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The E-Commerce Payback

The E-Commerce Payback

Tom Oleson runs IT Advisor, the IDC end-user research program. Tom has over 30 years business experience with John Hancock in the US and broke through the imaginary glass ceiling of IS to become the CFO of the organisation.

I first encountered his work in 1996 when I was running a series of InTEP sessions on Y2K. I found him a calm ship in a storm of paranoia. Everywhere I looked all I could find were doomsayers who argued that business and IS were hopelessly ill prepared for the new date. Tom, on the other hand, maintained the problem was being exaggerated and that, certainly in the US, businesses were confident of addressing the changes required in the allotted timeframe. When I heard that Tom was in Singapore delivering a paper titled "E-Commerce and its Return on Investment (ROI)", I invited him to present it to a special Sydney meeting of InTEP.

Tom stressed that e-commerce cannot be an island of automation; for it to succeed all functions within the organisation must be integrated with it. In a typical commercial organisation this requires linking the Web-based customer service systems with the logistics and inventory systems as well as the back-office accounting functions. Tom argued that no business case for e-commerce was accurate if it did not include a full assessment of the costs of integrating legacy applications with the new Internet services.

He then identified three potential sources of ROI that could cost justify these business cases. Firstly, e-commerce could provide competitive advantage by changing the dynamics of the industry. The first organisation to embrace it effectively might stand out from the crowd and create a leadership image in the consumer mind. Alternatively, e-commerce can provide its ROI through organisational efficiency such as an additional distribution component. These benefits can be realised from improved products, new customers or expanded assets. Finally, e-commerce can generate process enhancements that reduce support costs to clients and increase the speed of response to their needs.

Tom cautioned against pursuing a gold rush view of the online world. In his mind the IS industry was a textbook example of the fact that the most successful vendors were rarely the pioneers or innovators. Instead they usually copied and entered in the second wave when technologies were more robust. Using actual examples of US organisations, he stressed that companies striving to be the first to market will fail without a sound business plan supported by a good ROI case and a good execution plan.

Tom recommended that businesses should view e-commerce as a strategic, rather than tactical, investment. As such, he did not see a positive cash flow as likely in the short term and recognised that the break-even point would depend on future revenue growth. However, with all the talk of the Internet boom he advised that the biggest task for most CIOs was setting management expectations for the likely ROI on their e-commerce investments.

Tom identified Christmas 2000 as the critical test of whether the e-commerce revolution was ever going to eventuate. In his view, the barometer for the potential of e-commerce was Amazon.com. If after five Christmases it was still unable to make a profit then surely it would not be unreasonable for investors to doubt if it ever would. This in turn would flow through to their perceptions of other e-commerce suppliers. Time will tell if, like Y2K, he is right.

Peter Hind is the manager of User Programs, which includes InTEP, at IDC Australia

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