A value chain analysis of e-business.

University Degree Business and Administrative studies

A VALUE CHAIN ANALYSIS OF E-BUSINESS

Having looked at the potential impact of e-business on an organisation's choices as to which services and products it will offer and to whom, now we can look at the broader implications for organisations. The model we shall use for this has been devised by Porter (1985) and depicts an organisation's key activities as being connected as a chain of value which is added by each link. This chain involves the activities which comprise the production or development of whatever the organisation provides for its customers - firstly, there is what the organisation needs to bring in (raw materials, information, and so on), then the key operations (such as manufacturing the product), then taking the product to the customers or point of sale, then the marketing and sales activity, and finally the service provided to the customer post-sales. In addition to this primary chain of value, there is a secondary cluster of support activities, such as HR, IT/systems, or purchasing. These enable the primary value chain to operate most effectively, though in themselves they are less directly connected to the details of the technical work.

Primary activities

Inbound and outbound logistics

Probably, the physical movement of materials and products is less dramatically affected by e-business than some other parts of the value chain. However, there are some effects - specialist distribution companies are able to use the internet not only to plot the fastest and most efficient routes (using data such as satellite navigation data) but also can combine same day collection and deliveries of even small quantities of goods (for example, using mobile telephony or radio devices for direct data entry - hand-held devices are now standard for many carriers such as UPS or Business Express).

Additionally, a large amount of the input of many organisations is information based in one way or another (market reports, stock prices, customer data, government regulations are just three examples) all of which can be (and often are) digitised and sent via the internet.

Operations

Here the main immediate beneficiaries of the internet revolution are service industries, which rely less on physical activities and more on the transfer and processing of information. So, for example, the travel industry has hardly been affected physically - trains and boats and planes still move about in exactly the same way - but, in striking contrast, ticket sales have been transformed, so that a growing proportion of travellers are booking through the internet, and those who go to high street travel agents are benefiting from the electronic databases that these agents access direct to identify or book seats.

One area where there is a direct impact is the computing industry itself; much software now can be easily obtained via the internet - with the added benefit that some of what physical stores sell is available over the internet for free.

Marketing and sales

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Marketing and sales

Perhaps the biggest immediate usage of the internet has been for marketing purposes. Just about every major organisation has its own website these days. On these you may find any of the following (i) their annual report to the shareholders; (ii) brochure information about products and services; (iii) recruitment opportunities posted on a company site; and (iv) opportunities to purchase products or services over the web. In some cases there are additional promotional elements - a virtual walk around the business, for example. Sales in some areas have been transformed - easyjet, for example, has blazed the trail of low price airlines, partially supported by a heavy use of the internet (an interesting example of early diversification, as the airline has already developed a range of other services that can be purchased via their internet cafe style 'easy everything' high street outlets).

In addition to company marketing information, one of the largest applications of the web is the development of online broking or agency sales - companies that will find the best deals for you; for example, a Britney Spears' gig, or a Euro-star return ticket. This is a service that has existed in one form or another for many years, but the greatly widened range of sources of tickets has enhanced the quality of this service significantly.

Customer service

Surprisingly, few of the really big companies exploit this aspect to any great extent. Although it is common that a company will include their email contact details on a website, there is only rarely a direct contact to give feedback on products or make complaints (cynically, one might think that this would make complaints too easy, whereas the telephone still provides a significant barrier to some against making a complaint).

On the other hand, this aspect of customer (or in this case, citizen) communication is being exploited by local councils, who deliver a wide range of services, and often are having to juggle the areas where high quality is compromised by poor resources. Many local councils use their website as a major route for communication between citizens and their elected representatives, not necessarily as complaint but also as a natural part of the process of government.

Support activities

Firm infrastructure

Intranets - internet style systems, usually of a www type using HTML pages, but operating in a closed environment for employees of just one organisation - have become an essential component of larger or more dispersed organisations. Additionally, some global firms use products such as Lotus Notes to combine email and internet functions, so that information can be shared across continents - decisions can therefore be made involving key players even though they may be in offices thousands of miles apart.

