to define e-commerce to compare e-commerce to … · the new economy and e-commerce 21 c h a p t e...

THE NEW ECONOMY AND E-COMMERCE

21

C H A P T E R

2

THE

NEW ECONOMY

AND

E-COMMERCE

nnnnn To understand what is

meant by the New

Economy

nnnnn To outline how the New

Economy will impact on

management thinking

nnnnn To provide a link between

the New Economy and

e-commerce

nnnnn To define e-commerce

nnnnn To compare e-commerce

and e-business

nnnnn To list the broad

categories of e-commerce

Chapter Objectives

http://www.

eco

mm

erc

eb

oo

k.c

o.z

a

CHAPTER TWO

22

1. Enter a brave new world

In all fairness, argues Wolfgang Grulke of FutureWorld, had it not been for concurrent

revolutions in globalisation and the deregulation of trade, and in related technologies

such as telecommunications, computer networking, computing power, satellite systems

and GSM cellular phones, the impact of the Internet might have been far less. He

suggests that we stand at the confluence of several great “rivers of change” which

together are changing the very fabric of global business and the world economy.1

And so we have entered a brave new world, dominated by new micro-chip technologies,

open markets, dynamic management thinking, and one which is wired together by a vast

global information highway. These developments have spurred the restructuring and

reshaping of a new economic order called (not surprisingly) the New Economy.

Today, a New Economy is clearly emerging; it is a knowledge and idea-based economy

where the keys to wealth and job creation are the extent to which ideas, innovation, and

technology are embedded in all sectors of the economy.2

In this chapter we examine some of the features of this New Economy since it provides

us with the framework within which e-commerce takes place. We also look at the link

between the New Economy and e-commerce. Finally, we move on to define

e-commerce, e-business and to outline the broad categories of e-commerce.

2. The New Economy

Over the centuries, humankind has gone through several reformations. During this time -

from the earliest days of civilisation, through the many empires and revolutions, until

today - technology has played a role in what we do and how we live. Every time a new

technology comes into play, civilisation turns the corner on the road to a new era. This

was the case with fire, the wheel, the printing press, the industrial revolution, the motor

car, the aeroplane, the computer revolution, and is also the case today with the

e-revolution* embodied in the New Economy.

The difference today is that we are so much more in tune with what is happening around

us. With the industrial revolution, most people were still tilling the lands and few even

knew that the industrial revolution was taking place. As we enter the new millennium, a

large portion of the world’s population is at least aware - through television, radio, print

media and the Internet - that there is this revolution happening (for example, it is

estimated that soon one sixth of the world’s population will have access to the Internet

either at home or at work).3 The impact of the New Economy on humankind, therefore, is

more palpable than ever before.

* It is common in today’s semantics to talk about ‘e-something’, such as e-commerce, e-business, e-economy, e-literacy, etc. The

‘e’ stands for electronic and has to do with new electronic world of micro-chip technologies and online activities. Many

companies are striving to copyright and to brand names that have the ‘e’ in them; there is clearly an e-revolution on the go!


23

What is more, the New Economy is not an attempt to create a separate universe as was

the case with communism, for example. Instead, it is an evolution stemming from the late

20th century’s vital centres. Forces acting on this New Economy include the proliferation

of computers, technologies enabled by the micro-chip, networks, television,

telecommunications, rapid globalisation, the elimination of barriers to trade, the Internet,

e-commerce, and the Information Age. These drivers of the New Economy are discussed

in the next section.

Figure 2.1: The drivers of the New Economy

Of course the arrival of this new era has been nicely timed (albeit, not deliberately) with

the arrival of the new millennium. So as we enter the 21st century, we can expect to

experience even more dramatic changes in the way we live and work.

3. Drivers of the New Economy

We have already alluded to a number of major drivers behind the New Economy - see

figure 2.1. These include:

The Personal Computer

It is probably fair to say that the New Economy had its origins in the desktop revolution.

As the PC took its place in society in the early ’80s, it freed people from mundane tasks,

it increased the rate of work-flow, it opened the door to the information age and

knowledge, and it put power in the hands of entrepreneurs and innovators.

2

PERSONAL

COMPUTER

NETWORKS

INTERNET

TELE-

COMMUNICATIONS

INFORMATION

& KNOWLEDGE

GLOBALISATION

E-COMMERCE

MOBILITY

NEW

ECONOMY

CHAPTER TWO

24

Not only was the PC perhaps the most important initial catalyst for the New Economy by

putting computing power in the hands of individuals, but the incredible growth in desktop

computing power has provided the impetus for its continued pivotal role in driving the

New Economy.

Today, new PCs are in fact supercomputers that are integrated with intuitive and easy-to-

use, point-and-click graphic interfaces. What is more, they have become smaller in size

and it is now possible to carry a fully-fledged computer in your jacket pocket.

These continuing trends - increasing computing power and a reduction in size - are

empowering users to store, crunch, interface with and share vast quantities of

information at lightening speed and within a mobile environment. This allows users to

focus on putting this information to work in new and creative ways, instead of wasting

time on manually gathering, storing and processing information.

