The new lords of e-biz

Corporate e-business teams with their own IT budgets have all but evaporated, but the CIO’s responsibility for developing online sales and supplier channels is still evolving. What you do now to define yourself as an e-business tactician, strategist and gatekeeper will determine your role as a decision-maker for future e-commerce investments.

Despite the antihype, e-commerce isn’t dead. “There’s a real excitement vacuum, but there’s not a spending or an interest vacuum,” says Whit Andrews, a research director with Gartner Inc. in Stamford, Conn. And responsibility for e-commerce spending and strategy falls increasingly to CIOs. According to a survey by Cambridge, Mass.-based Forrester Research Inc. published in August, three times more companies are now making technology decisions centrally than they were in 2001.

Now that e-commerce is no longer an experiment, business executives understand that an integrated enterprise is critical to online success, says Edieal Pinker, assistant professor with the W.E. Simon Graduate School of Business Administration at the University of Rochester. “As the role of e-commerce in these firms has matured, you no longer need this special figure (of an e-commerce unit leader) trying to educate the organization about e-commerce and trying to promote it,” says Pinker, who has studied e-commerce operations at 35 large companies. “You want reliability. Now you really need the chief information officer.”

And CIOs are actually spending money – even if not a lot of it – on e-commerce. A survey of over 500 CIOs and IT directors published by AMR Research last September found that most planned to spend at least a small amount on e-commerce systems in 2003. The survey respondents said they would focus on infrastructure investments, such as enterprise application integration, that ultimately support online commerce.

For instance, Sears, Roebuck and Co. spent an undisclosed amount in 2001 to revamp its inventory management systems to support in-store pickup of online purchases. “The overall (e-commerce) business model is focused on growing sales, providing enhanced security and stability, and efficient fulfilment,” says Garry Kelly, senior vice-president and CIO at the Hoffman Estates, Ill.-based retailer since October. “That means the back end of e-commerce – pick, pack and ship – has to be every bit as good as the click, select and check out.”

In answering the call for efficient and reliable e-commerce architectures, CIOs have become the overseers of online operations. But there’s a danger that when the economy picks up, business units will chafe at the constraints CIOs imposed on e-commerce spending during the economic downturn. Smart CIOs can take steps now to create a framework for making decisions on online strategy and the investments that are necessary to execute it.

Your First Task: Online Tactician

There’s a strong operational component to the CIO’s e-commerce role today: Keep e-commerce applications running, deploy new applications that the business needs, and keep costs under control. Today, most companies have their online strategies in place, according to Rochester’s Pinker. Now the focus is on execution.

Bud Mathaisel, corporate vice-president and CIO with Solectron, a Milpitas, Calif.-based electronics manufacturing services provider, sees a pattern in the adoption of e-commerce that reflects previous waves of new technology deployment. “In the first wave, innovators take charge of everything,” he says. Then the novelty wears off, and what was new becomes routine. “The same was true with minicomputers and PCs. When it stopped becoming fun for the people who ran it, they handed it back to IT,” he says.

Solectron never had a separate e-business unit. Instead, Mathaisel’s IT group worked with teams from each functional group to find ways to use the Internet. Those teams ran their own e-commerce applications, to some extent. The functional teams haven’t disappeared, but Mathaisel’s IT group has taken on more of the technical responsibility for online buying and related applications. For instance, IT has taken over management of “collaboration environments,” which are online meeting rooms employees use to work with each other as well as with customers and suppliers. The online rooms began as pilots but proliferated to the point that the company didn’t have enough bandwidth to support them. Managing network capacity wasn’t a job that users had the expertise to do – nor did they want to. Now Mathaisel incorporates the meeting rooms’ usage into his calculations of organizational bandwidth needs.

Centralized IT decision making about e-commerce has been a by-product of the economic downturn. One of the first steps many CIOs took to control costs as the economy weakened was to impose standards on Web site deployments. Mathaisel consolidated hardware. He’s replaced servers that do “unique things, like the corporate portal or supplier interchange” with larger, multipurpose boxes. Joe McMakin, vice-president of global IT at Air Products, an Allentown, Pa.-based chemical company, decided to replace custom-built extranets with a standard set of online services for interacting with trading partners. And he will largely control when and how those services are integrated with the company’s SAP and legacy systems.

Business unit executives in many industries have relinquished control of e-commerce applications, in an acknowledgement that the IT organization can deliver applications more efficiently. The arrangement “is a quid pro quo,” says Mathaisel. The business units are “keeping functional business process responsibility, but they’re expecting the CIO to produce a more robust, lower-cost environment. As long as that equation is satisfied, everybody’s happy,” he says.

Your Next Role: E-Commerce Strategist

Efficient operation of e-commerce applications is now a part of many CIOs’ portfolios, but their responsibility goes far beyond providing support. CIOs who wait for marching orders from the business units – as many did in the early days of e-commerce – are liable to miss the opportunity to apply technology strategically. “During the bubble, the CIO really got jammed in the back office,” observes George Colony, chairman and CEO of Forrester Research. “The real action driving e-commerce was on the marketing side and the business side. Postrecession, the chief information officer is (going to be) an equal partner (in e-commerce functions), with a much broader role.”

Sears’ Kelly views e-commerce as a component of his company’s overall IT strategy. “E-commerce is an extension of a business- selling model, whether it’s business-to-business or business-to-consumer,” he says. “We have to develop and implement an IT strategy that supports Sears at an enterprise level and a business-unit level,” where is one of several business units. Kelly heads an IT investment committee that includes representatives from Sears’ customer-facing businesses. That committee decides which systems to build, based largely on whether the expenditure will help create additional operating income.

