Vision

The world of Tomorrow
Hans Goedvolk
 

2.3 Trends in business sectors

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This section provides an overview of current developments in a number of important business sectors. For each sector we describe current changes and the consequences they have for the business operations and information systems of these companies. We mainly concentrate on the developments in The Netherlands, but we place these developments in the context of European and global developments.

 

2.3.1 Government

Important changes are going on at all the levels of the Dutch Government, at a national level, a provincial level and a municipal level. An important characteristic of all of these changes is the fact that the government is becoming more ‘businesslike’. At the heart of this is the fact that politicians and government are realising that monopolistic organisations, public as well as private, usually operate in a less efficient and effective way than commercial organisations. They lack the healthy ‘discipline of the market’. This new awareness is not unique for The Netherlands. In other Western countries we can also notice this shift to more businesslike and especially smaller governments.

Confinement to core responsibilities
By way of a first step, the government confines itself to a number of core responsibilities. This concerns tasks that politicians and the government have earmarked as ‘unalienable’ government tasks. Only the government may perform these tasks. These tasks include defence, public order and safety, management of government funds, justice and environmental planning. Moreover, tasks are concerned that are highly cost intensive and require a high degree of consultation, such as the construction of a national infrastructure and – especially in The Netherlands – the construction of dikes.
Almost all government tasks from which civilians and companies benefit can also be performed by independent organisations with or without a commercial objective. These organisations can work in a more businesslike and customer-oriented way. The Dutch Government places housing, public health, education and culture in this category.

Separation of policy making and policy implementation
A current topic in the discussion with respect to government tasks is the need for a clear separation between the definition of a long-term policy and the short-term implementation of policy. In this vision, the definition of policy, including the formulation of the corresponding legislation, and the monitoring and implementation of the policy is the responsibility of small departments. The present, large ministries could therefore disappear. The implementation of the national government policy would be the responsibility of more or less autonomous regional administrative bodies. This is based on the assumption that from that position, the small departments will be better able to monitor the expenses and the consequences of the policy implementation. Another advantage is the fact that the policy implementation is brought closer to the public. The administrative bodies can offer services of a higher quality level and are better able to cater to the public. In this context the central government also moves the definition of the regional and local policies towards the provinces and municipal councils. These can also supervise the implementation of the policy.

Independence and privatisation
One could think of various solutions that would lead to a more efficient way of working for the administrative bodies. These solutions vary from independence (in the form of internal self-management, agencies or independent administrative bodies) to complete privatisation. There are advantages and disadvantages to each model. Politicians assume that the advantages of independence and the more businesslike way of working of the administrative bodies will outweigh the extra costs involved with centralised policy making and policy monitoring by small departments. There is currently a preference for full privatisation. The small departments can enhance the internal efficiency of the administrative bodies by means of result-based management in combination with so-called contract management.
We can also see the trend that administrative bodies contract out tasks to companies in the private sector. For the people in charge of the administrative bodies this involves tighter procedures with respect to purchasing, product delivery and service providing, as well as a more strict budget monitoring.
The question how the political supervision of autonomous administrative bodies and the contracting out of work should be organised, remains to be answered. The parliament and the ministers remain responsible, also for the delegated implementation of government tasks. This requires an improved monitoring of the implementation and the effects of the policy. This monitoring should take place independent of the administrative bodies who implement the policy.

Towards a new form of business operation
The developments described above have far-reaching consequences for the government business processes. In the execution of its tasks, the government devotes more attention to a customer-oriented approach to civilians and companies. Administrative bodies will act as ‘front-offices’ for the various government tasks. Civilians and companies will be able to settle an increasing number of matters at one desk. This allows the administrative body to supply services that are better tailored to the customer’s personal situation. Another advantage is the fact that the government is better able to monitor the way a civilian or company uses government services. This will not only improve the quality of new policies, but it will also help to fight fraud and improper use of government funds.
The government aims for effective integral management. The small departments develop the long-term policy and see to it that the administrative bodies implement this policy. The administrative bodies perform their tasks as effectively as possible at the lowest possible costs.

