1、November 17,1999Northwestern UniversityHigh Tech ClubCompeting in the Digital EconomyAgendan Introduction What is the Digital Economy?n Drivers of the Digital Economyn New Business Practices What Does it Take to Win?Time-Value Competition Content and containers Intelligent Markets-the Digital Value
2、Network Intelligent execution-competing on insight Intelligent organizations Introduction to the Digital EconomyDigitalEconomyThe last three decades have seen the emergence of a digital economy characterized by an increased emphasis on computing and communicationsThis increased use of computing and
3、communications(“digitization”)is changing the world of businessIndustrialEconomyPre-IndustrialEconomyPre-18501850-19601960-PresentThis period is comparable to previous economic upheavals and impacts all industriesNew economies emerge at the inflection point of previous economies and co-exist with th
4、eir predecessors170018001900Agricultural EconomyIndustrial EconomyDigital Economy2000World EconomyPresent DayInformation is becoming the key input,which is changing the way businesses operate and the nature of workRatio of Expenditures on Information to Production Technology198019751970196500.10.20.
5、30.40.50.60.70.80.91983806040201820 1840 1860 1880 1900 1920 1940 1960 1980 1995Notes:(1)Consists of service workers,including positions such as finance,marketing,etc.in industrial companies(2)Consists of physical workers in industrial firmsSources:“Information Technology and the Corporation of the
6、1990s”(1994),U.S.Bureau of Labor Statistics(1996)U.S.Employment By Occupation(Percent Of Total)IT$PT$Type Of Worker“Knowledge Workers”(1)“Touch Labor”(2)Agriculture Digitization allows work to occur any time,any place leading to a dramatic increase in global activity Drivers Reduced costs of communi
7、cation Immediate access to information Rapid diffusion of technology Increased access to new markets Increased number of competitorsSources:F.C.C.,U.S.Department of Treasury215560U.S.Direct Overseas Investment($Billion)835041980199319801993Foreign Direct Investment In The U.S.($Billion)2004121201371
8、31980199519851990Overseas Telephone Calls($Million)Information Technologys Share of the GDP continues to grow,fueling the Digital Economy4.24.54.96.16.48.20123456789197719801985199019931998%of GDPDrivers of the Digital EconomyAdvances in technology and improvements in information management are driv
9、ing digitizationMetcalfes Law of Network ValueGreater Storage CapabilitiesCheap,Deregulated Communications Internet Access Pervasive email usage Java and Jini Fixed and removable Hard drives CD-ROMs DVDs Telephones Satellites Faxes ModemsMoores Law of Microcomputing Microprocessors Personal computer
10、s Workstations“Smart”products(Embedded computing)Moores Law of MicrocomputingEvery 12-18 months,the processing power of microchips doubles197219761980198819921996200020042008103104105106107108109400480808086802868038680486PentiumPentium Pro80786Transistors per ChipDateMoores Law of MicrocomputingAnd
11、 with each successive generation,the price per MIPS plummets23050163.420501001502002501991199419951997$per MIPSMetcalfes Law of Network ValueThe value of the network grows exponentially as the number of members or nodes on the network growsNumber of MembersValue of NetworkExtranet/shared networkManu
12、facturersDistributorsSuppliersLogisticsGreater Storage CapabilityAs with the increasing processing power(Moores Law),storage density for all types of media is growing at a staggering rate allowing data,images,sound,and other mass content to be stored and accessed digitally0481216201H97 2H97 1H98 2H9
13、8 1Q99 2H99 1H00 2H000501001502002501995199619971998199920002001Desktop Hard Drive CapacityGigabytesMegabytesDesktop Memory CapacityCheaper,Deregulated TelecommunicationsTelecommunications was one of the last industries to fall to de-regulation globally still in process.Before de-regulation we had G
14、roves Law telecommunications bandwidth doubles every hundred years(somewhat in jest).Where de-regulated,price has plummeted,service and bandwidth have increasedBandwidth to the home is rising at a rate commensurate with Moores Law and the growth of storage mediumModem Speed/TypeTransfer Time9.6 Kbps
15、 modem2.3 hours14.4 Kbps modem1.5 hours28.8 Kbps modem46 minutes128 Kbps ISDN10 minutes1.54 Mbps T-1 connection52 seconds4 Mbps cable modem20 seconds8 Mbps ADSL technology10 seconds10 Mbps cable modem8 secondsSource:FCC,CS Docket No.96-496,1997;ADSL from Werbach 1997,p.75.Putting it all Togethern Wh
16、en taken together,the combined effects of increased computing power,network growth,storage capacity growth,and bandwidth growth provide entire new computing capabilities with each successive generation The idea of a real-time video phone relying on bandwidth,computing power,and storage was once scie
17、nce fiction and is quickly becoming a reality Distributing digital quality pre-recorded and live music and video,again relying on bandwidth,computing power,and storage,has become a reality only in the past yearn Forward thinking companies are employing these new technology capabilities to break the
18、rules,transforming existing industries,and creating entire new onesn This convergence of technology development and resultant new business practices are making traditional business models very unstable and forcing companies to cannibalize traditional markets,and adopt these new business practices if
19、 they are to surviveNew Business Practices Winning in the Digital EconomyThe advent of the Digital Economy is altering“traditional”business paradigmsn Computing erases information asymmetries previously used to obtain market power Digitization will blur industry,enterprise and geographic boundaries
