The Insider's Guide to E-Commerce

The Insider's Guide to E-Commerce

No one has all the answers when it comes to doing business on the Web. But savvy organisations do know the answers to one question: "Can we afford not to do it?" Australian businesses are on notice. As Novell managing director Cliff Smith warned recently, organisations that lag in adopting aggressive e-commerce strategies risk losing significant market opportunities to international competitors. Yet the risks are enormous and the rewards uncertain -- not only because there are no guide maps to the digital landscape, but because e-commerce is hard to do well, all too easy to do badly. Site costs are rising and the relentless pressure to keep up with the galloping march of the technology imposes an uneasy overhead of its own. And there are no guarantees.

Even some of the world's largest corporations have failed in their e-commerce attempts despite large market shares, high levels of brand recognition and very deep pockets. Many CIOs have been left wondering, amidst all the talk about the brave new world of e-commerce, whether their Internet strategy isn't just paving the cow paddock. And they are gradually coming to realise that unless they restructure their systems and develop new markets, their Internet activities will remain an expensive adjunct to what they are doing at present, with little benefit to offer. Fortunately, there are ways to increase the likelihood of success of the corporate e-commerce strategy, and to maximise the long-term benefits.

The undisputed duty for CIOs is to provide solid technology support for their organisations' e-commerce efforts. But to do so without assessing the underlying business environment would be to abdicate that duty. Melbourne-based communications technology consultant and project management service provider Jan Whitaker of JL Whitaker Associates says the dangers of "logical positivism" in IT can be particularly relevant to considerations of e-commerce. CIOs must make decisions rationally and with all the data in mind. "Wanting to exploit new developments without a 'big picture' view can sometimes lead to decisions that can defeat the main goal of selling products and services to generate wealth," Whitaker says. "The unanticipated downside to the decision may be ignored or overlooked because of the glitz of the latest method in the media.

If the cost of adding a top-of-the-line e-commerce system and its ongoing maintenance is taken into consideration, is the extra business generated enough to offset the capital and operating expenses? Do we know the answers to those questions, or are we being blindly optimistic before the data is in?"CIOs and other business executives must ask these business model questions before any decisions are taken, Whitaker says. Fully exploiting the opportunities e-commerce will present will often mean restructuring systems or developing new markets, says Interactive Knowledge On-Line CEO Aseem Prakash -- and that may mean getting endorsement from the very top. "It is fast becoming a clichŽ, but e-commerce is about business, not technology. Using the technology to penetrate new markets or extend the business with existing product lines will only cause headaches," Prakash says. "Unless there is a business strategy supported by a unique value proposition, many business initiatives will become 'black holes' of e-commerce. A business has to remodel and re-create itself for e-comm and I am not sure how many CIOs, if any, have this mandate."Existing Support Since implementing a solution will inevitably mean evaluating the ability of existing business processes to support that solution on the Internet, CIOs should start their projects by analysing existing practices, user needs, solution architecture design and the processes that will be required to support the new solution. In some markets it may be enough to simply perform "electronisation" of existing practices, says Xamax Conultancy proprietor and Australian National University Visiting Fellow Roger Clarke. In most cases, organisations are likely to need some degree of adjustment. In some cases, a significant restructuring of processes and relationships will be essential.

Business must accept that the Internet has to become much more than a mere adjunct to the business now conducted. A successful e-commerce strategy will involve restructuring systems, developing new markets or reinventing business processes. That's why IBM defines e-business as improving business processes using Internet technologies. As such, the key to success is a good business strategy, says GartnerGroup Pacific research director John Roberts. Successful companies have taken their strategy seriously up front, while those that have failed often have not viewed e-commerce as a significant development.

Be prepared to develop new ways of working with colleagues -- not to mention expanding the group of colleagues you work with. According to many e-commerce pioneers, success can hang on whether IS can bring itself to give up control of its resources. Form cross-functional teams incorporating sales, marketing, customer service and human resources, because success will depend as much on a range of non-technology factors like products on offer or creative use of animation and colour as it does on the hardware and software the Web site or storefront resides on. For instance, PC retailer Gateway moved its Web commerce operations entirely out of IT and into its marketing department and now runs its Web commerce operation as if it were an in-house ad agency.

