Managing E-Business Risk September 18, 2000 Tony Tortorice

1. Managing E-Business Risk September 18, 2000 Tony Tortorice Partner - Global Risk Management Solutions anthony.d.tortorice@us.pwcglobal.com 213.236.3210

2. Why are CEOs focusing on E-Business? • Media predictions: • Internet Information Revolution • Stock market valuations & shareholder expectations • Technology changes continue: • Diversity of client platforms • Increasing bandwidth at lower cost • E-Business impact: • Threats and opportunities • Industries restructuring • Industries converging

3. $1,317.3B $50.4B Market predictions: Projected revenue from commerce on the Web Billions of Dollars Source: IDC, 1999

4. Technology changes: Telecommunications • Bandwidth now available on telecommunications networks • Death of distance • Bottleneck is at “the Last Mile”: • POTS (analog over twisted pair) is too slow • Fibre optic cable to the home is long term but not currently economically viable • Focus is on technologies that can leverage existing wire plant (e.g. phone xDSL & cable modem) • Increasing mobile usage, but bandwidth very low for data

5. Value ChainIntegration Channel enhancement E-Business impact: as enabler, impacts three areas of company activity Supplier network Company internalinfrastructure Customer network

6. E-Business is improving business performance using electronic information technologies to connect value chains between businesses and customers E-Commerce is the marketing, selling, and buying of products and services on the Internet Most organisations have focused to date on buying and selling Concentration going forward: Competing business networks E-Business impact: focus moves from E-Commerce to E-Business

7. Healthcare Telecom Banking Publishing Logistics Recreation and Leisure Consumer Prod. Manufacturing Travel Home Services Book Selling Heavy Manufacturing Electric Utilities Transportation Mining &Drilling Advertising Stock Trading Retail Grocery Energy Automotive Manufacturing Forestry Office Supplies Government Services Entertainment Retail Dry Goods Gaming Cards and Gifts E-Business impact: varies by industry E-Business will impactoperations, infrastructure, and customer service E-Business will impact marketing, selling and customer service E-Business will impact structure of offerings and how delivered E-Business will restructure the entire industry Source: Gartner Group, 1998

8. E-Business impact: new business models • Market segmentation individualised products/pricing • New pricing models auction, reverse auction • Self service direct access • Disintermediation, reintermediation • Service models • Virtual organization

9. Globalization Bandwidth Decreasing cost of technology Customer is in control ComplexityChallengeChange Virtualization of processes Convergence Culture etc. RISK Non-traditional competition E-Business impact: Summary

10. E-Business impact: Understanding the nature of risk Hazard, e.g. Legal and regulatory Security strategy E- business resilience Operational efficiency, e.g. Deficient logistics processes Ineffective integration with back-office applications Lack of scalability Opportunities, e.g. Anticipated cost savings Revenue assumptions

11. e-business: how do you get there?

12. e-business: how do you get there? We Understand the Challenges and Opportunities You Face How do we integrate mergers and acquisitions to recognize and capture new business opportunities? How can we best leverage our product across emerging distribution channels? How might e-business change the paradigm of my business? How best can we leverage and protect intellectual property? What changes are needed in my processes, skills, organization and systems? How can I develop even closer relationships with my trading partners? How is the Internet going to affect various revenue streams or cost structures? What will be the impact and where is the return on investment of the electronic commerce revolution?

13. emm@: the e-business maturity model emm@ will help you to understand how well your organization has adopted -- or can adapt to -- e-business • Developed by PricewaterhouseCoopers and Carnegie Mellon University • Offers an holistic approach to e-business by integrating those key functions essential to e-business operations. • Provides a comprehensive and consistent assessment framework • Helps identify and manage risk within your e-business enterprise

14. 5 Strategy Organization & Competencies 4 3 Security Processes 2 1 Legal Performance Management Tax Systems & Technology Delivery & Operations emm@: domains emm@ addresses e-business maturity in nine key business domains.

