The Century Closed The World Became Smaller Information Technology Essay

As the century closed, the world became smaller. The public rapidly gained access to new and dramatically faster communication technologies. Entrepreneurs, able to draw on unprecedented scale economies, built vast empires. Great fortunes were made. The government demanded that these powerful new monopolists be held accountable under antitrust law. Every day brought forth new technological advances to which the old business models seemed no longer to apply. Yet, somehow, the basic laws of economics asserted themselves. Those who mastered these laws survived in the new environment. Those who did not, failed.

Purpose

The purpose of this Master Thesis is to analyze the transportation and logistics industry and examine how eBusiness has affected this industry. We will study the changes that have already occurred as well as entry to identify possible future eBusiness trends as well as changes within the industry.

Delimitation

The expression electronic commerce usually refers to exchange that utilizes an electronic channel for communication between buyer and seller. This electronic channel could be for instance EDI or the Internet. The focus of this thesis is, however, only exchange that uses the Internet. We therefore use the expression eBusiness. We define eBusiness as exchange that is enabled or facilitated by the use of the Internet in the buyer-supplier relation.

Method

In this section the methods of work that have been used in our analysis will be explained. Triangulation has been used as a mean for combining the different quantitative and qualitative methods used in order to illustrate the problem from several different angles. The purpose of this was to improve the analysis results’ validation. Tackling the problem from several directions has also improved our knowledge of the same. The three methods we have chosen are review of literature, questionnaire sent to companies in the industry and case studies. The main reason for choosing these methods was to get a broad understanding of the industry situation and include as many relevant factors as possible into our analysis. This way we reduce the risk of missing important aspects because of limitations in our frames of reference and our analytical tools.

Theoretical framework

One of the most discussed issues today is the new digital economy. We are living in and doing business in a world where information and ideas are the new capital. The key driver of this economic shift is the Internet, hence the term digital economy. The Internet has wielded this power because it has introduced two essential changes that together are turning industries inside out. These two changes are:

1. The Internet makes unprecedented amounts of information available more easily, universally and cheaply than ever before.

2. The Internet creates a universal and instant connection. A connection between people, between business and their customers and between business and their partners.

These two central changes have in turn generated a host of new change factors that businesses must come to terms with. Figure1 shows how new communication technology affects different areas within a company that in turn leads to changed industry structure. This also illustrates the structure of the theoretical also illustrates the structure of the theoretical approach. One can summaries the literature written on eBusiness into three major areas that are highly important in business making. Areas that all have been affected by the use of the Internet: industrial relations, business efficiency and products. There are also other significant changes that the Internet have given rise to and/or driven further ahead, which are described in Other the Internet Driven Effects.

EBUSINESS AFFECTS RELATIONS

To understand and intelligently attack industrial marketing problems, a number of substantial differences between industrial and consumer marketing must be recognized. These differences are often of degree rather than kind, but the degrees of differences are substantial. Marketing in the industrial world is much more a general management responsibility than it is in the consumer-products field. In a consumer goods company major changes in marketing strategy can be made and carried out within the marketing department.

EBUSINESS AND PRODUCTS

Every business today competes in two worlds: a physical world of resources and a virtual world made of information1. The latter has given rise to the world of eBusiness, a new locus of value creation. The value chain in the physical world treats information as a supporting element of the value-added process, not as a source of value itself. By gathering, organizing and distributing the information received from the market space, companies can use it to create new products and new value for customers in the virtual value chain. In this work Product is used as a metaphor for products or services. The nature of products can therefore be both tangible and intangible. Often a company’s subject of exchange is part product and part service. One of the most noticeable consequences of the economic shift of paradigm today is that the part of a product that is service or information becomes larger and larger. In many industries not widely considered information businesses, information actually represents a large percentage of the cost structure1. Investments in the electronic channel displace traditional sales, marketing and service costs; moreover, the technology allows companies to offer increasingly higher levels of service without incurring incremental costs for each

transaction2. Also today, knowledge and information are the prime commodities, either as the main object of transactions or as very important component of them

The Internet and differentiation

The competitive situation on the Internet is often described as perfect competition. What are the consequences of this? According to economic theories, firms competing on a market characterized as perfect competition will, in the long-run equilibrium, make zero economic profit4. Very few companies want to compete on a market without economic profit. Companies should therefore avoid competing solely on the basis of price. Consequently, the issue of differentiation will be more important in eBusiness. A well-known way to differentiate products is by adding services to the original offering. A company’s offering can therefore, if associated with the right services, be more valuable to a customer than a competitor’s equivalent product. The Internet could for example be used to provide value-adding information or services to buyers of a tangible product, thus differentiating it from competitors.