Human resource management

Not very long ago, the most elaborate use that human resource (HR) departments made of computers was a staff database, but more recently a range of HR activities have sprung up, and it is clear that many more will follow. As mentioned above, for example, recruitment via the web is now a common phenomenon, whether on the company's own site or by means of a specialist recruitment website such as PeopleBank. In addition however, many HR departments use intranets to publish documents such as health and safety policies.

Perhaps most exciting of all, however, is the development of e-learning facilities such as on-line discussion forums, bulletin boards, programmed learning of technical knowledge or skills coaching, many of which are offered as distinct services by HR consultancies or are developed in-house. The university sector has also taken up the opportunities of online learning enthusiastically. The head of the UK eUniversities Worldwide organisation claimed that 'By 2005, it is forecast that online learning will be the most widely used web application' (Beaumont, 2003). Whilst this is an overstated piece of hyperbole, it is certainly the case that given the focus in general management theory currently on knowledge and learning, it is highly likely that this application of the internet will be a major growth area in the years to come.

Another relatively unexplored potential benefit is the use of distributed human resources - so that work can be allocated less on the basis of who is physically present at a certain place at a certain time, but more rationally on the basis of who has the skills and is accessible via the network. Because many elements of the value chain are data based or data driven, it is possible to make free use of individuals' skills on an international basis. In theory, a company that translates documents can receive the documents by email, send them out to a translator in just about whatever country is appropriate, get the translations returned electronically, and forward them on to the client without anything even being printed off in hard copy! Similarly, a computer company based in the USA may have analysts in Germany develop a system, then have it written up in computer code by Indian programmers, and put it all together in a package in the UK for a French client! Imagine that without email. A third illustration of this is the use of telephone switching technologies, so that a company such as Yellow Pages can have operators serving the UK, but based in India! Such individuals may be trained in UK local culture, including learning the names of current UK celebrities, being aware of current UK events, even the weather in London that morning! But the point is - although they are talking to UK residents, they are not there, they are somewhere completely different.

Technology development

As the last examples above indicated, even something as (relatively) straightforward as email can and has transformed the way in which an organisation does its business, where anything that can be digitised can, in theory, be done in any place in the world where the best resources can be obtained at the best price. In practice, it is never quite that simple - there are still very many parts of the world where telephony is simply not good enough yet to carry large amounts of data quickly and reliably, and there are often barriers to international trading based on tariffs or so-called 'non-tariff barriers, such as requirements for professional qualifications. Nevertheless, rethinking an organisation's operations from an information perspective can often create surprising opportunities for doing much of the work at a distance, linked solely by electronic data communication.

Procurement (company purchasing)

By far the largest expansion of internet based services has been in the B2B market. Many of these are information related (such as the construction or onward sale of customer databases).

Additionally a number of internet sites are themselves shopfronts - sites where a whole range of services and products may be offered. There are several different models of this. One is the portal - where the customer can trawl sites but always within the environment of the original web site - so you never forget who has brought this service to you. www.AskJeeves.com is the most cited example of a portal. An alternative is where a site promises to trawl the rest of the internet and find the appropriate product at the best available price - one implication of this is that within distribution constraints, all producers of a certain product or service will be forced down to the lowest available price (in theory good for the customer, but in reality only so where a number of competitors can stay in the market. Once a couple of really major players manage to squeeze the rest out of that market altogether, then prices drift upwards again).

What this analysis of the value chain has indicated, then, is again the range of opportunities at each step in the chain. It is probably true to say that the customer end of the chain has received most overt attention, but it is worth bearing in mind that the B2B market is several times larger than the B2C one - so in terms of profitability there is probably as much, if not more, advantage to be gained at earlier stages of the value chain as at the 'sharp' end.

From Groucutt, J. and Griseri, P. (2004), Mastering e-Business, Basingstoke: Palgrave/Macmillan.

pp.36-40.