A Russian soldier stationed in West Berlin after the Second World War wandered into an empty house and saw an electric light bulb for the first time. Fascinated by this magic light-generating globe, he cut it off with his bayonet and put it in his knapsack, so he could carry around the light with him wherever he went.
In the new economy, too, many bricks and mortar businesses are thinking like that Russian soldier, First Step Communications director Gihan Perera says. They fail to realise that successful e-commerce Web sites are like a light bulb - what you see is not even close to what you get. (You can read Perera's article "The Seven Deadly Sins of Electronic Commerce" online at http://www.firststep.com.au/articles.) "The Web site is just one part of a carefully planned and successfully executed business strategy," Perera says. "You can't just pick up the Web site, put it in your knapsack, take it somewhere else and use it to light up the Internet."
But traditional bricks and mortar organisations trying to develop a strategy for e-business fast enough to give them an edge can find this a huge challenge in a landscape that's constantly shifting underfoot and becoming more hostile by the day. So with the help of some people with impressive track records in the field, CIO presents its rough guide to developing e-commerce strategy at e-speed.
"It's a naïve business that launches into the Internet shopping world with an expensive Web site, expecting high profits in the short term," says Shane Jackman, media and communications manager with The Natural Source. "Digital graphic designers and programmers are creating hundreds of impressive and expensive sites by the hour, but there is little evidence or promise (and no guarantee) that this is money well spent by forward thinking, competitive and possibly struggling small and large businesses looking for an edge. You have to do your homework and you must know what makes your audience tick - inside and out, now and in the future."
Greengrocer.com CEO Doug Carlson goes further. "One of the major things to be learnt is that it's not about just building a Web site: it's about building, as Bill Gates says, a digital nervous system for the company," Carlson says. "It's not about taking your regular business and just adding a Web site and taking sales online from that. It's about integrating your Web site with everything in your business - customer service, accounts, logistics, distribution, purchasing - everything has got to be run off the one system."
Wanted: leadership. Companies have to consider every element in designing the e-business, asserts Paul Lewis, associate partner financial services with Andersen Consulting. That means addressing processes, technology, infrastructure, organisation, culture, skills, leadership and the measurement systems to reinforce them in a coordinated way that ensures required changes to all the elements work together. "Trying to re-engineer the business processes without considering what will be needed to attract and retain the Web-savvy people who are needed to operate them is as likely to create the desired business result as trying to get an old line CEO to use e-mail," he says (see "Manning the New Economy", Page 94).
Transforming to an e-business is like leading a fleet of rafts down a white water river. Since the leader can't know the conditions in each raft at every moment, the company will need many capable leaders with extremely strong program management skills. "These leaders must be comfortable with improvisation, small group autonomy, and steering from point to point rather than navigating a course plotted out in its entirety at the start of the journey," Lewis says. "They must also know when to seek wider cooperation, by hitching their raft to others."
And the leadership and management style is just one of the fundamental things that has to change - decision making, too, needs to be done at speed and must encourage innovation and creativity. Lewis says that in too many large organisations the layers of hierarchy and bureaucracy initially put in place to avoid making expensive mistakes are proving barriers to innovation. Bill Gates, notes Lewis, writing in Business @ the Speed of Thought, says the most important "speed" issues are often not technical but cultural - "it's convincing everyone that the company's survival depends on everyone moving as fast as possible".
Quantify your risk. Hairdressers and carwashes may be safe, but just about any business that can separate information about itself from the product or service on offer is at risk of losing out to Internet start-ups, says Quik International president Jack Reynolds. And if you are at risk, you'd better know it sooner rather than later. "Take newspapers," Reynolds says. "The reason people buy papers is for the classified ads; so if you can separate that information from the actual paper, then you can devalue the paper and create value on the Internet.
"Likewise, there are now Web sites where you can purchase groceries online. When you go into a grocery store, you read the box and you see how many boxes are on the shelves. If you can separate that information and do a Web site that shows how many items there are and what the items are, then you can do things like move the grocery store to a low rent area and use freezers that don't let out so much cold air. By separating the information from the thing, you create a new value chain."
Reynolds says on the Internet customers will always try to find a way around you to a better deal, and you'd better understand that. "If you have any product or service that one of your customers can get on the Internet in a better and cheaper way, they're absolutely going to do it. It's really the first time that the actual competition has been the customer and what they can do on the Internet."
Last year 650,000 Australians purchased something on the Internet, Reynolds says. Sixty per cent of those purchases were made outside Australia.
