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December 13, 1999

E-Transformation
Tech Companies Try Different Tactics
Dell finds fully integrated supply chains are critical

Illustration by James O'Brien echnology companies are among the economy's most-aggressive E-businesses--hardly surprising given their influential role in the online revolution. And it shows in their E-commerce sales. IT companies are generating 19% of their revenue online, far more than companies in any other industry, according to InformationWeek Research's E-Business Agenda Study.

Among IT vendors, there are about as many approaches to E-business as there are companies engaged in it. When business and IT managers at technology companies were asked which E-business models their companies were pursuing, their answers put IT companies at or near the top in four categories: companywide involvement, creation of a Web spin-off, online marketplaces, and partnering with Web-only companies. "When you embark on this road, you employ different strategies until you find what works," says Joe Marengi, Dell Computer's senior VP and general manager for the Americas.

For large suppliers with global reach, the creation of fully integrated electronic supply chains that span continents is critical to success. There's no better example of this than Dell Computer, the build-to-order PC maker that is an architect and archetype of business transformation. "The word is very apropos for us," Marengi says. "Our transformation strategy was to completely turn Dell from a people-direct model to an Internet-direct model with good people behind it."

To do it, Dell constructed a virtual value chain via an IP network that lets customers and suppliers communicate in real time. The upshot: Buyers get better service, Dell keeps less inventory on hand, and suppliers receive a clearer picture of how they're doing. "If you buy something from us and something is not right, there is a real-time feedback mechanism to the parts supplier," Marengi says. "We can remedy things significantly faster."

At least in part because of this strategy, Dell surpassed Compaq this year to become the nation's premier seller of PCs. More significant, Dell's supply line has helped it maintain profitability in a market notorious for razor-thin margins. According to U.S. Bancorp Piper Jaffray, Dell's operating expenses, as a percentage of sales, are half that of Compaq's.

Such a taut supply line requires constant attention. Because Dell's global network is tightly integrated, disruptions in one area can affect another. Marengi says Dell has been diversifying its supplier network to lessen that risk.

chart Some smaller IT vendors are finding that market realities dictate a more measured approach to E-business transformation. NetObjects Inc., for instance, still counts on traditional channels for a good portion of its sales, even though its main product is an E-commerce application. "We promote our online sales as a convenience," says Scott Kahn, NetObjects' manager for Internet services.

Still, Kahn says, the company expects to conduct more business over the Internet and is transforming its internal processes with that in mind. For instance, NetObjects' finance department has adopted paperless processes that allow order entry and invoice processing at Net speed, even if all the orders don't come in that way.

A company's culture and structure can play a big role in determining whether it is successful in the new economy. With that in mind, IT companies are breaking job-description molds, creating new hybrid positions. At ComputerPrep Inc., a Phoenix company that publishes online and print training materials, Lindsay Miller is both CIO and director of marketing. The dual roles make sense, Miller says, because on the Internet the message and the medium are inseparable.

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