New requirements for information systems
Changes in the business processes result in new requirements for the government information systems. The government more and more resembles an interorganisation of policy making departments and lower authorities on the one hand and of public and private organisations that implement the government tasks on the other hand. Moreover, national governments have to deal with supranational organisations such as the EU, NATO and the United Nations. These organisations affect the national policies. Evidently, IT and telecommunications are important resources in this matter.
The proper organisation of information systems first of all requires that the participating organisations make proper agreements concerning the division of tasks and concerning the information that is required. Subsequently, they can agree on the interchange of data and on the way they interconnect their business processes. These agreements form a basis for the organisation of the information systems and for the communication between these systems.

The new information systems of the government will be of a completely different nature than the present information systems. The latter usually support the execution of a single government task. This leads to a great diversity of isolated applications. Moreover, the present systems are rather inflexible with respect to changes in the administrative organisation. They are not equipped for policy monitoring and for communication with other systems. The government, which will more and more become an interorganisation of flexible organisations, therefore also needs an interorganisation of flexible information systems. New information systems and their mutual communication should not interfere with the necessary changes in the government, but they should in fact support them.

 

2.3.2 The Financial Sector

Important changes are currently taking place in the financial sector. The companies in this sector, such as banks, investment companies, insurance companies and pension funds, are in the process of revising their customer approach, their services and their organisations.

Over the past fifteen years, governments have lifted numerous rules and restrictions for financial transactions. This liberalisation and deregulation have lead to the integration of both the national and the international financial markets. In The Netherlands, a result of this was that the separation between banks, investment companies, insurance companies and pension funds has become less strict. Partly influenced by the European unification and the opening up of the European markets, this has resulted in many mergers and new partnerships between financial companies. Expansion was a decisive means to retain a satisfactory level of operating in the financial world. The mergers or new partnerships between financial companies are also intended to offer combinations of banking services and insurance policies to customers, in which the partners use each others sales channels.

These developments also create room for new and innovative financial services and instruments. At the present time, we can even speak of a true innovation race. The fast development and introduction of new services and instruments – a short time-to-market – has therefore become a strategic factor.

The developments
From this angle we provide an overview of the main developments in the financial sector:

Internationalisation
The ongoing internationalisation of the financial markets results in an increasing importance of the international activities of the companies in this sector. This mainly concerns international services to internationally operating customers.

Cost reduction
Fierce competition and pressure on the margins force financial companies to reduce the general level of costs. This results amongst other things in a current interest in business process redesign projects, mergers and concentrations, and efficiency programmes.

Integral solutions
To distinguish themselves in a highly competitive market, financial companies add more and more service elements to their basic portfolios of financial services. The emphasis is shifting from providing single services to offering integral solutions for the financial needs of customers or customer organisations. Since there is no longer a clear separation between the various types of financial companies, tailor-made combinations of financial services can be offered to both private customers and business relations.

Risk management and performance management
The increased uncertainty in the financial markets has strongly increased the business risks of suppliers of financial services. The simultaneous narrowing of the margins as a result of the fierce competition more than ever requires a good risk and performance management. This is therefore a central issue in the long-term policies of many financial companies.

Distribution channels
The distribution channels to a large extent determine which customers a company reaches. The number of outlet channels has therefore increased over the past few years. The personal customer approach currently takes place via a company’s own branch offices, through agents or by means of account managers. Companies can also opt for direct writing, in which they communicate with their customers in writing or by telephone as much as possible. Telecommunications and IT open up new channels, such as money changing machines, cash dispensers, cash deposit machines, electronic payment systems in shops and telebanking systems for companies and private individuals.
A well-balanced distribution mix through various channels is becoming an increasingly critical success factor for the positioning of financial services on specific market sections. This is a highly influential factor in the choice for a (merger) partner and for an IT infrastructure.

