Reclaiming E-Space

Reclaiming E-Space

Successful bricks-and-mortars are looking for new ways to "e-deploy" their forces, armed with established vendor and customer relationships, brand recognition and infrastructure.

Last year the experts were telling businesses: "If you can get your company to join the new economy, you may reap big rewards". Then came April's NASDAQ showers, and May's flowers still aren't blooming. So what's happening where bricks meet clicks?

Not so long ago the world was littered with IT pundits insisting the Global 2500 reshape their entire organisations for e-commerce. Without both a centralised group dedicated to taking the existing business online and a spin-off dotcom focused on creating new business models, these companies might as well pack their bags and depart the field, they all said.

Then came last year's April dotcom stock meltdown. Upstart millionaires became ordinary people again overnight and normally sanguine investors wrung their hands in angst. In a flash, the frenzied land-grab for dotcom-garnered Internet space began to ease as companies reassessed their business models in the light of good business sense. "If it doesn't make cents, it doesn't make sense," Fortune magazine opined.

Suddenly the idea of floating off elements of a business to emulate the dotcoms started looking a little flawed.

However, if the hype about e-business has faded, the need for action has not. Successful bricks-and-mortar companies are capitalising on the knowledge that while the Internet might be a great place to research and comparison shop, consumers still prefer spending their money in shops that let them smell the roses. Now these bricks-and-mortars are looking for new ways to "e-deploy" their forces, armed with established vendor and customer relationships, brand recognition and infrastructure.

Take Zurich Australia, which last year created its e-business unit as a separate operating area in order to reduce distractions from the business of creating an enterprise portal.

"The strategy we were presenting last year was really to e-enable the whole business; in other words to allow all the intermediary channels to access us via the Internet and perform all their business functions through the Internet," says Zurich CIO Joe Deragon. "That has not essentially changed because, while the whole e-world is collapsing in the sense of all the benefits and all the volume of business everyone expected [did not happen]. That doesn't mean that [the benefits] are not there and that they won't come [eventually]."

However, Deragon says, Zurich finds itself constantly changing business models as it moves from the "initial and traditional" understanding of e-concepts into what he calls the "white space" of today's uncertainties. "You're moving more into the area of communities and things like that, where it's not an easily defined part of the market - the parameters are not well known - so it's somewhat exploratory," he says.

Such uncertainty seems certain to remain a prominent part of the landscape for some time to come.

If the hype surrounding e-business has finally eased, the imperative for e-business has not. IDC notes 2000 saw determined efforts by well-established brand names like Dymocks and Coles Myer to create a business channel on the Web and the birth of bricks-and-clicks hybrid alliances like GreenGrocer and Woolworths, Wishlist and Bpsphere. There were also announcements of B2B initiatives in e-marketplaces, e-distribution or e-procurement from some of Australia's largest companies.

Nevertheless, finding the best ways to do e-business is temporarily bamboozling some companies. For instance, some organisations have tried, and failed, with structures that seemed logical at the time but which have proven detrimental to their e-business efforts.

"What has happened is that those business models that were developed to cash in on the dotcom boom, where [New Economy companies] thought they would create a need that wasn't really there, they're the ones that have gone bust," says Dun & Bradstreet Australia & New Zealand (D&B ANZ) managing director Christine Christian. "You know, like where the owners felt they could change the buying behaviour of individuals and, as it turns out, women in particular still like to go shopping. They still like to walk the pavement, go into the shop, feel the fabric, look at the cut. You know, it's the whole tradition, it's the whole experience. And a lot of the realists during the dotcom era never for one minute thought that people would change their habits altogether."

These days companies are taking a much more realistic approach says Gartner research director John Roberts. For a lot of organisations that means coming to grips with the transformation of their business processes.

An organisation as large as Telstra, for example, now has senior executives looking at e-supply - in other words, with e-enabling procurement, supply chain and collaboration. Another group is looking at "e-people", focusing on how to streamline every aspect of the business that involves their own people. "And then, not surprisingly, a third strand is e-customer," Roberts says. "That's a fairly typical type approach."

Other realisations have followed. For instance, hindsight - that wonderful concept - has made it clear that spinning off the e-business unit into a separate unit may not have been the best road travelled. Indeed, many of the most successful e-business efforts have been made by companies that integrated e-business into every other aspect of the business right from the start.

