Notes: Weeks 8-10 What’s Being Sold?

Notes: Weeks 8-10

What’s Being Sold?

• Books 58%

• Music 50%

• Software 44%

• Airline Tix 29%

• PC periphs. 28%

• Clothing 26%

• Videos 24%

• Hotel res. 20%

• Toys 20%

• Flowers 17%

• Consumer elec 12%

• Event tickets 11%

• PCs 11%

• Housewares 11%

• Office Sup. 10%

• Sporting Goods 9%

Which businesses affected?

Statistics Will Build Soon

• From 1997 to 1999:

• Increase of online Travel Buyers:

UP 62.1%

• Decrease in U.S. Travel Agents:

DOWN 8.2%

The Case of Pornography

• Attractive due to illusion of privacy

• 10% of all retail business in 1996

• One firm: matches WSJ in subscribers

• Cutting edge of technology

• 28% of users visited adult sites in May 1997

• Obviously, a great deal of bandwidth used up here: NOT MUCH TEXT!

Profitable Sites and IPOs

• Only two areas of e-commerce consistently make money:

• stock trading

• pornography

• “…an inverse relationship between the ability to make money and the likelihood of receiving financial backing from an investment bank.”

• Nevertheless, an IPO was filed in 2/99 for eFox.net

Predictions

• Activ-Media: 1 in 3 business Web sites is profitable in the first year

• IDC: Sales to exceed $1 trillion; users to increase to 183 million; U.S. to shrink from 74% of global I-commerce to 35% by 2003

• Forrester: Online sales to become 6% of all retail sales by 2003; 40 million households will spend $108 billion online by 2003 (in 1998, 9 million spent $7.8 billion)

Going Beyond Transactions

• Journalists focus on sales

• Commerce focuses on value

• Intranets and Extranets are good evidence

• Growing faster than Internet Sites

• Bell Labs Intranet links 300,000 hosts globally

• “We’re bigger than the entire Internet was in the late 1980s”

Beyond Transactions

• Even though only 15% purchased in Nielsen’s ‘96 survey (now 51%*):

• 73% searched for product & service information (up from 55%)

• 60% searched for company info

• In 2000, people are now realizing the importance of the Internet to support sales

Financial:
But: Sales Don’t = Profit!

Sales Volumes are Changing

1 item: 63% of sales

2 items: 17% of sales

3 items: 7% of sales

4 items: 4% of sales

>4 items: 9% of sales

Another Caution: Waste

• Carnegie Mellon study Dec. 27, 2000

• Internet book purchases use 2.5 times the packaging as books purchased at store.

• Fuel wasted, too (if customer lives close to bookstore)

• Better for the environment to shop at a store!

Internets, Intranets, and Extranets

• Internet: Global network for all

• Intranet: Internal-use only network; most often uses Web browser & e-mail

• Extranet: Allow outsiders (customers and suppliers) access to firm’s databases

Intranets

• Internal only

• Private network or password access

• Provides access to:

• corporate databases

• corporate systems

• documentation

• reports

• transaction processing (requisitions, reimbursements)

• memos, letters, e-mail

Five Types of Intranet Services

• Collaboration (e-mail, news, discussion)

• Transaction (database apps, forms, reports)

• Process (workflow, project mgt, sched)

• Directory (search, resource, access)

• Utility (networking, backup, security, performance)

Benefits of Intranets

• Uniformity on all platforms

• Low hardware cost

• Low connection cost

• Easy interface

• Familiarity (confidence)

• Customization

• Ubiquitous connections

Examples of Intranet Applications

• Corporate, Manufacturing, Legacy databases

• Quality Assurance Systems

• Human Resource Systems

• Written Documentation

• Research Reports

• Order Entry (expense reports, requisitions)

• Memoranda, Letters, E-mail

Survey: Why Intranets?