It's also vital you understand your value proposition, says e-Business Australia managing director Tony Clement. There are essentially three different types of value proposition. The first offers operational efficiency. People buy from McDonald's not for the great-tasting hamburgers or low price but because it's convenient and easy. The second proposition offers customer intimacy. Consulting companies tailor each and every offering they have for each and every client. The third is product leadership. Sony and Mercedes are name brands which offer quality and product innovation.
"Determining their value proposition is where an existing business needs to start," Clement says, "yet it seems that many Australian organisations, particularly in the small- and medium-size enterprise market, haven't articulated that."
Develop a vision. When setting your e-commerce strategy, make sure you understand what it means for your organisation, Perera says. "Don't just think about what you're doing - consider why you're doing it. By all means, look around to see what others are doing with e-commerce, but don't just copy their tactics without understanding how they fit your strategy."
You need to take risks, you need to think fast, and you need to be prepared to be wrong; but you must also realise when you are wrong and be prepared to change tracks, says Deloitte Touche Tohmatsu e-business head Peter Williams. "You've got to try and get buy-in across the organisation," Williams says. "You tend to have a certain percentage of doubters and rejecters in every organisation, and part of the strategy is to realise that you may never get to the rejecters. But you should look for ways to turn the doubters into acceptors and acceptors into evangelists. Within a traditional business you've got to be a bit of an evangelist. You've got to go in there and paint the skies for them a bit, let them see what the possibilities are."
And once you develop a vision, you have to run at it and be prepared to do it properly. It's absolutely no use trying to implement that vision on a dip-your-toe-in-the-water or incremental basis. "A lot of strategies that I see are almost apologetic in their background," Williams says. "I read through somebody's business plan the other day that said: 'Oh well, we think Internet stocks might be overvalued and we don't really know whether this is going to make any money, and we think it's hard to make money, but we're going to do it anyway'. I went back to them and said: 'Look, I've reviewed this plan; but if you are going to do it, do it, and believe in it. If you don't believe in it, don't do it'."
Involve everyone in strategy development and be transparent, Williams advises. That means not only showing those involved examples of successful strategies, but also pointing out the likely consequences of not taking any action. A SWOT analysis can come in very useful when it comes time to translate that vision to the Internet, Clement says.
Define an e-business architecture. An e-business framework needs to include a business strategy. However, also ensure that you're putting together a technical architecture that can support and enable that business strategy. "It's kind of a cycle," Clement says, "where you understand the capabilities of the technology, in order to implement the business strategy; and you need to understand the business strategy, in order to implement the right technology."
Organisations have to consider ways to Internet-enable their entire IT architecture, as well as their business process architecture from a software enablement and business process standpoint (see "Tying It Together", Page 104). Clement says it is vital to have robust business systems like ERP or CRM systems in place, because the business rigour involved in implementing an ERP or CRM system is easily translated to the Internet.
"If you don't have these business processes in place, then what's electronic about your business?" he asks. "This is a big mistake that a lot of organisations are making today, even start-ups, with electronic business. They just don't have any back end, so they're not really achieving the efficiencies that are available through electronic business."
Create an e-Business environment. David Boyles, ANZ Bank's head of technology e-commerce and payments, says the bank did some "fairly smart things" to help it to operate at e-speed.
First, it appointed e-commerce leaders to sit in each of its three main business units. There's an e-commerce head in personal financial services to deal with the consumer and small business segment another in the corporate financial services arena to deal with the corporate and middle market businesses, and a third in its international unit to deal with international issues.
"We then also set up an e-commerce technology centre of excellence, and we agreed between myself and the business unit heads that we would have a single technology platform from which to operate all three of these business units," Boyles says. "Then we brought in a core of people who really understand how to make these things move quickly and how to make things run well, and we have built a standardised Web platform for delivery of Internet and intranet services."
The bank gets maximum flexibility to develop new products fast in response to changing circumstances, thanks to standardised modern development tools, standardised processes, and a Rapid Application Development methodology. "What that basically allows us to do is that any product that is developed gets developed very, very quickly. If it is developed for small business and seems to have applicability to large business, it requires either no change or minimal change to add a few features and move it over to the corporate environment and offer it to the corporate customer," Boyles says.
It has also made it possible to standardise the testing process and create an automated testing environment. "You can only do that if you have a consistent platform," Boyles says.
And there is another advantage to settling on state-of-the-art and consistent development tools and development processes: it made it relatively easy to produce a guidebook for outsourcers. Projects that have to be developed fast can be outsourced very easily if the internal resources are not available. A "captive IT company" in India called ANZ IT complements the bank's Australian and other development resources and makes it possible to do development work at a fraction of the cost.