Further growth extended office
The development from front-office to extended office will not pass unnoticed by the financial companies, where administrative tasks form the major part of the work. In this process, after all, business processes are moving from the financial companies to their customers. This offers new marketing opportunities for the financial companies: introducing new IT applications, new (varieties of) financial services and new channels. The customer purchases or gets the necessary software. He uses this software for all kinds of financial activities and administrative tasks and for communication with various financial companies.

More service to customers
Quick service to customers (time-to-deliver) is becoming increasingly important. The same applies to the speed of reacting to market developments (time-to-market). Swiftness of service is of course not synonymous to quality of service. Nevertheless, speed will be an important distinguishing factor. For example, bringing out a credit offer immediately after application – ready while the customer waits – could be decisive for the commercial success. The increased customer demands with respect to the up-to-dateness of required financial data also illustrate the necessity of speed. The success of the balance information phone and of home banking demonstrate the importance.

Tariff structures
By means of a refined tariff structure, financial companies will convince their customers to use the cheapest distribution channels. This principle has already been introduced in payments and it seems to be the start of a trend.

Alternative payment circuits and contracting out financial business processes
As a result of some developments, banks are in danger of losing their influence on the payments circuit. Companies that co-operate a great deal, more and more often decide to cancel out their mutual financial obligations against each other. This will lead to a structural decrease of the commissions on payment services provided. The large banks are still trying to regain a share of this market. They are now offering services in the field of in-house banking to companies, for matters such as the so-called treasury management. However, customer organisations by now have recruited their own experts for these tasks. There still lies an opportunity in the increasing complexity of the financial processes in question, so that customers may after all have the need to contract these processes out to banks. A number of banks now offers such services.

Consequences for the business operation
The existing organisation of the financial companies must be adapted to the described developments. An important step is the transition of a service-oriented company to a market-oriented and customer-oriented organisation. This ‘tilting’ of the organisation results in a separation between the ‘front-office’ – the part of the company that is aimed at the customers – and the ‘back-office’ – the parts of the company that handle the processing and administration of the various services.

As a result, financial companies are increasingly decentralising their business processes in order to meet the present-day customer demands. Consequently, the influence of the business units within the company increases. Decisions about investments, including automation, are increasingly made decentrally.

Consequences for the information systems
All the developments described above also have consequences for the information systems of financial companies. The ‘tilting’ of the organisation necessitates the adaptation of the IT infrastructure (hardware, software and networks). This adaptation is so drastic that a complete renewal of the existing applications will sooner or later be inevitable for a number of financial companies.

The desired architecture of the information systems can be realised with new IT and new system development methods, for example:

  • fast, flexible systems for back-office, front-office and extended office, including the data communication between them;
  • modern, integrated systems for back-office and front-office;
  • new methods for evolutionary or iterative system development;
  • re-use of knowledge and software components in the construction of new applications.

Financial companies are usually reluctant to shift to new technologies on a company-wide basis. They want to reduce the risk by demanding standards and making requirements concerning performance, controllability and durability. The large number of pilot projects involving new technology is typical of this attitude.

The necessity to apply new technology is increasingly felt, partly because of the intensifying competition. A great problem, however, is the question how companies can control the transition to a new architecture of information systems.

Perspective
Financial companies are more and more becoming automated data factories. Manual execution of processes for processing, obtaining and supplying data will be restricted to a minimum. Input, retrieval and output of data will be more and more decentralised by means of data communication. The emphasis with financial services will shift increasingly towards the front-office and the extended office (the interface with the customer) and to product innovation. These are the things companies will concentrate their efforts on in the coming years. First, they will organise and streamline the resources of the back-office in such a way that the back-office will be able to fully support the shift of emphasis. This will result in the idea of a virtual organisation of financial services, in which the relationship between the ‘production’ in the data factory and the actual services to the customer will become less and less clear.

