The European e-Business Report 2004 - Berlecon Research GmbH

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The European E-Business Report 2004OpportunitiesAs in other manufacturing sectors, many companies in the transport equipment industry currently useInternet-related technologies to successfully optimise their routines and information flows, or tointroduce new services to their customers. These technology-induced changes can lead to significantcost saving potentials by optimising standardised, repetitive procedures such as procurement orprocessing of customer orders. Also, many companies have successfully implemented e-businesssolutions in a way that actually led to an improvement of the relationship with customers and/orsuppliers.Furthermore, information technologies may help to increase transparency about various types ofinformation and to efficiently store and manage them. Examples are order data, customer data,inventories, status of certain procedures, or various types of documents. This additional transparencycan be exploited to reduce errors, optimise planning, inventories, processing and engineering times.In many cases, e-business technologies reduce the time required for carrying out routine-tasks (suchas searching for paper-based information about customers) and therefore unleash the additional worktime of employees to carry out value-added tasks (like assisting customers). This potentially improvesefficiency and contributes towards employee satisfaction. Taking advantage of these opportunities isparticularly important for firms in this industry to stay competitive in an increasingly globalised market.ChallengesLike all investment decisions, investments into e-business technology are subject to risks. Foremost,at the time of the firm's investment decision is uncertainty about the return on their investment. In otherwords, there is always some risk that the investment will not pay off. This can happen for variousreasons. For example, the new system might prove incompatible with other existing systems andprocesses. In addition, there is always an inherent risk that after making the investment the system willnot function as proposed or that the training received by employees will be insufficient for effectiveuse. It is important to realise that investments into IT can only pay off if additional, complementaryinvestments are taken into process re-design and employee know-how. Given the relatively low levelof IT know-how among SMEs in this sector compared to other sectors (such as the electronics orcomputer service industries), these necessary complementary investments make the adoption of e-business solutions more costly. Hence, reaching positive ROI becomes less likely than for SMEs inother industries. There is also an initial uncertainty about the acceptance of the new technologyamong its potential users, which includes employees themselves as well as customers.In addition, given that most companies have only limited financial resources for investments, there areopportunity costs involved with every investment. Financial resources that are attributed to e-businessinvestments are not available for alternative investment opportunities. As e-business investments arenot necessarily superior to other investments, firms have to make a careful strategic decision abouthow to allocate their scare resources.Another risk is that of getting locked-in to a specific type of technology, technology provider, standard,or even an industry group. A lock-in usually occurs if there are network effects involved in aninvestment. Network effects occur when the value of a network increases with the number of itscomponents. The “network” could be a number of enterprises in an industry that decide to use aparticular communication standard to exchange data. For example, it was partially this risk of a “lockin”to a critical standard that caused the reluctance of many suppliers to join Covisint. Similarly, the“network” could be a number of related information technology tools that a firm uses to manage itsdata flows. In this case, the components of the “network” are the hardware and software tools, eitherdirectly linked to exchange data or indirectly compatible, because they require similar skills to operatethem. In this case, the presence of previously adopted technologies in a firm provides a positivenetwork externality towards the adoption of any additional, related technology (see Köllinger andSchade, 2004). Thus, there can also be firm-internal network effects that lead to a lock-in of anenterprise to a specific way of doing business (based on a specific group of related technologies).Finally, investments into ICT could easily lead to a lock-in to a specific technology provider who can119
The European E-Business Report 2004then exploit its position by charging monopoly prices. Thus, it will also be important to monitor thestrategy and pricing policies of industry-specific platforms like SupplyOn.Lock-in effects are not very problematic as long as there is no superior alternative to such a scenario.For example, a “lock-in” to the e-business paradigm of doing business is fine as long as no otheralternative exists that would yield a higher pay-off to enterprises. Alternatively, if a firm gets locked-into the best technology provider in the market, this should also not be problematic as long as thetechnology provider does not gain a monopoly position and abuses its market power. What is,however, important for enterprises is that they should be aware that investments into e-businesstechnologies are likely to be subject to network effects and possible lock-ins. They then need tocarefully evaluate whether such lock-ins could lead to disadvantages or not.2.4.5 OutlookThe Internet is currently an important enabler of innovation in the transport equipment manufacturingsector. Many firms actually make use of ICT to conduct process innovations or to offer new productsor services to their customers. In fact, about two thirds of all process innovations in the sector in 2003appear to be directly related to or enabled by Internet-based technology. Thus, e-businesstechnologies and the Internet do begin to have a significant impact on enterprises and theirperformance. However, most firms in the sector have not yet taken full advantage of all opportunitiesthat e-business technologies offer to improve their business. It can be expected that e-business willcontinue to gain acceptance in this sector, primarily as a strategic device that helps firms to makeinternal processes more efficient, to save costs, and to comply with the new communication andbusiness standards that are currently developing in this industry.Exhibit 2.4-8: Overview of e-business enablers and barriers in the transport equipmentmanufacturing industryEnablers• Competition• Access to technology• Positive network externalitiesBarriers• Implementation costs• Need to re-engineer business processes• Lack of e-business skills and experience• High endowment with EDI• “Battle of power” between OEMs and suppliers• Return on investment issuesSource: e-Business W@tch (2004)Enablers: factors that could drive e-business adoptionCompetition is intense in the transport equipment sector, both among OEMs and their suppliers. Thisleads to a rapid imitation of innovations and, hence, to a continuous search for new diversifyingfeatures, cost-saving techniques and opportunities. E-business provides a set of powerful tools forthese objectives and can thus become an important competitive factor.Access to technology does not appear to be a problem for many companies. The sector exhibits ahigh endowment with basic ICT infrastructures that are a necessary prerequisite for participation in e-business. In addition, the increasing use of e-business technologies by many firms in the sectorprovides positive network externalities to other potential e-business adopters. Often, firms decide toadopt certain technologies primarily because some of their most important business partners also usethem. Also, there can be knowledge and experience spill-overs between firms via communication oremployee migration. Finally, some e-business technologies and services have reached critical massand therefore become attractive for enterprises that had previously chosen a “wait-and-see” approach.120
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Section I: The e-Business Index(a p
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Section II: The European e-Business
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Section III: 20 indicators on ICT a
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