Impact on the Internet on the Horizontal Boundaries of a Firm

Over these years, internet has been growing so widely. The internet technology opens a new channel for business opportunity, principally because of this enabling the limitless of information exchange with an easy, fast, and low cost. See how we can easily find anything we want to know just by utilizing the internet. The implication of this is that it will promote the political, social, economic, and cultural aspects of a country, heading to globalization. Some people with the entrepreneur sense are just very quick response to the growth of the internet technology, viewing it as the opportunity and as a tool to grow the business across the boundary. Therefore, they switch from the traditional way of doing business to a new way of operating business through the virtual business or e-commerce.

There are many theories from the researcher and expert, claiming that the internet technology is proven to be beneficial in growing a business. In a book by Tawfik Jelassi and Albrecht Enders, titled Strategies for e-Business: Creating Value through Electronic and Mobile Commerce, they point out two concepts that are feasible in e-commerce. The first concept is economies of scale. This means that by increasing the production output, the company decreasing their operation cost. Their second concept is economies of scope. This means that expanding the variety of products sold using the same R&D, production and delivery assets.

We can see the success of e-commerce on eBay, a (virtual) company hosted in California, belongs to Pierre Omidyar, where the company act as a virtual market for transactions of anything, starting from household goods, computers, consumer electronics and other tradables (ticket to sporting events). Also Bertelsmann online company, BoL.de in Germany, a business in selling books through online channel.

Further that that, we can also see the trend begins to spread over in Indonesia. Namely Bhinneka.com, a company owned by Hendrik Tio, which was first operated as a shop, selling computer peripheral which also in 1997 began to operate its online business transactions. The same case also happen in Gramedia book store. It is no longer just a book store that we can find in almost every shopping center, but we also can visit its online shop and make a purchase without having to go to a shopping center.

From the point of view of the writer, she sees that the growth of internet users in Indonesia might not as high as in American or European countries. Just like the case of Bhinneka.com, the profit of the company could not cover the investment cost on the technology (based on the data year 1999-2002, a case study by Pierre Wirawan, http://wirawans.wordpress.com). Therefore, the concept of virtual business in Indonesia still needs to be supported by ‘traditional’ concept of business. However, the writers believes that in the long term the concept of e-commerce will does give higher revenue for the company, considering that the technology has the forcing power over the human and environment. They who do not have the ability to adapt with the new technology will surely be blown away, as the out-dated technology dies.

e-Value Creation Index for automotive business

The automotive world has long recognized that intangible assets such as brand equity, innovation and human capital play a role in determining business success or failure. But measuring and managing those assets and their impact on a company’s market value has never been easy. Therefore, as published in an article, it tells that Dr. Pam Cohen Kalafut developed CGE&Y’s Automotive Value Creation IndexSM (VCI) based on the principles put forth in her book. “This 50 percent is based on intangibles like strategy execution, brand, human capital, innovation and leadership. The reason behind this, according to Kalafut, is lies within the fact that the markets are valuing your intangibles every day, whether you want them to or not. Yet, most companies aren’t able to measure, let alone manage and capitalize on these aspects of their business.”

The Value Creation Index (VCI) that had been developed by CGE&Y are for automotive OEMs and a second VCI specifically for automotive suppliers. The Automotive VCI models create a quantified performance measurement system, allowing intangibles to be linked to firm performance.

The VCI measures three broad categories of intangibles: Management—consisting of leadership, strategy execution, and communication and transparency; Relationships—brand equity, reputation, and alliances and etworks; Organization—technology and processes, human capital, workplace organization and culture, innovation, intellectual capital and adaptability.

The VCI is built using multiple measures for each of the individual intangible driver categories. Data are ollected from a variety of sources: objective and proprietary, academic, other research and publicly available information.

The index scores demonstrate the correlation between a particular company’s intangible assets and its market value. Kalafut points out that the correlation between the overall Value Creation Index score and market value is very strong for automotive manufacturers and suppliers.

CGE&Y’s Automotive VCI methodology creates a detailed performance measurement system through which critical company-specific intangible value drivers are measured and linked to performance. This approach allows businesses to quantify the expected effect of a change in the intangible’s VCI score on financial indicators such as stock price, P/E ratio, EBITDA, cash flow or market share, and to determine which strategic or capital investment decisions will have the most significant return.

The VCI value analysis can quickly identify the operational value drivers that have the biggest impact on a company’s bottom line. With this information, executives can:
• Reallocate capital expenditures to gain higher paybacks.
• Measure the impact of growth and similar initiatives.
• Implement a robust measurement system that correlates non-financial drivers to financial results.
• Create a performance measurement benchmarking system that can be used to track changes across time, and understand a company’s competitive advantages as well as those of their competitors.

In summary, the result of this Value Creation Index enable the companies to make strategic and capital investment decisions based on quantitative values rather than relying on educated guesses.

Source: Cap Gemini (Ernest & Young)