"We certify providers so we can do any overflow work in India with outsourced companies. That basically gives us a virtual development environment, where we have a core of people who really know what they're doing and who know ANZ, but we can move the work to anywhere else with some supervision by our internal people, and get it done anywhere," Boyles says.
Select projects cautiously. Once your business framework is outlined, Clement says, you need to carefully consider individual projects.
"For each project you need to start with a project plan, do a requirements definition and functional specification - all that stuff - and basically you need to build a business case for each project. That's where a lot of organisations are falling over," he says. "And I think executives and boards can make those decisions very easily. If you have a business case that says this is how much it's going to cost you, here's the anticipated return, here's the metrics for us to determine how close we're coming to achieving our goals, and here's the timeframes, then that's something they can get their heads around.
"If you say: 'I've got a huge piece of string here and some day we'll either get a return on it or we won't', typically you won't."
Clement says implementing electronic business from a technology standpoint is no different from implementing an ERP system, a client service system or a new network. You would not give those projects to a "bunch of yahoos" to implement for you. Nor should you do so for e-business. While it is fine to call on Web developers for their creative content, vision and ideas, it is up to CIOs to apply best practice project management. Clement says the Unified Modelling Language has emerged as the Internet development standard for a robust client/server-type systems environment.
Measure your outcomes. Every project needs specific goals and you should also set measurable outcomes, Clement says. That means understanding your target audience and the value they are likely to get out of the project, finding out what might drive them to your site, then gearing your measurements for success on that. "Is the desired outcome to reduce costs, to lock in a client, to reduce cost of cycle time? Whatever it is, once it is defined you can then measure that outcome, because then you have something specific to go on.
"You might say we expect to have 20 clients transacting 10 per cent of their business through our site in the next three months. When the three months is up, you might see there are actually 20 clients who are transacting 12 per cent of their business instead of 10 per cent," Clement says. "To me, that's what the executives and the boards are looking for, particularly in the existing businesses, from their electronic commerce projects."
Fast Track to E-Business
When Deloitte Touche Tohmatsu built an e-business recently, the process took just six weeks from conception to launch. Not bad at all considering that along the way the organisation had to build an infrastructure, forge joint venture partnerships and develop its Web sites.
"We started off with somebody who had a deep understanding of what they were doing, which was me and a couple of people from my team," e-business leader Peter Williams says. "We put together a business plan in less than three days. We went and saw the CEO, got it signed off, and got funding and backing for it. We then ran a full-blown project management methodology across it where we assigned roles and responsibilities."
Being an active player in the marketplace played a big role in speeding up the process, freeing the organisation to bypass altogether a lengthy tendering process. Williams says he knows who the best developers in Australia are and the people with whom he wants to partner.
"I think a lot of traditional IT departments will want to run through a full-blown process where they work through the specs and all that sort of stuff. On the Web it doesn't work quite that way. To work at Internet speed you've got to get people who have done it before, and you've got to make sure as part of the process that they're working in partnership with you, so you're learning from them as you go."
Williams also saved time by not being too prescriptive up front. The best way to do e-business is to learn through doing, he says. Choose your partners up front, get them aboard early on, and accept that unless they seriously make a mistake, you will be relying on the style of the technology and the publishing they have put in place "pretty much for life".
"Get people who can get it up and get it running, then make sure you are empowered to keep it going. That's Internet speed, where you're almost cutting corners, but doing it in an educated way by using people who have done it before."
- S Bushell
Maximise Your Chances
Companies looking to maximise their chances of success in the New Economy should operate with a fast culture and implement in short sprints using strong program management, says Paul Lewis, associate partner financial services with Andersen Consulting. Lewis offers six steps to clients wanting to succeed.
* Think big, start small, scale fast
Companies need an expansive and compelling vision of the new business in which they want to compete and should never think of the Internet as just another distribution channel. "Gain first mover advantage by being able to implement fast on a small scale and learn through experimentation," Lewis says. "But ensure that the business solution that you have is scalable - in particular, the infrastructure and technology elements."
* Consider creating a new and separate organisation unitThe scale and scope of changes needed to achieve a successful move into e-commerce is so high you are more likely to succeed if you manage the Web business as a separate entity. Traditional corporate decision making processes are too slow and risk averse where success depends on being able to move first, build momentum and sign on other alliance partners.
