Europe is lagging behind in e-commerce race

The corporate world has committed trillions of pounds to restructuring organisations around the information technology revolution.

But the most successful adopters of new electronic processes are those that have learned the hardest lesson - understanding what the technology can really do to transform their businesses.

At least this is the message emanating from some of the key heads of the technology industry. Last month, Mr Charles Wang, Computer Associates' (CA) ebullient chief executive, told the gathered press at its annual meet-the-folks ho-down in New Orleans that businesses needed to get back to doing what they did best, and leave the IT stuff to the experts.

Taking the banking industry as an example, he said: "Are they in the banking business or in the IT business? If you are a bank, stay in the banking business."

He said sprawling finance houses were missing opportunities on the Internet, because more agile firms were leapfrogging them in areas such as online share trading.

Mr Wang is not suggesting that non-technology companies should clear the decks and hand all the IT functions over to the experts. Companies can retain their core technology unit, but let their focus be on building a bridge between the company and the most appropriate technology for its needs.

"There is a revolution going on in business today and IT has the opportunity to play a starring role. In the new millennium there will only be two types of companies: the quick and the dead," Mr Wang said.

CA is the third largest software company in the world, but somehow it has failed to become a household name like Microsoft or Oracle. This is largely due to the fact that it traditionally dealt with the backroom IT requirements of organisations.

Now CA is seeking to service all the IT requirements of organisations, irrespective of the technology platforms they employ. It recognises the value of managing an entire corporate IT strategy, and has decided to shift its product-oriented strategy - which accounts for two thirds of its current billion-dollar business - to one which is two thirds services oriented.

Much like Oracle, it has decided to put all its money on the corporate world of the future, outsourcing all its IT and network requirements, in order to focus solely on its primary capabilities.

"The current IT expenditure mindset focuses on return on investment, but what about taking that and adding 10 per cent to the top line. Building business is about adding value and not about saving money," Mr Wang said.

It was a theme picked up by Intel president, Mr Craig Barrett, who delivered a keynote address at the CA conference. In the future, he said, the term "Internet company" would no longer exist.

"You will either be an Internet company or you'll be through," Mr Barrett said. It simply needs to be seamlessly absorbed into the dayto-day business process. Intel itself started conducting electronic business a year ago, and this year it expects to do $15 billion (€14.11 billion) in online sales.

Mr Barrett added that current predictions that the US would generate $1 trillion in online sales by 2002 were probably conservative estimates, when most predictions about future e-commerce turned out to be too low by a factor of two.

"The Web will fundamentally change customer expectations about convenience, speed, comparability and service. Competition will be between business models, not products," Mr Barrett said. While the US and Far East were forging ahead to adapt to the new economy, he warned that Europe was still something of a laggard.

Mr Lou Gerstner, chief executive officer of IBM, was recently quoted by The Economist as telling Wall Street analysts that the new Internet companies were "fireflies before the storm".

"The storm that's arriving - the real disturbance in the force - is when the thousands and thousands of institutions that exist today seize the power of this global computing and communications infrastructure and use it to transform themselves," Mr Gerstner said.

Now almost one quarter of IBM's annual $80 billion sales comes from e-commerce related transactions. That is nearly $20 billion worth of business, significantly more than the combined profits of many of the biggest Internet companies, including eBay, Yahoo and America OnLine.

General Electric (GE) offers another example of a traditional industry giant which is turning to e-commerce to generate greater revenues.

Its Trading Process Network, an Internet-based interface, allows suppliers to bid online for component contracts, and through its electronic catalogue, credit card purchases can be conducted. GE now says its procurement cycle has been halved and processing costs cut by a third. It is currently doing more than $1 billion worth of Web-based business annually.

One of the most interesting aspects of this development has been the knock-on effect. GE says it now has less suppliers, but those that remain have become more efficient.

There is a strong message here for those companies that imagine they can forge ahead by traditional means. If they represent a link in any kind of supply chain, then it is likely they will come under pressure to embrace new trading methods.

A recent worldwide survey of 500 large companies conducted by the Economist Intelligence Unit found that more than 90 per cent of top managers believe the Internet will transform or have a big impact on the global market by 2001.

While this is a good bellwether for things to come, European business has a lot more work to do than just pay lip service to global trends. Already we know the US and Far East are about two years ahead of us. The challenge lies in leading the charge over here.

Only when traditional European industries, similar to Ford and General Electric in the US, start to embrace the e-commerce revolution will there be a palpable trickle down effect. In practically every e-commerce survey, European business managers come across as well versed on the e-commerce potential, but lack any immediate plans to implement a radical supply chain strategy.

Do we have to wait until the playing field starts to look uneven with competition from unconventional quarters looming, before European business tries to apply the e-commerce model? If so, the time is now.