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Customers lead the e-business charge The rise of e-commerce


Every once in a while an event occurs that is so daunting in its economic implications that it can be considered revolutionary. Such a turning point in history takes an established set of business practices and replaces it with a new commercial paradigm. Among those ground-breaking events were for instance the invention of printing, the evolution of metal currency and the telephone. Global business is in the initial stages of such a revolution now with the unprecedented rise of the Internet.

"With the Internet economy almost doubling each year, no business will go untouched" says Michael Dell, who turned a start-up into the PC industry's powerhouse. In the on-line world of the near future the internet will link every home, every business and every accessible database together in a complex weave of information exchange. Global corporations will control a world where distance is secondary and where communication and data transfer will be immediate on the spot. This will so radically transform the way business is conducted that doing transacting without the web will become unimaginable.

Consider some figures: The growth of e-commerce, both "Business-to-Business" and "Business-to-Consumer" is linked to rapid deployment of the internet itself, with more than half the world's business now linked to the web, and 75 % expected to be connected by 2003. By the end of 2000 the 40 biggest European Internet companies in Europe will have a combined market value of more than US $ 50 billion. By 2004 the e-commerce market worldwide will be worth over US $ 7 trillion in transactions and the B-to-B market will be 10 times the size of the B-to-C market. As setting up internet-connections has become more and more a standard within companies, those once-reluctant corporations now drive the technology changes, largely because they see the internet as a way to improve efficiency and add services for their clients.

The client contribution approach
What is the impact of e-commerce on banks?
Standardised products will drive down costs; margins on the other hand are going to shrink and investment banking services on the trading front will be further commoditised. Customers are getting more sophisticated by the day, demanding speedier on-line trading capabilities and faster research information flow. Variable customer relationship management systems (CRM) have to track these demands. Clearly banks have to act quickly if they do not want to be left behind in the race for e market share.

Within the last year the capital markets have seen the evolution of trading platforms for bonds, equities and derivatives that have made the creation of a more efficient marketplace possible. Large financial service providers are offering a vast array of products ranging from plain vanilla stock and bond trading to sophisticated structures like e-swaps. Electronic Communication Networks (ECNs) put further pressure on margins. Linkups between exchanges, like the recent one between Deutsche Boerse AG and London Stock Exchange (IX) are positive for margins (less IT costs). The danger for banks is if exchanges offer access to clients directly and create dis-intermediation..

All investment houses assert their clients are the winners in this process. But are the customers really the beneficiaries yet?

1. Often present sales perspectives (the bottom line) determine if a product is promoted to production.

Within a revised value chain, client input is derived from both sides, a 'Consumer-to-Business' and a 'Business-to-Business' view and this feedback then applied towards improved products.

2. For now technologists determine the shape and features of a product.
Under the client contribution approach client needs will determine the shape of the product.

3. In theory it is not hard, to envision a world in which the Internet impacts every aspect of the value chain, from product development and -integration to risk management services. In practice this transformation will only happen for companies that focus on service to the individual customer - every business organisation's most valuable asset.

Primary criteria to succeed in e-business
Three criteria are essential if one looks conceptually at the cornerstones that will make a business successful in bringing products and services to the electronic marketplace.

i.e. what the business-people are contributing. The question for them is: What is viable for our company and what can we sell?
Business managers must know what can be created and sold at a profit. A product cannot be successful unless it supports a company's growth.

i.e. what the technologists bring into the equation. The question for them is: What is possible? What are we capable of?
IT developers must know what can and cannot be built. A product cannot be successful unless it can be built and made to work.

There needs to be a balance of these two qualities. Business managers are totally dependent on technologists for their ability to create applications that work.

Technologists are equally dependent on business managers to provide them with the tools for their efforts.

Though the two sides depend on each other, their divergent goals, (i.e. creative challenge for the IT developer, and the challenge in motivating users to buy the product for the business manager), show a structural weakness in their relationship. A third quality has to balance out these tensions.

i.e. what designers supply. The question for them is: what is desired and what do people want?
Designers must know what can make people happy and satisfied. A product cannot be successful in the long run until it delivers power and pleasure to the clients who will actually use it. By making it into something that people really want, this quality transforms an interesting technological achievement into a long-term success.

It is possible to draw out something desirable in an existing product but it is much more sensible to first decide on what customers find desirable, and then challenge the IT professionals and the business people to build and sell it. While the competitors are reacting to each other's competitive moves, the desirability-driven company is out in clean air focusing on its customer's needs.

Desirability through personalisation
One way to put the above mentioned model into practice is via portals. Portals are mingles of information and the gateway to all other services within an investment bank, such as trading applications, research and customised news feeds. Highly personalisable business and e-commerce portals are a way to combine viability and capability inside the financial services company with intelligent design that is driven via the clients clear-cut needs.

Through constant interaction and feedback with the customer the portal is developed with desirability and usability in the first place and is strongly geared towards specific customer profiles (e.g. a corporate treasurer, fund manager, bond trader, equity research analyst).

The market for financial portals consists of multiple vendors selling similar products, none of which is designed, but all of which compete on features. Every time a company introduces a new feature, the competitors add that feature in their next version.

Being the first company to add extra features is not the same thing as being design-focused and having desirability. Features do not benefit portal users the way that primary problem-solving abilities do and adding features will not have the same beneficial effect that primary problem-solving abilities will.

Today one can divide business people into two categories: those who will master high technology and those who will soon be going out of business. The high-tech revolution has invaded every business, and electronic information is the heartbeat of every finance processional's workday.

What technologists develop (capability) and what business people want to market (feasibility) has to be preceded and bridged by taking into account what clients need and really want (desirability).

Fully-fledged financial portals, tailored towards different client groups are an example of how to implement and push forward this client contribution approach.

Striking changes in the way e business will be conducted between banks and their corporate clients (B-to-B) and retail customers (B-to-C) result in:

A re-shaping of the value-chain
Customers determining the products to be developed
The value of a company being largely determined by the number of its clients and their satisfaction and, by its primary problem-solving abilities

Invariably this is already happening but surely commerce will accelerate this process. Suppliers i.e. banks can and have to respond more quickly to new demand. Failure to do so will be punished quickly.

Jan-Christoph Homann
Dresdner Kleinwort Benson

Dresdner Kleinwort Benson is the global investment banking operation of Dresdner Bank AG and is subsidiaries. In the US, Dresdner Kleinwort Benson North America LLC is a member of the New York Stock Exchange.





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