 

2.3.3 Social Security

The level of collective social security benefits in The Netherlands is high, compared to other countries. Over the past few years, there is a growing political and social awareness of the fact that the present system as a whole will no longer do. Problems are presented by the high costs of social security and the insufficient percentage of working population. The government has made a choice in this matter: work is more important than income and income-from-work is to be preferred above a social security benefit. As a result of the high costs involved, the government is trying to reduce the current collective insurances to a minimum benefit. Additional insurance is the responsibility of employers and private individuals.

The enhancement of people’s personal responsibility by the government matches the trend of individualisation. The government tailors the benefit to the individually accumulated rights and the personal situation of people. For the administrative bodies in charge of the implementation of the social security, this will lead to drastic changes in their way of operating. They will have to operate in a customer-oriented way and become competitive or co-operate with private insurance companies and service providing companies. In view of flexibilisation and individualisation, they will develop and market new forms of insurance and new services. At the same time, the costs will have to be kept down to a minimum.

Employee insurance
The government is reorganising employee insurances with respect to, for instance, sickness and incapacity for work to reduce the flow of new applications for social benefits. The government is applying the so-called volume policy to this end, which involves measures such as:

  • increasing the barriers for being granted benefits, building in own-risks and checking whether people who receive benefits are in fact entitled to them;
  • prevention, active reduction of occupational hazards, placing the responsibility for those risks with the business sector, introducing own-risks for companies, introducing premium differentiation and no-claims bonus systems;
  • performing an intermediate role in getting people who are on social benefits back among the working population as soon as possible.

We expect that the implementation of the these collective insurances will be privatised, resulting in a competitive situation between the current administrative bodies and private insurance companies.

There are more and more independent organisations who advise on the work circumstances, preventive measures and counselling in case of sickness and incapacity for work. A strong preventive policy and a proper coaching of employees can help employers to keep the insurance risks down, thus positively influencing their own premiums.

Job centres
Regional job centres, municipal welfare departments and industrial insurance boards will co-operate intensively to help people find jobs in the most effective way. They will adapt their mutual work methods and service portfolios to be aimed at a one-desk approach. This means that they will organise the business processes at the local offices in such as way (by means of IT) that one employee will be able to help the customer with all his questions concerning incapacity for work, social benefits, finding work and receiving follow-up training.

Health care insurance
The health care insurance shows the same trends as the other social insurances. The current collective insurances are being privatised and the height of the benefits is reducing. The National Health Insurance for people with lower incomes is starting to operate in a way similar to that of the private insurance companies for people with higher incomes. People can take out additional insurance with the National Health Insurance or with private insurance companies. Health care insurance will operate in a more market-oriented and efficient way. Important developments in this matter are:

  • the growing freedom of people to choose for an insurance company (National Health or private);
  • many mergers between National Health departments and private insurance companies;
  • increasing market influence because of competition between the insurers with respect to quality and price;
  • more freedom for insurance companies to choose the care providers they will work with;
  • better control of costs of health care and resources used.

For the health insurers, too, customer orientation, marketing and development of services will become important issues. Moreover, it will be of strategic importance to acquire more exact information on the structure of the costs of health care. All health care insurers are now in the process of collecting and analysing the payments and claims. These data are compared with similar data within a region and on a national and international level.

Collective pension plans
An increasing personal responsibility will be expected of each citizen to see to a proper old age pension. Because of the ageing of the population it is hardly to be expected that the government will be able to maintain the present level of the collective pensions on the basis of the (Dutch) Old Age Pensions Law, since the necessary funds are collected directly from the working population (which is getting relatively smaller) and paid directly to the people who are entitled to this benefit.
Company pension funds and insurance companies will be ready for this and offer their customers additional insurance and savings programmes. Critical customers – employees and employers – will assess the investment results of the pension fund and the insurance company on the basis of common investment indexes and benchmarks. They will compare the results with those of other pension funds and insurers. This is the reason why the pension funds turn to more active and less risk-avoiding investment strategies, which, to their expectation, will lead to higher results .

