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CEOs should ignore e-commerce at their own peril

Feb 15 (MSC Times) - E-commerce is no longer an arcane concept understood by afew techies and marketeers. It has moved to the executive boardroom and CEOs whoignore the e-tsunami can find themselves under tremendous pressure or berelieved of this pressure by being fired!

Feb 15 (MSC Times) - E-commerce is no longer an arcane concept understood by a few techies and marketeers. It has moved to the executive boardroom and CEOs who ignore the e-tsunami can find themselves under tremendous pressure or be relieved of this pressure by being fired! It has been said that the internet has been responsible for many changes of CEOs in companies in 1999.

These are some key trends seen first-hand by a consultant from feedback from clients. "There's no doubt that there the pace at which the internet and its cousins (e-commerce, e-business) is developing is spectacular," Ahmad Shukri Hamid, a business development manager with Cap Gemini, a European-based international multibillion-dollar consulting and IT services firm, tells MSCTimes.com.

He's now responsible for developing business in the public sector in Malaysia. Formerly, he was project director of the National E-commerce Masterplan project in Malaysia and business consulting manager at Multimedia Development Corporation.

Ahmad Shukri continues: "The record-breaking expansion of the American economy is clear proof that we're entering a new era where technology will play an increasing role in raising productivity, thus avoiding inflation, the main fear of economic policymakers during periods of high-growth. This new phenomenon (high growth with subdued inflation) has already been referred to as the `New Economy`.

"And how does e-commerce come into play? The example I'm going to give is simplistic but illustrates this point. One of the measures of inflation is the price of consumer goods. E-commerce, by disintermediating (they're actually re-intermediated by e-tailers) the middleman (expensive brick-and-mortar structures), has brought down the prices of consumer goods such as food, books, appliances, etc. (Although in other cases, it has made some exotic items, such as those auctioned on E-bay, more expensive!)

"This leads to a lower increase in the consumer price index. Similarly, the prices of commodities could be traded on an auction basis (ever heard of an energy exchange? Or the reselling of bandwidth capacity?), therefore, resulting in even lower prices for consumers. This has multiplier effects throughout the entire economy as these commodities form inputs to end-products. Some of you might argue this point, as the price of oil is at a four-year high, but then, cartels aren't the most efficient economic mechanisms."

The following are some of the more exciting trends he sees happening as described by his clients:

  • The thin organization and outsourcing

Outsourcing can be defined as "turning over the provision of services to a third party professional services organization for a fee and a pre-determined service level agreement". Although the thought of turning the provision of critical services (note the word "critical" as opposed to "core") might have been met with resistance from top management a couple of years ago (i.e. the "not created here" syndrome), such a move is now considered critical to business success in the e-world.

According to Ahmad Shukri, outsourcing allows a business to concentrate on its core activities. Why should a bank maintain legions of software developers who might be better off elsewhere?

Some examples of companies which have successfully outsourced are Virgin (Richard Branson's focus is now on making the Virgin brand a household name to sell almost anything - Branson intends to make Virgin.com one of the world's top ten portals), Cisco (most of its product lines are manufactured by Solectron) and Nike (concentrates on design and brand management and makes the shoes elsewhere).

Outsourcing even makes more sense in the e-world because companies need to spend more time and effort getting to know their customers (ever heard of customer relationship management?) and tailoring their product/service offerings to meet their customers' changing needs.

Outsourcing can pool economies of scales that allow basic services (for example, transaction processing. A study shown by the OECD that using the internet as a channel to serve customers brings down the transaction cost by a factor of 10 compared to hiring a teller) to be offered a competitive prices.

Also, as technology progresses very quickly nowadays, it may not make sense for smaller companies (SMEs) to invest millions of dollars in technologies which might be obsolete very quickly. Rather, turn the provision of essential but non-core services to an outsourcer (a bureau service operating on a fixed fee basis or on a per transaction basis) and concentrate on winning and keeping your best customers.

  • Wireless commerce

Ahmad Shukri says this is one revolution that's gaining more momentum in Europe than America. The unified standard on cellular phones in Europe (GSM) and the high penetration rates (especially in the Nordic countries of Finland, Sweden, Norway and Iceland) have led to a boom in mobile commerce applications. Leading this charge are household European companies such as Nokia, Ericsson, and Sonera.

Under the wireless commerce model, a cellphone with a SIM card equipped with wireless internet access will allow ordinary folks like you and me to access a wide range of services (e-banking, travel, ticketing, news, etc.)

Leading cellular operators such as Maxis are already testing out these services on WAP (Wireless Application Protocol) phones and should be rolling out these services to customers in the middle of the year. The convergence of the internet and wireless literally stole the show at last year's ITU (International Telecommunications Union) international conference which previously dominated issues such as regulation and challenges facing large telcos.

  • E-business

There are many definitions and permutations for this term although Ahmad Shukri suspects they all mean the same thing! He notes it has become increasingly clear that what was said by Andrew Grove of Intel ("all businesses will be e-businesses in the next five years or they won't be businesses at all") was extremely prescient. The dot.com fever that hit America and recently Europe is making its presence now felt in Asia.

At the core of this "e-volution" (to borrow a term from FORTUNE) is not only the small entrepreneurial startups but also the larger corporations. Contrary to popular belief, you can teach an old dog new tricks! These large corporations would probably stand a better chance in the longer term as most of them can already rely on a steady stream of income from their offline ("bricks and mortar") business.

Combine the offline with an online strategy and what you have is a combination which represents the best of both worlds, referred to as "clicks and mortar".

Adds Ahmad Shukri: "The efforts of the bricks and mortar businesses to move into the online space should give dot.com retailers competition and help bring prices even lower, much to the delight of consumers. The point is that we're still people, and being people, shopping is pretty much a social (the need to touch and feel) experience. So don't write off those brick structures, just yet.

"We're still at the early stages of this very exciting revolution. The sudden runup in stock prices of Malaysian companies associated with the internet, dot.com or e-commerce (e.g. AIC, Pensonic, Leader, Time, Abric, Safeguards, etc (disclaimer: Invest at your own risk!) in recent weeks shows that investors are starting to accept the idea of the New Economy in Malaysia."