E-Commerce vs. E-Business

“There will be nothing in the 10-year window except e-companies. That does not mean that Brick-and-Mortar will go away. But Click-and-Mortar will become the only means of survival.” John Chambers, Cisco Systems, 2000.

Recently, the role of online activity in major industries has undergone a shift toward efficiencies and support of basic business processes rather than its original role of online selling as part of the product offering. Automakers and textile manufacturers are among the companies announcing reductions in online product sales in favor of spending dollars on business support systems.

Few things have grown so fast as internet commerce. The idea of e-trade began in the 60’s and 70’s with the advent of EDI systems (read more about EDI in our 10/30/02 Facts & Figures article, The Electronic Marketplace). EDI aided business to business transactions, but consumer internet shopping was made possible by the advent of the Mosaic browser, introduced and expanded by Netscape in 1994 (1). In 1998, DSL began to spread across the country, increasing connection speeds and facilitating business on the web.

The swift growth of the business to consumer e-tailing model induced many to believe that the benefits of online transacting could be acquired only through selling things online. Brick-and-mortar enterprises were frightened by pure-play (internet only) companies into hasty moves to establish virtual real estate.

Deceleration (and eventual stagnation) of dot-com growth gave everyone a chance to take a deep breath and evaluate the lucidity of the online business model. Many discovered that they did not realize the distinction between online selling and using the internet to facilitate trade. The difference? E-commerce is selling things online, and is externally focused. Think Amazon.com.E-business means using the internet and online technologies to create operating efficiencies, and therefore increase value to the customer. It is internally focused. Think swift integration of planning, sourcing, manufacturing, management, execution, and selling using IT infrastructure (2). The terms e-commerce and e-business are often misused and interchanged, but it is important to understand the difference.

In 1999, Ford Motor Co. jumped on the e-commerce bandwagon and created a division specifically for e-commerce initiatives, offered direct-from-factory ordering, and hyped fully internet-capable cars of the future. Today, after a $50 million lost investment, Ford is concentrating on improving IT infrastructure to support online design and production tools.

General Motors also launched an e-commerce initiative called e-GM, creating a new division similar to Ford. After a failed online sales venture with its dealers, GM has reintegrated e-commerce efforts internally. The company is now focusing its e-business and IT efforts on supplier performance evaluation processes and improved communication. Their ultimate goal is improved efficiency (3).

Some companies in the textiles and apparel industry are trying to shed years of cost-based business relationships by moving design and procurement activities online. DuPont, Levi’s, and Dillard’s are three companies who have recently adopted online network tools which allow them to increase supply chain efficiency. This is an intelligent move in an industry where 80% of the final product cost is determined at the beginning of the design process when materials are selected (4).

FedEx is another company incorporating e-business programs to improve efficiencies throughout the supply chain. They found something as plain as processing requests for payment on repairs cost an additional 25 cents for every dollar spent on parts. Moving the invoicing process online reduced costs as well as mechanics’ time spent on paperwork (5). Authors who studied Covisint, the auto industry’s collaborative effort, cited estimates that paper transactions cost as much as $75-$150 each, but moving procurement processes online can reduce that to $10-$30 (6).

The aforementioned companies recognized processes which worked alright but cost unnecessary time and money to implement via paper. They also had organizational structures that smoothed the progress of the transition. It is important to remember that faulty processes moved online will only magnify their weaknesses! No joint venture or software package will magically improve business procedures, or bring an old-fashioned organization up to speed.

The current buzzword describing success in e-business is collaboration. As in the textile industry, working with suppliers, or even competitors, to improve planning and design activities can improve supply chain performance and efficiency. But don’t forget about other potential areas for improvement like automating procurement processes, interoperability (more effective communication among users), and online auctions. IT infrastructure will play a significant role in the success of all of these endeavors, but must be linked to organizational structure and processes as described above.

John Chambers’ prediction about e-companies sums up the importance of e-business strategies. Recent news that 3rd Quarter ’02 online sales show declines for the first time in e-commerce history (7) underscores the question of whether e-commerce should be a business model in itself. It may be healthier for the bottom line if it is viewed as an additional channel through which transactions can be supported and facilitated. Concentration on e-business and building internal systems to improve internal process efficiencies may be better yet.

1. Has e-business increased your effectiveness? Ask yourself:
2. Were our processes faulty before we moved them online?
3. Are we gaining efficiencies in specific areas?
4. Have relationships with suppliers or customers improved?
5. Are our web-enabled systems assisting in decision making, or just providing access to information?

1. Does our e-business strategy fit with our overall corporate strategy?

References:

(1) Weisman, Jon. Aug. 22, 2000. The Making of E-Commerce: Ten Key Moments. The E-Commerce Times.

(2) Foster, Thomas A. Jul/Aug 2002. The Supply Chain e-Business Top 100. Supply Chain Brain.com.

(3) Bennett, Jeff. Sep 19, 2002. Automakers Slow Up on E-Commerce Expansion. Motorway.

(4) Johnson, M.E. May 15, 2002. Product Design Collaboration. ASCET.

(5) Avery, Susan. Oct 18, 2001. E-Procurement Delivers for FedEx. Purchasing.com.

(6) Helper, S. and MacDuffie, J. Jan 14, 2002. B2B and Modes of Exchange: Evolutionary and Transformative Effects .

(7) Regan, Keith. Oct 30, 2002.Online Sales Fell for First Time in Q3. E-CommerceTimes.com.