The Networked Age

One PC alone is a powerful tool, but two PCs able to share information and resources

between them are clearly much more powerful. Imagine then an organisation with large

numbers of computers all connected to each other, allowing managers and staff not only

to perform their required tasks more efficiently, but also able to communicate with each

other and to share information and ideas. By networking powerful computers,

organisations have been able to leverage additional value out of these computers and

networks.

Telecommunications

During this time, there has been a tremendous growth in the global telecommunications

infrastructure. The telephone, the telex and the fax have all played a significant role in

bringing people together, thereby facilitating the sharing of ideas and information. The

role of television has been equally important in this regard. Today, fibre optics, satellites,

cellular phones and related tele-technologies (such as video conferencing) are ensuring

that people and organisations communicate faster, wider and further afield than ever

before.

Globalisation

Globalisation has been with us for some time already. The motor car and the aeroplane

probably played the most important roles in physically bringing people together from

different nations. The television, in its own right, has opened up a window to other

countries and cultures. In so doing, it has encouraged a propensity among people to

travel abroad to visit new countries, experience new cultures and to explore new

business opportunities, and in this way has contributed to globalisation. The growth in

the telecommunications infrastructure we mentioned above, has also had a dramatic

impact on globalisation by enabling people around the world to communicate with each

other more cheaply and easily than before.


25

International organisations and forums, while they are often criticised, have played their

role, too, in bringing the world together as one global village. Organisations such as the

World Trade Organisation, the United Nations Council for Trade and Development, the

International Trade Centre, the United Nations Security Council, the International

Chamber of Commerce, the United Nations Development Program, the World Bank, the

International Monetary Fund and others, have all been working towards reducing barriers

to trade, facilitating global trade, providing a forum for arbitration, ensuring global

security, funding development in the poorer parts of the world, and providing access to

global and national information, thereby underpinning the process of globalisation.

The Internet

The Internet has been another major driver behind the New Economy. Closely aligned

with the concept of networked PCs and globalisation, the Internet, we said in Chapter 1,

is nothing less than a global network of computer networks. It puts the information and

resources available on the millions of networks around the world that are connected to

the Internet, at your disposal. It is perhaps the most powerful communications tool yet

available and is also a vast store of information, knowledge and ideas.

E-commerce

We also argued in the previous chapter that it has been the commercialisation of the

Internet that has been the main driving force behind its incredible growth. This online

commercial activity is commonly referred to as e-commerce (or e-business) and is

discussed in more detail in the rest of this book.

The Information Age

In the Old Economy, it was about the ownership of tangible, physical assets. Land,

buildings, capital equipment and cheap labour - all finite and limited - gave entrepreneurs

the ability to produce goods and services that were consumed by their customers. The

control of natural resources and ownership of property, plant and equipment were the

means to wealth. This economic age was called the ‘economics of scarcity’ and spawned

the concept of the ‘haves’ and the ‘have-nots’ - you either had access to these scarce

resources or you didn’t.4

Initially, there was very little competition; markets were local and protected from outside

players by trade barriers. Business was relatively easy. Companies mostly took the lead

in producing what they thought customers wanted and were generally successful

because of the lack of alternatives (e.g. Henry Ford - “they can have any color they want

as long as it’s black”).

Over time, however, an increasing number of companies entered the playing field, trade

barriers were lowered allowing competition from abroad, and customers soon realised

that they had the freedom to choose. Companies embraced the concept of marketing

which required them to understand their customers’ needs and to gear the company’s

processes towards catering to these needs.

2

CHAPTER TWO

26

To this end, information about customers through market research became a critical

success factor for companies. They also needed to know about their competitors in order

to stay ahead of the field, as well as about developments in their respective industries

and about what new products or materials were coming onto the market that could pose

a threat or provide an opportunity for them. So the Information Age was born.

The power of the computer to hoard and churn out data had a major impact on the

Information Age, as did networks, telecommunication systems and television. Information

became a commodity to buy and sell, and many companies were created simply to

gather, analyse and provide competitive information for their clients.

Soon there was so much information around that it has led to an information overload.

The Internet has been pivotal in making huge quantities of information available to

customers and companies at e-speed - that is, almost instantly. The Internet has also

made these vast stores of almost unlimited information available to anyone; no longer

are interaction and collaborations costs high - anyone can play. In the old economy, size

was important; it meant that you had the resources to do business. Long vertical value

chains helped keep competitors out of the game.

Today, small virtual companies are competing head-on with the giants, and often

winning. Overhead is gone; manufacturing capacity can be hired; and best-of-breed

business partners can be assembled as and where necessary by the new-age

entrepreneur to cater to the needs of customers. The key, of course, remains the

customer and success will depend on how companies meet customer needs in the New

Economy. Finding and keeping customers is as important as it has always been. Strong

customer relationships are crucial in binding the customer to the company, in an

electronic environment where the nearest competitor is but one mouse click away.