• Share online policies, procedures, etc (80%)

• Make available information (52%)

• Facilitate cross-platform work (15%)

• Support decision-making (15%)

• Provide personalized information (10%)

• Support mobile users (9%)

• Tie together disparate systems (7%)

• Re-engineer (5%)

• Downsize from mainframe, mini (2%)

Intranets:
Annual Costs per 1,000 Users

• $9,500 help desk and related activities

• $6,700 hardware, software problems

• $6,300 messaging management

• $4,600 directory maintenance

• $3,900 monitoring

• $2,500 directory synchronization

• $1,800 backup and related activities

• $35,200 total

Intranet Survey:
Unexpected Costs

• Hardware, network upgrades (59%)

• Hiring a graphic designer (18%)

• Hiring a content librarian (10%)

• Hiring consultants for tuning, site structure, data access assistance (5%)

• Training/education (5%)

• Software upgrades, acquisitions (3%)

IDC Intranet Survey: Big ROIs

• Returns of 1,000% are not uncommon

• Why?

• Many firms already have infrastructure

• Users already have desktop PCs

• Free or cheap browser & server software

• High-level tools speed development

• Few hidden costs (highest: network upgrades)

Intranet ROIs

• Meta Group study: 41 U.S. Companies

• 32 published documents (18% ROI)

• many provided groupware [Notes or Exchange] (40% ROI)

• 3 provided database access (68% ROI)

• 2 provided inventory mgmt (52% ROI)

• Enterprisewide is best level to shoot for.

Intranet Case Study 1: Nissan

• In its first year, Nissan’s Intranet saved

• $750K in staff time and

• $72K in printing costs --> growing to $210K

• 661% ROI (cost: $178,500)

• Contains press releases, employee anniversaries, company fitness center schedules, up-to-the-minute internal news, management tips, databases of stories on competitors, $5 brochure, mouse pad

• The 2,500 employees average 34 hits apiece/week

Intranet Case Study 2:
JD Edwards

• Focus is on Knowledge Management: “Knowledge Garden”

• Serves 3,500 employees in 95 countries

• Designers are non-technical, having no interest in hardware or programming

• Studied the pathways to information during all phases of customer interaction

• Structured content by cycle, not producer!

The Knowledge Garden

• 1. Employee Resource Center

• Company News

• Company Events

• Library

• Benefits/Career Planning

• Departments & Area Offices

The Knowledge Garden

• 2. Product Center

• Worldwide Customer Support

• Development

• Training

• Technical Messages

• Client Services

• Documentation

The Knowledge Garden

• 3. Sales & Marketing Center

• Marketing

• Sales Force Support

• Strategic Alliances & Business Partners

• Analyst Relations

• Competitive Intelligence

Bottom Line: JD Edwards

• Cost: $1 million

• Savings: $5 million in time saved

• 36% of respondents saved 7-10 hrs/month

• Chief focus: “to give easy access to frequently used documents in the sales process.”

• 100 Knowledge authors update the content

Knowledge Management

• Definitions differ, but it usually means:

• Capturing/finding best practices

• Retaining tacit knowledge of individuals

• Enabling firms to react more quickly and decisively.

• Common tools: Lotus Notes/Domino or Exchange Server + data warehousing tools

• As you solve problems, type them in for storage, categorization.

What is Knowledge?

• Data = discrete chunks (facts, etc.)

• Information = data with meaning (connect facts with significance)

• Knowledge = information with comparisons, consequences, connections, values, beliefs, actions

Tacit vs. Explicit: Explicit is teachable, easily articulated, observable; tacit is not

KM SYSTEMS

• What is new is use of modern IT to systematize, facilitate, and expedite firm-wide knowledge management

• Technologies include:

• Internet

• intranets

• browsers

• data warehouses

• software agents

• doc. mgmt systems

Who’s Doing Knowledge Mgmt?