European developments
Free traffic of people and goods, services and capital form important pillars of the European Union. The national administrative bodies in the field of social security and employment will be dealing with an increasing amount of migrant workers from different European countries. More and more people will be looking for jobs and will find them outside their own country. Many retired people from the northern countries already prefer to live or spend the winter in Southern European countries. This means that governments have to adapt the legislation with respect to social security to this situation. In doing so, they have to take the European guidelines into account. The adaptations will lead to a further harmonisation of the standards of living and the conditions of employment between the member states. National organisations in the field of social security will have to intensify the co-operation with the partner organisations in the other EU countries.

 

2.3.4 Industry

The environment in which industrial companies are offering their products and services has been in strong motion over the past few years. Below, a brief overview is given of the most important trends and their consequences for the business operations and the information systems in this sector.

Internationalisation
The market of many industrial organisations consists of the entire world. More and more often, they have organised their own business activities internationally. The main reasons for this are spreading of risks, expansion through acquisitions and the separation of development and production. Development preferably takes place in countries with a high technological and scientific development level. Production can either take place in countries with low wages, countries that stimulate investment or countries close to the outlet, which will reduce the logistics costs.

The geographical spread of the business activities leads to companies becoming world-wide interorganisations of independent business units, that co-operate on an international basis with suppliers and customers. This development makes high demands of the internal and external communication, of data interchange and of the control and monitoring of goods flows.

Shorter product life cycle
Product life cycles have become shorter and shorter over the past years, and this development does not seem to have come to an end yet. Examples in this area are PCs and audio-visual equipment, but also baby nappies and detergents. There are two important reasons for this. On the one hand the rapid development of technology constantly creates new possibilities. On the other hand, customers become increasingly demanding and constantly require innovated products, stimulated by the way by the joint marketing and advertising efforts of the manufacturers.

For manufacturers it is therefore of vital importance that they reduce the time-to-market of new and improved products. As a consequence of this shorter time-to-market, the time-to-profit must also be shorter. A product must pay for itself quickly, since its replacement will be marketed in a short time. This makes heavy demands of the effectiveness, the efficiency and the control of both the development of products and production processes and of the production itself.

Integration
Industrial companies and their activities are links in the logistics chain from raw material to end user. The increasing co-operation between links in the logistics chain requires different methods of control. There is a shift from order-based delivery to agreement-based stock management for the customers.

Cost reduction
In many industrialised countries the competition is fierce. There is a high level of concentration, expansion and co-operation on the purchasing side, giving it a stronger negotiating position towards the suppliers. If a manufacturer wants to retain his own margin, this places a pressure on the cost price. The manufacturer partly shifts this burden to his own suppliers by demanding from them that they lower their prices. This was recently illustrated by the great price reductions that car manufacturers forced on their suppliers.
This reduction of cost price by force requires drastic changes in the procedures and resources of the production process, which can only be realised through proper organisation and control of the process.

Improvement of customer services
The quality of the physical product is not the only thing to determine the customer’s satisfaction, nor has it been for a long time. Customers expect an increasingly short time-to-delivery. In the fresh-daily and perishables sectors and in some sectors of the supplying industries people think in terms of several hours. Customers also require an increasingly high level of reliability of delivery, in which the exact moment of delivery is becoming an important issue. At the same time, the market demands an extensive product range as well as the choice between product varieties or the possibility to compose individual products by means of different options. These developments, too, require adaptation of the production process and of the control of this process.

Consequences for the information systems
Besides a proper organisation of the business operations, information systems have an important role in the realisation of the changes described above. First of all, the companies and business units that participate in a common production process will interconnect their computer systems to create one network of computers. Data communication stimulates the integration of the applications of the participants. This results in a common information system that controls and monitors the common process. Important developments in the field of IT are SCADA systems, that handle automated process control, and Computer Aided Design (CAD), that speeds up the design of products and production processes. An important initiative with respect to co-operation is that of PDI/CALS, which aims for standardisation on behalf of the exchange of data on products and production processes between different companies. These IT developments will be discussed in detail in section 3.3.

