Once upon a time business users identified needs and then begged IS to do something about them. But the rapid emergence of Web-based commerce is shifting the balance of IT decision making power.
Now those same business users aren't asking - they're telling - IS exactly how to address their problemsThere's a bounty of speakers gracing the floors of early morning conferences waxing lyrical about online commerce. Their message is unilaterally the same: the Internet is opening new horizons when it comes to reaching new customers. It extends your capacity to offer services and is ushering in a Golden Age of electronic transactions and direct marketing.
Sometime soon, that is.
For Digital Equipment Corporation's Australian operations, such thoughts are best reserved for polite company and a glass of Chardonnay. Digital's reason for implementing a Web-based commerce solution is less ephemeral - it simply wanted to save money. And, with time dictating choices, the company's marketing department made the technology decisions, not the IS department, an emerging trend among organisations implementing online commerce solutions.
Anyone who reads the IT press is aware that Digital has sustained losses as it reshapes its business. Few areas have escaped unscathed, including the unit that handles Digital's business partners. Business partners are the third-party organisations responsible for selling the bulk - some 70 per cent in Australia - of Digital products. These systems integrators, consultants, value-added resellers and volume distributors generate roughly $400 million per year locally in sales, but at a price. Digital runs up a hefty tab to properly service this group of important "customers".
Enter the bean counters.
Analysis showed savings - aka budget cuts - could be made in this area. Worse, the mandate was not some nebulous date in the future. It was the veritable rock and a hard place. The unit had to figure out how to deliver the same level of service at a reduced cost, and quickly, according to Hugh Macfarlane, manager of Digital's Internet Business Unit. The urgency would see Digital's Business Partner Unit lead IS in evaluating and selecting a Web-based commerce solution.
Increasing the price of services wasn't an option, says Macfarlane. "The market will not pay a cent more for our products than we charge today."A primary expense of the unit are the telephone operators required to field the barrage of calls from business partners, asking about product pricing, availability and order status. Studies showed that every sale Digital made to a business partner involved on average eight phone calls, only one of which was an actual product order. Were Digital able to post the pre-order information in an easily accessible location, it should be able to reduce those phone calls.
Answering telephones may not be a Digital core competency, but the Internet is, and that's where the company sought salvation.
One of the earliest users of the Internet for business, Digital has also delivered numerous Internet products, including the AltaVista search engine.
Given this history, a Web-based commerce solution, where pre-order information was published online, seemed the goer. Automating a lot of the look-up functions on a Web site meant Digital could save time for both its operators and its business partners.
Enter Macfarlane's Internet Business Unit.
The result is Digital Business Link, an online commerce solution featuring a secure Web site where business partners can gain access to information related to partner services. This includes checking part availability, order status and tracking, as well as ordering of free marketing literature.
"What we're doing is replacing some stuff that was happening already on the phone with an electronic version," says Macfarlane. "We already knew where our costs were. We knew where those eight phone calls were. This is not a new process; this is not a new set of information. We're just simplifying the process."While many companies implement online commerce in the hope of increasing sales, Macfarlane says Digital had a very different but well-defined rationale behind its site. Increasing revenue isn't the goal of Internet commerce in this instance, according to Macfarlane. "In fact, our business case for this new implementation doesn't have any incremental revenue supporting it - not one cent," he says. "We simply need to support our cost saving objectives - we're doing it to save money."With the what decided (online commerce), the next phase was the how (implementation). The first step was a two and half a week canvassing of business partners to determine what they wanted. Macfarlane says this wasn't hard. "They'd already been actively seeking this. This is not something we had to impose upon them."But some issues were less clear cut. While Digital was Internet savvy, it was in the areas of information management and firewalls, not in commerce. With no solution present in-house, other options had to be explored. One was to recruit a team of developers and set to work. The other was to buy a pre-packaged solution and tailor the rough edges.
The first option wasn't really an option; it would take more time than Digital had. Instead Digital purchased Oasis from specialist Internet commerce developer Inter-World Technology Ventures. Oasis is an off-the-shelf package that provides features of an online commerce site, such as secure transactions, account management, shopping basket capabilities and electronic receipt generation.
More noteworthy than the shrink-wrapped solution was the unit's act of heresy - it had bypassed the standard IT practice of letting the IS department make the technology decision. Macfarlane says Digital's marketing people, himself included, knew what they needed. To leave the decision to IS would have taken extra time.
"A thorough evaluation of platforms could have taken two years," he says. "We didn't have that time. Our shareholders won't sustain losses in the company. We have to make a profit. We have to cut costs. It's not negotiable."According to Kathy O'Conner, marketing manager for the Internet Business Group at Digital, the reasons for circumventing IS should not be viewed as a negative statement on the department's role. "I don't think they're any different to any other internal IS department. They're very cautious, very worried about integrity of information, and they are paranoid about security.
"What we're finding in the Internet market is that IS wants to evaluate everything that's out there, and spend months on it. That's the way they work, and a lot of businesses can't afford to do that," she explains.
Ultimately, O'Conner says the power of the bottom line will sway dissenters.
"We knew we could do it. It's a matter of sitting down with IS and going through it. The bottom line is just so powerful. But you have to make sure that they [IS] are reassured; that the software is going to deliver the numbers.
"It was time consuming, because Digital's a big place. Actually getting every stakeholder involved to sign off was the hardest part for me, because manufacturing and distribution own a bit of it. Operations own another bit of it, and so on.
"We've managed to convince them that Oasis will produce something worthwhile, and produce it correctly each time. That was very hard," says O'Conner.
