eBusiness - Introduction Pascale Vande Velde

1. UNIVERSITE LIBRE DE BRUXELLES eBusiness - IntroductionPascale Vande Velde Solvay Business School SEMINAIRE DE TECHNOLOGIES DE L’INFORMATION ET DE LA COMMUNICATION GEST 116

2. Content of eBusiness course Introduction – Part I Introduction – Part II Payments & security Supply chain management

3. Agenda Trends, facts and figures eBusiness value drivers Application areas for eBusiness Electronic marketplaces

4. 1200 Implosion Cisco 1000 Dow Jones 800 Microsoft 600 Boom 400 200 0 Nov- Nov- Nov- Nov- Nov- Nov- 1996 1997 1998 1999 2000 2001 The internet economy boom is over 1996: Yahoo! quote triples on first day of trading 1999: 188 IPO's double in value on first day (compared to 39 during the previous 24 years combined) 2000: AOL buys Time Warner for USD 100+ Bn 2001:100.000+ lay-offs in internet-related companies (50.000 in 2000) ; 200+ US dot-coms companies go bankrupt in S1 2001 Post 2001 : consolidation of some players; market rationalization continues In 2003, Amazon books its first net profit

5. Key drivers for the penetration of ebusiness Increasing Consumer Penetration Cooperative Regulatory Environment Compelling Business Value Expanding Technology Infrastructure

6. 120 100 80 60 40 20 0 Telephone Cable Millions of Users Radio TV Internet (World Wide Web) 1920 1925 1965 1975 1995 1935 1940 1945 1950 1955 1960 1970 1980 1985 1990 1930 The recent adoption of the Internet has been truly amazing! Adoption of Consumer Technologies in U.S. Years to 50 Million U.S. Users Medium Years Timeframe Telephone 25 1920-1945 Radio 38 1922-1960 TV 13 1951-1964 Cable 10 1976-1986 WWW 5 1993-1998 Source: Morgan Stanley, “The Internet Advertising Report,” 1998

7. Online usage is growing fast in Europe NB : online usage measurement based on use of internet at least one hour per month (excluding email). Extrapolation based on two surveys (2,000 phone interviews + 60,000 internet questionnaires) • By end 2006, about 50% of the European population will use internet at least one hour per month. The growth curve will then become fairly flat • Internet penetration is the highest in Scandinavian countries with more than 60% of the population online in 2001. Southern Europe lags behind (e.g. Greece, Portugal, Spain, France) • Penetration in Belgium was moderate compared to the European average in 2001 but increased very much in the meantime from 27 to 48% in millions Online users in Europe 2000-2006 Online users by country 2001 in millions Online Penetration (users) Online Users Source: Jupiter MMXI Internet Population Model, June 2002

8. Belgium is catching up quickly • In 2003, about 48% of the Belgian population (> 15 years old) uses internet at least one hour per month • In December 2003, about 4,0 million Belgians used internet at least one hour per month, which represented a 25% increase compared to October 2002 • 55% of regular home internet users use a high speed connection. It places Belgium amongst the top in terms of broadband penetration in Europe (with Sweden) • The number of connections is stagnating but the mix is evolving towards broadband (cable + ADSL) Online users in Belgium 2000-2006 Number of private connections in Belgium in millions 1,49 million connections for 4 million households Sources: Jupiter MMXI Internet Population Model, June 2002, InSites Internet Mapping, April 2002 Source: ISPA, 14th market study, September 30th 2002

9. Real growth is in Business-to-Business • By end 2005, online B2B spending in Western Europe will be worth close to €3 trillion, with Germany and the UK accounting for over half of the total • Computer/telecom goods and aerospace industry will be the most impacted by the growth of the B2B commerce Online B2B spending in Western Europe 2000-2005 Online B2B spending by industry 2000-2006 in billions Belgium 2001: € 3 Billion 2005: € 50 Billion Percentage of Market Online Online B-to-B Spending Source: Jupiter European Business-to-Business Forecasts 2000-2005, September 2001 Source: Jupiter Internet B-to-B Commerce Model, June 2000, (US only)

10. The B2C market is growing very fast but revenues base is smaller • In 2002, online B2C spending in Western Europe is worth €20 billion, which accounts for 4% of the B2B market. Online B2C spending is forecasted to amount to €80 billion in 2007 • By end 2007, about 4% of total retail commerce should be done via the internet • Travel, grocery, PCs and books are the most frequently goods bought on the internet • In 2003, Belgian internet surfers bought for about 0,8 bn EUR on the internet (3-4 orders a year @ 135 EUR/order). Most purchased goods are books and CDs. 680,000 Belgians have booked some travels via the internet in 2003 – Source : Insites Consulting Online B2C spending in Western Europe 2002 and 2007 Online B2C spending mix 2002 €20 Bio in 2002 Source: Jupiter MMXI Internet Commerce Model, August 2002