McMakin, who spent 22 of his 28 years with Air Products in non-IT positions, rising to vice-president of the specialty chemicals division, says his views about the value of particular technology expenditures carry more weight because he participates in business strategy development. A few years ago, when Air Products made its first investments in e-procurement technology, McMakin advised using an application service provider rather than run a system in-house. “The (procurement) technology is very volatile,” he says. He didn’t want to waste money developing systems that the company might later abandon. More recently, like many of his peers, he has advised against investments in new e-commerce ventures, instead supporting Elemica, an online marketplace for the chemicals industry. McMakin has also assigned staff to work on industry-wide data exchange standards using XML – a necessity if companies with incompatible systems are to easily communicate online.

At Solectron, Mathaisel reports he has “more of the total accountability” for moving additional business processes to the Web. In conjunction with each business unit, he’s in the midst of reviewing which processes are the best candidates for moving online, whether they’re manual or automated using older EDI technology. Like other contract manufacturers, Solectron competes by making it easier or more cost-effective for customers to use its services. Recently, Mathaisel deployed an application, suggested by one of Solectron’s business units, that lets customers track the progress of their orders on the factory floor. Now customers can monitor circuit boards as they are assembled, look up test results and get other information without having an inspector onsite.

Another of Mathaisel’s e-commerce tasks is to decide how to apply Web services, which will enable integration with Solectron’s customers. Taking into account new investments the company is making in Web services, Solectron’s total investments in e-business are increasing. While it’s easy to define e-commerce narrowly as online buying and selling, investments in systems that support purchases and sales are included under the e-commerce umbrella for many CIOs.

When Sears acquired catalogue retailer Lands’ End 10 months ago, top executives decided that Lands’ End should retain its own IT organization while Sears studied opportunities to integrate the two organizations’ systems. Kelly says that although a unified IT strategy for all of Sears’ direct- sales organizations is his ultimate goal, it isn’t on the agenda right now. How and when the integration happens will be a corporate decision, says Kelly, in which he’ll have a significant role.

Your E-Commerce Future

When the economy improves, governance structures imposed by CIOs today will become the main vehicles through which they retain their influence on e-commerce strategy and expenditures. “The CIO is going to become the gating factor, so we don’t go back to willy-nilly spending,” says Gene Alvarez, vice-president for e-business strategies with the Meta Group in Stamford, Conn.

The challenge for CIOs, however, will be to maintain discipline when money is no longer tight. There’s more than one organizational model for managing the next phase of e-commerce, and not all of them put the CIO on top. Future leadership in e-commerce “depends on who is the best available ‘athlete,’ and power arrangements and politics in a company,” says Forrester’s Colony. Whoever emerges as the next e-commerce champion will be an executive steeped in his company’s customer needs. At most companies, Colony predicts, that won’t be the CIO, since the CIO simply isn’t close enough to the customers.

CIOs who want to retain influence in e-commerce must build close partnerships with the business side. While they’re in the e-commerce driver’s seat, CIOs need to hold e-commerce strategy sessions and initiate conversations with business leaders about how IT supports the big picture. Alvarez notes that as CIOs fine-tune existing e-commerce systems, they have an opportunity to educate their colleagues about how, for example, upgrading a system might provide new capabilities that fulfil their business strategy. He also hears CIOs asking tough questions about whether a new need can be fulfilled using existing resources.

At Staples, the Framingham, Mass.-based office supply retailer, Executive Vice-President and CIO Paul Gaffney has used a steering committee of IT and business representatives to establish support for integrating separate e-commerce initiatives into a common infrastructure. While different business leaders run and the division in charge of Staples’ contracts with corporate customers, they have begun to share applications such as order processing. “We’re very focused on the systems side with finding commonality,” says Gaffney, because it helps improve the company’s operating margins.

Gaffney recently revamped the pricing model used by the contracts division to make it easier to maintain and less demanding of server power. The old model was really multiple applications that have now been consolidated into a single one. “We had as many pricing models as customers,” says Jay Baitler, who runs Staples’ contract division. Now, Gaffney figures, the rest of Staples can use the application too. “It’s better having one pricing subsystem for the whole company,” he says. The e-commerce steering committee is an avenue for communicating how applications that were developed for one part of the company can benefit others.

Baitler says business leaders, himself included, are more willing to share applications and go along with corporate technology standards because they understand better that an integrated IT strategy for e-commerce benefits the entire company. “There’s less yelling ‘me, me, me’ and more, ‘What’s right for Staples,'” says Baitler. “My success is based on (CIO Gaffney’s) success. That’s a very, very important cultural change in this organization.”

Similarly, Air Products’ McMakin says that online success depends on business unit leaders acting together for the greater good of the company, with the understanding that e-commerce isn’t just a flashy trend. “These are fundamental capabilities we will be building to use for the rest of the time the enterprise exists,” he says. Like Gaffney, McMakin must show his colleagues how applications deployed for one business unit affect the company as a whole, and he must show them how to assess the trade-offs among different e-commerce investments. That kind of education is critical to McMakin’s efforts to obtain continued buy-in from other senior executives to his view that the company should build scalable, generic applications, rather than one-off applications tailored to specific supplier or customer groups.

Air Products still has an e-business team that decides which online initiatives should be corporate priorities, while an e-business steering committee decides which systems to fund. The e-business director reports to both McMakin and Bill Cantwell, the company’s vice-president for process management. Meanwhile, McMakin, Cantwell and several other executives sit on the e-business steering committee. Through each group, McMakin has a hand – but not the final say – in which online projects are budgeted.

McMakin says it’s important that he have input on e-commerce and appropriate that he share decision-making power. “Any CIO has to have enough understanding of the value equations within the business to sort through where to spend money and how to have impact through e-business initiatives,” he says. “At the end of the day, it’s the profitability of the company that matters.”