The economic model has shifted from the ‘economics of scarcity’ to the ‘economics of

plenty’. Anyone can have access to these information resources if they choose to and

no-one is limited to one good idea per day. Today there are only the ‘haves’ and the

‘want-nots’.5 The Information Age really represents the ‘economics of attitude’.6 The New

Economy, therefore, can be said to be based on information and knowledge* - intangible

assets.

Knowledge management

In the previous section we said that information alone is not enough. Information must be

turned into knowledge. Knowledge management attempts to connect an organisation’s

intellectual assets both explicit (recorded) and tacit (personal know-how) with positive

business results.7 It encompasses identifying and mapping intellectual assets within the

organisation (including the creative and innovative capacity of its staff), generating new

knowledge for competitive advantage, making vast amounts of corporate information

accessible to its workers and managers, sharing best practices within the firm, and

utilising artefacts (i.e. the physical processes and technologies) that enable all of the

above.8 The focus of knowledge management is on developing an integrated and

synergistic knowledge system and on the management of that knowledge.

* In this regard, knowledge is seen in its broadest sense, ranging from the capabilities of human resources to provide services,

solutions and ideas, to the intellectual capital invested in knowledge-intensive goods such as pharmaceutical products and

computer software


27

Other drivers

There are many other factors that will come into play to help drive the New Economy

deep into the 21st century. One of these is mobility. We have already mentioned that

computers are not only getting more powerful, but also smaller. Today’s PDAs are as

powerful as full-blown computers were only a few years ago. Already you can access the

Internet with your cellular phone and it is likely that cellular phones and computer

technology will converge over the next few years, to bring additional mobility to the cell

phone owner.

Nanotechnology will enable computers to be made small enough to be implanted in a

body and connected to the nervous system of a human being. This would enable you to

control a computer just by thinking about it. This is not science fiction, these experiments

are already happening today.9

New materials - metals and ceramics - will allow us to push the

boundaries of what is possible today, while biotechnology will

allow us to live longer.7 In addition, developments on the social,

political and environmental scene, will almost certainly impact on

we live and work in the new century.

4. The New Economy vs the Internet

Economy vs the e-Economy

As is so often the case when one deals with a new topic, the semantics are somewhat

confusing. One person speaks of the New Economy, the next refers to the Internet

Economy and still another talks about the eEconomy (sometimes e.Conomy). What is

what? John Chambers, CEO of Cisco Systems, says that “What many refer to as the

New Economy can be more descriptively defined as the Internet Economy.” 10

Certainly, the Internet plays a pivotal role in the New Economy but it is probably fair to

say that the New Economy is much more than the Internet. If we focus on the Internet

only, we are in danger of losing our grip with our physical reality. Like a Black Hole, there

is the threat of being sucked into virtual oblivion, living and working a cyber existence

only. This is not healthy situation for the individual or for a business - it is as bad as not

being online at all. Important is to find a healthy balance between the physical and the

virtual.

The terms “eEconomy” and “eConomy” are simply snazzy words for “electronic

economy” which is akin to the term “Internet Economy” except that they have a slightly

broader meaning to incorporate other non-Internet electronic technologies such as smart

cards, electronic kiosks, etc. Again, the New Economy is not only about electronics,

microchips and cyberspace - people still need to make the world go around.

“500 million Internet

users will buy or sell

goods over the Web

by 2003”

International Data

Corporation

2

CHAPTER TWO

28

5. Challenges and opportunities of the

New Economy

The networked economy opens the doors to information and knowledge. Used properly

this knowledge will impact on productivity and incomes. But today business is not simply

about information or even knowledge, but about skills - knowing something is not

enough; to do something and to do it well is what is required.

It is fair to say that as with the Old Economy, people remain a crucial factor in the impact

that the New Economy will have on business and society. People, both as individuals

and as a key resource within firms, need to be equipped, therefore, to meet the

challenges of this brave new world.

As individual players in the New Economy, we all have to commit ourselves to learning

new skills, and we may have to reinvent ourselves and our skills-base several times

again over our working lives as the world around us changes. No longer can we afford to

learn a particular skill and then expect an employer to provide us with a long-term outlet

for our skill in the form of a career. Long-term employment is out. Job security is gone.

Instead, we will all become migrant workers, sharing our skills with firms as and where

needed for a fee. We are entering a new era of life-long learning and a churning job

environment involving flexible and dynamic employment.

Those who take up the challenge, and enhance and reinvent their skills will experience

wage growth; those who do not will experience a decline in real wages. Unfortunately,

we are likely to see a widening gap between the skilled and unskilled.