The Internet and diversification

The Internet can be seen as a platform for innovation. It is a way to produce new combinations of information and products/services without incurring the traditional costs of complexity that exists in the physical world. For instance, information that arises from a company’s traditional business can be gathered and used to serve new customer segments. Standard & Poor’s Corporation, a company that traditionally provided financial information to institutional customers, uses its stored information to provide financial planning services to private customers over the Net.

INCREASED BUSINESS EFFICIENCY

One of the major reasons for the immense interest for eBusiness today is that it has great influence on business efficiency. The primary reason for this is the fact that eBusiness can decrease transaction costs, i.e. the costs related to administrating each purchase. Together with the way the Internet lets companies integrate and organize their flow of information we get a winning concept for lowering costs and increasing efficiency. Consequently, the Internet can increase efficiency in complete supply chains, thus increasing the capacity in whole networks.

The Internet also increases the transparency of markets and thereby enables buyers to compare products and prices quickly and easily. This puts them in a better bargaining position and shifts the information advantage from sellers to buyers. Hence, the Internet might induce lowered costs for companies purchasing online and therefore indirectly affect the efficiency.

Transaction costs

One of the most significant effects of eBusiness is that transaction costs decrease. Transaction costs are most important in business to business cases as consumers not are directly afflicted with costs for spending more time while shopping. However, as the lowered costs move down the value chain, in the end the consumer will benefit as well.

IMPLICATIONS OF EBUSINESS

What are the implications of eBusiness on B2B relations? We have presented a review of how affects B2B relations. We would now like to summaries this and at the same time point out the main issues of eBusiness. These will later on be used as a base for our analysis of the transportation and logistics industry

Relationships

We believe the Internet as a relationship enabler is of such importance that it needs to be dealt with specifically. The Internet can affect a company’s relations with customers, suppliers, partners and community.

eBusiness and products

The Internet allows firms to create both new and enhanced products and services. Creating new services is made possible by the Internet’s capacity for transferring large amounts of data cost-effectively. Also, the Internet’s geographical reach and propensity to connect people and companies give rise to new products and services. Consequently, eBusiness can be new business. Moreover, eBusiness can affect profits.

Increased Business Efficiency

One of the major reasons for the immense interest for eBusiness today is that it has great influence on business efficiency. There are primarily two reasons for this. First, the Internet lets companies integrate and organize their flow of information. Second, eBusiness can decrease transaction costs, i.e. the costs related to administrating each purchase. Consequently, the Internet can increase efficiency in complete supply chains or networks.

INDUSTRYDESCRIPTION

Mankind has always depended upon the means of transportation and the development of transport systems is directly associated with the expansion of civilization. Moreover, there has always been connection between production, trading and transportation. Even the old Egyptian Pharaohs realized the value in having a well functioning net of transports and their usage of the Nile can now be recognized as the foundation of their empire1. The first city in Sweden also developed by waterways since traffic on water was a condition for the existence and growth of cities in these days2. Since a geographical area, city or nation alone cannot produce all the goods demanded, a need for transports to import the missing goods arises. The specific area can also export their surplus to other regions that lack these goods and a two-way flow has thereby occurred. After a while, regions will start to specialize, i.e. they will produce the goods that will give them the most comparative advantage3. Specialization makes efficiencies through economies of scale and economies of experience possible, which in turn can lower costs. This makes it possible for companies to ship their products even further away. The larger production volumes also demand larger markets, which is why companies look abroad to sell their products.

THE EVOLUTION OF TRANSPORTATION

Up until the beginning of the nineteenth century, shipping was the most important mean of transportation. Then the industrialism started to sweep the continent and by the division of labor and automation, companies could now mass-produce goods using economies of scale, which demanded larger markets as mentioned earlier. This required a well working transportation net, which made the railroad the most effective means of transportation4. The railroad was needed in order to deliver raw material to factories and to distribute produced goods to the markets.