Most IT roll-outs are meant to benefit internal business users, whereas O'Conner says the Business Link roll-out is designed to benefit external business users - an important difference. "This is external - this is business partners - marketing had to get involved. That's a bit frustrating for IS."Frustrating it may be, but Macfarlane believes it is an important point. "If an Internet commerce implementation is being driven by IS, then it's all about using technology rather than conducting business. Of course most IS people have a very sharp eye on the business, but they come to the business vision from a technology perspective," he says.
"You can debate what technologies you use. You can debate who does it. I don't care about what the answer is, but it is not negotiable. If it's coming from an IS perspective then it becomes negotiable, depending on what the technology can do. Then there's no end to it." Macfarlane says IS was allowed no buy-in as to whether Oasis represented the best technology.
Digital used consultants from its Network Services and Integration Services (NSIS) department for the roll-out, with the intention of then using the skills they gained as an asset when rolling out solutions for Digital's customers. "We had our own consultants. They were doing a job that maybe the internal IS folks thought they could do, but they accepted this was an expertise that we had so they swallowed it," says Macfarlane.
But IS still played an important part. It was given the role of security testing. It also provided the integration to the legacy database. This process of making previously inaccessible information within Digital available to the outside world - in effect turning the business inside out - was a key to the success of the entire project. "This is where the value of a real commerce application comes into play," says Macfarlane. "Integration with legacy data and existing processes is critical."As for Oasis itself, Macfarlane was impressed that as a pre-packaged solution it delivered not only what Digital was seeking immediately, but would also deliver the next stages of development. As an NT-based product it also suited Digital's long-term computing strategy.
According to O'Conner, Oasis was attractive because it meshed with Digital's legacy systems. "We pull the stuff out of the legacy systems and it goes into an SQL database, and the SQL database feeds Oasis. Previously the order entry people had to actually access the legacy data."But the final reason for going with Oasis was timing. The Digital Business Link was rolled out in only eight weeks. This included interfacing with the legacy systems and getting the informational aspects of the site correct, which Macfarlane found the biggest drain on time. Thankfully, use of Oasis meant the commerce engine didn't need to be developed.
O'Conner says customising the front end took minimal effort. "It only took a couple of days to get our Webmaster to make it look and feel the way we wanted it," she says. "It doesn't look like something that's off the shelf and is clumsy."Although the tight roll-out took its toll on those involved, Digital has an application that can deliver the promised savings now. As business partners are advised of the Business Link's availability, service calls are rapidly tailing off.
"Understanding that the profit opportunity comes not from increasing revenue but from reducing costs is the key here," says Macfarlane. "It is equally key for our partners. The costs we incur in handling those eight calls are mirrored for our partners. They are on the other end of the same eight phone calls. When we reduce our costs, we reduce their costs."But when it comes to full online ordering of products, a number of policy issues still need to be thrashed out between Digital and its business partners.
"We're talking about million dollar orders," says Macfarlane. "What we can not afford is them saying they didn't order something we've sent them. That cannot be a conversation we have.
"We're looking for some early benefits out of this. We can cut down many of the eight phone calls quickly, so we're doing that. So before we move to actually transacting with partners, which is only one of those eight phone calls, there are a couple of things that have to happen."There are other more basic services, such as technical support, that Digital wants to add. "Those are the 20 per centers though," says Macfarlane. "The 80 per cent takes two minutes to work out: where are you spending money today and which of those areas can I solve quickly?" Hence, the rest could wait, he says.
While the Digital Business Link may not be the world's prettiest Web site, nor the most information-rich, it is remarkable nonetheless for proving online commerce can be implemented quickly. For Macfarlane, the key was in maintaining focus on what Digital wanted to do, not how to do it.
"I've got a bunch of information that I need to make available to an audience, and my audience is business partners. It's about saving costs to get this information to those people, and to get commerce back from it." "If it's called an extranet, I'm delighted. If that's called an intranet, I'm delighted.
"But ultimately I don't care. I call it looking at the total cost of the business and cutting wherever I can."The Shape of Things to ComeAs the pulse of business grows ever more rapid, CIOs are finding themselves at the centre of the electronic commerce revolution. Responses to IDC Australia's "Forecast for Management" survey (see pages 14-23) show there's little doubt that the Internet has captured the hearts and minds of local IT managers.
Australasian IT managers predict that over the next 12 months the technology they were most likely to implement is the Internet for electronic commerce.
Already 46 per cent of local IT departments have a home page and 34 per cent have a World Wide Web server. By the end of 1998 respondents indicate that these figures will grow to 90 per cent and 78 per cent respectively. The three dominant reasons for the strategic current or planned use of the Internet are:¥ communication with suppliers and customers (31 per cent)¥ distribution of marketing and customer information (27 per cent)¥ as a mechanism for customer service and support (21 per cent).
CIOs were also asked what they saw as a primary benefit of the Internet to their business. The most popular response by far was customer satisfaction.
Clearly many organisations see the Internet as an avenue to easily disseminate information to clients. Another 24 per cent of respondents hope that an Internet presence will cost-effectively introduce them to potential consumers both locally and overseas.
The big news is that usage of intranets is on the rise, according to CIOs. Some 31 per cent of replies to "Forecast for Management" indicated that intranets were already in use in their organisation. An impressive figure considering the concept of intranets is probably less than two years old. Furthermore, the results also show that intranets are being used consistently across businesses from the executive management area (22 per cent) to operations areas (24 per cent). Other key business users include finance (16 per cent); marketing (18 per cent) and HR (16 per cent).
Still, IT managers recognise it's not all beer and skittles - 50 per cent of respondents nominate security as the primary obstacle to doing business on the Net. Other concerns include a lack of in-house skills and knowledge, cost and an inability to target the desired market niche.
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