Business Management in the New (Digital) Economy

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Business Management in the New (Digital) Economy
Piotr Kozlowski
Industrial and Financial Systems
Central and Eastern Europe
Al. Jerozolimskie 181
02-222 Warsaw
e_mail: p.kozlowski@ifs.com.pl
Keywords: transactions in the new economy, competition, internet challenge, operational
excellence, customer and partner intimacy, agility, open portal framework
Abstract: This paper is considering the development of the internet and electronic markets in the
New Economy. The business environment has changed drastically over the past few years and
continues to change. The challenges such us retaining customer loyalty, bringing new products and
services to the market, sustaining the edge over our competitors, running profitable businesses and
attracting best people for our companies exist and will exist. They can not be named old or new.
However, in the Information Age these are becoming more and more challenging. The era of static
markets is over. The electronic markets are dynamic and literally change as we speak. Speed, agility
and creativity are becoming the key components of every business. Innovation propels the businesses
to the next base. It is also becoming more and more important to realise that we can not do it on our
own, therefore Partnering strategy becomes also important. Above all, the true challenge of the
Business Management in the New (Digital) Economy is to have a clear picture of the economic (and
electronic) web our companies are a apart of. The future lies with all players in that web being close
together.
1.

Introduction
In Today’s world the only thing that we can be sure of is a change. How true it is in the current
business environment ? Almost every day one can read in a newspaper about a take over involving
companies of different Industries, start up of a new service over the internet or transactions worth
tens or hundreds of billion dollars – the sums previously unheard of. Has the Economy changed or is
it the same ? Are we still in the business of acquiring clients for our products or services for which
we receive compensation ? If we look at this from the perspective of time, we can see how Today’s
business environment is different from the one we have experienced 20 years ago.
2.

Transactions in the New Economy.
20 years ago we did business in so called Industrial Age. The term ‘brick and mortar’ describes this
Age very accurately. Large, hierarchical Corporations, vast human resources, land and equipment had
significant entry in the books. Today we are in the Information Age, where Information Technology
and with it Internet span the entire globe and our access to new markets have no physical borders.
This can be illustrated by example how the transactions were conducted today.
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Value received
Communication
Info exchange
Place
Time
Orientation
Feedback
Seller
Buyer
Exchange
Industrial Age
Information Age
Money
Sender
Greater access
‘Physical market’
Business hours
One time
Slow
Product or service
Receiver
Limited access
‘Physical market’
Business hours
Get a good deal
Slow
Economic, inf.
and emotional value
Bilateral
transaction
Shared info
access
Anywhere
Anytime
Repeated
Real time
In the Industrial Age we have communicated on the basis of sender and receiver or seller and buyer.
We have traded product and/or services for money. On the information front definitely seller had a
greater access to the information – keeping the edge over buyer. We have traded over the business
hours and had to come into the physical places such us offices, shops and banks to make the
transaction. Generally speaking these were one time transactions, where buyer was satisfied when she
or he got a good deal. The feedback on the transactions was rather slow and dependent on the paper
turnaround. Today, in the Information Age, the situation is quite different. The clear division into
sellers and buyers nears extinction. We operate on the exchange, not limited by the physical presence
nor by the hours. We all have access to the same information. And value we receive for our
transactions is not limited to money.
3.

Competition in the New Economy.
Competitive landscape in the New Economy is different than before. In the Industrial Age
competitors were the members of the same club (Industry). Partnering was rather limited as the
ownership was preferred. Competitive advantage was rather sustainable over a long period of time as
Enterprises could protect their investments in products or services.
The Information Age has changed the landscape. The boundaries between Industries become less
rigid, no longer members of the same club are competing. What is more, in order to sustain
competitive advantage the enterprises are forced to continue to seek new ones more frequently than
before.
Players
Partnering
Competitive advantage
How to compete ?
Industrial Age
Information Age
Members
Ownership preferred
Sustainable
Market/customer driven
Anyone
Partnering preferred
Continue to seek new
Balance (MD-DM)
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4.