11. B2B versus B2C eCommerce The Greater Growth in B2B eCommerce Is Driven by Fundamental Differences Between B2B and B2C eCommerce Business customers are: Retail consumers are: • Access/ familiarity • Technology enabled on a broad scale • Readily accessible to professional training • Still lacking high speed internet access at home • Challenged by rapidly evolving technology • Confidence • Comfortable with electronic transactions • Lingering reservations about transacting on-line • Incentive • More cost conscious • More “bottom line” oriented • More brand conscious • Focused on value and price

12. Telecommunication developments are key to boost internet penetration in Europe • By end 2007, about 22% of the European households should use a broadband connection (ADSL, cable, fiber) to access internet thanks to the democratisation/penetration of ADSL and an increased use of existing cable infrastructure • Wireless phones will also become an increasing internet access gateway in Europe when data transmission capacity increases (3rd generation mobiles) Broadband penetration in Western Europe 2001-2007 Wireless penetration in Western Europe 2001-2006 in millions in thousands Belgium has one of the highest broadband penetration from 9% in 2001 to 28% in 2007 Number of Wireless Subscribers in Western Europe Broadband Households Percentage of Wireless Penetration Percentage of Households Sources: Jupiter MMXI Broadband Internet Model, October 2001 (Western Europe only) InSites, Belgium is European frontrunner in broadband Internet use, November 2001 Source: Jupiter MMXI European Wireless Model, 11/01 (Western Europe only)

13. Telecommunication developments are key to boost internet penetration in Europe/2 • Internet-enabled handsets (UMTS, WAP, PAD…) penetration increases • However, use of internet-enabled handsets to access internet and trade via the internet remains limited (a.o. WAP technology did not meet expectations) • Data transmission capacity increase is expected to boost the use of third generation phones in the coming years Internet-enabled handsets and penetration in Western Europe 2001-2006 Active wireless internet users in Western Europe 2001-2006 in millions in millions Number of Internet-Enabled Handsets in Western Europe Number of Active Wireless Internet Users in Western Europe Penetration of Internet-Enabled Handsets Percentage of Wireless Subscribers Who Are Active Users Source: Jupiter MMXI European Wireless Model, November 2001 (Western Europe only)

14. 45 Households (in millions) 108 Digital TV is another technology facilitating internet access TV Households in Western Europe 1999 Increase of broadcasters’bandwith New services and revenue streams New content TV Households in Western Europe 1999-2008 IDTV penetration is relying on both interactive device platforms (PC’s, TV’s, PDA, smartphones…) and broadcasts platforms (terrestrial, cable, satellite) Households (in millions) Average Penetration of broadcast platforms in Western Europe: Terrestrial:50% Cable: 31% Satellite: 26,8% In the long-term, nearly all DTV households will be iDTV-enabled Source: Jupiter Strategic Planning Services: European Digital TV, markets and platforms, 2000

15. Digital TV is another technology facilitating internet access/2 Digital and Analog TV penetration in Western Europe 1999-2008 • Low takeoff is observed due to high investments required for the solution: • Costs to broadcasters of DTV transmission (license, access, bandwidth,…) • Conversion and upgrade costs for new or adapted modulation standard (e.g.:$7-10M for a • new station, $1-3M to convert an existing one) • Development and manufacturing costs (station, antenna, components,broadband devices, • broadcast platforms,…) • Partnerships costs (opportunity costs due to various intermediaries) • Uncertainty of consumer demand: cultural and socio-demographical aspects • Broadband and Telco's market national and regional characteristics • Cable operators don’t have the money (huge debt structure) • Limited opportunities in iTV fees (retail market) 2001 split between households: All analog: 137,5 M Digital Terrestrial: 0,8 M Digital Cable: 2 M Digital Satellite: 8,5M 2008 split between households: All analog: 44,8 M Digital Terrestrial: 29,9M Digital Cable: 39,4 M Digital Satellite: 38,8M Source: Jupiter Strategic Planning Services: European Digital TV, markets and platforms, 2000

16. Cooperative Regulatory Environment • Pricing of internet services and free competition • Dial up • ADSL • Internet security (e.g. payments) • Legal recognition of digital signatures • Application of commercial laws