20、Knowledge,facilities,and capital will be more easily accessible eliminating the existing asymmetriesn Supply chains are moved from a sequential flow of information to parallel activities Digitization will enable immediate access to information by all participants Products,services,relationships and
21、funds are exchanged and altered simultaneously The changes will impact operations first,and ultimately change the structure of entire industriesn Content and computing standards reduce high switching costs which previously created exit barriers for customersSeveral characteristics shape the digital
22、economyn Time-Value Competition n Content and containers n Intelligent Markets-the Digital Value Networkn Intelligent execution-competing on insightn Intelligent organizations In the Digital Economy,consumers will have too many choices,too much information,and far too much complexity to deal with.Wh
23、at they wont have near enough of is TIMEIncorporating Time into your offering will become a primary differentiator of products and services.Understanding and communicating the Time-Value of an offering will be a key to successTime-Value competitionTime Available for Desired ActivitiesTime Available
24、for Required ActivitiesConsumer Perception of Time ConsumptionAgricultural Industrial Digital Economy Economy EconomyTime Value Case Study Mobil Speedpass“to achieve competitive differentiation and customer loyalty within our target market,we chose to focus our strategy on customer service based on
25、speed(or time)and convenience.”Brian Baker,President,North American Marketing&RefiningWhether you have the key tag or the car tag,Speedpass uses an electronic system located in the pump to“talk with a miniature radio-like device(a transponder)Together,these electronic devices provide“instant”access
26、to gasoline by automatically charging fuel purchases to the credit card you selected when you enrolledThe Speedpass system operates on a dedicated transponder identification code.Your credit card code remains outside the Speedpass signal system,maintaining the confidentiality of that information and
27、 protecting your account from unauthorized useTraditionally,products have been either predominantly containers(physical objects such as automobiles,compact discs,video players etc)or content(intelligence that adds value such as software,print media,GPS systems etc)The market is demanding integrated
28、content intensive products and services.Microprocessors are being integrated into all kinds of products allowing for the incorporation of digital content and intelligenceIndustryAirlinePharmaceuticalAutomotiveChemicalContainerAirplaneDrug/TabletsAutomobileChemicalsLoad balancing logic,navigation sys
29、tems,security checksDosage schedule,Usage schedule,Refill reminderGlobal positioning,self diagnostic maintenance,security systemsConditions suitability monitoring,lot/expiration and usage trackingContent and ContainersContentContent and Container Case Study GM Onstar Medial Emergency Accident Servic
30、es Roadside Assistance Convenience ServicesIntelligent Markets The Digital Value NetworkValue Chains are being transformed,the internet and other technologies are providing the capability to fully integrate all players to increase efficiency and deliver new levels of value to the consumerCustomersCu
31、stomersInfomediaryDigital Value NetworkTraditional Supply ChainInfo/Network Platform=Goods Flow=Funds Flow=Information FlowCustomersCustomersMonorails virtual business model reinvents the nature of competition in the computer businessSource:FastCompany“This Virtual Company Is For Real”12/97;Monorail
32、 Website End CustomersMONORAILFederal ExpressSun Trust BankSykes EnterprisesSCI Order processing Shipping/Delivery Technical support Product design Product marketing Manufacturing Assembly Warehousing Credit Invoicing/Collections A/R managementIntelligent Markets Case Study-MonorailIntelligent execu
33、tion-competing on insightFarmers leverage satellite monitoring systems to yield dramatic savings on key inputs such as seed,fertilizer,and insecticideGauge mineral/nutrient contentMonitor yield+Adjust dispersalMeasure sunlight+Detect disease Source:CIO Magazine“Lean Acres”10/1/98AnalyzeIntelligent O
34、rganizationsn Technology is making markets more efficient,and creating new markets for products and services that were traditionally done within the 4 walls of corporationsn As technology drives down the transaction costs associated with sourcing any kind of service and efficient markets evolve to f
35、ulfill those services,the definition of“firm”is being changedn Companies are being forced to focus on their value added competencies those things they do well and that have tangible value in the eyes of the consumern A new form of organization will emerge in the digital economy one in which all func
36、tions that are not explicitly a value added competency are sourced in an efficient marketplaceIntelligent Organizations Case Study GMGM has evolved from a fully vertically integrated manufacturer of automobiles to an integrated network of partner corporations.This is only the beginnings of a truly c
37、omponentized organization.Information Technology:EDS,AC,IBM,etc.FinanceOperationsTier 1 SuppliersComponents/Sub-AssembliesTier 2 SuppliersIndividual PartsR&DProcurementDistribution&Dealership NetworkSales/MarketingPartner RelationshipsConclusionn The digital economy is upon usn A consumer oriented web a strategyn Industries will be reshapedn Applying the concepts of:Time-Value Competition Content and containers Intelligent Markets-the Digital Value Network Intelligent execution-competing on insight Intelligent organizations are some of the new strategies for the digital economy