LOGISTIC QUALITY

Over the years vendors have noticed that buyer’s tolerance for errors is getting smaller and logistics managers everywhere are being put under pressure because of this. Quality is important to supply-chain thinking because, literally, the supply chain is no better than its weakest link. Whichever link in the supply chain is responsible for questionable quality will be the first eliminated1.Quality has always been important to logistic operators, and today nearly all companies appear to be in the pursuit of high quality. There are several reasons for this2. One is the just-in-time (JIT) concept, which leaves no spare stores to fall back on in case a defect is found. A second is the replacement of mechanical devices by electronic ones with the latter being much more accurate. A third reason is that as possibilities for partnership arrangements present themselves. Companies are wary of being linked to a supplier that does not share similar ideas or believes about quality measures or concepts.

THE NEED FOR INFORMATION IN THE INDUSTRY

The main purposes of goods transports are to deliver material or products from one location to another at a required moment. The transportation process therefore generates a flow of goods. To accomplish the transportation mission satisfactorily there is a great need for information.

Case study: Schenker-BTL

BTL is an acronym for Bilspedition Transport and Logistics. The Compan was one of the dominating transportation companies in Sweden for a long time. Now BTL has been merged with Schenker AG and formed Schenker-BTL. BTL is thereby part of one of the largest transportation companies in Europe.

THE COMPANY

We will in this section give a brief description of Schenker-BTL (from now on referred to as S-BTL). It is however, difficult to find accurate and updated information about the new company. Even the employees seem to be confused about the structure of their company. Due to the transformation the company is going through much of the information found in annual reports is inaccurate. Also, as a consequence of the new ownership, there will be no new annual reports or interim reports released from S-BTL. Our description is at large based on information obtained through interviews and information form the corporate website. The purpose is to give the reader a rough description of the company’s size and business.

EBUSINESS

There are two major approaches to eBusiness for S-BTL. The Internet strategy is primarily focused on providing logistic support for companies that want to do eBusiness. Moreover, S-BTL’s offers services related to its pure transportation business on the corporate website. We have analyzed how S-BTL uses the Internet to create new business and add value to the traditional services. We will first describe how S-BTL uses its website, then we discuss S-BTL as a logistical partner in eBusiness.

SUMMARY

United Parcel Service (UPS) is one of the world’s largest express carrier and package delivery companies. The company was founded in 1907 in the USA and today operates an international small package and document network in more than 200 countries and territories. Every day UPS delivers more than 12 million packages and documents. Since the company serves a global market with its transportation services and in order to reach its customers quickly, UPS has turned to information technology and electronic commerce to help them gain a leadership position.

THE SURVEY

As a part of our work with analyzing how the Internet affects the transportation industry we have sent out a survey to 82 of the companies in this industry. We chose the companies that are members of the Swedish International Freight Association and that have a web site. The purpose of the survey is to investigate how Swedish transportation companies use the Internet and what sort of problems it brings. We do not intend to make any quantitative conclusions for the industry as such since the sample of companies is to narrow. The survey will simply act as a guideline to the future the Internet usage in the transportation industry

THE QUESTIONS

The questions were divided into five areas: historical and future changes, strategy, prime movers, purpose, problems and miscellaneous. In the first two we intended to find out what the companies in the industry thought of the Internet, how it had affected their business making and what might happen in the future. The following four questions were asked to indicate the purpose of an Internet investment, which was behind it and what problems it brought along. The last question was about other significant trends in the industry that are not entirely connected to the Net but still important for the industry’s future.

CONCLUSIONS

Until now, the Internet has primarily been perceived as a communication tool, both for internal as well as external use. This is also regarded to be of future importance though the companies also see the Net as a way to attract new customers. Another field of application for the Internet is marketing as well as a tool for development of new products and/or increasing their values. Only half of the companies in the survey seem to have a specific the Internet strategy whereas the other half has not. However, at a majority of the companies, the Internet related issues are often discussed on top management level leading us to believe that the industry has realized the Net’s importance. An explanation to why the Internet has not had a serious breakthrough yet might be the Y2K problem. A total of 78 percent held this as a more important issue. Nevertheless, most companies consider the Internet to be a natural part of future strategies and significant for future competitive advantage. For most companies, the prime movers for an Internet investment have been either top management or a specific person at their company.

The purposes of the investment were to attract new customers, improve customer service, and increase the value on services, sales and to satisfy to customers’ expectations. However, not as many as we expected claimed the purpose of the investment to be efficiency improvements. The majority of the companies did not appear to have any specific problems with their Internet investment. Not even the complexity, security and reliability issues seem to be major obstacles. Neither do the companies believe that the Internet usage will reduce the personal contacts. Still, many feel that it is difficult to measure the effects of their investment. The future trends appear to be at home deliveries and logistics management. However, fewer than we anticipated thinks that single sourcing and Net-based transportation exchange firms would have a significant impact on the transportation industry.