Planning 15.4%

Producing 15%

Implementing 11.9%

Org-Wide 7.4%

No plans 14.1%

Extranets: Extended Intranets

• Usually link outsiders to databases

• Examples:

• Sales (with access to Inventory levels or service locations: Prudential)

• Delivery tracking (FedEx, UPS)

• Customer service (KB: Microsoft)

• There are few in place

• You’ll hear more about LDAP & encryption

Extranet Payback

Comparison of all Three

Business-to-Business
E-Commerce

• Biggest Internet successes

• Roots are in EDI

B to B Business Models

• Aggregators – offers product catalogs of many suppliers in one place/format (e-Chemicals)

• Trading Hubs – build buyer & seller communities, sometimes with auctions (FreeMkts, Shop2gether)

• Post and Browse – bulletin board offering postings and negotiations later (Catex)

• Auction Markets – Multiple buyers & sellers bid (e-Steel)

• Fully-automated exchanges – Centralized market for standardized products (e-Steel)

Common Features

• Centralized market space

• Neutrality

• Standardized contracts, documents, products

• Pre-qualifications & regulation of users

• Price quotes, post-trade info, pricing history

Common Features (cont’d)

• Maintenance of integrity of the market

• Transparency

• Self-regulation of market and pricing mechanism

• Clearing & settlement or fulfilment svcs

• Confidentiality/anonymity

• An exchange community (meeting place)

Net Effects

• Markets operate at fraction of physical cost

• Low cost of getting connected globally

• Higher pricing efficiency (auctions) and increased volumes

• Automated trading and anonymity

• Transparency: Centralized markets generate trading and pricing information

EDI and B to B Commerce

• Need for B to B electronic commerce became obvious in 1970s & 1980s

• EDI was the first effort

• EDI over VANs:

• $150 billion in ‘97 from order to payment*

• $500 billion in ‘97 initiated electronically**

• Now B to B is the fastest-growing aspect of electronic commerce

• Procurement is an obvious area

Procurement Costs

• Why is it expensive?

• Complex, multi-step process

• find suppliers who meet volume, delivery, quality, price requirements

• Send detailed drawings, specs to supplier

• Send P.O to supplier for specific quantity

• Receive confirmation

• Receive notice and invoice when shipped

• Try to match invoice to P.O.

How to Lower Costs

• Consolidate purchases

• Develop relationships with key suppliers

• Send all information electronically to reduce labor, printing, and mailing costs

• Enter EDI: Electronic Data Interchange

EDI

• What is EDI?

• Inter-Company

• Computer-to-computer communication of

• Standard Business Transactions

• in a Standard format

• that permits the receiver to perform the intended transaction

Standard Business Transactions

• “X.25” and subsequent schemes

• Simple stream of characters

• Signals embedded that say:

• “start transaction” “end transaction”

• “start header” “end header”

• “start transaction line” “end trans. line”

• etc.

General Benefits of EDI

• reduced costs of business transactions (procurement costs decrease 5-10%)*

• reduced order-process-pay cycle time

• improved trading partner relationships

• improved intra-company flow of data

• improved forecasting

Where is EDI Most Useful?

• Large volumes of stock items bought/sold

• Products easily identified (product code)

• Products requiring careful tracking/reporting

• Tremendous volume of paperwork exists

• In a very competitive market

• Where rapid processing/delivery are required

Impact of the Internet

• Lower transmission costs vs. private networks

• Opens the door to new suppliers and small and medium-sized suppliers

• Dept. of Commerce (1998) says Internet-based EDI for procurement is too new to project savings

Example

• GE’s lighting division: hundreds of RFQs each day (low-value machine parts)

• Each requisition: request blueprints, retrieve from vault, transport on site, copy, fold, attach to requisition forms, stuff, and mail

• Process took > seven days

• Bid packages to only 2-3 suppliers at a time

• >25% of invoices had to be investigated and “reworked” to reconcile POs and receipts

New Online Procurement System

• GE’s TPN Post (1996), an extranet

• Requisitions received electronically

• Bid packages sent to suppliers around the world via the Internet

• System pulls correct drawings & attaches them to the electronic requisition

• Within 2 hours from the start, suppliers are notified of incoming RFQs by e-mail, fax, EDI

• Bid can be evaluated and awarded on the same day received

GE’s Results

• Procurement labor costs < 30%

• 60% of procurement staff was redeployed

• Sourcing dept. has 6-8 additional days/month for strategic activities

• Material costs < 20% due to more competition

• As of Oct. 1997, 8 divisions of GE use TPN (total: $1 billion)

• By 2000, all 12 of business units will use it (total: $5 billion)

• Next 3 years: savings of $500-$700 million