On the other hand, if order fulfilment or product availability are key to success in an e-business, Lewis recommends keeping the start-up within the boundaries of the existing company, to take advantage of the strengths the company has in the physical world.
* Allow cannibalisation
Unless you allow cannibalisation of your existing channels to protect the existing business, then someone else will soon cannibalise them and the new business will be marginalised. Bank One in the US set up Wingspan.com as a completely separate Internet bank that competed directly with Bank One and even with the successful BankOne.com Internet branch. Lewis says Australian companies still seem to be struggling with this challenge and run the risk of losing their market position to new nimble start-ups.
* Use scenario-based planning to plan for "eventuality of everything"In the e-world, things are not only moving faster but in increasingly unpredictable directions. Scenario-based planning allows organisations to react fast when they sense a change to the environment. For example, at Solutia, Monsanto's chemical spin-off, strategists now plan for four different short-term outcomes from each initiative, enabling them to change and act fast when they have to.
* Put into operation the concept of being directionally correctYou must be comfortable with things being right but not perfect. "The implementation process is structured as a series of sprints and iterations in which something is tried, [something is learned], and the solution adjusted and re-implemented. Mistakes should be expected and seen as learning opportunities - failure has to be tolerated," Lewis says.
When milestones loom, participants put their heads down and produce results. Sprinting keeps innovation happening and course corrections can occur at the end of every sprint to keep the journey on track and in line with environmental changes.
* Proactively manage the rational, emotional and political elements of the journeyMobilising the organisation around the new vision involves creating a sense of urgency and energy, allowing for two-way communication to address concerns and issues, and including the best people in the organisation to develop the journey plans. The goal is to ensure that the organisation "owns" the transformation Coping starts with creating an organisation that senses how customers' needs are changing, and which can rapidly learn how to respond to these changed needs.
It also means being willing to engage in a continuous process of trial and error. ("Making a decision quickly, being 70 per cent right, and making a few mistakes and then adjusting - which I call being 'directionally correct' - has more business value than making a decision slowly and being 99 per cent right," Lewis says.
But "sensing and responding" and being directionally correct are easy when a business is small. Information sharing occurs informally and freely between people and the "start-up culture" has normally been built around being directionally correct. When an organisation gets big things become considerably more difficult.
- S Bushell
No Pane No Gain
Moving a traditional organisation into e-commerce is "character building, to say the least", says Pilkington Building Products Australia's e-commerce manager Garry Millar. Pilkington has been moving quickly on an e-business strategy to help it capitalise on its competitive edge while maintaining and building on customer loyalty in the face of strong threats to its market share from aggressive global competition.
Not content with being the first subsidiary in the world to go live with SAP, Pilkington Building Products Australia is now leading the Pilkington world on the uptake of e-business, (with the UK head office about to pick up ideas from Pilkington On Line and replicate them around world).
"Like many Australian manufacturers the company initially reacted to competitive threats from overseas with massive and ongoing cost reduction programs including considerable downsizing," Millar says. "As a result, the executive group led by the chief executive acknowledged that we had to have a look at doing business differently."
In April 1998 the company engaged a consultancy to help it draw up an e-business plan, incorporating e-commerce, sales force automation, customer relationship management and telesales. It also sought to exploit the synergies to be had by moving on all the initiatives simultaneously. Champions from every state were brought together to help implement the initiatives and to cascade learning throughout the organisation.
Of those, the most significant was the e-commerce initiative, begun at a time when Pilkington Australia had no Internet presence. Millar says the prime driver of the initiative was B2B e-commerce, with a marketing site as a secondary goal.
"We decided that we would start small on the B2B side of things and asked ourselves what were the key things to which customers would like to have access. We deliberately went out and looked for customer companies to champion the initiative. The brief we gave the champions was to look for customers who are a) connected to the Web, b) computer literate, and c) prepared to work with us in using Pilkington Online.
"I encouraged my colleagues to go out and find small- to medium-sized, privately-owned or family-owned businesses to work with, because they are in control of their own destiny, they are more likely to be inventive and a bit flexible and therefore more prepared to try it. As a result, we provided the facility for them to place orders, to price orders in a quote format, to look at their account balance, and to view their invoices. We also provide them with the ability to trace their order - where it is up to in the system," Millar says.
Then late last year Pilkington built on that work by developing an Internet solution for big manufacturers that lets them take information off their production systems, do a file transfer straight into Pilkington On Line and feed data directly into Pilkington's SAP system.