Gateway's global Internet marketing group contains graphic artists, designers, and technical and marketing personnel, who work with salespeople to develop content for the site. "A Web site forces an organisation to transcend the boundaries of traditional functional areas, taking on marketing, sales and customer service roles interchangeably," John Hearn, US-based lead analyst for interactive marketing for GartnerGroup, says. Managing virtual teams is a new challenge to many.

Keep the focus on solving the business problem and not on technology. Think flexibility. Too many of the architectures built for e-commerce have locked organisations into applications, rather than helping them respond to shifting business needs. In the online world, it's not unusual for a company to spend six months designing and building an application, only to find it needs altering just months later. "It's likely that Internet and electronic commerce technologies will have advanced manyfold between the time you develop your strategy and the time you implement it," Prakash says Interactive Knowledge On-Line has created a new intensive electronic commerce workshop titled e-Sense, a business-focused activity about the business issues involved in joining the electronic commerce environment ( Prakash says in the world of e-commerce, technology is moving from being an enabler to a being a "destabiliser". "Solution components and associated business systems are islands of distributed information systems, both internally and externally. It is not easy to create a unified technical systems architecture. An unheard-of-competitor with a virtual business model and with technical edge can pose significant dangers to your position in the value chain of your industry sector," he says. Whatever architecture you develop must be broad enough to address a range of business needs, says Curt Hall, editor of the Data Management Strategies and Intelligent Software Strategies newsletters. "Much of the attention that Internet-commerce (or e-commerce) receives focuses on marketing and selling products and services over the Internet. However, this usage is only the most visible part of e-commerce," Hall wrote last year in The Cutter Edge. "In reality, most organisations today want to use the Internet (and intranets) for far more than just selling products and services. They want to use it to tie together and automate the operations that drive their various lines of business. And it is here that they are struggling, because this usage requires building an IT infrastructure that can efficiently integrate multiple, interconnected business processes, different platforms, and different applications."Hall says the infrastructure must provide support not just for the electronic marketing and selling of products and services but also for the electronic linking of business processes within and across the organisation, as well as with those of its suppliers and partners. The robust infrastructure CIOs develop must allow for rapidly adapting to changing customer service needs and introducing innovative services while meeting shrinking time-to-market requirements.

Be absolutely clear about your objectives for any e-commerce project, especially one that involves selling product online. Is your aim to reach the existing customer base through new, potentially more cost-effective channels? Or do you hope to open up new global markets? If so, you'll need to find out all the implications -- including any governing rules and regulations by which you'll have to abide. Many a company's dreams of reaching out to a global marketplace have turned to nightmares once realisation dawned that the costs and complications of getting the goods to the customer were destroying profit margins or making goods uncompetitive.

Selling product over the Internet may mean finding ways to add value to the experience, perhaps by offering information or extra service for free. By giving your customers something for nothing you can distinguish yourself from the crowd and increase customer loyalty. That's why Apple provides a library of technical terms on the site where customers go to buy Apple computers.

Macquarie Investment Management believes it is the only company in Australia using e-commerce to help re-engineer the back office for stockbrokers, driving down the cost of transactions from $1.73 for a cheque to 1c for an Internet transaction. This encourages people to use Macquarie products and saves money internationally. According to business analyst Rohan Kerr, who took part in a ComputerWorld round table, while the organisation's core products haven't changed much, it has found new and interesting ways to package them. "The big thing about e-commerce is if we get a client that wants to trade electronically, they still have to do a lot of back-office work," Kerr says.

There's a lot of work in dialling in, logging on. It's more work than just sending a fax, for example. You've got to be really careful how much value you're adding for a client. That's why we had to spend a lot of time re-engineering the client's back office to make e-commerce really slick."When it comes to business-to-business e-commerce solutions, the analysts say, these will invariably have significant impact on your existing business processes, which may need to be reinvented or modified in order to support Internet trading. Australian e-commerce consultancy e-Business is a strategic partner and board member of CommerceNet, the world's peak industry body for the development of Internet-based commerce. The company says if Australian organisations are to succeed in the global online economy, they will have to bite the bullet on their reluctance to work collaboratively with other companies on Internet commerce ventures. "In many cases there is much greater power, under the new business paradigm, in several players in a vertical industry value chain (or even direct competitors) working together to compete on a global basis, than in trying to go it alone," a company official says. Too few organisations acknowledge the real-world obstacles that stand in the way of their e-commerce initiative, or stop to consider whether their goods or services appeal to a global customer base or can be sold and shipped cost-effectively, Prakash says. It is important to recognise that Australian brand names might curry little favour and enjoy little relevance in the digital landscape, with few Australian businesses even "on the radar", of US-based Internet users. Take a long hard look at the likely position. "Your business case must clearly identify the business challenge," Prakash says. "Avoid being vague. Face the truth and know your facts. For example, how much does processing a transaction cost off the Internet? Target specifics in your return on investment model. Timelines for your return on investment model should be kept short. Look for savings in obvious places," Prakash says.

