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September 13, 1999

E-Transformation

The Internet is triggering more profound change than anything that has come before it

Illustration by Matsu

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he concept that information technology brings change to business is almost as old as computing itself. For more than 40 years, a constant parade of automation and innovation from IT has altered the way business is done. Accounting systems, mainframes, the PC revolution, LANs, electronic data interchange, client-server technologies, enterprise resource planning software--they've all had a hand in shaping facets of the current business landscape.

But in the past 24 months or so--give or take a few 60-day "Internet years"--companies around the world have embraced the beginnings of a change that promises to be more profound--and more lasting--than anything that has come before. What's happening is no less than a transformation of the most fundamental business precepts: how a company does business, how it enters new markets, how it communicates across the enterprise, and how it deals with suppliers.

Above all, transformation is about customers--changing the means by which companies find, sell to, service, and communicate with them. Being in business today is coming to mean supplying customers with the technology and information they need not only to do business with you, but to help run their businesses better. Whether it's as simple as a Web site for consumer orders or as complex as an extranet that coordinates production throughout a supply chain, companies are thinking about IT as inseparable from their customers--and vice versa.

Call the concept E-transformation. It's characterized by several factors: a rapid transfer of knowledge, both within companies and across the value chain; the participation of IT at every juncture, including an increased involvement of IT in business decision-making, on the one hand, and in the very culture that defines a company on the other; the increased speed at which decisions are made, about new products, new strategies, and new technology implementations; and people with a willingness to engage and act on new ideas and new realities.

Evelyn Follit Photo by Steve McAllister The primary technology forging this transformation is, of course, the Internet--a universal standard global data network that each day moves closer to the ubiquity and ease-of-use of the telephone. "I've always believed that the way you change organizations is by changing their technologies--you meld IT and business to effect transformation," says Richard Riederer, president and CEO of Weirton Steel Corp., a $1.3 billion steelmaker in Weirton, W.Va. "But the Internet makes it so much faster. It gives you the ability to do things so much quicker than you did in the past."

What makes the Internet such a powerful transformation engine is that it's not about technology--it's about information and communication. "The Internet is an unstoppable force causing every business to re-evaluate the way it sells products or services, which is something that every company does," says Yobie Benjamin, chief of global strategy for E-commerce and emerging technologies at Ernst & Young. "Many other IT trends were really passing fancies--a lot of people skipped client-server, for example, and stayed on the mainframe. The Internet isn't something that anyone's deciding to skip."

Hardly. The changes wrought by the Internet, already identified by a litany of E-words--E-commerce, E-business, E-services--are transforming most aspects of business.

chart Examples of E-transformation are everywhere. At PG&E Corp., the quest for speed has dictated a self-imposed four-week time limit on the decision-making process for new business initiatives. AutoNation Inc., the country's largest auto dealership network, is bringing online processes to a sales culture that has seen little change for most of this century. Toshiba America's copier and fax-machine business gives its dealers online access to machine-level profitability data they've never had before. United Airlines is bringing IT to bear on virtually every aspect of its customer experience. PHH Vehicle Management Services hires customer-oriented technical people who can suggest information-based business opportunities during sales calls.

Companies can set their sights on transforming entire industries, not just themselves. For example, Weirton's Riederer wants to dramatically increase the rate of annual inventory turns in the business of tin plate, the material in food cans that accounts for about 45% of Weirton's revenue. The current rate of inventory turns in the entire value chain--from the raw-material producer to the can on the grocery store shelf--is only 1.2 turns a year. "If we could double that, we could save millions," says Riederer.

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