 

2.3.5 Retail, Distribution And Transport

For this sector, we will mainly concentrate on the services in the logistics chain: retail, distribution and transport. The services in this sector are in particularly dynamic. The core process in this chain is that of making products available at a different time and place and in a different quantity and packaging. We first discuss the developments in this area. In conclusion, we will discuss the changes in the field of passenger transport.

Internationalisation
The internationalisation of industry causes the logistics chains to cross international borders. For companies in the international logistics chain, it is of vital importance that they have enough knowledge of and experience with international retail and transport. Especially the knowledge of local legislation and of the legislation with respect to import and export covers a large and complex domain. On the one hand, we see international negotiations with the objective to remove the barriers for international trade, reduce legislation and promote international standardisation. On the other hand, it is still common practice for national and local authorities to intensify the legislation. The local economic interests, the national competitive position and environmental care are at the basis of this.

Added value
Adding value in the logistics chain is an important issue for the organisation and control of this chain. By means of ‘value-added logistics’, manufacturers try to deliver products with the highest possible added value at minimum costs. This implies a constant solving of dilemmas.
Manufacturers try to keep the time-to-deliver as short as possible, even when complex products are concerned. To this end, the order is executed at the latest possible stage in the logistics chain by means of assembly of standard components. For simple products, the final step of the assembly product takes place at the distribution stage. Delivery from stock, like in supermarkets, places shop owners for the dilemma that they have to offer the customer the widest possible choice of products while keeping the stocks down to a minimum. We see this phenomenon throughout the entire logistics chain. All the suppliers and manufacturers want small stocks and short delivery times. In addition, suppliers also supply their products to different manufacturers.
The solution to the described dilemmas lies in the integral organisation of the entire logistics chain. By means of telecommunications, the participating companies connect their information systems and thus create a network system. This network system can adequately support the control of the entire logistics process.

Integration and expansion
Suppliers of services in the logistics chain respond to the developments as described, by integrating functions in the chain. By co-operating, the suppliers of logistics services offer integral logistics solutions to manufacturers. This is a great change for an industry consisting of relatively many small companies that compete fiercely. Integration of the logistics chain leads to a further integration of the business operations of service suppliers and manufacturers. The separation between industrial activities and the logistics chains vanishes. Long-term co-operation between manufacturers and suppliers of services replaces short-lived commercial relationships. Long-term contracts will take the place of the current single orders.
The integration results in expansion of the companies through mergers and long-term partnerships. By combining the knowledge and skills of the companies involved, a higher level of service can be offered to the customer.
Manufacturers are concentrating more and more on their core activities, so that more work is contracted out. Manufacturers also spread their activities geographically over independent offices. This results in large logistics chains, especially for large manufacturers. The logistics chain for the production of a certain product no longer consists of one company, but of a number of companies or business units. Manufacturers contract out more and more activities with suppliers of logistics services. This not only concerns logistics tasks, but also tasks such as the assembly of simple products and product repair and maintenance.

Consequences for IT and telecommunications
The market of retail, distribution and transport is characterised by strong changes in the patterns of co-operation. The logistics chain gets the nature of an interorganisation of manufacturers and suppliers of logistics services. Since many companies participate in different chains, there is in fact one big interorganisation of manufacturers, retailers, distributors and transporters. Within the interorganisation, the participating companies enter into brief or long-term co-operation, aimed at the production and delivery of certain products to customers. By making proper use of IT and telecommunications, incorporated in a common network system, the companies in the interorganisation can have their co-operation run efficiently and effectively, without losing their own independence and competitiveness.
The optimal use of IT enables clusters of companies in an interorganisation to set up new enterprises that offer new products and services in the marketplace.