These trends are already revealing themselves in South Africa, with a growing number of

firms retrenching large numbers of staff as they downsize themselves - lean and mean is

the new policy. Unions are doing their best to force such companies to keep staff. But

this will only make these firms - clogged with more staff than they need or can afford -

even more uncompetitive in the New Economy. Already South Africa ranks poorly

(37th out of 47 countries studied) in the 1999 IMD study of international

competitiveness.11

The focus of unions should instead be on reskilling - teaching workers relevant skills for

the New Economy. In the New Economy, the key is education and training, and again the

Internet has a role to play. Instead of becoming a technology trap, the Internet and

related technologies can help bridge the skills gap that exists in this country. Bringing

education and training to remote geographic areas and to disadvantaged communities is

a real possibility with satellite-linked Internet-based learning systems. Computers are

cheap when compared with human resources and can be used effectively to support and

to enhance the role of teachers (we are not suggesting that the Internet should ever

replace teachers - it is simply a powerful tool for educators to use).


29

As they enter the New Economy, firms, too, will need to reinvent themselves to take

advantage of new technologies to manufacture goods and services. Manufacturing will

take place where it is cheapest and entrepreneurs will become imagineers and solution-

blacksmiths that forge solutions and put them into place. They will contract for skills and

manufacturing capacity as required and they will compete globally for business. A skilled

labour force, support for R&D, an effective tele-communications and business

infrastructure, and an open and stable economy is what will attract business to invest in

countries.

Similarly, governments will need to move swiftly to address these above-mentioned

issues. Education and training - especially life-long learning - is a critical area for

development. Workers need to be provided with the skills to participate in the New

Economy. If someone does not succeed, it should be because they are a ‘want-not’ and

not because the system has failed them, allowing them to become

a ‘have-not’ (i.e. a person without suitable skills). Policies that

nurture growing businesses and attract skilled labour are an

equally important area of focus for governments. In addition,

infrastructure must be created to support business and the tax

system needs to be fair and equitable. The environment and

quality of life are also important factors in attracting investment in

the New Economy.

In the online environment, access is crucial and if countries are to

succeed in the New Economy, their citizens must be provided with

ready and affordable access to the virtual world.12 A lack of access

will translate into a growing number of ‘have-nots’. In particular,

the following areas of focus, adapted from NGA Online, are

required to steer countries into the new millennium .13

n Building workforce skills and educating and promoting lifelong learning to ensure

a competitive workforce

n Enhancing the transportation and communications infrastructure needed to

support burgeoning knowledge-based industries and electronic commerce

n Facilitating access to the virtual world by means of a competitive

telecommunications service and partnerships with the private sector to connect

the workforce with the Internet

n Reengineering government to deliver services more efficiently using technology,

privatisation and partnerships with the private sector

n Developing more uniform regulatory and tax structures to reduce complexity and

eliminate market distortions

n Supporting entrepreneurs, business start-ups and exporters by streamlining

business regulations, providing timely decisions and assisting firms in their search

for venture capital

n Promoting university policies that encourage research and development, build

intellectual infrastructure and facilitate R&D partnerships between universities and

businesses

n Addressing quality-of-life issues to attract new businesses and workers

The New Economy:

“The tools may have

changed, but the

business rules

haven’t”

Arthur Goldstuck ,

CEO -

Media Africa.com

2

CHAPTER TWO

30

6. Staying competitive in the New Economy

As the environment around us changes, so we need to develop strategies and attitudes

that will help keep us competitive, both as individuals and firms.

As individuals

Reskilling

It was argued earlier in this chapter that the key to the New Economy is reskilling and

this clearly has to be a major focus for individuals. For many of us, this is a daunting

prospect. We may have spent a large portion of our lives preparing ourselves for a

particular career. Add to this years of experience gained through hard work, then we may

feel justified having reached a level of competency that places us in a position of

seniority and control. If we wish to stay there, however, we will need to embrace new

ideas and learn new skills or we will find ourselves displaced. It may mean going back to

the classroom, or it may simply mean being open-minded to the changes that are

happening around us.

Open-minded

Too often when change threatens us, we take a defensive approach. We fight the

change and look for arguments why it is not right for us. We refuse to entertain the ideas

being put forward and may turn away from reading related articles or the proposals put to

us by our colleagues.

The right way, however, is to be open-minded. Accept that we are going through a period

of dramatic change and that every idea being put forward is not necessarily a bad one.

But be positive rather than negative. Seek out the good about ideas and find solutions to

what we see the inherent problems being. By being a ‘player’, you are likely to get much

further in the New Economy than a ‘nay-sayer’.

Embracing change

Change has always been part of life. We grow up from being children to becoming

teenagers and eventually to becoming adults. We start jobs and change jobs, our

children grow up and leave home, our loved ones pass away, our friends change, the

politics of our country changes, and we move into a new millennium. The fact that

change is part of our lives, however, does not make it any easier to deal with.

But we need to reconcile ourselves with the reality that as we enter the new century, the

changes that are happening around us are perhaps more dramatic than ever before.

This is probably because they are happening at a faster rate and are happening in

different areas of our lives. Not only are the business rules changing, but technology is


31

changing faster as well, we are moving towards a global village at warp speed, we’ve

entered the new millennium, and we’re experiencing dramatic changes at the socio-

political levels, particularly in South Africa.