17. Agenda Trends, facts and figures eBusiness value drivers Application areas for eBusiness Electronic marketplaces

18. Value Creation Levers Opportunities Benefits Share Price Enhance External Communication Market Share Price Increase Brand Acceptance Perception See other levers Operational & Financial Performance Reach / access to new markets Revenue Revenue Sales Volume New value propositions Enhancement enhancements Creation of new product / services Deeper customer relationships Typical: 10-20% Brand image building Best case: 55% Price Demand-supply matching Value Value Effective customer segmentation Creation Creation Cost Sourcing price reduction Cost reduction Better price-value matching COGS Reduction Cost-to-serve improvement Typical: 20-45% Transaction cost reduction Best case: 70% Sales & General Logistics network efficiency admin. costs Effective marketing Enforcing company policy compliance Inventory level optimization Asset Intensity Asset intensity Time-to-market reduction Working Capital Reduction reduction Forecast accuracy improvement Typical: 20-60% Logistics network productivity Best case:90% Fixed Assets improvement Fleet productivity improvement Value drivers

19. Revenues drivers eCommerce Drivers Benefits RevenueEnhancement New Value Propositions • Customized offerings (one-to-one marketing) • Value pricing • Individualized shop/buy/own experience • Micro-transactions • Intelligent products/services New Channels/Reach • Electronic advertising • Electronic merchandising • Electronic sales • Electronic servicing/support Individualized Customer Lifecycle • Improved contact rates • Improved targeting • Improved consideration rates • Improved closing rates (100% Dell) • Higher share of wallet (up to 300% e.g. Schwab) • Improved customer retention

20. Cost drivers Typical Savings Level Category ROUGH ESTIMATES 20-30% Human Resource Management 20-30% Technology Facilitated Training Organizational Efficiency IT Maintenance/Support 50-80% Internal Interactions 25-50% Supply Chain Operating Costs Asset Utilization 10-25% Inventory Carrying Cost eBusiness 20-30% Procurement Process Buying from Suppliers 5-15% Procurement Spend External Interactions 20-50% Sales and Marketing Selling to Customers 30-45% Customer Service 30-55% Technical Support

21. Asset Intensity drivers eCommerce Drivers Benefits Asset Intensity Reduction Increase Working Capital Turnover • Improved inventory turns from value network compression • Increased receivable turns from eCommerce enabled settlement Reduced Physical Infrastructure • Reduced need for physical storefront • Reduced need for warehousing

22. Agenda Trends, facts and figures eBusiness value drivers Application areas for eBusiness Electronic marketplaces

23. Application areas for eBusiness eEnterprise eSupply Side eDemand Side Marketing Sales After Sales Support Product Development Procurement Production eMediary

24. Supply side eBusiness eEnterprise eSupply Side eDemand Side Marketing Sales After Sales Support Product Development Procurement Production Supply side B2B eCommerce offers tremendous opportunities for cost reduction and operational improvements eMediary

25. Supply-side eBusiness Supply Side eCommerce Opportunities Definition eEnabled Collaborative Engineering and Design Work with suppliers to design and engineer products for competitive advantage • Joint product development • Prototype development • Testing eProcurement Purchasing of hard goods and services • Supplier selection • Order placement • Payment eSupply Chain Management Management of the supply process • Demand/Supply forecasting • Inventory management • Quality assurance

26. Fiat Reduced Product Development Costs by Testing Auto Design Concepts on the Internet Objective Evaluate users’ needs for the next generation Punto, Fiat’s best selling car Description • Customers answered a Web-based survey asking them to: • indicate auto design preferences • describe what they hate in a car • suggest ideas for new features • Customers designed a car, selecting from various styles and features; final result displayed on-screen • Software captured result and traced steps customers took to evaluate and select options Results • Received over 3,000 surveys totaling 30,000 pages of data in three months • Survey participants were in Fiat’s key target segment • Information influenced styling and concept designs • Test cost $35,000 -- about the cost of running multiple focus groups

27. Fujitsu used eProcurement improve its procurement processes Objective Empower and enforcing best procurement practices to drive procurement efficiency. CommerceOne Procurement Software Capability Description • Procurement practices include: on-contract compliance, vendor consolidation, spend waste reduction, and asset reuse • Procurement tied in with ERP applications and runs on PCs through a web browser • Program allows: • Automatically clearing requests through approval and purchasing • Reduces ability to engage in “maverick” purchases of higher-cost products through streamlined process • Allows analysis of buying patterns • Enables sharing data with suppliers, creating fact-based contract negotiating leverage Results • Within a year since deploying the program, Fujitsu realized a 2-4% savings • Estimates project a 12-27% savings in operational spending • Approval process shortened to a standard of 24 hours from a less predictable timeline. Examples of poor performance of past requisition orders include a $750 order “lost” for 2 months • System rolled out to approximately 350 employees Source: Electronic Commerce, Company web site, CommerceOne Web site

