The book of the month: “Digital Storm: Fresh Business Strategies from the Electronic Marketplace” by Philipp Gerbert and Alex Birch with Gert Schnetkamp and Dirk Schneider

News categories: Enterprise and business strategy, E-Business / Information Technology

“The first advantage the Internet delivers is transparency. All things being equal, it transforms the world into a buyer’s market. As a consequence, prices have a tendency to drop faster than process changes can get implemented [through e-business solutions that increase efficiency and reduce costs]. Transparency combined with lack of differentiation squeezes margins. In order to achieve the all-important differentiation, companies have to do things better than the rest of the industry. They have to think about how to use the electronic marketplace in a novel way to deliver unique and superior value. When differentiation is the goal […] then fully public markets are no longer appropriate. Instead, companies have to establish their own trading partner network."

Philip Gerbert, Alex Birch, Gert Schnetkamp and Dirk Schneider

The first E-Business wave with utopian visions of electronic marketplaces that dominate entire industries, organizing trading, the matching of buyers and sellers, in new ways and dictating their business models to all industry players has passed by. In the meanwhile a great number of e-marketplaces has imploded, unable to attract the necessary business volume. They ignored the basic lesson that the very architecture of the Internet had taught: Interlinked dynamic networks, as opposed to large centralized structures, are the superior organizational forms. Today’s complex business relationships cannot thrive in a rigid corset of simplistic processes, as provided by many e-markets, any more than they could under central planning regimes. Instead, they need a flexible service network to support diversity and innovation. “E-topia is now gone. It is an irony of fate that the Internet hype has faded at the very moment the importance of electronic business was becoming evident” says Holmes in the fictitious dialog with Watson in the prologue to the book. The mission of “Digital Storm” is to describe how electronic business will really change the world and what companies have to do to leverage its power.

The authors give an excellent account of the rise of the e-marketplaces and the digital storm they encountered by their pioneering acts. They do not just show what went wrong; they also show that the potential of the e-market places will continue to be in a networked environment, albeit a different one. With “Digital Storm” the authors want to dig much deeper than many others did during the first e-business / e-market wave and their aim is to show, that the burst of the Internet bubble does not mean that e-business has lost its power. On the contrary. After the corrections made in their e-business strategies based on the past experiences, companies and the economy at large will rely heavily on electronic business and on new forms of electronic marketplaces. The core of their message is, that differentiation, not imitation (which happened widely during the first e-business wave), creates value. Profitability will come from innovative value propositions. Thus future e-markets will differ in many ways from today’s landscape. Companies will use the support of multiple e-markets to enable their trading networks. They will, however, refrain from a “portfolio approach” to markets. Instead they will avoid overlap, but use complementary e-markets. These markets, like other companies, have to differentiate. The authors believe, that this means for individual companies and their e-business / e-market initiatives that

§ Successful players will strive to consolidate the segment

§ Markets become networked

§ Every company will have a private marketplace

§ E-markets will increasingly focus on services

§ Dynamic trading partner networks will evolve

Anybody who has ever led an e-business initiative can confirm that it all starts and ends with the software. Therefore software is playing a key role in the e-business and e-market vision of the authors. Software determines the ability of companies to leverage the Internet. Sadly, software is also the weakest element of the infrastructure. The authors talk about the “software gap”. The complexity of software, slow progress in development and compatibility requirements with legacy systems are the main reasons for this software gap. Reinventing software as a service could lead the way out of this “software gap”. An architectural solution, Web services, has been proposed and is being pursued by many vendors. It consists of self-describing “Lego”-Software, interacting through the Internet. Pioneered by Hewlett-Packard, Web services have recently been most prominently adopted by Microsoft in its .Net initiative. If successful, they could bridge the software gap.