To succeed in the New Economy, we need to embrace these changes; we need to sit

down and plan our reaction to these changes. We cannot afford to let the changes

happen without thinking about them. They require deliberation and a planned response.

Becoming your own boss

When competing in the New Economy, companies need to become leaner and meaner.

They require more skilled staff, while simultaneously downsizing their total staff numbers

and outsourcing many of their business requirements. This impacts on the individual

directly.

The future lies in small virtual businesses that provide essential skills and services on an

as-required basis. These small operations will consist of one or more individuals with

specific skills that a company requires on a regular, but not on a full-time basis. In the

Old Economy, it may have been possible for a company to ‘carry’ such full-time

employees, but not any more. Many firms are retrenching staff and then rehiring them on

a consulting or part-time basis. It provides the firm with flexibility, cuts costs and is more

efficient than before.

For the individual, there is a need to consider whether your skills will be required on a

full-time basis and what the chances are to resell your services to your present employer

on a part-time, contractual basis. If not, maybe there other areas or other businesses

where you can put your skills to work. In South Africa, a number of individuals have

already taken this route into self-employment, generally quite successfully. It is certainly

a better option compared with retrenchment and unemployment.

Remember, though, even if you move out on your own, you will still need to consider how

you will reskill yourself for the New Economy.

The firm

The changes taking place around us are no less dramatic for the

firm than for the individual. What is more, the New Economy

cannot be avoided. There are people, companies and countries

that are setting new rules underlying intellectual assets,

knowledge, skills and technologies. It is no longer possible to

remain isolated while those around us gear themselves to play

the business game with these new rules. Dealing with these

changes is essential if the company is to succeed in the New

Economy.

“Information is

emerging as the

primary global

currency...infonomics

not economics will

be the order of the

day”

Dale Kutnick, CEO -

Meta Group

2

CHAPTER TWO

32

The early days

In the early days, as the PC allowed us to become more creative and to test new ideas,

management paradigms were spawned to accommodate this new technology. Initially,

management models focused on doing things better - cost-cutting and efficiency were

major areas of focus. The PC was put to use in innovative ways in quality control,

financial modelling, and managing business processes. The desktop computer allowed

managers to explore ‘what-if’ scenarios and to run the firm more efficiently.

Cost-cutting alone is not enough

It has become apparent, however, as the business environment changes, that cost-

cutting alone is not sufficient for survival. It is not possible for a company to shrink its

way to success. Indeed, continuous cost-cutting only works if the company is growing.

Instead, innovation, flexibility and dynamism should be the war-cry and developing

knowledge-based growth strategies are essential in this process.

Of course operational excellence remains important for companies to compete in the

new world order. Producing faster and/or at lower cost compared to competitors is

essential for success, but it is no longer the main competitive thrust.14

Customer intimacy

We’ve already pointed out that the customer remains ‘king’. In the New Economy,

business is no longer viewed as a sequence of individual transactions. A large number

of single sales, while perhaps contributing to overall sales and profitability, is today seen

as being very risky business. Instead, there is a strong move afoot to develop a closer

relationship with the customer.

Innovate, don’t imitate

The futures success of business lies in innovation, and not necessarily always product

innovation. Certainly, product leadership will mean exploiting previously unseen

opportunities as opposed to merely imitating or improving products and services.15 In

the New Economy, however, companies will also need create new ways to add value to

customers through innovative information and knowledge services. Many new types of

companies and business opportunities have already been created simply by re-

packaging and re-working information in ways that make better sense to the customer,

the company, its suppliers and business partners. The Internet is often used as a way of

delivering this innovation, or alternatively innovation is leveraged out of the unique

characteristics of the Internet. For example, its 24x7x365 availability can be used to

provide continuous customer service and support, rather than only during working

hours.


33

Table 2.1: Keys to the old and new economies

ISSUE OLD ECONOMY NEW ECONOMY

Economy-Wide Characteristics:

Markets Stable Dynamic

Scope of Competition National Global

Organisational Form Hierarchical, bureaucratic Networked, entrepreneurial

Potential Geographic Low High

Mobility of Business

Competition Between Regions Low High

Industry:

Organisation of Production Mass production Flexible production

Key Factor of Production Capital/labour Innovation/Knowledge

Key Technology Driver Mechanisation Digitisation

Source of Competitive Lowering cost through Innovation, quality, time-to-

Advantage economies-of-scale market and cost

Importance of Research Moderate High

Innovation

Relations With Other Firms Go it alone Alliances and collaboration

Workforce:

Principal Policy Goal Full employment Higher wages and incomes

Skills Job-specific skills Broad skills, cross-training

Requisite Education A skill Lifelong learning

Labour-Management Relations Adversarial Collaborative

Nature of Employment

Stable Marked by risk, opportunity and

selling skills to companies on a

short-term, contractual basis

Government:

Business-Government Relations Impose requirements Assist firms’ innovation and

growth

Regulation Command and control Market tools, flexibility

Source: The State New Economy Index16

2

CHAPTER TWO

34

Getting to the core

Core competencies - bundles of aligned knowledge skills and technologies may exist

without companies realising they possess them.17 These need to be identified and used

repeatedly to provide new solutions valued by customers. Commitment to this strategy

involves competing with yourself, making your own products obsolete as quickly as

possible.