At Corporate Express Australia, e-procurement has been integrated into every aspect of the business since 1997. The company now trades about $180 million a year through the site. There are about 30,000 users and the site transacts about 2700 orders a day.

"In the last year we have continued to grow that . . . but we've also been connecting with the other e-procurement systems and marketplaces that are there: Ariba, Commerce One, SAP and Oracle I-procurements," CEO Garry Whatley says. "We've enabled Net Express so they can connect directly, so someone like Ariba uses their punch-out type approach, shops our site and brings it back, and we've also done a lot of work in providing catalogues for certain customers so they can put them behind their firewalls."

The Internet is a facilitating technology that alters the economics of purchasing non-production goods and services for every player in the supply chain, Whatley says. It has contributed greatly to shift the power from seller to buyer. He says Corporate Express' experience in building the largest B2B site in Australia has reinforced its belief that e-commerce should not be a separate part of the business. It needs to be recognised as an alternate channel but must be fully integrated with all business processes.

It seems most Australian organisations now agree. In fact, many larger organisations are now bringing their dotcom units back into the business as they more fully recognise the value of using the Internet as an additional channel rather than an alternative channel.

Indeed, today it seems clear that companies that spun out separate division e-businesses just for the sake of doing so had temporarily lost the plot, says Oswin Martin, project manager Internet e-commerce division with Vodafone. "E-business does require an Â'e' mindset with time-to-market considerations and so on, but must be based on sound business principles with effective risk management and mitigation strategies in place," Martin says. "Organisations that persevere and continue to e-strategise will gain a competitive advantage. However, these will typically be companies that already have a sound business model and have a sound growth strategy."

Industry consultant Robert Kirby agrees. He likens forming the kind of "e" business unit that has been put in place by ANZ, NAB, Telstra and Coles Myer (which has since renounced the strategy) to Australian corporations trying to operate on the world stage with an "international" business unit.

"It just means they don't get it," Kirby says. "Global businesses operate in global markets and their deployment in various markets may vary depending on the channel strength they have in each of those markets - but the business must think global to be successful. Similarly, e-business structures are all about applying smarter ways of deploying goods, services customer care etc into the marketplace. To run this in a discrete e-business unit means the mind space of the corporation as a whole is not where it needs to be."

Deragon would not agree. For Zurich, creating the e-business unit into its own operating area was - and remains - a valuable exercise. "For us, it had as much to do as cultural change as anything," he says. "In other words, making sure these people knew they were there specifically to do that [e-enable] and weren't deviating from that course, weren't being side-tracked by the existing business. We found it helped people to focus on the delivery on it rather than to be distracted by the regular issues and the regular business."

ANZ group managing director, technology and services David Boyles says ANZ resisted the pressure to spin its e-business unit out into a dotcom before and continues to have a clear strategy that initiatives in the e-business area should be integrated with all the other strategies of the business. While the bank has forged alliances with, and bought equity stakes in, a number of outside parties, it is now abandoning some of these projects. ANZ joined the CorProcure e-Marketplace and has taken part in a few other activities external to the bank, some of which it has since extracted itself from or shut down.

For instance, in early March ANZ and Overseas-Chinese Banking Corporation Limited (OCBC Bank) announced both had agreed to withdraw from their joint venture to develop a Web-led bank in Asia. The announcement followed six months of detailed work on the stand-alone business model which indicated the financial returns were not sufficiently compelling given the market entry costs and the softer economic environment.

"The economics started to look not that good and we had some key milestones that had to be met in terms of the return on investment and the like, and it didn't look like we were going to make those so we basically shut it down," Boyles says. But he adds that the direction of the bulk of their e-business efforts hasn't changed. ANZ is aiming to build an "e-bank with a human face".

"Basically we're saying no matter what type of customer you are, and no matter which of our channels you want to come in through, whether that be a face-to-face channel or an Internet channel or a call centre, we will treat you in a personalised, consistent, ANZ fashion," Boyles says.

The aim is for processes to be as close to online real-time as possible and for the bank to use straight-through processing in the back room to drive online real-time capabilities. "Each of the businesses focuses on their business segment and how they deliver that, and then internally we actually are focused on the same thing with regard to our employees. We actually want employees to be able to self-service around things like HR and purchasing and travel and so on, so we're working hard to put that in place. I don't think of a whole lot that has really changed," he says.