The most essential task for companies in pursuing an e-business / e-market based business strategy is to develop a strategic perspective first. Incremental improvements of existing business models and processes are inappropriate in the electronic marketplace at this point in time. Too many things are in flux. Ambitious initiatives are under way, claiming – rightly or wrongly – to restructure whole industries. It is thus essential for companies, the authors write, to step back and reconsider the own industry from the bottom up. When they have understood the potential for truly innovative value creation, they will be able to judge the current initiatives in the electronic marketplace and devise their own e-business strategy. Therefore Gerbert, Birch, Schnetkamp and Schneider recommend a multi-step approach in developing the e-business strategy of the company:

§ Understand today’s value delivery network and trends (of the own industry):
An environmental map of the flow of goods and services in the industry is a mandatory first step.

§ Identify core processes and pain points:
The next step is to distil the most relevant core processes in the value delivery and identify the major pain points in the processes today. By analysing these pain points based on the know how of the company, what an electronic marketplace can achieve, it is possible to grasp the efficiency potential an restructuring opportunity today’s value delivery.

§ Map out current e-market initiatives:
Classify, map and analyse existing e-market initiatives. While many may fail, the few remaining could have a deep impact on the own sector.

§ Devise (extreme) end game scenarios and triggers:
By devising (extreme) end game scenarios, their implications, in particular the attractive and unattractive roles, become very clear.

§ Design end-customer driven value innovations:
The critical creative step consists of rethinking how the electronic marketplace can be leveraged for novel value propositions. Such an analysis always starts with the end-customer and works backwards through the demand network.

In the end, what matters for a company is its ability to identify and execute its own winning e-play. Its business may be at stake. Also the financial commitments for a strong e-business/e-market initiative are substantial. Thus the strategy should be well elaborated. At the same time, project efficiency is critical in the fast moving electronic marketplace. Therefore the authors describe in the last chapter a tested streamlined process companies can follow to build a promising e-business.

“Digital Storm” is not about the Internet. It is about doing business in the new century. In 1999 Lou Gerstner, Chief Executive of IBM, commented: "The dot.coms are only the fireflies before the storm." While much has been written about the fireflies, the current book focuses on the storm. More specifically, it provides insights to help companies sail through the digital storm, while exposing shortcomings in past and present concepts. The authors use strong examples in explaining why online e-marketplaces have evolved the way they have, and they do a great job of laying the groundwork to help leaders navigate through the future innovations we're likely to see. Digital Storm provides a comprehensive picture of the electronic business-to-business landscape and its likely evolution. The book delivers a sharp analysis that cuts through the rather short-lived business coverage available so far. This is a definite must-read for everyone who needs to understand the pitfalls in building e-marketplaces and how to exploit their potential.

About the authors:

Philipp Gerbert is a partner of the McKenna Group and is based at its headquarters in Silicon Valley. He has extensive experience in electronic business / electronic commerce, Internet infrastructure and innovation management. He serves large multinationals as well as emerging new players. He is on the board of several Silicon Valley ventures and is a regular contributor to major business publications. The McKenna Group (www.mckenna-group.com) from Silicon Valley is the leading strategic consulting firm for technology-enabled growth.

Alex Birch is a director in the London office of OC&C Strategy Consultants (www.occstrategy.co.uk). His particular interest lies in how to exploit new technologies to achieve growth. He advices companies – both large and small – in the telecommunications, media, entertainment and leisure industries. He is on the board of a number of early-stage businesses.

Gert Schnetkamp heads the German office of OC&C Strategy Consultants (www.occstrategy.de). He is an internationally acclaimed authority in the retail and services sectors and has been heavily involved in the development of strategies for leading companies entering the New Economy in a broad range of sectors. Together with Dirk Schneider, he wrote a German language precursor of the current book called “E-Markets”.

The Digital Storm - Fresh Business Strategies from the Electronic Marketplace
by Philipp Gerbert and Alex Birch with Gerd Schnetkamp and Dirk Schneider

Hardcover - 352 pages (July 2001)
Capstone Publishing Limited; ISBN: 1841121681

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