E-business so far

In 1999, the Wharton School of the University of Pennsylvania launched Knowledge@Wharton (http://knowledge.wharton.upenn.edu), an online research and business analysis journal designed to go head-to-head with the Harvard Business Review by offering business insights and research.

Now, Robert E. Mittelstaedt, vice-dean and director of the Aresty Institute of Executive Education at the Wharton School, and Mukul Pandya, editor of Knowledge@Wharton, have written a book. Knowledge@Wharton: On Building Corporate Value (John Wiley & Sons Inc., 2003) takes a look at the ups and downs of e-business. They recently spoke with Kathleen Melymuka, a Computerworld (U.S.) contributing writer, about the lessons learned so far about Web business strategies.

CW: So, has the Internet changed everything?

Mittelstaedt: It didn’t change everything in the way people anticipated, but it did [show] that bricks-and-mortar businesses can differentiate themselves if they really learn to use the Internet – and IT as a whole – because the principles are the same, and the Internet is nothing more than a very easily accessible platform.

CW: In the book, you talk about some important consequences of the Internet. Tell me about the “integration effect.”

Mittelstaedt: It’s the ability to apply 20-year-old IT principles in a ubiquitous fashion so that everybody has access, and you get your customer to do your work for you across a whole spectrum of things.

CW: Can you give an example?

Mittelstaedt: US Airways has given you the ability to print your boarding pass before you leave home and skip all the check-in lines. They haven’t changed the fundamental chain of activities, but they’ve pushed a piece of that work out, and they get the customer to do it for them. The technology has integrated the work in a different way: diffused it.

CW: How does the Internet add value to an organization?

Pandya: Knowledge@Wharton itself is an example. It has taken academic research, which was primarily distributed through academic journals meant for specialists. Using the Web, we set up a multi-layered Web site where you can go from a one-paragraph summary of a research paper, click through to a plain-English article spelling out the implications of that research, click through to a PDF of the paper itself and look at related Web links. The Internet allows you do something that is impossible in print: that is, explore this topic at four different levels of depth. The impact that has in terms of Wharton’s ability to relate academic research to management practice is enormous.

CW: Why do companies fail at using the Internet?

Mittelstaedt: In the book, we talk about the story of Webvan versus other online grocers. We predicted Webvan would never work [because] they decided to reinvent the whole system. They started from scratch and ignored the entire infrastructure and in the process took on enormous debt, which there was no way to ever work off in a low-margin business, even with efficiencies from technology. While Webvan was failing and destroying US$1.2 billion of capital, a company called Tesco in the U.K. was using their existing infrastructure, using their stores as picking points, putting limits on [deliveries]. And as an incremental activity, it was profitable. It was not profitable as a stand-alone activity in the way Webvan tried to pursue it. The economic model didn’t work. So the model matters.

CW: What are some of the other major risks in e-business, and how can companies work against them?

Pandya: Quite a few of the errors were driven by not looking at the business itself but being swayed by financial considerations, [like] the stock valuations, that spinning out a separate Internet division could bring about. Companies that looked at the business and saw how using the Internet and other forms of IT could enhance the business – those were able to drive more value creation.

Mittelstaedt: There were also competitive risks. If what you do is easily imitated, and you don’t have anything that locks in your customer in some way, you run the risk of simply being copied and made irrelevant.

CW: Most of what we’ve been talking about has been business-to-consumer. What’s the state of B2B?

Mittelstaedt: The name has gone out of fashion, but that’s where the bigger impact really is. Wal-Mart has an unbelievable computerized supply chain and inventory management system that goes over the Internet, but the Internet didn’t make that happen. The Internet makes it easier and cheaper…and for smaller businesses to duplicate functions, [like] automatic ordering, that enable them to compete with bigger companies in some cases.

Pandya: One area in business-to-business I find fascinating is the way the Internet and IT are making it possible to outsource work across borders. You have companies like Amazon or Dell that have set up customer contact centres in India and Singapore, and these are very often operated by different companies than the parent. This allows you to integrate the operations of a company in the West with a low-cost provider in another country and get the benefit of that cost differential. This has been going on in things like software development, but increasingly…it’s all kinds of services that require educated people to interact with technology. The term I’ve heard used for it is “brain arbitrage,” because you’re moving work to where it can be performed most effectively.

CW: What are the lessons companies should be taking away from the whole e-business experience?

Mittelstaedt: You can’t violate the laws of economics. And there’s no such thing as a sustainable competitive advantage. Technology can give you a temporary advantage while you figure out what the next thing after that is going to be.

Pandya: The Internet changes a lot, but you have to work pretty hard to discover what it changes, and if you don’t recognize that, then you pay the price for it.

Melymuka is a Computerworld (U.S.) contributing writer. Contact her at kmelymuka@yahoo.com.