VSEL ... LPDUsing Electronic Product Definition andmaximising concurrency of activities in theVirtual Enterprise.Compared with similar-sized vessels, LPD hadto be achieved in 25% of the man-hours and50% of the project lead time.BOMBARDIER-SHORTSUsing Electronic Product Definition and andshared databases with suppliers.Delivered 50% reduction in development cycle,80% reduction in first article re-work and firsttime fit for wing to fuselage connections.ROVERUsing Electronic Product Definition and linkswith suppliers through the RED-X programme.Delivered 6 month reduction in productionintroduction time and 75% reduction in buildproblems, mainly attributed to supplierintegration through e-business.Box 3.4Transformation ofexisting business models3.14 As well as merely improving theefficiency of existing structures, e-commerceenables the transformation of thesestructures. Some examples of this can alreadybe seen. Wal-Mart, the major US discountchain, is already carrying more than tentimes as many product lines on its Web siteas in its largest store. In financial services,an estimated hundred-fold cost saving(see figure 3.5) is driving dramatic growth inInternet banking. When taken together withthe extensive move to telephone banking,this is already having a major impact on thenumber high street retail bank branches.3.15 By lowering traditional entry barriersand ignoring national boundaries,e-commerce also has the potential toenhance sharply the value of strong brands.It seems likely that brands that inspireconsumer confidence and trust in one sectorwill increasingly be leveraged into entirelynew sectors. An example is the move byCharles Schwab from on-line share tradingto selling insurance on-line.3.16 It seems likely that such major changemay occur in sectors as diverse as:travel – a reduction in the value, whichcan be added by conventional travelagents, as passengers increasingly purchasetickets direct from airlines. Easy jet, forexample, now sells all its seats over theE-<strong>commerce@its</strong>.<strong>best</strong>.<strong>uk</strong>13
telephone or Internet (70% and 30%respectively) – thus avoiding tickets,which are a significant area of costfor conventional airlines;IMPACT ON TRANSACTION COSTS1.21.00.80.60.40.20.0Cost to bank – typical US funds transfertransaction ($)At branch By telephone At ATM UsingInternetSource: US Dept. of Commerce Figure 3.5supermarkets – as an increasing volumeof non-perishable goods are purchasedelectronically and delivered overnight;entertainment – as with the advent ofmuch faster Internet access, it isincreasingly practical to download filmsand music directly;financial services – as the role of existingphysical intermediaries is supplanted bynetwork intermediaries; andmanufacturing – with small businessesable to replicate many of the economies ofscale previously enjoyed only by largecompanies, through collaborativepurchasing and joint marketing over theInternet.Research in the US, where evidence hasbeen gathered, has shown that ICT industries(for example, producers of computer andcommunications hardware, software andservices), have disproportionately boostedgrowth and lowered inflation. 3 Whilstaccounting for only 8% of US GDP, thesecontributed 35% of total real economicgrowth between 1995 and 1998. Similarly,between 1996 and 1997 (the latest years forwhich data are available), they brought downoverall US inflation by 0.7%. These industriesare the key facilitators of e-commerce.3.18 Such figures from the ICT industriesalone do not take into account the far widerpotential benefits flowing from the use ofe-commerce in all sectors of the economy.The extent to which ICTs bring increases inproductivity has in the past been the subjectof some debate among economists (seechapter twelve). Recently, however, a rangeof case studies and statistical analyses suggestthat investment in ICT, where this isaccompanied by appropriate changes inbusiness processes, can bring high rates ofreturn. One analysis, carried out across 17advanced industrial countries, suggested thatan investment of $1m in IT increased GDPby around an additional $700,000 a year. 43.19 It is also important to consider themacro-economic implications for the UKof failure to participate in e-commerce. IfUK businesses do not successfully embracethe opportunities presented both jobs andprosperity will be eroded by on-linecompetition from other markets. This wasreflected in recent evidence presented tothe Trade and Industry Select Committee’senquiry on e-commerce by the Computerand Software Services Association.E-<strong>commerce@its</strong>.<strong>best</strong>.<strong>uk</strong>The impact of e-commerceon the macro-economy3.17 E-commerce is also important becausethe profound implications it will bring forindividual firms will have a knock-on impacton the UK economy as a whole, including onproductivity, employment and economicgrowth. At present we have nocomprehensive evidence of the net impactof e-commerce on the economy – andrecommendations to gather this are set outin chapter twelve. However, all indicationsare that its impact could be considerable.3The Emerging Digital Economy II, US Department of Commerce, June 19994Dewan & Kraemer: “International dimensions of the Productivity Paradox” August 1998“The US could become the ‘out-of-town shoppingmall’ that bankrupts our high streets…”3.20 The PIU Team believe that in principle,e-commerce ought to permit some reductionin inflationary pressures and improve theefficient functioning of the supply side, thusallowing an increase in the trend rate of noninflationarygrowth in the economy. Thereare certainly opportunities for the UK to usee-commerce to help catch up withinternational <strong>best</strong> practice productivityperformance.14