive for Efficiency --Business Automations Reside in

Manufacturing Softwaren CAD/CAE (Computer-aided Design and

Engineering)n IA (Industrial Automation)

Plant Managementn Aspen, IBM, Honeywell

Proprietary technology builds “inefficiency wall”between disparate management; Manual processes exist to fill gaps

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The Weights

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Moves in the Digital Economy --Strive for Internet-based Integration

Extend to Internet Space, e.g., mySAP.comMove to XMLBreak the “walls” within an enterprisen “Integrate new and legacy systems, networks, applications,

databases, and business processes in disparate units such as sales, order processing, customer management, accounting, inventory, procurement, engineering, manufacturing and warehousing”

n EAI (Enterprise Application Integration) w a newer category;w Active Software, BEA, Extricity Software, IBM,

webMethods, TIBCO Software, Vitria, etc.

Intranets, even Extranets

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E-firm Revenue ModelsSalesn e.g., amazon.com (high-profit margin book business)n not only products, but also information & knowledge!

Subscriptionn e.g., wsj.com

Advertisementn e.g., google.com (70% revenue)

Transaction feen Referral fee: e.g., pricewatch.com,

bestbookbuys.com, amazon/target deal, yahoo!n Commission: e.g., ebay.com

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E-firm Profit

Profit = Revenue - CostOf course, COST REDUCTIONn e.g., Dell vs. HP/Compaqn e.g., radio webcasting business

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E-firm StrategiesProduct Firm vs. Process Firmn e.g., Amazon “earth’s biggest bookstore” -->

“earth’s biggest customer database”w customization, recommendation, previous interestsw friends and favorites: community

w e-cards, calendar services

Alliances and Mergesn Expansion -- product/service rangew e.g., Amazon/Circuit City, Toy’R’Us, Target

n Expansion -- globalw reuse processes

n Does the Size matter?

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KEYS

RESPONSIVENESS --- AGILITY is important! Need to respond to market changes quickly.FLEXIBILITY n Opennessn Continuous Innovationsn Trust

Being Creative Requires Knowledge!

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Q & AQ & A


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