New ways of approaching customers
The development of home systems and the Digital Highway will greatly affect the final link in the logistics chain: the consumer. Currently, shops are functioning as ‘front-markets’ for products or services, usually by different manufacturers. The consumer comes to the shop for advice and to buy products or services.
The Digital Highway enables companies to offer their products and services on the home systems of the consumers, for example in the form of digital catalogues. Employees of the companies advise the consumers via videophone. The customer can order items from his home, and the company will see to the delivery of the goods. The customer can also close an insurance policy at home, or book a trip. This form of ‘extended office’, or better still, ‘teleshopping’ already works for mail order companies, although they still use paper catalogues and telephones.

Shop chains face the choice of remaining traditional shops or becoming ‘home order companies’, partly or completely. The choice will also depend on the product they sell. The consumer experiences certain forms of shopping as a ‘chore’ and will, if the alternative presents itself, prefer to order electronically and have the purchases delivered by the shop owner. For other products, for example ‘fun-shopping’, the consumer will prefer to go to the shops. In case of supermarkets, the consumer will probably prefer electronic ordering for the weekly purchasing of non-perishables. At the same time, he will retain the need for small neighbourhood shops for the fresh items, delicatessen and forgotten items on the list.
Book shops and record shops will be facing a totally different situation. They now sell novels in the form of books, or music on CDs. In future, companies will supply existing and new kinds of immaterial products directly to the consumer via the Digital Highway. Here, too, the choice of the consumer is decisive. The consumer will decide which type of immaterial product he buys and how he uses it.

Transport of passengers
Great changes are going on in the field of passenger transport. This mainly applies to public transport: train, underground, tram and bus. Until recently, in The Netherlands, and in many other European countries mainly state-operated companies or state-subsidised companies were responsible for public transport. Governments are, however, in the process of privatising these companies and permanently reducing the subsidies to these companies. A EU guideline stipulates that railway companies are divided into companies that respectively deal with the infrastructure (the road), and the operation (transporting passengers and goods). The government will in the near future only subsidise the companies in charge of the infrastructure. The public transport companies are becoming responsible for their own operations, revenues and cost-effectiveness and for finding customers and actively searching for new market opportunities.
They therefore look for an answer in a more efficient business operation and especially in more co-operation. It is essential to respond to the demand of the customers. Customers prefer door-to-door transport. This is an important reason for people to use their own car, a rental car or a taxi. When travelling by public transport, people often have to combine the use of buses, trains or aeroplanes within a single journey. This results in a loss of time for the traveller, sometimes a great loss because of bad connections. Moreover, he often still depends on additional transportation – he may have to take his own bicycle to the railway station, his own car to the airport or a taxi from the airport to the railway station. There is a need for more co-operation between the various public and private transport companies to be able to provide door-to-door transport. By means of a common IT infrastructure, companies are able to provide the customer with information for his itinerary and to advise him on how to organise his journey and which means of transport to take. The customer can book and pay for his trip by means of the system, with or without the interference of travel agents. Transport companies are thus better able to match demand and supply. Many public transport companies now work with fixed time-tables and a limited variation of prices. In future, more passenger transport will be on-demand and means of transport will be used depending on the current demand. Besides this, variable pricing can be applied, for example higher rates in peak hours and reductions in the off-peak hours. This will result in an improved result management.

 

2.3.6 Telecommunications

European governments have stimulated mergers and take-overs that have resulted in the present national telecommunications companies. For decades, these state-operated companies have dealt with a stable market for telephone and telegraph services. For years, national governments have given their telephone companies a legally protected monopoly.
This situation is now changing rapidly. This has a number of consequences, including: the trend towards privatisation and deregulation with governments, the introduction of new services and new networks as a result of technological developments, the internationalisation of the services and more customer-oriented services.

Privatisation and deregulation
The large, national telecommunications companies with their strong monopolistic nature are disappearing. Many of these companies have already been privatised. The national governments are also giving concessions to new suppliers of telecommunications services. The national companies are therefore really losing their monopolies. For many new networks and services, such as the GSM network for mobile telephone, this is already the case. Further deregulation will follow. American telecommunications companies are therefore now entering the European market. In response to these developments, telecommunications companies are starting to co-operate on a national and international level. Other companies also participate in these co-operations, for example banks and railway companies. We can also see the development of international conglomerates as a result of mergers of large telecommunications companies. Companies are thus trying to hold on to their market shares, and to expand – also in different sectors. This expansion is necessary as well, to obtain sufficient economy of scale and to be able to invest in new developments and keep the costs down.

