Today, the job of the CIO is to facilitate businesse – business to the power of ‘e’.
What we have learned from the e-business fiasco, states business and technology consultant Peter Keen, is that we must return to the fundamentals of business and then add ‘e’. While it is still important to take advantage of the power of technology, it must now be connected with business strategy.
Dr. Keen was the keynote speaker at a recent conference hosted by the new Queen’s University Centre for Knowledge-Based Enterprises. About 45 CIOs and marketing executives participated in the conference, which was designed to help businesses link their business strategy more closely to their strategy for e-commerce.
In the June issue of CIO Canada, we looked at how a carefully thought-out ‘e’ component should be closely linked to both business strategy and structure. This month, we will complete the connection and show how a business can be designed for ‘e’ and how an e-beachhead can be established that will add to and not detract from a firm’s strategic and profitability goals (see Figure 1).
Designing Your Business for ‘E’
Business design is a critical step because it links the conceptual design for ‘e’ of strategy and structure with action. There are three critical elements of business design: relationships, processes, and making money. ‘E’ must be carefully incorporated into each.
Relationships. Customers are the real secret of the e-world, stated Keen. Until now, customers haven’t really existed for most companies. Instead, organizations were designed around transactions. In the old world, where customers had little choice, companies could optimize their business designs to suit their transactional needs. Today, however, the Internet gives people a much greater range of choices and the information they need to make choices. As a result, the Internet has introduced a new ‘freedom economy’ which is changing the shape of whole industries. For example, the travel and the automotive industries are now fundamentally different simply because consumers have much more information with which to make informed choices.
Information and choice create what Keen calls ‘customer space’. It acts like an extreme form of deregulation. Companies who ignore this effect will find themselves in trouble. To address these types of changes and retain customers, firms must seek to build true relationships with their customers and shape their experiences.
Companies can use ‘e’ in their customer relationships in many ways: to differen-tiate themselves; provide comparative information about competitors; introduce self service; offer customization and personalization; and build in collaboration and community. Keen stressed that high-quality relationships cannot be addressed solely with such technologies as CRM. “You can’t do one-on-one marketing with anonymous statistics,” he stated categorically. “Success comes from personal relationships. Companies need a ‘feet on the street’ salesforce.” For example, even though it is a high tech firm, a large measure of Cisco’s success stems from the fact that it has five times the number of salespeople as its competitors.
Processes. Another hard reality of the increasing choice of customers is the fact that firms must actually deliver on their promises. They will lose customers if they don’t have excellent supply chain management, logistics and sourcing relationships. “The Internet accelerates every trend and opportunity in logistics – buying, storing, shipping, paying for, financing, and accounting – for any type of goods and service,” Keen remarked. There are real opportunities for generating savings from use of the Internet and real risks that your competitors will outclass you if you don’t. The business design goal here is to use ‘e’ to make your processes world class, develop your supply chain and business relationships into a competitive advantage, and turn logistics from a source of overhead into a business asset.
Making Money. In spite of tough economic times, many good companies still make money. Those that have a strong value model in place and who use it to drive the design of their e-beachhead are finding the Internet can be very profitable for them. Thus, it is important that the same people who design the business also have the primary responsibility for creating a company’s e-beachhead. Keen suggests using an “unbalanced value dash board” to monitor how well an e-beachhead is making money. This identifies the key financial measures of expected success, including customer retention, gross margins, overheads, and working capital. Market segmentation is a particularly important component of making money because firms need to understand the cost of getting and keeping particular customers. “The balanced scorecard is ineffective for ‘e’,” states Keen. “Companies need to make trade-offs; they can’t do everything.” For example, Dell Computers is ruthlessly clear about what it will not to do in its business design.
Creating an E-Beachhead
An e-beachhead is a very real business venture, but not a ‘bet the company’ investment. It must be large enough to generate an impact and to be visible within the firm and the marketplace. Yet, it must also be small enough to be achievable. As well, it should be an initiative that can be rolled out and scaled upward if successful.
Ideally, a good e-beachhead maximizes a company’s opportunity to learn from both its successes and mistakes. It is especially important that its value be self-evident because obvious value builds the credibility of the venture within the organization and sends a clear message to the marketplace. This is why direct linkages to the firm’s value model are so critical. Finally, an e-beachhead should have a big network of help available within the organization to support it.