15. 5 Strategy Organization & Competencies 4 3 Security Processes 2 1 Legal Performance Management Tax Systems & Technology Delivery & Operations emm@: issues Each emm@ domain includes a set of critical business issues. • Perform marketing • Develop products • Perform sales • Procure materials and services • Produce products • Manage logistics and distribution • Manage customer service • Technology infrastructure • Applications to support customer-facing • Supply chain management applications • Knowledge management applications • Payment systems • Information technology management tools • Content creation and management • Information and systems management • Methodologies • Project and program management

16. 5 Strategy Organization & Competencies 4 3 Security Processes 2 1 Legal Performance Management Tax Systems & Technology Delivery & Operations emm@: good practice statements Experts in these nine domains have identified over 750 good practice statements addressing each of the business issues. 3.3.4 The organization has guaranteed a high degree of interactivity so that the customer can easily create, edit, send, confirm, and track orders. 5.1.12 The organization integrates its on-line electronic catalogue with the existing operational product databases. 6.4.10 The organization controls the Electronic Business plan on a cross functional and cross divisional base

17. emm@: maturity levels emm@ defines five levels of maturity in the way firms are engaged in e-business. These five maturity levels reflect how an organization will face different issues and respond differently as it progresses through its use of e-business.

18. Existing marketing channels Existing distribution channels Newspaper or magazine Customers Branches Direct replies Direct mail Direct phone 0. Existing business processes Push Buying Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

19. On-line presence 1 emm@: maturity levels The organization uses electronic channels to provide basic information about it, and using the services provided online by its suppliers and customers.

20. Existing marketing channels Existing distribution channels Newspaper or magazine Customers Branches Direct replies Direct mail Direct phone Internet and Web server 1. On-line presence Corporate and Marketing information on web site Push Buying Pull Benefits: - Better communication to customers - More efficient marketing Update Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

21. Existing marketing channels Existing distribution channels Newspaper or magazine Customers Branches Direct replies Direct mail Direct phone Internet and Web server 1. Issues with on-line presence Content management - is it legal and compliant with regulations? - how do you keep the information up to date? - ergonomics Privacy - what do you say to your customers on entry to web-site? - how do you comply with Data Protection regulations? Push Buying Pull Security - could someone amend or replace your content? - how would you know? Performance management - do you have enough capacity for # of visitors? - how do you measure whether your site is a success? Update Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

22. On-line business 2 emm@: maturity levels The organization uses a stand-alone website as an alternative channel, or uses basic structured exchange of data in the supply chain to replace traditional media (phone, fax).

23. Existing marketing channels Existing distribution channels Newspaper or magazine Customers Branches Direct replies Direct mail Direct phone Internet and Web server 2. On-line business Low volume customer transactions - air gap between web server and core business systems Push Buying Benefits: - More facilities for customers - Revenue generation - Reaching new markets or customers Pull Buying Update Update Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

24. Existing marketing channels Existing distribution channels Newspaper or magazine Customers Branches Direct mail Direct replies Direct phone Internet and Web server 2. Issues with on-line business Reach - can you reach new customers/markets? - what about markets where you are not allowed to carry out business? Tax - are you inadvertantly establishing a tax presence? Push Buying Pull Buying Manual update - how do you prevent errors creeping into the transactions? - how do you minimise the cost per transaction? Security - how are you capturing payment details? - how will you build confidence in the customer? Update Update Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

25. Integrated on-line business 3 emm@: maturity levels The organization uses electronic channels to support core processes that are integrated with the systems and business processes already in existence.