Radical New Thoughts

At a forum on e-commerce held in Monte Carlo last year, Harvard Business School professor Jeffrey Rayport said customer information would become the leading -- if not most valuable -- e-commerce asset. "E-commerce ventures require radical new thoughts about business and technology, and if technology is going to re-engineer your business anyway, you also have the opportunity to reinvent the business for customers using new e-commerce channels," he said. "Retention of the customer is the challenge in the marketplace. The challenge becomes moving to a two-way, real-time, interactive dialogue with your customers. No matter what business you're in, service becomes extraordinarily important on the Web." To Rayport, the critical areas in which companies must invest include a customer-information system, customised content, a communications infrastructure to communicate with clients, and a customer-focused Web interface. And CIOs should know that it's often the customer's Internet experience rather than the product behind a site that creates a sense of loyalty among customers. "It is not necessarily what we sell -- it's the look and feel of the relationship, the contact of how we manage the relationship with the customer that is critical," he said.

From the perspective of the Internet-savvy customer, their Internet experience may often prove more important than the product behind a site in creating a sense of loyalty among customers, he said. " and Barnes & Noble sell the same thing -- books. But Amazon has created a Web interaction that for some reason is more compelling than Barnes & Nobles', and it therefore makes more money on the Web," he said.

BASS Online (owned by the Adelaide Festival Centre, (see "South Australia Central", page 84) introduced Australia's first online event ticket sales service in March '97. Since then it has sold more than $300,000 dollars worth of tickets and received several hundred e-mails to its Online feedback address.

According to former Adelaide Festival IS manager Peter Barnes, the site met two key business objectives: a reduction in the number of callers to the phone service who were simply after information, and provision of an easy-to-use, safe, service for self-service ticket purchases. "The key to developing a system that is now inexpensive to maintain was to ensure that it was tightly integrated with the existing ticketing software," Barnes says. "In addition to the obvious advantage of having to maintain only one inventory system, a major spin-off is that BASS is able to use the same credit card authorisation process that it uses for telephone and mail sales. This ensures that invalid credit card numbers cannot be used, and transactions using card numbers that have been reported as lost or stolen are also denied."Creating an environment of customer trust and confidence was essential to the success of the site, he says. As a retail service which has been selling by phone order for over 15 years, BASS is well versed in the risks associated with credit card transactions that take place without sighting a credit card or the signature of the card owner. The merchant takes all the risk on these transactions. Yet Barnes rejects the notion that complex systems like SET (Secure Electronic Transaction) that insist on customer authentication are essential. He says systems like SET add complexity to what is, for a lot of customers, already a complex process, potentially lengthen response times and do little to help merchants. "Merchants like us with a background of experience in phone and mail orders are prepared to keep on taking the same risks with Internet purchases for the sake of providing customers with an easy-to-use quick service. SET will not be easily integrated into back-end inventory control systems or existing credit card authorisation services used to verify transactions in the traditional sales channels, which is a major disadvantage for merchants wishing to use one system for their various sales channels," he says.

Instead, Barnes endorses the US-based Visa Net Address Verification System as much simpler and better, and says a similar service in Australia would go a long way to giving Australian merchants some needed assurances. BASS Online has taken stringent efforts to ensure there can be no unauthorised access to information held about its customers -- another essential component to the fostering of public confidence in e-commerce, Barnes says. As companies learn by trial and error ways to use the Internet to their advantage, re-engineering systems as necessary along the way, they are helping to create a loyal customer base. And it is that customer base that will, as time advances, push more and more businesses into adopting the e-commerce paradigm. Those businesses that can profit from the experiences of the early adopters should prosper, safe in the knowledge they have done all in their power to avoid losing market share in the brave new e-commerce world.

From small business to multinational, electronic commerce will change the way you do business. Local and international experts will examine the current state and future directions of conducting commerce on the Net at CIO Informat May 24-25 in Sydney. For more information, e-mail or ring (02) 9439 5133.

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