The intangibles

Non-product or service attributes are becoming more important than product attributes

themselves. An increasing number of products are being bundled with a significant

service component to them (call centres, 0800 help-lines, online help-desks, product

instructions, branding, etc.). These non-product attributes are adding value beyond the

basic utility of the product itself and are thus a key to future growth. The role of

intangibles is discussed in greater detail in subsequent chapters.

Ultimately, there are five key policy strategies that companies must face. These are:

1. Co-investing in the skills of the workforce

2. Co-investing in an infrastructure for innovation

3. Promoting innovation- and customer-oriented business

4. Fostering the transformation to a digital economy

5. Fostering civic collaboration

7. The New Economy and e-commerce

It is important to understand that neither e-commerce nor the Internet can be equated to

the New Economy. Earlier in this chapter we said that the Internet and e-commerce are

important drivers of the New Economy, but they are not the only ones. We identified that

computers, networks, telecommunications, television, globalisation, information and

knowledge, as well as other factors have all played a role. As e-commerce grows in

importance, it will certainly drive the New Economy well into the new century, but only as

one of several forces (and new ones may also come into play). Often, however, you will

read or hear the terms “New Economy” and “e-commerce” being used synonymously.

This is clearly wrong and although e-commerce is an important part of the New

Economy, it should be remembered that they are in fact different.

The New Economy does provide the conceptual framework within which e-commerce

takes place, however. As managers come to terms with e-commerce, there are a

number of paradigm shifts they will need to go through. Some of these have already

been discussed, such as the link between wealth and intangibles, the role of

information, knowledge, skills and ideas, the rapid pace of globalisation and the


35

lowering of barriers to trade, the move to a virtual marketplace, the increasing speed of

business, increased global competition, etc. These forces stem from the New Economy

and will surely impact on the evolution of e-commerce. E-commerce is perhaps more a

result of the New Economy than a cause, although a symbiotic relationship does exist.

8. Defining e-commerce

E-commerce, standing for electronic commerce, is clearly the

buzzword for the new millennium. In every magazine, in every

newspaper, on the radio, on television, on the movie screen, in

offices around the world, and even in homes, the “e-commerce”

word has taken its place right next to words such as “television”,

“car”, “electricity”, “radio” and “computer”. But what does

e-commerce entail?

There are many definitions of e-commerce. Some of these are

listed below:

n The use of computer, network technologies and other related

electronic means to assist in the performance of daily business processes

n Doing business over the Internet

n The use of computers and telecommunications in the routine business

relationships that most affect the basics of an organisation’s operations, everyday

relationships with suppliers, banks, insurers, distributors and other trading

partners

n The conducting of business communications and transactions over networks and

through computers

n The buying and selling of goods and services and the transfer of funds through

digital means

n All inter-company and intra-company functions (such as marketing, finance,

manufacturing, selling and negotiation) that enable commerce and which use

e-mail, EDI (Electronic Data Interchange), file transfer, fax, video conferencing,

interaction with a computer, or any other electronic means

n It is the ability to for a Web site to conduct business electronically

n It is the ability for a Web site to transact sales

You will see from the definitions listed above that they range from the broad to the

narrow, and several of them see e-commerce as going far beyond just the Internet (or

online) environment.

If we take the direct translation of e-commerce, namely electronic commerce, then is

logical to view e-commerce as the conducting of business electronically (i.e. not only

over the Internet). Nothing in the name suggests that it should only have to do with the

“The shape of the

new e.Conomy is

becoming visible

and measurable, if it

is not part of the

genetic code of your

company today,

your business may

become extinct

tomorrow.”

Aletha Ling, CEO -

CCH

2

CHAPTER TWO

36

For the sake of this book, the formal definition that we will embrace is one based on the

Gartner Group definition18, namely:

E-commerce is a dynamic set of technologies, applications and

management systems that enable and manage relationships between

an enterprise, its functions and processes and those of its customers,

suppliers, value chain, community and/or industry.

Notwithstanding this formal and broad definition of e-commerce, it is probably fair to say

that e-commerce popularly refers to doing business on or over the Internet and, indeed,

much of this book looks at Internet-based e-commerce technologies, applications and

models - but its broader meaning should be borne in mind.

Even if we confine the definition of e-commerce to mean business on or over the

Internet, it is not uncommon for people to think only about online shopping (for example,

buying books from a Web site such as Amazon.com). But this is a small part of the

e-commerce picture. The term also refers to online stock and bond transactions, buying

and downloading software over the Web, advertising goods and services, promoting

companies online, gathering market intelligence, communicating with clients and staff,

providing customer support, and much, much more.

Internet. A kiosk system that sells theatre tickets, or a GSM cellular phone that allows

you to track and buy or sell shares on the JSE, or a smart-card payment service also fall

within the realm of the broader definition of e-commerce.