The Internet challenge
The future enterprise will have to operate in an open community. Customers will be loyal to those
enterprises, which provide rich, personalised information. The Internet is changing the way we all do
business. It is redefining the corporate model and the customer experience—creating exciting
opportunities in marketing and sales, procurement and dynamic collaboration. What is the way to
make innovative use of the Internet when it involves all types of commercial partners, legacy systems,
business applications, communication standards and data sources? The answer is an open
community—made possible by the intelligent use of component technology built on open Internet
standards. The future business will be supported by Internet business platform consisting of adapters
that connect Internet front-end applications, such as marketplaces, auction sites and web stores to
enterprise’s back-end systems. Communication will be done over the Internet through message hubs
that use various messaging formats and protocols. Of course, every user in this community will have
secure portal access to all relevant information. And all of this will have to be kept under control
using powerful business process design and system configuration tools. The Internet is creating,
refining, developing—and terminating— business relationships. Although the Internet supports
intimate business relations, it also encourages disloyalty because of almost zero switching costs and
the fact that competition is only one click away. This calls for innovative methods for retaining
loyalty and new ways of capitalising on global trading exchanges to cut costs. And of course,
Business Management in the new, Digital Era is different.
5.

Operational excellence
The Internet has spawned a number of important drivers that support the operational excellence of
every company. We can use the Internet to communicate and collaborate with customers, partners
and suppliers to identify new ways to improve, for example, delivery, quality, material and tooling
information, and transactions. Excellence in the global economy involves not only the optimisation of
the plant, but also the co-ordination of activities such as logistics, sourcing or maintenance
operations. So the traditional “introvert” plant perspective shifts to a more extrovert perspective with
more emphasis on relationship management. We are moving gradually towards the extended
enterprise where increased specialisation in networks of collaborating partners can create increased
customer value. The necessary level of integration and co-ordination is made possible using the
Internet as a communications vehicle. Not long ago, companies had an introverted approach to
business processes. The focus was on the internal solution to optimise certain key business processes,
reducing lead times and costs. Then out of the blue comes the Internet - forcing us out of isolation.
We awaken to a very different world where new rules apply. Suddenly, the fortress approach is not
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just obsolete, but worthless as new competitors appear overnight with new ways of doing business
and a global reach.
6.

Internet development
The evolution of the Internet is both cumulative and gradual. The first step typically begins with
marketing followed up by self-service capabilities facing customers and employees. As the Internet
matures, the company or supply chain will be able to drastically reshape business models and acquire
significant competitive advantage by building collaborative relationships. Internet business drivers
are:

Online order acquisition costs are ten percent of traditional methods, such as telephone ordeCycle
times from order to delivery are collapsing

Customer loyalty is more difficult to attain and, as a result, personalised services are more
important than ever

Many services are more readily available and co-ordinated through the Internet, such as IT
outsourcing and logistics

The Internet promotes buying and selling across borders - Mobile phones and PDAs capable of
running business applications online will propel Internet penetration and usability.
Creativity is overtaking capital as the principal elixir of growth. It needs to be explored not only in
the enterprise, but also within the network of collaborating partners, customers and suppliers. In this
way, the Internet economy is really a knowledge-based economy.
7.

Customer and partner intimacy
Customer and partner intimacy is finally becoming a realisable objective. We can reach virtually all
our customers and partners with retained richness in our communication. And we have the history
about the customer that can assist us in further building the relationship. Even when products are
complex, we can use our different information sources and services to tailor-make our interaction.
For example, using the purchase history or interaction on repeat orders, a company can offer
additional add-ons or suggestions for upgrades to the order that complement and increase the value of
the overall transactions on a one-to-one basis.
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8.

Product and knowledge leadership
It is often said that companies should focus on what they do best. Product leadership is not to be
taken lightly. Customers today are asking for many different capabilities in products. To keep
innovative height and time to market there is a need for specialising on the core competency areas, be
it product/ process technologies or marketing/distribution concepts. For a complete product and
service offering, companies have to simultaneously search for alliances and partnerships that in turn
require collaborative business applications. With the Internet, companies begin to understand the
power of joint ownership of business process and data. Collaborative applications benefit all
participating partners, and create a foundation for win-win relationships.
9.

Extreme agility
Being successful in e-business demands entirely new business processes, such as collaborative
product development with manufacturers, customers and suppliers; accessing and leveraging
procurement trading exchanges; and web-enabled channel marketing and management. Enterprise
applications must support both internal and external processes as well as business transactions. They
should make it possible to integrate solutions into existing technology environment and also embrace
new emerging technologies. In other words, enterprise business systems must be able to support the
new processes that e-business demands and enable flexible and simple process changes over time.
10.

