InformationWeek
Defining The Business Value Of Technology
July 26, 1999
E-Business: What's The Model?
While the Internet clock ticks, many companies still struggle to find the best strategy
That's proving to be easier said than done. Many companies are struggling with the most basic problem: What's the best E-business model? They're experimenting with different formulas. Some are incorporating E-business throughout the organization. Some are creating E-business subsidiaries, then spinning them off as separate online entities. Others are investing in or merging with Internet startups. Some are even moving their businesses entirely to the Web.
Truth is, there's no simple prescription. Even companies in the same industry, of the same size, or with similar cultures are finding that one E-commerce strategy doesn't fit all.
"The challenge is deciding not just what projects to initiate, but how we may need to evolve our whole corporate culture to be successful in E-business," says John Keast, VP and CIO at PG&E Corp. The San Francisco energy giant is holding a two-day E-business summit this week for its senior business and IT executives, which will include speakers from dot-com startups in other industries. The goal, says Keast, is to gain knowledge in a field where the experience base can be hard to find.
"There's very little `been there, done that' in this industry," agrees Marti Schiff, president of the E-business unit of NewSub Services Inc., a direct marketer in Stamford, Conn. "This industry is moving so fast because it operates under totally different work rules. It's all technology-based."
And when a company is doing E-business successfully, it's usually loath to risk any of its "first-mover" advantage by letting others in on the hows and whys. "It's kind of like announcing you're going to apply for a patent on a specific breakthrough invention," says Alan Shaffer, group VP for industrial products at machine-tools manufacturer Milacron Inc. in Cincinnati, which launched its Milpro.com Web commerce site last January. "You learn a lot your first year doing this, and the last thing you want to do is share that knowledge with your competitors."
There's almost no such thing as an established business model in E-commerce. National Semiconductor Corp. launched one of the Web's first business-to-business online catalogs in 1995, giving the chipmaker a length of experience in E-business that you'd expect to produce comfort. Forget it. "I'm glad we started as long ago as we did, but I'm terrified at how fast things are moving," says Phil Gibson, director of interactive marketing at National Semiconductor in Santa Clara, Calif. "I can look at any of my competitors' Web sites at any time and see something I haven't thought of yet."
Payback Potential
Many companies find the integration of legacy systems and E-business technology has an immediate impact on their business. "The whole area of E-business and E-business infrastructure is the fastest-growing area of technology," says David Annis, group senior VP of IT for the Hartford Insurance Group. The company has linked its Web front end to its quote and billing systems to let policyholders get an automobile quote, complete funds transfer, or make a billing inquiry from the Web site. "We want to leverage that technology with what we already have to strengthen our current operating models," Annis says.
However, analysts say, some companies struggling with E-business have been too limited in their approach. "One of the biggest mistakes that companies make is to say they need $50 million to do E-business, so they cut other budgets to come up with the money," says Christopher Lochhead, chief marketing officer of E-business integrator Scient Corp. "Venture-capital firms and startups don't think that way. You can't think of it as operating capital, you have to think of it as risk capital."
Analysts also say some companies have been overly concerned with disrupting their business channels when launching an E-business effort, an issue that's particularly vexing for retailers. "If an existing retail brand can get its act together and offer a viable alternative online, it has a big advantage over new brands trying to buy brand recognition," says Laurie Windham, founder and CEO of consulting firm Cognitiative Inc. and author of the forthcoming book Dead Ahead: The Web Dilemma and the New Rules of Business (Allworth Press, 1999). Consumers have loyalty to a retail brand, not the retail method, says Windham, and they're looking for a cohesive brand across all the channels. "If the retailers' organizational structures prevent that, then they've shot their foot off."
That makes a modern business mantra--flexibility--more important than ever. "Running an E-business is a little like a series of Amish barn-raisings," says Cambridge Technology's May. "You have to pull together a different team of diverse skills for each initiative."
The limited talent pool and the cutthroat competition between startups and established companies for those resources, is, in some cases, dictating the most efficient approach for some companies. "There's a huge amount of competition for Web talent, and it's very hard to compete with the startups and the IPOs," says Cognitiative's Windham. "A separate E-commerce entity, with autonomy and a separate profit-and-loss statement, has a better chance to offer competitive packages and entrepreneurial freedom."
One thing that successful online efforts have in common is focus, and that starts at the top. "One of the most common mistakes that companies make is simply adding E-business to a long list of responsibilities that someone already has," Windham says. "The chief Web officer, or whatever title you choose, should have as much power as the head of sales, IT, or manufacturing. They're making decisions that will impact the future of your business as much as anyone else."
That also means executive support at the highest levels. Although that's been said about strategic IT initiatives for years, it's even more the case now, because E-business pushes fundamental changes throughout the company, not just in the areas that are marketing or selling online. Once customers begin to interact with the company online, and see the incredible power of the Web in transaction speed, data aggregation, and customer touch, they begin to look at the entire company in a new light.
"There has to be an executive sponsor from the top that has the E-business religion," says National Semiconductor's Gibson. "If that person isn't up there saying that the Web is one of the most important things in our business today, you're simply not going to move fast enough."
While speed is the obvious imperative, many companies still struggle with how to take the first step. "I don't believe you can have a successful E-business without having it turn you inside out a little bit," says PG&E's Keast. "I expect that's going to be traumatic."
Go to to the first sidebar story, "Integration Throughout The Company: Prudential California Realty"
--with additional reporting by Jennifer Mateyaschuk
Sidebar stories:
And from our sister publications:
lectronic business is no longer an alternative, it's an imperative. Dot-com startups are grabbing market share online, putting pressure on brick-and-mortar companies to find the right structure for their Web operations--fast.
The biggest challenge most companies face is how to quickly leverage their traditional IT and business strengths, such as an enterprise resource planning system or a smooth-running physical goods distribution network, as E-business building blocks, not barriers. "The ultimate E-commerce payback will come from the blend of cyberspace and real space," says Thornton May, VP of research and education and "corporate futurist" at systems integrator Cambridge Technology Partners Inc. "You can't just have a good Web site, you have to have a data warehouse that knows who the heck your customers are."
Illustration by Hank Osuna
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