How top execs see Internet transforming core business

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The majority of companies in a global study see the Internet having a profound effect on the role they play in their industries - with nearly one-third expecting to see e-business changing their core businesses.

Some 30% of 331 senior corporate executives interviewed say that e-business will change the definition of their core business, with a greater percentage of executives in electronics (43%), financial services (42%) and communications (39%) industries saying so.

These findings are reported in a study* conducted by the Economist Intelligence Unit in cooperation with KPMG in June and July. The study focuses on the automotive/manufacturing, chemicals, communications, consumer markets, electronics, financial services, and pharmaceuticals industries.

“The revolution triggered by the rise in the Internet and e-business is clearly gaining momentum and influence, despite the recent fallout suffered by the dot-coms,” said Alistair Johnston, KPMG International managing partner, global markets. “On the positive side, the changes will deliver new opportunities, from strengthened customer relationships to new sources of revenue. However, the dramatic changes occurring across these industries are posing a real threat of diminishing market share for those companies who may be unable to adapt quickly.”

Most companies were found to have an e-business strategy and active involvement by senior management in formulating e-business strategies. However, analysis also disclosed that senior management involvement is probably inadequate at more than 40% of the companies surveyed - suggesting that it may take longer for those companies to implement their e-business plans.

When asked ‘what changes to your organizational structure are needed for your e-business strategy to succeed,’ more than half of the executives overall responded that their firms need to dedicate a senior-level manager with sole responsibility for e-business initiatives. E-business strategy is being driven by executive committees at 42% of the firms, and by chief executives at 28%.

Among the seven industries included in the study, the automotive industry ranked lowest (35%) in senior management involvement. Not surprisingly, electronics (80%) and financial services (62%), two industries at the leading edge of e-business change, enjoy the highest degree of senior management participation.

The survey found the financial services and communications industries undergoing fairly significant e-business change, with the chemical and automotive industries lagging in terms of readiness for e-business growth. The analysis is based on a number of measures, including senior management commitment, web site capabilities, and on-line revenue projections.

Key findings:
• 50% of the survey respondents expect e-business to change their company’s relationship to other industries, in effect, crossing industry lines to offer bundled products and services.
• 57% expect e-business to transform the role they play within their industries.
• All of the industries surveyed are placing more emphasis on B2B than B2C, and expect to shift the balance of their investments toward B2B initiatives. In addition, 48% believe that on-line exchanges will be very important for their own supply chains in the next 18 months, up from 19% today.
• 45% said their companies are investing in dotcoms. The reasons for doing so are to gain access to e-business expertise and to reach new customers and markets.

In the next year and a half, the executives surveyed expect dramatic improvement in the web or Internet-based features that they offer suppliers and partners. Today, only 11% of those interviewed report that their suppliers can access their inventory systems. In 18 months, 46% say their firms will grant access. Electronic bill payment capabilities to suppliers are expected to increase to 44% in the next 18 months, up from 12%.

Projections for on-line sales growth, the study found, are significant. Respondents expect their e-business revenue contribution to increase from an average of seven% today to 22% in 18 months. While communications and financial services firms today enjoy the greatest%age of online sales, the largest growth will come from the electronics industry, which is projected to increase from 9% today to 33% in 18 months.

Other findings:
• E-business strategies are being adopted because of the need to keep future strategy options open (75%), need for growth opportunities (73%), for internal efficiencies (55%) and because of competitive pressures (53%). By contrast, little direct pressure is coming from either their boards (19%) or shareholders (17%).
• When asked about the potential barriers to e-business implementation, executives interviewed in the study cited the necessity to re-engineer business processes, the lack of e-business skills, and the lack of back and front-end systems integration.
• In pursuing e-business goals, the executives said their firms would be less willing to risk alienating customers (13%) or a lower short-term share price (16%), but would be more willing to risk lower short-term revenues (23%), disruptions with established supplier relationships (22%) or cannibalizing existing sources of revenue (22%).

*‘The e-business value chain: Winning strategies in seven global industries’
For the study , 331 industry executives were surveyed in North America, Europe and Asia. In addition, 42 senior executives participated in in-depth interviews during the same timeframe. The hypotheses for the study were developed jointly by the Economist Intelligence Unit and KPMG.
The Economist Intelligence Unit (EIU), the business-to-business arm of The Economist Group continuously assesses and forecasts political, economic and business conditions in 195 countries, and provides insight into how companies are responding.

KPMG

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