Figure 2.2: E-commerce is more than just the Internet and the Web

Fax

PCPDA Web

server

Cell

phone

Web

browser

Thin

client

Smart

card

TelephonePOS

ATM

Info

booth

Call

centre

Teller

E-COMMERCE


37

E-commerce also includes business-to-business interactions and transactions (also

known as B2B e-commerce) where raw materials and spare parts may be ordered and

paid for over the Internet. Information sharing between suppliers, partners and

customers, electronic billing, electronic procurement and electronic funds transfer are all

elements of business-to-business e-commerce . Boeing, for example, has recently

created an online system whereby its customers (the airlines) can order and pay for

spare parts via the Internet. E-commerce between businesses is expected to outstrip

consumer-oriented e-commerce (known as B2C e-commerce) by a factor of between ten

and twenty - see figure 2.3.

Figure 2.3: B2B e-commerce versus B2C e-commerce

Benefits of e-commerce

In particular, the benefits of e-commerce include:

n Reducing the cost of creating, moving, managing and processing individual

documents, transactions and other forms of information exchanges that make up

the relationships between enterprises. The savings that can be achieved are

often extremely high.

n Transforming relations between trading organisations to their mutual benefit,

because their information flows are more timely, co-ordinated and accurate when

sent and processed electronically, facilitating faster and better decision-making by

management.

n Opening up additional channels through which to market and sell for many

organisations. Business-to-business electronic links have opened up many

opportunities to reach out to customers through new levels of convenience,

location-independent services and the lean organisational structures often termed

the virtual organisation. The lower cost of electronic channels can also reduce

costs, while at the same time increasing profitability, compared to other, less

efficient channels.

2

B2B

E-COMMERCE

Suppliers and

business partnersCompany

web site

B2C

E-COMMERCE

Customers

CHAPTER TWO

38

n Simplifying and streamlining the business processes, removing administration,

delays, errors and overheads.

n Directly and almost immediately contributing to shareholder value through

reductions in working capital that has a direct carrying cost, such as inventories,

accounts receivables and in-transit goods.

9. E-commerce - a new way of doing business

It is said that e-commerce is not changing what happens in business transactions nor

who is involved, but rather how it happens. It can also be said that the ‘commerce’ part of

e-commerce deals with the finding of customers, producing goods or services that meet

the needs of these customers, informing them of the these goods or services, selling the

goods and services to these customers, and finally ensuring that customers are satisfied

and will buy from you again, while the ‘electronic’ part of e-commerce deals with ‘how’

this is done. In other words, e-commerce is about a new way of doing business that

involves openness, connectivity, and integration.20 Put another way, business principles

remain the same, but the ‘tools’ have changed.

n It opens up the enterprise to include partners, suppliers and customers

n It connects the new, expanded enterprise through a universal electronic medium

(the Internet)

n It requires the integration and alignment of technologies, systems and processes,

and human performance with a continuously evolving strategic intent

In particular, the Internet facilitates the flow of information, goods and money between

buyers and sellers in the physical environment.

The Marketspace versus the Marketplace19

The Internet has brought with it a virtual realm popularly

termed the marketspace that companies and organisations

in all spheres of business and of all sizes need to come to

terms with. This marketspace is a virtual world where

products and services exist as digital information and where

transactions and interactions occur electronically. This new

world requires new and innovative ways of marketing

products and providing value-added services to customers.

The marketspace is very different to the physical world, or

marketplace that marketers are familiar with, where

interactions occur between physical buyers and sellers at

actual locations.


39

E-commerce is not a single technology or tool; it is a combination of technologies and

applications as well as management processes and strategies. This mixture makes it

difficult, on the one hand, for management and process gurus to come to terms with

because of the new and constantly evolving technologies that are involved, while, on the

other hand, the technical specialist is also faced with coming to terms with new and

evolving e-commerce business strategies and management processes.

E-commerce does not take place in isolation. It involves developing and integrating the

business relationships between the firm and its suppliers, customers, banks, distributors,

and other trading partners - no easy task.

As e-commerce is about the relationships between enterprises and with their customers,

the e-commerce activities of a firm in the online world needs to be consistent with the

practices, relationships and structures inherent in the specific industry in which the firm is

involved. As industries and communities come to terms with online business, the firm

faces an environment in a state of flux.

10. E-commerce versus e-business

This is again, to some extent, an issue of semantics. There is a lot of discussion around

the difference between e-commerce and e-business. In fact, e-commerce and

e-business are terms that are often used interchangeably. However, there is some

agreement coming to the fore about the differences between the two. E-commerce is

generally considered to have a narrower focus than e-business and is about creating, for

example, an online transaction system or perhaps an e-procurement system (i.e. an

online buying system). E-business, on the other hand, is more about integrating online all

of the activities of the organisation with those of its suppliers, customers and partners so

that it functions as an automated whole. E-business is therefore a more comprehensive,

integrated view of online business.

