Sept. 11, 2000

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Keep Your E-Biz A Step Ahead

When investing in E-business ventures, be prepared for mistakes and look for long-term benefits

By Earnest Deavenport

ockey great Wayne Gretzky once said that he never skated toward where the puck was. He skated to where the puck was going to be.

That's a good description of what every major company's E-business strategy should be in the coming years. Most have already invested heavily in an online presence that simplifies information gathering and transactions for customers and employees. Some have advanced to using E-business to reduce the time and transactional costs involved in supply chains.

While improving internal operations and even external supply chains is important, companies need to focus on using E-business to transform industries. The Internet is a disruptive force that has changed business, and it's inevitable that it will transform industries in ways that are difficult to predict. The companies that will be out in front in the future will be the ones that are able to influence, shape, and leverage this transformation most effectively.

One way to play a role in an industry transformation is to invest in the forces driving E-business, from frictionless marketplaces to rapid fulfillment and even creative financing.

Our company, Eastman Chemical Co., began developing this strategy in 1999, looking for ventures we believe will truly change business in the $1.7 trillion, capital-intensive, product-centric global chemical industry. With global business in such flux, it's critical to be on the early edge of understanding and influencing the changes that will affect operations, competition, and relationships with customers. Companies can also participate in the major financial rewards that can result when change generates new markets and growth.

To operate on this strategic level, make significant equity and other investments in an array of E-business ventures. These investments provide a periscope into emerging technologies, practices, and competitive forces. You receive early looks at developing technologies that will have a significant impact on E-business and customer relationships. Strategic investments also provide a great training ground for managing risk and creatively turning advances in one arena into advantages in another. The paybacks are a two-way street, because skills, contacts, customer knowledge, and intellectual capital ensure a faster track to success for a young company.

Expect the feedback from your investments to challenge conventional wisdom. For Eastman, one eye-opener concerned ChemConnect Inc. We made an equity investment and became a major customer of this business-to-business marketplace. ChemConnect has opened new channels for buying and selling our products in a more efficient manner while giving us a greater global reach. On our online storefront, Eastman.com, we thought customers were primarily interested in simplifying transactions. Instead, we've been surprised by the global appetite for in-depth information concerning our products and services.

Obtaining an over-the-horizon look at trends and technologies--and executing plans based on that knowledge--requires new external and internal approaches. Externally, consider opening an office in Silicon Valley or establishing liaisons to high-tech communities nationwide. This can seed existing operations with new ideas from other industries.

Investing in independent companies ensures that day-to-day operations of new ventures don't distract from core businesses. Since this type of strategic investment inevitably leads to a lot of change, institute a communications strategy that informs investors, employees, suppliers, and customers.

Don't expect an immediate financial impact. The returns will be there in time and will encompass more areas than just the balance sheet--talent, innovation, insights into changing customer requirements, and early-mover advantages.

The Internet represents a disruptive technology for all companies. No one has the answers on its ultimate impact, so the philosophy must be to learn by doing. Be willing to make mistakes in exchange for the opportunities that accompany industry transformations. Challenge your company to ride the E-business winds of change, letting them be a force that benefits customers and shareholders. That's the only way to be there when the puck arrives.

Earnest Deavenport is chairman and CEO of Eastman Chemical Co.

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