The key to using ‘e’ effectively in a beachhead is to get the customer relationship right, Keen believes. A good way to start is to attract customers by providing information on their own and competitors’ products, thus enabling comparison shopping. However, Keen cautioned, infor-mation does not make a relationship. Companies must then build relationships by segmenting and personalizing the information they provide. This is a critical step because a customer must trust a company enough to tell them who they are. Personalization is important because it forms the basis for follow-on offers to the customer and this drives repeat business (e.g., Amazon’s “people are also reading…” feature). It is essential that company-customer interaction always be perceived as a two-way, not a one-way,
Once a relationship is established, companies should look for other ways to build on it. One key method of doing this is to provide customers with self-help processes. These essentially turn a company’s back office into a customer’s front office. Shifting a process from company overhead to customer value is the “e-process edge” stated Keen. These processes help tie customers into a company and make them increasingly reluctant to shift their business. Self-help processes are a win-win situation for both the customer and the firm. However, they are possible only if a company has earned the trust of the customer and if the company is willing to refine its processes.
There are four levels of the transition to e-processes:
1. Embedding Business Rules in Software. By making business rules available online, customers can do a considerable amount of research and footwork before ever contacting a company (e.g., Dell enables customers to configure their computers online).
2. Out-tasking. At the next level of e-process design, the firm becomes a best practice provider of online services, e.g., UPS enables a customer to follow a package from pick-up to delivery.
3. Insourcing. At the third level, the e-process becomes so widely desirable, it becomes a brand of its own (e.g., the Victoria’s Secret shopping experience).
4. Exception Handling. As e-services become more sophisticated, they are increasingly able to handle more complex situations, thereby freeing up more and more human resources for value-added work (e.g., E-Bay excels at this but still provides people to handle problems when something goes wrong).
Finally, as an e-beachhead evolves, it is essential that companies continually monitor how well they are making money. Firms must understand that there is a
difference between desirable revenues and metrics and undesirable ones. Desirable revenues and measures include: an acceptable customer acquisition cost; robust pricing; rapid scalability without diminishing returns; a lower cost of goods; more customer self-management; and a lower employee support and service burden.
The Role of IT
Keen made it clear that, while it uses technology, an e-beachhead is not driven by IT but by business, and specifically, by linkages into the business’ strategy, structure and business design. While there is certainly an assumption that a firm’s IT architecture will support the venture, it should be very much a background player in this initiative. For better or worse, Keen feels that ‘e’ is shifting how and where technology decisions are being made and this will fundamentally change the role of IT within the firm in the near future.
Increasingly, Keen believes that IT’s current responsibilities will decline as ASPs take on larger pieces of applications development and operations. More and more, software will have to be developed in small chunks of about 90 days (e.g., beachheads) to keep up with market changes, and this makes development easier to turn over to a third party service provider.
“The future is not in big monolithic implementations like ERP or CRM,” stated Keen. IT is making a big mistake thinking that software can be used to solve people problems, he feels. “These technologies are overly complex and the marketing guys simply don’t understand them. In fact, I predict that CRM is going to be the biggest fiasco in the history of computing.”
Keen suggests that the most important role for IT in the future will be understanding where and how an organization can capture the capabilities that it needs. CIOs will likely need to become Chief Alliance Officers, specializing in building the critical networks of technology and services a firm needs to implement its strategy.
Winning at ‘E’
Doing businesse starts with linking whatever a company does with ‘e’ to a company’s overall strategy, but it also involves learning how to engineer the profitability of the customer relationship and building excellent operations through good business design. Businesse is truly a team effort. All members of the executive must continually search for new opportunities and work together to do this job.
While businesse puts business back in the drivers’ seat, there is still a critical role for IT in identifying and exploiting new technologies and techniques, promoting systems thinking, ensuring a robust architecture, and orchestrating the alliances that are becoming fundamental to doing business in the e-world.
Heather A. Smith is a Senior Research
Associate with Queen’s University School of Business and co-director of Queen’s Management Forums. She can be reached at [email protected].
“Business to the Power of ‘e'” is a trademark of Burntsand Inc., a North American eBusiness solutions integrator focusing on SellSide, BuySide and InSide strategic Internet-enabled applications.