In this book we have both perspectives in mind and although the title of the book is

“E-commerce for South African Managers”, we will attempt to take you through the

evolution of online business, from online publishing (i.e. creating a simple Web

presence) to e-commerce (e.g. transacting sales or procuring online) and, finally, to an

integrated online e-business system.

11. Broad categories of e-commerce

Broadly speaking, there are three different types of business groupings on the Net.

These are:

2

CHAPTER TWO

40

Business-to-consumer (B2C) e-commerce

B2C e-commerce is largely concerned with selling to the end-user - the consumer. It is

the online version of retailing (and is commonly referred to as e-tailing). Generally, these

consumers would be individuals, but in some instances, the end-user could also be a

company - a company that orders a book from Amazon.com or a computer from Dell, for

example, would fall into this category. However, a company that establishes a dedicated

link (an e-procurement site, for example) with its suppliers to purchase on-going

business consumables, such as paper, pencils, printer ribbons, etc., would fall into the

business-to-business category.

Business-to-business (B2B) e-commerce

B2B e-commerce is all about businesses doing business with other businesses online. It

includes online procurement, supply chain management, customer relationship

management and fully integrated inter-company e-business systems.

Consumer-to-consumer (C2C) e-commerce

C2C e-commerce is where one consumer does business or interacts with other

consumers online. This interaction is usually facilitated by an independent third-party. An

example of a C2C e-commerce site would be Junkmail. An individual places an ad with

Junkmail through its online services and other consumers can visit the Junkmail Web

site, see the ad and then contact the seller to arrange to buy the item in question. The

third-party facilitator - in this case, Junkmail - might or might not offer some sort of

payment or auctioning service as part of their Web site. An individual that creates his/her

own Web site aimed at reaching other consumers, could also be classified as a C2C

Web site.

Others

There are other classifications of e-commerce Web sites, including government-to-

business (sometimes referred to as administration-to-business) and government-to-

consumer (administration-to-consumer).

Business-to-consumer and business-to-businesses e-commerce sites are discussed in

more detail in subsequent chapters.

12. Summary

In this chapter we have been introduced to the New Economy - a pervasive, largely

electronic environment where interactions and transactions are transformed into bits and

bytes. In the New Economy, new opportunities exist to mix, match, mould, manipulate


41

and merge this digital information in ways never thought possible before. In doing so,

companies are find new ways of adding value to customers and in so doing, are creating

new business opportunities for themselves.

Using the Internet, which is an integral and central component of the New Economy, to

facilitate and transact business is what e-commerce is all about. E-commerce uses the

power, reach and richness of the Internet and World Wide Web to leverage business

value for customers and revenue opportunities for themselves. E-business takes the

process one step further and aims to create an organisation that is fully integrated with

its buyers and suppliers across all the underlying business systems, from procurement to

transaction, from billing to payment, and from information exchange to management

control.

2

CHAPTER TWO

42

1. CCH/FutureWorld Seminar, Grulke, W., 2000: Vision 2020

http://www.futureworld.co.za

2. Progressive Policy Institute, Atkinson, R.D., Court, R.H., and Ward, J.M., Sept. 1999: The New

State Economy Index

http://www.neweconomyindex.org/states/introduction.html

3. Global Reach, Mar. 2000: Evolution & Projections of Online Linguistic Populations

http://www.glreach.com/globstats/evol.html

4. FutureWorld International, Grulke, 1997: Rules-of-the-Game for a Changing Global Economy

http://asp.futureworld.co.za/futureworld/info.htm





7. Knowledge Praxis, Barclay, R.O. and Murray, P. C., 1997: What is knowledge Management

http://www.media-access.com/whatis.html

8. UTS, Southon, G., 2000: Introduction to Knowledge Management

http://www.uts.edu.au/fac/hss/Department/DIS/km/introduct.htm



10. Intelligence Magazine, CCH Supplement, Business Model for the Internet Economy,

Vol. 6/1 (p20)

11. Institute for Management Development, Apr. 2000: The World Competitiveness Report

http://www.imd.ch/wcy/ranking/ranking.cfm

12. NGA Centre of Best Practices: The New Economy: An Overview

http://www.nga.org/NewEconomy/GovOverview.asp


State Economy Index


14. KPMG, Lanthier, J.S., 1999: Managing Transformation in the New Economy

http://www.kpmg.ca/vl/other/newecone.htm




State Economy Index




18. CCH Internal Presentation, 2000, quoted originally from Gartner Group

http://www.gartner.com

19. E-Media, Rayport, Jeffrey F. and Sviolka, John J., Nov./Dec. 1994: Managing in the

Marketspace (originally in the Harvard Business Review)

http://e-media.ch/emedoc/lit_marketspace.html

20 Andersen Consulting, 1999: What is e-commerce?

http://www.andersen.com/showcase/e-commerce/ecom_what_is.html

CHAPTER REFERENCES

to define e-commerce to compare e-commerce to … · the new economy and e-commerce 21 c h a p t e...

Documents