Today it seems increasingly clear that the structure of the e-business unit is less important than the goals it sets out to achieve. When Arthur Andersen recently asked 120 companies how they were approaching e-business, it became clear the successful ones recognised that e-business is not about creating a separate business but rather about transforming the way they do business.

Most winners have not created a separate e-business unit, says Andersen digital strategy partner Martin North, but have rather set about raising awareness and enabling their line management to incorporate digital thinking as part of everyday business. Look at GE or Charles Schwab for examples, he says.

North says some companies that did create a separate e-business unit have now rolled that back into the business. "Anyone with the title of general manager e-business should in my view look out. It is no longer a separate line of business," he says.

The importance of integrating the e-business efforts cannot be overstated. North completed a stocktake for one company recently to find 158 e-business initiatives across the organisation, with a significant degree of duplication. For example, there were four duplicate e-procurement initiatives under way in different sections of the business, doing the same thing but on different platforms. "[E-business] is a marathon not a sprint and has to address all dimensions of the business - separate fragmented initiatives lead to duplication and frustration," he says.

According to North, the trick is not to borrow the structure of the dotcoms but to selectively use their techniques to fast-track implementation. But while you do not need a separate business to run your e-business initiatives, you do need a team to manage them and focus on e-enabling operations in conjunction with existing business units/departments, he says.

This is the approach CGU Insurance used successfully many years ago when it first started implementing EDI into the organisation, says e-commerce manager Grant Finlayson Smith. Now the EDI processes are just part of everyday business.

"The same thing will eventually happen with other current e-initiatives. But for now many of the technologies and processes are new and threatening to the business status quo. They need to be championed from the CEO down and managed by a dedicated team to ensure that the new becomes seamlessly integrated [and] replaces the old. Do it well and people will barely notice - then it starts to become just business as usual," he says.

Amidst the uncertainties, Australian bricks-and-mortar companies are hitching up their trousers, rolling up their sleeves and getting on with the serious slog of transforming their businesses, sans hype, sans frenzy, often sans dotcom spin-off and against a backdrop of economic downturn, layoffs, and shrinking IT budgets.

Gartner research director Bruce McCabe cites high levels of e-business activity across all sectors of Australian industry, and says on a global level Australian corporates are progressing well.

"There is actually an incredible amount going on in the banks, manufacturing sector, in mining, in government," McCabe says. "We'd all like to do more, and faster, but in the scheme of things on the global level I think Australian corporates are actually progressing very well and indeed Australian governments, for all the criticism we might level at them, are among the most advanced in the world in e-process."

Gartner analyst Rolf Jester agrees, saying while some companies that started with a new business model failed because the model was poor, companies with a sound business model are not slowing down at all.

"Some of us thought after the dotcom crash that maybe they would say: Â'Oh phew, we don't need to worry about competition coming at us from dotcoms now so we can relax and go back to doing what we were doing before.'. Well they're not really doing that.

"The way we know that is the large service providers, be it the consulting houses, or the systems integration companies, or just the large general IT companies that among other things do lots of services, and also the outsourcers, are still picking up lots of business to do with e-business. It's still growing," Jester says.

Pacific Commerce marketing director Colin Kempter says many larger companies are now building their own private exchanges. "That means, interestingly enough, setting it up as both intranet and extranet so they disseminate the product information and all that stuff internally; but they also trade outside the organisation. It's a two-way facing thing. There's definitely a trend there," he says.

So while company executives may be taking a close look at IT expenditures this year amidst talk of capital spending slowdowns and the Internet stock crash, e-business is likely to be spared deep cuts. CIOs might find themselves pressured to do more with less, but few companies are showing signs of being prepared to entirely cut their e-business projects, says IBM country manager, Net generation business Peter Hreszczuk.

"They are bringing them [e-business projects] back into a lot of businesses because the bricks-and-mortar organisations large or small are seeing the value of e-commerce and e-business and what the benefits of that are," Hreszczuk says. "To give an example: across IBM in 1999 our total e-procurement, using either private network or the Internet, was $US13 billion. Now we saved $US270 million by doing it using e-business, e-infrastructure. In 2000 our e-procurement rose to $US43.2 billion with a saving of $US377 million. When you have a bottom line net profit of around $US8 billion (our financial results for 2000) $US377 million to the bottom line is a big figure."

