Article - Issue 8, May 2001

Winning in the race for e-business

Jim Norton

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We are leading the development of the networks that will complement the Internet: interactive digital television and next generation mobile networks

Jim Norton shared some of his extensive understanding of and enthusiasm for e-business with Fellows and guests of The Academy in January at the New Year lecture. As Head of e-Business Policy at the IoD his role is to spearhead the drive to make all 55,000 UK IoD members aware of the opportunities and threats of e-commerce. Prior to joining the IoD in October 1999 Professor Norton was Director of the Cabinet Office (Performance & Innovation Unit) e-commerce team which produced the report ‘e-commerce@its.best.uk’ for the Prime Minister.

In this interview he picks up on some of the themes mentioned in his lecture and provides other insights into the past, present and future of e-business.

How did you become interested in e-commerce?

The first point to bear in mind is that e-commerce is not new: I became interested in it about 16 years ago. We only labelled it e-commerce two or three years ago. What is new is the broad public perception of e-business and the fact that the Internet provides a set of tools for carrying this out more simply and cheaply.

What advantages does the UK have for developing e-commerce?

First I would highlight a relatively liberal telecommunications environment: the UK brought in competition earlier than many other countries. Secondly, we have a great many content and software innovators in the UK. Thirdly – and this is the engineering dimension – we are leading the development and deployment of the networks that will complement the Internet: interactive digital television (IDT) and next generation mobile networks. The UK has the highest penetration of digital TV of any country in the world – about 30% – ahead of the US. What has driven this market so fast is competition between the three platforms for digital delivery: the Sky satellite system, the cable operators and OnDigital, the terrestrial system.

The extension to interactive digital TV is happening now and is again motivated by competition – the need to generate additional revenue streams. With IDT someone watches a programme and a dialogue box comes up in the middle of it saying ‘Do you want to buy this?’ and they click ‘Yes’. They need have no idea they are connected to the Internet or are doing e-business – they have simply bought something. Digital TV is a much more friendly medium than a conventional screen-based computer. I am very confident that IDT will open up ecommerce to people who would not dream of using conventional computer-based access.

Alongside IDT we have the new generation of mobile technology: in engineering terms these are things like GPRS (General Packet Radio Service) which comes on-stream this year and third generation (3G) mobile which comes on-stream (to some extent) next year. These services will attract people who like using the telephone, which is also a much friendlier device to most people than the computer.

Once upon a time the UK created the ideas that led to the Internet but we lost our lead to the Americans. In both IDT and 3G mobile we significantly lead them. We have taken the lead in helping to create Europe-wide standards for IDT and 3G. A consistent approach to standards is vital and is one area where the US lags behind.

When I was Chief Executive of the Radio-communications Agency I went to the annual convention of the US Cellular Telephone Industry Association in New Orleans in 1995. I went through the door of the convention centre which was enormous – there were 5000 delegates – and one thing immediately struck me: there were huge queues. I thought ‘What on earth can they be queueing for?’ They were in fact waiting for the payphones. At that stage of development in the US market – which was fragmented – a cellular phone typically only worked in a local area. That stultified the US market and is why it is still behind Europe today.

The UK’s problem has always been actually exploiting the ideas we produce. With IDT and 3G we have not only had the ideas but we are also managing to exploit them.

Where is the UK falling behind and what can we do to change this?

The UK is falling behind particularly in government use of e-business tools. Government use is especially important for two reasons: first, the government’s own direct purchasing is about 4.8% of the entire GDP and secondly, government use is vital as an exemplar. It is difficult for the government to say ‘We want to make the UK the best place in the world for e-business’ if it is not visibly using it itself. In fairness the government is trying very hard to do this: it has set sensible timetables and made the financial resources available. Where government still has work to do is in the people dimension: what in industry is called business process change. Widespread adoption of e-business techniques does not mean simply installing the computers but means changing the way we work, which in turn involves changing incentive and pay structures. The government gets full marks for intention but relatively low marks, so far, for delivery.

People are arguing that we are falling behind in the infrastructure – the so-called ‘broadband access’ debate. I disagree. Many people would like the government to write BT a large cheque to provide broadband access everywhere – but that would be death. I think there is a better way. I act as advisor to Scottish ministers on e-business and we have developed a plan (also being copied in England) to use the government’s own purchasing as the lever for the deployment of broadband. It is far better to have a government buying things it genuinely needs than let loose with a subsidy chequebook distorting markets.

For a typical small town it is easy to pinpoint some 50–100 Megabits of digital capacity which central and local government is already planning to buy for schools, libraries, hospitals, GPs, the police, etc. Ministers are exploring in Scotland a new method of purchasing this capacity, which focuses all the government telecommunications procurement within one geographic area on to one provider (who has won a competition for that zone). I think the government will order enough capacity to justify the winning provider putting in a special infrastructure for that town, which would then be generally available.