28. Demand side eBusiness eEnterprise eSupply Side eDemand Side Marketing Sales After Sales Support Product Development Procurement Production Participating in demand side eCommerce helps to achieve revenue enhancements, reduced SG&A costs and increased customer satisfaction eMediary

29. Demand side eBusiness Demand Side eCommerce Opportunities Definition eSales & Service Sales and marketing of products and services • Tailored online catalogs and ordering • Sharing inventory and production capacity information • Online order fulfillment and payment eSupport Customer management services • Self-service for customer inquiries • Tailored service offerings • Integration with customer systems • Multiple resolution channels eSupply Chain Management Management of the distribution process • Collaborating with supply chain partners • Demand forecasting • Integration with customer systems • Velocity: rapidly pulling together the right partners and minimum scale to deliver compelling new product/service offerings

30. Dell Computer used the Internet to improve its sales processes to corporations Objective Reduce the costs associated with processing a purchase order and create one-to-one relationships with top customers Description • Developed Premier Pages, a web site customized for each corporate customer • Allows customers to create custom configurations, contact customer support, place orders, and track inventory • Connects directly to customer procurement managers for order approval, submission, and tracking • Provides dynamic product pricing Results • Ranked number one in corporate PC sales. Internet reached $30 million per day (8/99) • Created 27,000 private intranet sites for corporate customers in two and half years since the program’s debut • Supply PC’s to numerous blue-chip customers, including Bayer, Toyota, Amazon.com, and Boeing Source: Company Web Site, Industry Reports

31. Cisco Is one of the leaders in implementing demand side B2B eCommerce capabilities eSales & Marketing • Electronic catalogs, online sales support and order tracking reduce inaccurate orders from one in three to one in fifteen • “Commerce Agents” to automate and facilitate a dozen different functions eCustomer Service • Over 80% of inquires previously handled by the call center are now answered electronically reducing support staff by 300%. • Savings of $2-15 per inquiry translate into $10.5M saved monthly • Customers receive extensive product information including email alerts on software bugs, product documentation, product pricing and software downloads eSupply Chain Management • 55% of orders now pass directly from Cisco to their suppliers Source: The Economist, “When Companies Connect,” June 26, 1999. The Gartner Group

32. The eEnterprise eEnterprise eSupply Side eDemand Side Marketing Sales After Sales Support Product Development Procurement Production The adoption of eCommerce within the enterprise can result in significant operating efficiencies and increased employee satisfaction eMediary

33. The eEnterprise Enterprise eCommerce Opportunities Definition eHR • eHR focuses on leveraging electronic channels for recruiting, orienting, developing and managing human capital more effectively and efficiently Intranet • Use of generic internet technology to enable effective internal communications & collaboration • Inter-office communication • Knowledge management and exchange • Document sharing

34. Use of eHR to achieveefficiencies in administrative processes and increase employee satisfaction Objective • Reduce the time required for HR administration and cycle time for processing, and thus improving quality of service to HR customers Description • Exploited Intranet technologies to develop a self-service application focused on the key HR processes for employees and managers • Built a standards-based, open network architecture • Created a pilot application and distributed it to approximately 100 managers for technical and functional feedback (larger rollout to follow) Results • Produced >$2.5m HR and line management cost reductions • Reduced total cycle time for processing and approval from weeks to hours • Empowered line managers to manage human capital more effectively • Improved employee satisfaction with HR and improved HR department credibility with their customers

35. Use of eHR to achieveefficiencies in administrative processes and increase employee satisfaction • Attract • Recruiting • Jobs Reqs • Referrals • Applicant Process • Deploy • Deployment • Assignment • Skills Tracking • Develop • Learning • Training admin • Online delivery • Online testing • Perform • Performance Mgmt • Appraisals • 360’s • Goal Setting • Job profile maintenance • Reward • Reward • Benefits/Life Events-Retirement, stock options • Payroll • Time and Expenses • Exit • Retirement and severance • Redeployment/outplacement mgmt • Pension and exit program admin http://myHoldings.accenture.com, e-zone https.mylearning.accenture.com E-scheduling GAT www.mycandidature.com artes

