Becoming An Information-based Economy | Article

Lady sitting at computerThe Internet is dismantling the industrial economy and replacing it with a connected world based on information and technology, observes Kevin Campbell, a partner in the Atlanta office of Ernst & Young. Knowledge workers will replace factory workers as the core labor force as the world adapts to this new way of doing business.

The Internet and its capabilities have empowered companies to reach a new set of customers as well as interact with their existing customers in new ways. E-commerce is forcing corporate America to rethink how it conducts business with both buyers and suppliers in the marketplace.

Consumers are flocking to the business to consumer market (B2C) because of its speed, fun, information and convenience. But Campbell predicts the consumer market will pale in the shadow of the business to business marketplace (B2B). “This is where the astounding growth will take place,” he says.

A February 2000 Forrester Research Inc. report predicts B2B e-commerce will reach $2.7 trillion in 2004. The research firm noted 90 percent of its business respondents indicated they plan to buy and sell on the Internet.

Campbell says one development in the B2B market is the eMarketplace, a new virtual downtown based on auctions, aggregators, bid systems and exchanges. Forrester estimates 53 percent of all B2B ecommerce will take place in these eMarketplaces by 2004.

Outsourcing The eMarketplace Operation

The participants will outsource the operation of these eMarketplaces, says Campbell. The core competency of these third party providers is attracting customers, servicing customers and deciding what services to provide. These providers may even outsource specific processes within the eMarketplace that are not their core competency. They will provide value added services, Campbell predicts.

The E&Y partner cites Ford’s creation of AutoExchange as a good example of a new participant in the eMarketplace. AutoExchange will be a portal for Ford’s B2B ecommerce, including, among other things, the purchasing of office supplies, maintenance materials and repair work for its offices and plants. In addition, Ford’s suppliers can participate in the portal, since they need office supplies, too. “These new portals are a way to aggregate demand,” points out Campbell.

As an example, both Ford and its suppliers have to purchase safety glasses. The portal allows Ford to negotiate a great deal on this volume purchase. Such a transaction is possible because all the ordering is done electronically. Campbell predicts portals like these will drive down costs because of the size of the orders.

Ford and its suppliers can streamline their businesses through the portal. Suppliers, for example, can check the Web to see when to deliver the parts Ford needs.

The auto industry is just one example. Campbell says every industry is working to consolidate its procurement process and automate its product development. These changes can happen because the Internet can provide real time, on line transactions.

Shifting to the Sell Side

The buy side of the equation has grown the fastest. But Campbell says suppliers will catch up because they find eMarketplaces open up new markets to them, too. They can post specs, qualify customers and share information through browser enabled business sites. “The supply side will gain momentum as businesses gain experience with the buy side,” says the partner.

Financial transactions are a perfect fit for this new kind of commerce. If all transactions were electronic, companies could do business based on commitments rather than cash. In the Ford example, Campbell says Ford currently cuts a purchase order when it needs engine parts. The supplier builds the parts and ships them to the Ford factory. With electronic transactions, Ford can email a commitment letter announcing what parts it needs and when. The two parties would settle up once a quarter. “This would streamline financial transactions and allow companies to focus on what’s important to their core businesses,” says Campbell.

Campbell says every business needs to examine its business modus operandi to see how it complies with the new business model. If high costs or lack of information are holding a company back, now is the time to explore different possibilities.

If the new order seems daunting, Campbell suggests getting help from any of the Big Five accounting firms. Also, talk to software vendors. He suggests two books that are must reads in these confusing times of transition: “The Innovator’s Dilemma” by Clayton Christianson and “Blown to Bits: How the New Economics of Information Transform Strategy” by PhilipEvans and Thomas S. Wurster.

Lessons from the Outsourcing Primer:

  • The business to business (B2B) e-commerce market is much larger than the business to consumer (B2C) market. By 2004, the estimate for B2B is $2.7 trillion.
  • Industries will do business at special sites that aggregate demand. This will cut costs on common items for everyone.
  • The supply side will catch up with the buy side, which is where most businesses transact e-commerce now.
  • Evaluate your business to see how it will conform to the new business paradigm.

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