How well understood are the problems of combining conventional business practice with e-business?

The key point here is: e-business is not an end in itself and is seldom a standalone. What we have learnt over the past year or so is that an e-business channel – whether business to business (B2B) or business to consumer (B2C) – tends to be a complement to existing channels such as telephones and face-to- face transactions. The spoils of war go to those who understand how to use e-business in this way, as opposed to starting from scratch. For example, in e-finance the winners are not necessarily the stand-alone Internet banks but the conventional banks that have added a really good e-channel to their existing offerings.

What are the major sticking points that prevent companies from developing e-business?

First I would say there is sentiment: a perception that many dotcoms have gone bust and therefore the tools of e-business are not of great value. That is 100% wrong. In presentations more than 15 months ago (before the crash) I told audiences: ‘As night follows day there will be a crash. We are seeing ludicrous valuations and people with stupid business models that will fail. Please remember I told you there will be a crash because the next thing to bear in mind is that it doesn’t matter: these tools remain very valuable if used and integrated properly.’

The backwash from all the failed companies (which failed for very good business reasons) is obscuring the fact there is still real value in e-business. We had the B2C crash last year; we are going to have a huge crash in B2B use of e-business this year. Many trading exchanges will go broke because they have poor business models. Nonetheless there are some really good business models for e-business exchanges: this is not rocket science and is all about business, not technology. Typically businesses that create value will succeed and those that destroy value will not – which is hardly surprising. The froth is gone and we will now see some real developments, probably quite fast.

This is an issue that affects everyone around a boardroom table. You cannot say ‘Let’s appoint an e-business director – it’s their problem’. There has to be a collective understanding in the boardroom of how to get the best out of these new capabilities.

Is there a problem at board level in that many people trying to make e-business decisions feel intimidated by the technology?

Absolutely. My recommendation to anyone taking an e-business plan to a board (or to any decision-making body) is that they should ensure that every single member of the board has had the opportunity to use the Internet. Everyone should have fired up a computer, bought or sold something on the Internet, looked at their competitors’ web sites – looked at their own web site, which many board directors have not done. They need to get a personal feel for what these tools are good and bad at. Only then can they really participate in that decision-making process. Many directors in my experience say they know about the Internet on the basis that they are sending and receiving email, which is actually done by their secretary. Most people do not want to admit this. Giving them coaching on a one-to-one basis – at midnight in a darkened room if necessary, so that they need never admit it to anyone – is an absolutely crucial investment to make before having any sort of sensible discussion about e-business opportunities.

How important is it for smaller businesses to become e-enabled?

There is a huge potential for, as an example, small- and medium-sized specialist manufacturers because – I’m speculating here – the future for these companies may lie in even more specialised manufacturing. For example, customers could log in to the manufacturer’s design systems to configure the product they want. So the company has outsourced much of the design and sales costs to the customers – essentially customising, but done by the customers.

In your lecture you talked about the two stages of adoption of ebusiness: (1) improving the efficiency of existing structures and (2) transforming the industry. You say many companies have achieved (1) but not considered (2). What kinds of transformations are possible and how will these benefit companies?

There is absolutely nothing wrong in starting off by improving the efficiency of your existing structures, in areas like supply chains and purchasing. It is only a danger if you think that is all there is to e-business. It is very important that you sit down and look at your business – and only you can do this because it is your business – it is no good hiring a management consultant – and ask: ‘Do I need to make any significant changes to what I do in order to use e-business?’

To have, say, a customer entering a car manufacturer’s ordering system, defining exactly what they want and asking ‘When can you deliver it?’ – that is a transformation. It upsets the whole distribution side of the industry, but is probably the way forward. Instead of large central manufacturing plants there may soon be a premium on very flexible regional manufacturing. Changes in customer behaviour could fundamentally change the entire structure of manufacturing.

You emphasise the importance of creating trust in e-business dealings when there is no face-to-face contact with suppliers and purchasers. Can you give an example of how such trust can be fostered?

Securicor (of which I am a non-executive director) has launched a service called SafeDoor to generate trust between businesses and consumers. As a consumer you register with SafeDoor – which can be done off-line – and then when you buy from any of our affiliated retailers you do it not with your credit card but through SafeDoor. SafeDoor makes the purchase for you so that your credit card details go nowhere near the retailer or the Internet. Equally if you are worried about releasing your address you can have a bar code generated on your package which only the Securicor delivery network can interpret, so that the retailer knows nothing at all about you – you might even use a pseudonym!

There are all sorts of similar systems that can be set up to generate trust. We are used to conducting business face to face and have not yet developed the instincts or the tools to do business remotely with people we have never met. It is inevitable that we will create intermediaries to handle the risks. The Internet kills many of the old intermediaries but creates a new class. There is a ‘law of conservation of intermediaries’ in operation here.

Jim Norton

Head of E-Business Policy, Institute of Directors

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