26. Existing marketing channels Existing distribution channels Newspaper or magazine Customers Branches Direct replies Direct mail Direct phone Internet and Web server 3. On-line integrated business Automatic interface between web site and core business systems Push Buying Benefits: - Harness legacy technology - Improved efficiency and effectiveness - Support greater revenue generation Pull Buying Update Update Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

27. Existing marketing channels Existing distribution channels Newspaper or magazine Customers Branches Direct replies Direct mail Direct phone Internet and Web server 3. Issues with on-line integrated business Availability/ Speed - is your web-site available with enough capacity to meet customer demands? Awareness - how do you make sure that staff in your existing distribution channels know what is on your web-site? Push Buying Pull Buying Security - could someone break into your core business systems through the web-site? Interfacing - how do you validate the information at web-site stage? - can you web-enable your ERP systems? Update Update Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

28. Advanced on-line business 4 emm@: maturity levels The organization exploits the e-business infrastructure to reinvent business processes, or expand the direction and markets of the organization. The organization is or has built new e-business processes that integrate elements of their customer-facing activities with their supply chain and supporting activities to gain competitive advantage.

29. Existing distribution channels Customers Branches Direct replies Direct mail Direct phone Internet and Web server 4. Advanced on-line business Sophisticated web-based marketing and product redefinition Enhanced marketing channels Links from other Web sites Push Buying Benefits: - Improved customer loyalty through exploiting customer base - New products and services - Improved time to market - More efficient and effective processes Push Newspaper or magazine Buying Pull Update Customers Update Product Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

30. Existing distribution channels Customers Branches Direct replies Direct mail Direct phone Internet and Web server 4. Issues with advanced on-line business Advertising - how do you know you are getting value for money from your virtual advertising? Push marketing - how do you use IT to make your push marketing enhance the relationship with your customer? Enhanced marketing channels Links from other Web sites Push Buying Push Products - can you make your products easier for your customers to tailor? - new opportunities? Newspaper or magazine Buying Pull Security - should you be using advanced payment technologies (e.g. SET, Cybercash, tokens, etc.)? Update Customers Update Product Customer information - How effectively can you extract and analyse it? - Data warehousing/ Data mining Mail addresses Core business systems Update Product information Update Sales & Invoicing Payment collection Mailing lists Customers

31. Full e-business 5 emm@: maturity levels The organization uses e-business to focus upon their core capabilities, and achieve a seamless integration between themselves and their business partners and customers. The distribution of products is managed electronically.

32. Alternative marketing channels Fall-back distribution channels Customers Links from other Web sites Direct phone Internet and Web server 5. Full e-commerce Elimination of traditional channels Push Buying Push Buying Pull Benefits: - Major cost savings through elimination of less efficient business processes Update Customers Update Update Product information Core business systems Update Sales & Invoicing Payment collection

33. Alternative marketing channels Fall-back distribution channels Customers Links from other Web sites Direct phone Internet and Web server 5. Issues with full e-commerce Digitalisation - can you make your products electronic and remove physical distribution? - tax/legal issues Availability - how do you ensure that your web-site is always available? - what fall-back do you have if it is not available? Push Buying Push Buying Outsourcing - have you outsourced everything that isn’t a core competence? Channels - how do you make sure that you are in sufficient on-line distribution channels? Pull Update Customers Update Update Integration - can your web-server now replace your core business systems? - call centre integration Change management - how do you manage the risks involved in major restructuring? Product information Core business systems Update Sales & Invoicing Payment collection

34. Advanced on-line business Full e-business 4 5 Integrated on-line business 3 On-line business 2 On-line presence 1 emm@: maturity levels

35. Emm@: Level 2 Assessment Performance Wheel (2) On-line Business You are here!

37. Emm@ and E-Business Strategy Convergence Industry Transformation Risk & Reward Value Chain Integration Channel Enhancement Leverage of E-Business (e-business maturity level) (1) On-line Presence (2) On-line Business (3) On-line Integrated Business (4) On-line Advanced Business (5) Full E-Com

38. emm@: supports the full lifecycle Assess Envision Operate Design Implement emm@ emm@ emm@ What are your current capabilities? How will you achieve your strategy? How will your organization continue to improve? emm@ can help your business measures its performance and successfully implement its goals. emm@ can identify how well your business is performing now and can identify current risks and areas for improvement. emm@ can identify and help address the issues your business will face when rolling out your strategy.