Make or buy?
Williamson’s model shows how transaction costs are driving vertical integration and networks. The
basic idea is that the more is out-sourced and moved towards a network, the lower the unit cost. At
the same time, transaction costs increase, which discourages further integration. With the Internet,
this is possible to expand business infrastructure, reducing transaction costs and encouraging further
integration. It all comes down to ‘‘make or buy’ decisions. In other words, identifying and focusing
on core competence—found where the sum of unit costs and transaction costs is lowest.
11.

Speed and customer centricity
The next challenge for many e-business operations will be to cope with the increased demands on
performance as their Internet-generated business continues to grow. It requires customer-centricity
across the enterprise and supply chain. And it requires speed, not just in terms of implementation and
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the ability to up scale, but also in terms of performance, efficiency and effectiveness across business
processes to strengthen customer relationships.
12.

Access to Information
The new Internet business models demand speed and agility—starting at the core of the enterprise. It
means swift and secure information processing within the company and a smoothly functioning
exchange of information with customers, suppliers and partners via the Internet.
13.

Open Portal Framework
Our customers are most likely investing more and more in e-business. They are counting on the new
business models to be productive and supportive. And they expect the others (including us) to
provide personalised, targeted answers to their specific inquiries. They want dynamic interaction via
the Internet. If a customer connects to see if a company can supply 15 pieces on Tuesday and the
answer is no, then how many can they get? Will more be available on Friday? This type of
information cannot be simply downloaded. There is a need for open interfaces and a solid
backbone—seamlessly integrated with an active front-end application.
One of the solutions that makes it possible, using IFS as an example, is a partner initiative called IFS
Open Portal Framework™ (OPF). The OPF promotes an open community that connects old, new and
emerging business models. It supports interaction for all users—employees, customers, suppliers,
partners or the public. Regardless of the role, the user has access to all relevant content and services,
such as web shopping, web tools and content from other data sources—creating a dynamic access to
information. What’s more, the information, content and services provided by OPF can be published
in any other portal framework. Open portals are the tools for developing customer relations and
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supporting decision-making. In the networked economy, business performance is critical. Prompt and
accurate information makes it possible for enterprises to follow up each process. In addition, this will
create and develop what we call Business Knowledge Base— consisting of information about
business relationships, processes and the performance of the network.
14.

Performance
How long are our customers willing to wait for us to respond to their needs? Most likely, not long at
all. We need to be able to deliver information at high speed. And this is just half of the challenge. We
also have to provide the right information—targeted and personalised. Anticipating the customers’
needs and giving them just what they want and just what is relevant. Gathering all business
competence in one network. And being able to execute when it comes to business logistics. There are
many aspects to meeting the customers’ needs. But it really comes down to the performance of
business applications solution. We understand and appreciate the challenges of the networked
economy, but to stay competitive we have to focus also on the technical part – the IT systems that
support new economy. The Internet is driving change in most businesses. Companies are moving to
take advantage of these opportunities, either through Internet-based business-to-consumer shopping,
business-to- business relationships, e-procurement or different types of web communities, such as
exchange sites and auction sites. The possibilities are enormous.
15.

Taking care of customers
But successful e-business is dependent on well-functioning Internet sites and efficient transactions
over the Internet. Competition is only one click away. And success (and failure) can come in an
instant. One thing is certain—we have to be able to move and react very quickly. Demands on
scalability are impossible to predict. For example, one could suddenly take on new clients at a pace
that was never thought possible. And loose them all even more quickly because of the lack of proper
business applications and infrastructure in place. The business will have to be run on a technical
platform that is robust and dependable, but also agile enough to take advantage of new and emerging
technology.
16.

Grow with the Internet
E-business is neither a passing fad to be ignored, nor a revolution that demands a desperate knee-jerk
response—but an important stage in an ongoing evolution. And we all want to be ready—not just to
flow with the tide, but to ride the leading wave. We need greater responsiveness and flexibility. There
is more information exchanged and more value added. And the race to acquire, develop and retain
long-term customer relationships has never been more intense.
Literature
1.

Financial Times: Global Management. Managing the Information Technology. London, 1998.
2.

Industrial and Financial Systems: IFS Applications 2001. Linkoping, 2000.
3.

Industrial and Financial Systems: Extended Enterprise. Linkoping, 2001.
4.

AMR Research Inc: ERP market review. USA, 1999.
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