The investments bricks-and-mortar firms are making in building a Web presence dwarfs that made by venture firms in pure-play start-ups. But won't the crash affect the investment activities of even bricks-and-mortar firms?, speculates IDC senior vice president John Gantz.

No. Or at least not much, he concludes. The reason is simple: the battle is already engaged. Charles Schwab may have built up its Internet stock trading business in response to Internet-only firms like eTrade and Ameritrade, but Merrill Lynch changed strategies and entered into discount Internet trading because of Charles Schwab. For every dotcom that competes with an established business, there are a dozen established businesses with online operations to worry about now.

IDC believes an end-to-end integrated e-business is the logical next step after the integration provided by enterprise-applications suites and e-commerce applications. "Think of it this way: this year, companies around the world will spend more on IT to support e-business than they did in five years of preparing for Y2K. That's more than $US300 billion," Gantz wrote in a recent issue of Computerworld (US).

Preliminary results from IDC's e-business adoption study in 27 countries indicated companies are implementing e-business with a vengeance, to the extent that IT departments are unlikely to be able to handle the workload.

According to the latest release of IDC's Internet Commerce Market Model, business-to-business (B2B) e-commerce is proving to be the real driver of e-business in Australia. In 1999, 60 per cent of all Australian Internet commerce revenue came from B2B; however, this will increase to 72 per cent by 2004, representing more than $US 27 billion.

"The opportunities in business-to-business e-commerce will continue to inspire the creation of e-marketplaces," says Brooke Galloway, IDC senior analyst, Internet and e-commerce. According to IDC, an e-marketplace is an Internet-based broker of goods or services in a community of many buyers and many sellers. "Today, the vast majority of B2B transactions are originated from either procurement or distribution systems, yet the landscape is set to change drastically by the end of 2004. E-marketplaces, while today only representing a fragment of B2B transactions in Australia, in 2004 will represent the vast majority of B2B transactions," Galloway says.

Meanwhile, e-business provider Corechange claims 35 per cent of Australian organisations with more than 1000 employees expected to have completed enterprise portal projects this year. Of these, 73 per cent supported business-to-employee (B2E) functions, 54 per cent business-to-business (B2B) and 9 per cent business-to-consumer (B2C).

"Bricks-and-mortar businesses with an Internet arm have learned that integration between their traditional and online business is key to success," Galloway says. "More and more customers expect to be serviced through whichever channel is most convenient and comfortable for them at any given time. That is why enterprises should not think of themselves as running two separate businesses - a traditional business and an online business - but one business which delivers through different channels."

For Corporate Express, integration remains the biggest barrier to developing a thriving e-business. Whatley believes the lack of integration between technologies is now worse than it was during the era of open systems and worse even than it was in the days when EDI reigned supreme.

"Probably the biggest inhibitor to us going forward is the lack of standards. Every vendor has got their own standard and multiple versions of products, and everyone is really working in real time so the standards are changing on a constant basis," Whatley says.

"CorProcure is one of our customers, and we're working heavily with them and with SAP to try and adopt some standards and an underlying data mapping format that we can consistently reuse. The goal is to ensure every implementation that we go into isn't having to be reworked from mapping and looking at processes."

Likewise at D&B ANZ, e-business efforts are constantly expanding while the core strategy remains unaltered, says Christian. As a 160-year-old company, D&B ANZ has a "lot of bricks-and-mortar behind it" yet its e-business unit is growing, she says. Currently, 82 per cent of all the organisation's transactions are conducted via the Internet.

"Why we and the other Internet companies or e-commerce companies are going to succeed is because our product actually lends itself to the Internet in that we provide information, we sell information, and when people need information they need it in a hurry to make a decision. Whereas we used to provide our services by mail many, many years ago and then by fax and then we had proprietary software where there was still hours of delay between the order and delivery, we've been able to capitalise on a model that serves our offering perfectly."

Many of Australia's e-business proponents are joining the E-Hubs Asia Discussion Forum (List Server), which offers content and communities to businesses that are interested in B2B e-commerce and e-marketplaces especially within Asia-Pacific. Subscribe by sending an e-mail to:

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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