Analysis

One of the most noticeable consequences of eBusiness is that new Business models emerge. The emerging eBusiness models are a result of the new technological possibilities for communication and the new possibilities for creating products and services that the Internet brings about. This has been noted in several industries and the transportation and logistics industry is no different. We have found that companies in this industry go about eBusiness in three ways. We will discuss each of these as a model of eBusiness. The models are.

1. The first model includes companies that use the Internet for customer interaction. Usually this means that regular off-line services are marketed on a corporate website. We call this model Classic Services.

2. Logistic Providers for eBusiness firms. Companies develop and operate logistic solutions for firms that sell goods on the web. Generally involves delivering to consumers, i.e. at home deliveries.

3. New business models that are completely the Internet-based. Companies in this group has no physical assets, the concept is to connect buyers and sellers of transportation services.ô€€€ô€€€ô€€€

Classic Services

The first business model to be discussed in the analysis is the classic services model. As the name implies, this eBusiness model is about marketing classic transportation services on the Internet. They are classic in the sense that most of the Internet services are originally offered off-line. This analysis will describe the services and examples on how the companies in our case studies use them will be given. We will also discuss how the Internet is used for communicating and some of the problems related to the classic services.

The Internet services

The services offered by the companies in this group are usually regular

off-line services that have been converted to the Internet. Common services are booking, tracking and timetables, thus, services that traditionally have been handled via telephone or fax. The customer is often required to register to use the services. We will now give a few examples of regular services.

Communication

The companies in the classic groups use their websites for communicating with both customers and community. Usually the company and its services are presented along with press and investor information. Moreover, most companies give information on how to reach them and some also answers to frequently asked questions have. Using the Internet for communicating company information is a fast and effective channel and should therefore not be neglected

CONCLUSIONS

This chapter will present our conclusions on how the transportation and logistics industry has been affected by eBusiness. We will also present our view of how eBusiness will evolve in this industry. The results exhibited in this chapter are based on the case studies and the survey, which have been presented throughout this thesis

The most significant effect of eBusiness is that new business models emerge. These models are a result of the new technological possibilities for communication and the new possibilities for creating products and services that the Internet brings about. We have found three different eBusiness models in the transportation and logistics industry. We refer to these as Classic Services and Logistic Providers.

The Classic Services eBusiness model is about marketing classic transportation services on the Internet. The Classic Services group of companies is the dominating one in our case studies. Common services are booking, tracking and timetables, thus, services that traditionally have been handled via telephone or fax. The usage of the services is generally very low. The services found in this group are seldom very innovative. Still, we regard the booking and tracking services to have a great potential both for increased efficiency as well as enhanced customer service, but the concepts has to be reworked in order to attract more customers. The customer’s booking process has to be assessed in order to establish how the Internet is best utilized to simplify the customer’s situation. Also, companies need to attend the problem of how reach the efficiency increases that the Internet enables without losing the social contact and trust that the customers demand. Being a Logistic Provider implies that the transportation and logistics company provides services such as: warehousing, inventory control, assembling and distribution to their clients. The transportation companies believe that strategic partnering with the Internet retailers has the greatest potential in eBusiness, this because the Internet shopping is believed to grow immensely over the next few years. Now the Internet start-ups are also considered to be more inclined to outsource the logistic operations than most traditional businesses. The biggest change that the Internet business has brought about for the industry is the increase of at home deliveries. The important issues in this new business are time of delivery (evenings), payment, capacity, utilization and logistic efficiency.

The future

All of the companies that we have studied are industry pioneers in the

Field of eBusiness. We believe that other companies in the industry will go about eBusiness in the same way as the companies that we have described. The future will show which models that are profitable. We believe that the Classic Services model will gain in popularity as more transportation companies and customers realize the potential for efficiency increases this model has. Yet, there do not seem to be any plans to extend the range of offered services. Some companies believe that technological developments will enable further increases in efficiency and enhanced service. We also expect that an increasing number of small and medium sized firms will discover how the Internet can be used for connecting complete value chains. The Internet can thereby transform the way that third party logistics is performed. The future of the Logistic Providers is set by the rate at which the Internet trade grows. Though, this growth is to some extent due to how well the at home delivery services are developed. The marketplace Models will probable need a few years to show results. The success of this model is depending on a cumbersome change in both attitude and behavior of transport firms and customers.