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PO'd

PO'd

How do technology initiatives fail? Each in its own way. Mail Boxes Etc. spent US$25 million to position itself as the real-world shipping partner to the virtual e-tail space. It was indisputably a great idea. Only one problem. The technology doesn't appear to work. Many franchisees are in revolt against the system, calling it "a pipe dream." Headquarters insists everything is just fine. But key customers are disenchanted. Read on for a cautionary saga of frustration, stubbornness, poor communication, arrogance, raw power and wasted opportunity.

It's a busy lunchtime at the Mail Boxes Etc. on Beacon Street in Newton, Mass. A well-heeled matron needs to send a trio of cashmere sweaters in sherbet hues to her vacation home. Uniformed delivery guys hustle in, grabs their packages and go. The phone rings constantly.

Owner John Sousa maintains his good humor as he moves briskly to help his customers. His smile fades, however, when he attempts to price a customer's package using an Internet-based shipping, or manifest, system called iShip. "I have attempted to connect every hour on the hour, and it still hasn't worked," says Sousa, who owns another Mail Boxes Etc. (MBE) in Brighton, Mass. Getting no joy from iShip, he turns to an archaic DOS-based system that dates back more than a decade. "It's not sophisticated, but it works great," he says with a shrug.

It wasn't supposed to be like this.

The iShip system is part of a massive technology overhaul MBE embarked on two years ago. The brainchild of MBE President and CEO Jim H. Amos Jr., the project was meant to position San Diego-based MBE as the premier shipping partner for e-tailers. "Because of our bricks-and-mortar on the ground, I thought we might have an opportunity that no one else had," says Amos.

By building a satellite network to connect the 3,500 domestic franchises with corporate systems, an Internet-enabled point-of-sale (POS) system and the iShip manifest system, shipping at MBE would become enticingly simple. The idea was that a returning customer would need to give only his phone number to the MBE clerk for service. Up would pop his entire order history and recipient address information. Customers would no longer need to carry their address books into the store. They would feel instantly at home, as if they were part of a special group. At least, that was the plan.

"It's a great idea, all right. It just doesn't work," says Sousa. Besides using the DOS manifest as the default shipping system, Sousa has ditched the satellite network in favor of a local digital subscriber line (DSL) provider for Internet service. He relies on paper forms in duplicate to do the bulk of his business. To Sousa, the new systems have been a big disappointment. "None of it connects. This is all a pipe dream."

Sousa is not alone; in February 2000, a group of MBE owners formed the Independent Association of Mail Box Center Owners (IAMCO) to combat what they see as headquarters' resistance or inability to improve technology, among other issues. According to IAMCO President and MBE owner John Boyd, the group has about 400 members representing 500 stores.

Although MBE executives insist that the technology works fine, an internal MBE memo obtained by Darwin seems to suggest that the company is indeed rethinking its technology strategy, which would mean deep-sixing a lot of money. All told, MBE spent in the neighborhood of US$25 million on its technology program, including equity investments in a host of dotcoms such as iShip, in which MBE invested US$4 million. That's a significant chunk of change for a company with only US$81 million in revenues (sales for the global MBE network were approximately US$1.4 billion in fiscal 2000).

The system is only part of the problem with Amos' e-business strategy. Its high-profile agreement to be the exclusive shipper for online auction giant eBay has stalled, and iShip is faltering financially.

(As Darwin went to press, MBE announced that it had been acquired by shipping giant United Parcel Service of America (UPS). Amos would not specify an amount, but other press reports put the price in the neighborhood of US$191 million. Amos says he plans to stay as CEO.) The MBE story is shaping up as one giant case study for how not to do a strategic technology initiative. Indeed, some believe this project has negatively affected MBE's health. "The growth of the network has come to a complete standstill. There are a huge number of Mail Boxes Etc.'s up for sale all over the country," says Tony DeSio, cofounder and former CEO of MBE. DeSio, who retired in 1998, handpicked Amos (a former Marine captain and ex-head of the I Can't Believe It's Yogurt chain) as his successor. He voices regrets about the current tension in the company. "I feel like I abandoned all these people who put their faith in me," he says.

While the UPS deal will likely add an infusion of capital to help mend MBE's technology woes, it's still worth asking why such a well-intentioned idea failed so signally. After all, the plan to connect the franchises and Internet-enable their operations was not fundamentally flawed. The answer seems to lie in a tangle of poor technology decisions, bad market timing, and a disconnect between the services MBE offers and what many of the e-tailers want.

ROLLING THUNDER

MBE started about two decades ago, when many of the outlets ran on little more than phones, fax machines and simple Casio cash registers. Some owners added PCs throughout the 1990s, but there were no corporate technology standards. In fact, since MBE's franchise agreement didn't stipulate any particular technology requirements, Amos knew that he couldn't force new systems onto anybody. He needed to persuade at least the majority of franchise owners to sign on to his idea.

So in April 1999, the MBE executive team commenced a 30-city road show, dubbed Rolling Thunder in Amos' beloved military spirit. The task: to paint the picture of Amos' technology vision for MBE and sketch out an implementation road map. For several months, the group met with franchisees in conference rooms at local hotels on Saturday or Sunday afternoons, when the owners could afford a few hours off.

In a series of PowerPoint slides, Amos, along with CIO Ray Causey and several others, described the technology plan, its costs and time frame. The executives explained that MBE corporate would pay the fee for the first year to connect to a VSAT (very small aperture technology) satellite network as well as 50 percent of the systems' cost. Franchise owners would have to cough up about US$2,000 per store for the POS and manifest system on top of 8.5 percent for royalties, a media fee and a marketing fee.) Sousa recalls thinking that the technology was dated. The satellite hookup, for example, would run at a speed of 115Kbps for file downloads and 52Kbps for uploads - "That's the same speed as a dial-up connection," he says. When he and others questioned why MBE wasn't going with speedier DSL or cable modem technology, the executives (including Causey) said those services were not available in all MBE locations. "I didn't see why they wouldn't make other arrangements for those who couldn't get DSL. Why did I have to go with this older, slower technology?" says Sousa.

Overall, however, the pitch was a success. Amos and other executives stayed on the message of increasing revenue and protecting MBE's enviable number-one position in its sector. At the Rolling Thunder meetings, 80 percent of the franchisees agreed to install the new systems.

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