36. The Introduction of an Intranet Enabled Cisco to Optimize Its Workforce Performance Objective Cope with rapid growth without increasing operating costs as well as shortening lead times. Description • Set of Intranet tools that provides scalability through automation & self service, including: • personalized portal • employee administration/ directory • recruiting & hiring • payroll, expenses reporting & compensation review • training system registration • employee communications Results • Increased employee satisfaction/ knowledge sharing • Annual financial savings of $24m • Reduced operating expense 11$M • Headcount avoidance 2$M • Productivity increase 5$M • Improved info flow 16$M • Maintenance & development -10$M • 1% added value of getting info/learning 85$M

37. Shell Objective Drastically improve human performance by leveraging intranet for communications & knowledge sharing. Description • Pan-European intranet linking 31 operating units - functionality includes communications, training & coaching • Provides training tools, recommendations & guidance • Provides tools & guidance for coaching • Access to personnel database with personnel profile • Real time discussion forums & feedback section Results • More efficient shared service organization & processes - $m in reduced costs • More efficient HR processes - Open Resourcing • High quality internal communications and knowledge- based communities • Innovative supplier relations - Honeywell/JWT • Improved customer service

38. The eMediaries eEnterprise eSupply Side eDemand Side Marketing Sales After Sales Support Product Development Procurement Production eMediary

39. Emediaries description eMediary Characteristics: e M e d i a r i e s Customer • “Electronic Hub” • Market making mechanism • Industry or business function specific Distributor Value of eMediaries: • Organize industries of fragmented buyers and sellers • Create new distribution channels • Bring new products and services to market Manufacturer Suppliers Source: Business 2.0, “Let’s Get Vertical”, Sept 1999

40. Value added eCommerce Intermediaries Aggregate Buyers and Suppliers • Improved matching of potential buyers and sellers in a market • Greater access and options for both buyers and sellers • Reduced searching and information transfer costs • Standardized buyer procurement Reduce Costs Create New Marketplaces • Provide efficient venue to buy/sell surplus inventory or exchange excess capacity • Create liquidity for new products and services Source: September 1999 Business 2.0, “Let’s Get Vertical”

41. Two key models define the way eMediaries are established and structured The Business-to Business Web Vertical eMediaries Examples: Steel Plastics Chemicals Horizontal eMediaries Procurement Ariba, CommerceOne, Oracle, i2 Technologies, SAP,… eCatalogs Examples: ChemConnect.com PlasticsNet.com eSteel.com (New View Technologies) Source: September 1999 Business 2.0, “Let’s Get Vertical”

42. Examples of vertical eMediaries Industry Company Objective • Provide an online marketplace for buyers and sellers of life science chemicals products Chemicals • Serve as an intermediary for electronics manufacturers and electronic parts suppliers Electronics • Act as electronic go-between for mortgage originators and the secondary mortgage market (lenders, brokers and corporates) Financial Services • Provide a global electronic marketplace for the selling and purchasing of steel Industrial Products • Connect buyers with suppliers of paper and related equipment through electronic trading floor and classifieds Paper • Provides a sales and communications network for plastics industry players Plastics

43. Sample of horizontal eMediaries Business Functions Company Objective Acquisition of non-production supplies • Automates procurement of non-production supplies • Automates indirect goods and services supply chain activities ecommerce, ecatalogs • Rapid implementation (ASP) of ecommerce solutions for industrial and high technology companies (engineered products) MRO procurement • Creates an on-line MRO market for capital asset intensive industries • Connect shippers who have loads they want to move cheaply with fleet managers who have space to fill Logistics Energy Management • Help businesses understand and manage their energy consumption for more effective use of power

44. Agenda Trends, facts and figures eBusiness value drivers Application areas for eBusiness Electronic marketplaces

45. Marketplaces profiling • In Q42001, Booz Hamilton identified 2,233 e marketplaces and profiled 1,802 of them :

46. Marketplaces profiling (cont’d) • In Q42001, Booz Hamilton identified 2,233 e marketplaces and profiled 1,802 of them : Geographic breakdown Service offering

47. Marketplaces profiling (cont’d) • With the help of the Darden Graduate School of Business at the University of Virginia, Booz Allen revisited a large sample of the e-marketplace sites (approx 1,100 out of 1,802) to document the failure rates in Q32002 : • 45% of the e-marketplace have disappeared • 21% of consortium-based sites • More than 45% of independent sites • Failure rates do not differ by geography • Differences by sector • 60% of e-marketplaces in textile and advertising/medi failed • 35% of e-marketplaces in financial services, paper, aerospace and printing failed • 45% of generalist sites failed