Millar says that the exercise has taught the company the virtue of hastening slowly in the online world. "Carefully pick the customers that you go out to see. We started with four that we called Alpha Trial customers, then went to about four or five customers in each capital city. It's a bit like a pebble in a pond exercise: you have to try it, modify it, go to a few more customers and so on. We're still in the process of doing that and we have got a long way to go.
"Similarly, don't try to do everything at once. We could have had developers sitting in a back room for years if we had wanted. But we started with something basic, pretty easy to use, and that the customer really gets some value out of," Millar says.
So far, e-business is helping to enhance Pilkington's market position. Millar says most customers are still prepared to pay a premium for superior local supply and support and that e-business will give this, allowing the company to add extra value and make it easier for the customer to do business with it.
- S Bushell
The Industry Solutions group within Macquarie Investment Management Limited develops and implements tailored e-commerce products for various industry sectors using the Macquarie Cash Management Trust (CMT).
One such product is TransAction, a software package designed as a "front-end" access to the Macquarie CMT from stockbroker offices in order to streamline settlements to the Macquarie CMT by:
* providing account balance information to advisers;* assisting the preparation of settlements;* sending settlements to Macquarie;* eliminating paperwork;* providing warnings of settlements likely to fail; and * accepting TransAction files from local systems.
The group also developed TransPorter, a Web site enabling brokers to get balances and transaction details on CMT accounts and effect transactions to settle share trades, or distribute funds from share sales. Industry Solutions manager Rohan Kerr says he has learned numbers of lessons in developing and implementing e-commerce products for business, including:
* Add value to the client
Unless clients receive value from the service they won't use it. Value might mean reduced back-office costs, improved services for clients, the ability to market their product better, or simply greater convenience.
* Have an existing client provide advice on building the productClients' priorities and hot buttons are not the same as yours. Sometimes they may not even realise what these are until the product and process is developed. Be flexible and open to ideas. Listen to their needs, put yourself in their place to assess their needs. During development gain feedback on business rules and priorities, and the look and feel of the product. This way the product is more likely to be tailored for the client base, Kerr says.
* Flexibility in partners/product
Choosing your partners is important, but keep in mind they have their own agenda. They may be taken over or their business focus may change. Kerr says you have to be willing to adopt stop/go levels and develop the authority and toughness to enforce a stop or significant refocus should the situation warrant it. "On the other side, scope creep must be controlled to allow realistic deliverables," he says.
* Don't over promise
Do not raise unrealistic expectations in clients and potential clients. "Companies that deliver on time and budget are rare. You want to be one of those. It sets an excellent precedent, which is respected in business," Kerr says.
* Keep clients informed
Clients may develop systems or products in conjunction with yours. If these are dependent on your e-commerce products, be sure to keep them fully informed about progress, problems and developments. They last thing clients want are surprises, especially if there are business dependencies, he says.
- S Bushell
The Internet is a facilitating technology that alters the economics of purchasing non-production goods and services for every player in the supply chain, says Corporate Express Australia CIO Garry Whatley. In this way it has contributed greatly to shift the power from seller to buyer.
Whatley offers these experiences in building the largest B2B site in Australia:
E-commerce should not be a separate part of your business. It needs to be recognised as an alternative channel, but must be fully integrated with all business processes.
It is extremely important that customers are involved in development and evolution of your e-commerce solution. "We were fortunate to work with Monash University as our original pilot site, and they have continued to be an important reference site. We also conduct customer focus groups to ensure our solution addresses our customer's needs and is best of breed," Whatley says.
You need internal champions that will support and drive your e-commerce solution. "We have NetXpress champions in each of the states, with the prime function of supporting the growth of NetXpress and ensuring a smooth transition for our customers."
Development of an e-culture is a significant contributor to success. Every person in the business must understand your e-commerce solution and the implications of e-commerce to your business.
Do not underestimate speed. While B2C applications may focus considerably on exhilarating graphics, B2B customers are predominantly focused on "getting the job done" and therefore ease of use and speed are essential ingredients.
You need to provide the ability for people to "test drive" your site and experience the benefits directly. NetXpress provides online set up of a demonstration logon. "While we recognise that many of our competitors use this facility to copy our functionality, we are committed to continually grow the site functionality and therefore they are always in catch-up mode. The benefits of continuing to grow our customer usage significantly outweigh the risk of competitor cloning," he says.
With technology changing at lightning speed and customers demanding a greater level of service you must be willing to rebuild even the most successful solution from the ground up. NetXpress is recognised as the leading B2B site in Australia and since its inception in 1997 is currently going through its third rebuild from scratch to meet customers' needs and to take advantage of technical advances.
- S Bushell