But Eastman's Klopp knows the danger of such an attitude. "We consider it more risky not to do anything," he says. "If we wait and watch what happens, the rules will then be dictated to us."

Last month, Eastman revealed the first of its E-business initiatives when it teamed with Global Logistics Technologies Inc. to form ShipChem.com, a Web-based logistics service provider for the chemical industry. Global Logistics, a 10-month-old startup backed by Federal Express Corp., develops Internet logistics systems for the transportation industry. With the birth of ShipChem.com, Eastman outsourced its logistics operations to its Web offspring. "The beauty of this model is that, for us, it's a double whammy," Klopp says. "We get efficiencies by moving our logistics to a new company and benefit from the revenue ShipChem will produce as well." Another motivator: "Frankly, we did this to preempt others from doing it."

Though it now owns a majority stake in ShipChem.com, Eastman will reduce its shares as competitors and customers invest in the logistics company. That's similar to other online exchanges in which industry rivals share ownership. ShipChem.com, Klopp says, will be a more compelling business with a broad participation of industry players, and the business model will be more sustainable. "And we'll still have a piece--albeit a smaller one--of a much bigger pie," he says.

Does increased investment in E-business pay off? In examining the differences between deeply E-committed companies and those that are "lightly committed"--implementing and investing in only one or two of the Internet best practices identified above--InformationWeek Research found a wide gap in terms of results. Nearly four in five deeply E-committed sites say they achieved increased profitability through E-business applications, while only 43% of those less committed claimed a similar achievement. The gap between the two groups also applies to establishing more-efficient supply chains (44 percentage points difference), learning more about customers (36 percentage points), achieving shorter time to market (34 points), creating new markets for products or services (32), and generating new sources of revenue (29).

Several years into the E-business revolution, those firms deeply committed to E-business are used to trying on new business models. In the beginning, most of those firms were technocentric. Now the E-committed come from industries once considered behind the curve. Consumer lender First Alliance Corp. is reinventing itself in search of E-business opportunities. First Alliance seeks to enhance the $83 million in annual revenue it generates by selling second mortgages to people with credit problems, mostly through a network of 27 offices in 14 states. The Irvine, Calif., lender late last year formed eWholesale.com to underwrite mortgages sold to mortgage brokers. Without the Internet, says E-commerce director Nicholas Geber, First Alliance would never have entered the wholesale mortgage market.

Mortgage brokers accessing the eWholesale.com site log on to a secured system that automates the entire underwriting process--including credit checks and loan approvals. The system selects the best mortgage program and rate, and spits out a list of documents a borrower would need, such as tax forms and bank records, to prove the loan can be repaid. The system was created in-house last fall by three developers over two months using Allaire Corp.'s Cold Fusion Web development platform and Microsoft SQL Server. The system is hosted on Hewlett-Packard Net servers running Microsoft Windows NT. Eventually, the eWholesale system will be integrated with the brokers' origination systems.

"The traditional methods of wholesale lending are very people-intensive," Geber says. "Eventually, we're going to be able to perform at certain volume levels with a staff two-thirds the size of a traditional wholesale lender. Staffing is the largest infrastructure cost to deal with."

Reliance National Insurance Co. operates a similar underwriting system to expand its customer base of insurance brokers and agents, known as producers. The New York property and casualty insurer sells policies only through producers, and sees its CyberComp Web site as a way to expand its market. "I don't think the type of customers has changed, but with the Internet you can cast a wider net to attract new producers," says executive VP Carl Sullo. The CyberComp system lets producers obtain price quotes and find insurance coverage in less than seven minutes, making it attractive to its 1,200 independent producers, too. Manually issuing a policy can take between three and 10 days. The Web system shaves the costs of writing policies by about 30%, Sullo says.

But Reliance is also experimenting with a more radical business model. Reliance Group Holdings Inc., the $3.4 billion parent company, created an E-commerce insurance company, Point, Click & Bind Inc., that will market a variety of insurance products online. "As a standalone company, Point, Click & Bind will have a stronger strategic focus on the rapidly growing E-commerce marketplace and will be better positioned to realize new business opportunities and win new customers," says Reliance Group chairman Saul Steinberg. Reliance is offering its shareholders 10% of Point, Click & Bind.

Spinning out an online business as a separate subsidiary rather than as an internal department or division could improve the performance of the parent company's stock price. According to early findings from a study conducted by a researcher at MIT's Sloan School of Management, the value of the stock price, on average, of retailers that spun off Web businesses as subsidiaries increased at a higher rate than those department stores and discount chains that established their E-business units as company divisions or units.

"The market likes autonomy," says MIT assistant professor Sterling Hunter III. "Being a separate legal entity, it makes it easier to track the E-business' performance. As a rule of thumb, hire someone to head the E-business subsidiary who knows the business and give that person freedom and authority to make decisions on a daily basis."

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Illustration by Bryan Leister