Technological developments
With modern IT people are able to store and transmit all types of information in digital form. This development has major consequences for telecommunications. Telecommunications companies will in the future offer one world-wide network for the communication between people, mobile systems, information systems and home systems of private individuals: the Digital Highway. Via this network all communication takes place in digital format. The network supports matters such as videophone (conferencing between people), the exchange of multimedia documents and the transmission of multimedia by media suppliers.

The telecommunications companies will strongly expand their services in the field of data transmission. Traditionally, there is a relationship between the form of data transmission and the type of company that executes the transmission:

  • telephone companies for telephone conversations, sending faxes and (on a small scale as yet) data communication between computers of different companies;
  • broadcasting and cable television companies for broadcasting and transmitting video and sound;
  • transport and distribution companies for the transport and distribution of material data carriers such as paper (books and documents), CD (sound, computer documents) and videotape (video and sound)).

     

In the future, the telecommunications companies will be transmitting all these types of data in digital format.

The telecommunications companies have to equip their networks and their services for these new technological possibilities. The international nature of the Digital Highway necessitates international co-operation between these companies, that have always been independent. This is another reason for governments to privatise the telecommunications companies and to deregulate in order to create room for international co-operation.

Internationalisation
The internationalisation concerns all sectors of trade and industry, which influences the need for telecommunications. Large multinational companies demand world-wide, tailor-made services at low prices. They are considering a private network for speech and data communication for their international organisations that covers various continents. This is typically a market in which nationally operating telecommunications companies have to co-operate internationally. They will offer these services together in the form of a ‘virtual’ network. They offer the customer a private network that uses existing networks and services, while it is completely transparent to the customer that a number of telecommunications companies are working together in the background. This is a market in which the telecommunications companies compete with service offering companies that use their networks. The Internet is a good example of this. Users of multimedia PCs can have digital telephone conversations via the Internet. They just pay the local telephone rates for their connection with the Internet.

Customer Care and Billing
The developments mentioned above have consequences for customer care and billing. The customer must be able to choose which services he will purchase. The customer – companies and private individuals – must be able to purchase a unique combination of local and international services, tailored to his own situation. In doing so, the customer requires an individual and modular billing system, issued by the company where he purchased the services in the first place. As a result of the deregulation, a fierce competition will arise between existing and new telecommunications companies. These companies must distinguish themselves both with respect to the services offered and with respect to prices. To this end, a telecommunications company must have flexible, customer-oriented service organisations that focus on certain groups of customers, but that also have a flexible and powerful billing system. An automated system with an extensive database for rates, contracts with customers and registration of the use customers make of the services is indispensable in this matter.

Consequences for business operations
The developments described above have far-reaching consequences for the business operations. We divide the activities of telecommunications companies into two categories:

  • The traditional network company, that focuses on setting up and making available transmission facilities in the form of networks;
  • the service organisation, that focuses on providing telecommunications services that make use of existing network facilities

It seems that two different types of telecommunications companies will develop. First of all there will be network companies with the core activity of setting up connections and making them available. These network companies provide local connections and trunk connections between local networks.
There will also be service organisations that mainly focus on developing a wide range of telecommunications services and making them available. In doing so, they use the transmission capacity of the various network companies. The service companies pay the network companies for the transmission capacity they use. The service companies offer their services locally to private individuals and local companies, and internationally, for example to offer a virtual private network to multinational companies. The services include all forms of communication and transmission and broadcasting of data. The customers pay the service companies for the services provided.
Thus, eventually a world-wide interorganisation of network companies that offer transmission capacity will emerge, as well as an interorganisation of service organisations that use the transmission capacity to offer tailor-made communication services to companies and private individuals.

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