To thrive in the digital economy, businesses must radically change the way they work, attendees of the World Congress on Information Technology were told. They must forge a new type of relationship with their suppliers and customers and seek new value propositions - or perish.
The 1,800 IT industry executives from more than 90 countries attending the World Congress on Information Technology were offered a glimpse of things to come, as a number of high-profile speakers heralded a new age in doing business.
Top speakers such as Michael Dell, Jim Barksdale and author Don Tapscott offered remarkably similar formulas for success in the digital economy - and predicted the imminent downfall of those who fail to adapt to the changed environment.
Don Tapscott, author of 'Creating wealth in the digital economy', summed it all up when he said: "I believe we are moving into a new period in human development where we'll see profound changes, not just in terms of how we conduct commerce, but in terms of how we create wealth. In terms of the nature of the firm itself, and in terms of how we maintain social development. And this is a new digital economy where all the rules are different".
Physical assets become liabilities
Michael Dell, whose Dell Computer has been one of the first to score big on the Web, sees three radical changes : the value of inventory is being replaced by the value of information; physical assets are being traded for intellectual assets; closed business systems are giving way to collaborative relationships.
Both inventory and physical assets have become liabilities in the digital economy. As Netscape president and CEO Jim Barksdale pointed out: "The market capitalisation of [online book store] Amazon.com is twice that of Barnes & Noble, which has big stores and enormous inventory."
Michael Dell, when asked about his predictions for the success of Windows 98, said he really didn't know how many people would opt to stay with Windows 95.
"The great thing is, we don't have to know. We don't have to forecast."
He said the company's wired, build-to-order business model protected Dell from the risks that have landed its competitors with inventory problems.
While the value of "bricks and mortar" is declining, the value of intellectual assets - what Don Tapscott calls Intellectual Capital or IC - is increasing.
"The Security Exchange Commission of the United States will demand that IC be measured on balance sheets in the year 2005," predicted Tapscott, "because our current balance sheets don't tell us much. Your key assets are contained in the crania of the people who work in your organisation and in networked digital documents."
Another phenomenon is that in the IT industry - and in many other industries - it is becoming increasingly hard to differentiate products.
"As the information industry matures and the companies in it become more fully developed, product differentiation is becoming harder to achieve", said Dell. "It will give way to process innovation as the fundamental source of competitive advantage.
The transformation of business relationships
The key to this process innovation - and to business success in the information age - is the relationship with suppliers and customers. This relationship is changing fast.
"Both suppliers and customers must be treated as partners and collaborators, jointly looking for ways to improve efficiency across the entire spectrum of the value chain, not just in their respective businesses," said Michael Dell.
Michael Dell predicted that the traditional boundaries between supplier and manufacturer, and manufacturer and customer, will blur. Businesses must establish direct, Internet-driven relationships with both their manufacturers and their customers, sharing their information - even their core applications - with their partners.
"Because we started [Dell] with only $1,000 in capital, we had to define our value-add very narrowly. Instead of trying to be excellent at making all the pieces and parts that went into the finished product, we partnered for those capital-intensive services with suppliers, and focused on delivering customer-directed solutions."
In this way, Michael Dell claims, Dell obtained the benefits of tightly coordinated supply chain management without the costs. Dell said the Internet is now turbocharging this evolution.
Michael Dell pointed out that, since 1996, large Dell customers can have their own Web page at Dell where they can find information about their orders as well as technical support. He said Dell is now doing something similar with its suppliers. They will over time receive Web pages through which Dell will be informed about their capacity and inventory, and Dell can provide feedback on component quality.
A Web-link with Intel is already in place and Dell is working on similar links with its 20 top suppliers. A pilot programme is being conducted that will link overseas suppliers directly into Dell's internal management systems.
"We are moving to truly collaborative research and development models, using the Internet to openly share information and work together in real time," Dell claimed.
Don Tapscott calls this the creation of an "E-business community". "Sector by sector these new e-business communities are wiping out traditional models of the firm," he said.
A new value proposition
So how do you create an e-business community? Don Tapscott thinks he knows the formula.
"Well, you need to think about a value proposition. How could you delight customers? Take something like the brokerage industry value proposition. In the past, well, we gave access to the stock market real time data, we can execute transactions, we can share information, we provided advice, and so on."
"E-trade comes along and disintegrates that value proposition and puts together a whole new value proposition by bringing a whole bunch of companies together on the net. It creates an e-business community and as a result of that the traditional brokerage industry is toast," he concludes.
For those companies who refuse to play by the new rules, Don Tapscott predicted imminent disaster. Banks, for instance, will be increasingly challenged by online ventures cherry picking their best customers and most lucrative activities.
"In the year 2000 17 percent of American families will bank on the Internet," said Tapscott. "That's 30 percent of profits because it's the best customers. The cherry pickers take them off. Banks are left with big infrastructure costs so they need to cut services or increase fees. They spiral down. The cherry pickers take off more, the banks spiral down. It's a death spiral scenario."
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