E-business spending soared in the late 1990s, as entire industries hopped onto the Web bandwagon. But in many cases, companies were building out their network infrastructures and launching projects simply to keep up with the competition. Gripped by a land-grab mentality, firms across a wide range of vertical industries cobbled together e-business systems based on short-term goals, rather than long-term strategy. The focus for many was to just get it done. And the result was that hardware, software and services were bought and deployed based primarily on factors such as compatibility with existing systems and "time to action" -- the number of days, weeks or months it would take to get it up and running.
In 2001, we’re seeing a shift from time to action, to time to business impact. This new concentration on business value, and measurable return on investment, is putting the "business" back into e-business. Senior management is taking more time to scrutinize proposed e-business investments and how they impact long-term goals. As a result, managers whose livelihoods depend on successfully executing Internet-based strategies -- especially CIOs and senior e-business executives -- must tailor their e-business proposals for this new environment.
The Fundamentals Still Apply
Technology issues, such as security and integration/compatibility, as well as resource issues, including technical skills and project costs, are still principal concerns. But now, the most important issue is the value that an e-business initiative can deliver over time. In fact, our research has shown that 70% of companies would be more motivated to invest in e-business by an improved understanding of business value than a better understanding of technical solutions.
Today, new e-business initiatives are likely to get the green light only when they can be justified as essential to overall business success. Put simply, there needs to be an iron-clad link between e-business investments and company strategy. To demonstrate that link to upper management, CIOs and e-business executives should do the following:
* Identify, then prioritize key areas for e-business investment by aligning them with overall corporate business goals
* Show the business impact of a planned e-business initiative
* Justify funding by defining ROI goals specific to the e-business project
* Set a stretch target for the project team and "benefit thresholds"
for staged investments
* Show how individual business areas or departments will benefit, then attract support and budget from those departments
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Effective E-Business Strategy: A Before-and-After Case Study
The need for a forward-looking approach can be seen in the case of a national restaurant chain that implemented an e-business solution in late 1997. The 1,500-store chain initially deployed the system as a companywide extranet designed to let store operators electronically access information themselves, rather than rely on 1,500 franchise field consultants.
By reducing the need for field personnel, the company expected to cut costs by $700,000 a year. The required investment was pegged at $2.3 million, making the payback period 3.3 years. This project was given the go-ahead despite the marginal ROI and nonstrategic nature of the initiative. I seriously doubt that the funding would be granted for this initiative in the conservative market context of 2001.
As it turns out, the company’s actual experience (and original vision) was far more interesting than what the IT organization presented to senior management for approval. Over time, it was able to build an extranet-based franchise support system that included high-value applications such as:
* Staff scheduling and promotion planning.
* Raw materials inventory management and automated replenishment.
* New franchise construction planning.
* Franchise business planning.
* Advertising and promotion planning.
The result was a dramatic improvement in the way the franchise outlets were managed and a 12% improvement in franchise profitability. This had the impact of increasing the new franchise growth rate by more than 5%, as existing franchisees opened additional outlets. The net result to the parent company was a business benefit of more than $34 million from a $7 million investment. More importantly, the extranet project directly supported the strategic priorities of the company -- only later did they learn that improved franchise profitability and increasing franchise growth rate were the No. 1 and 2 priorities of the company CEO.
By presenting a vision for a small-scale cost-reduction initiative, the project managers faced an implementation period that lasted three years. What’s more, they were forced to continually battle for additional funding and struggled daily to get executives from across the company to contribute to the systems development.
Had they presented the forward-looking, strategic vision to senior management from the start, they would have garnered cross-functional support and appropriate funding right from the get-go. Implementation time could have been reduced from almost three years to one year or less. It’s an example that makes a compelling argument for pursuing a cross-organizational e-business vision tied to strategic business goals. -- John Calhoun
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Achieving these objectives will require that you build a strong rationale for implementing your e-business vision. First, identify exactly what needs to change. Perhaps it is reducing customer acquisition costs or increasing sales. Then, with this strategic goal as your focal point, provide a qualitative statement of how your e-business initiative will work to effect this change. Construct a compelling payback case by setting out a timeline with ranges for measurable benefits -- and descriptions of non-measurable benefits -- at various stages of investment. And finally, make the case for implementing the new e-business program by identifying the benefits that the project will deliver per level of staged investment. Set out targets for measurable returns over both short and long time frames, and identify "realized benefit hurdles" that trigger continued investment.
Measuring the "Soft" Benefits
It is important to position soft or non-measurable benefits as enablers to measurable benefits. Brand differentiation, improved sales force skills and better customer information are all improvement opportunities that can be difficult to quantify. But when identified early on as potential reeturns, these non-measurable benefits can act as foundations for new strategic directions and potential revenue enhancement. Measurable returns such as higher conversion rates, reduced product cycle times and greater customer satisfaction will then be seen in the larger context of an effective business strategy, not as isolated, hard-to-measure advances.
Perhaps the greatest challenge for executives working to build a case for e-business investment lies in gathering the facts and data to support a compelling vision. Many large corporations have created senior-level positions such as vice president of e-business that report directly to the CEO, but few mid-level enterprises have taken this step. Within these medium-sized companies the senior IT executive (including the CIO) is often the person most responsible for e-business strategy. And as any CEO knows, the IT department is far removed from the world of customer interaction and market strategy.
These managers are expert in the technology or "e" part of e-business, but not the "business" side of the equation. Put simply, many IT executives do not have reliable business metrics at their disposal. Often, the key business metrics are buried in other departments or do not exist at all and need to be developed through some combination of direct observation, testing or working with departmental executives to establish reliable estimates or proxies. For these reasons, it is imperative that the IT executive elicit support for his or her e-business vision from across the enterprise.
Getting Your Facts Straight
Start by approaching the marketing and new business development teams, and seek out the facts that will build your case. Build your case on reality: What is the lifetime value of a customer? The cost of acquiring a new customer or the cost to handle a customer service call? These are the measures against which any e-business initiative must be gauged. Likewise, e-business success can be assessed by considering real-world case studies of comparable situations. Look at industry data to establish benchmarks for achievement and track down hard numbers on past company experiences. And, be sure to avoid the "plan-by-committee" approach. Group efforts often lack direction and get bogged down. If you maintain tight control over the initiative and stay focused on your objectives through the information-gathering process, you’re likelihood of success will dramatically increase.
A few things remember: Too many projects are never approved or lose momentum due to their non-strategic nature. In the current business climate, the company will not move forward with every initiative that demonstrates an acceptable ROI on paper. The business risk and business disruption is too high to allow for this to happen. Projects that have strategic merit get the green light as they justify the inherent business disruption and risk associated with them. Often IT executives simply do not know what is "strategic" for their company. They are too far removed from the Chairman’s office and need to seek help to understand executive priorities and how to affect them.
Details, Details, Details
As spending for e-business systems has tightened, technology vendors are trumpeting their wares with increasingly bold statements of business benefits. Don’t let generic benefit claims in the sales literature distract you from developing a defensible, thorough business case that is based on the specifics of your enterprise. The degree to which an e-business plan is credible and valuable often depends on the level of diligence applied in understanding the business, and the specific impact the e-business initiative can have on the organization.
The most powerful e-business plans almost always have a high degree of due diligence and specificity. Rich, illustrative specifics not only give the plan credibility but also ensure that the investmment and the initiative make good business sense before you get into the CEO’s office for the "pitch".
Take, for example, a projected business benefit of reducing time to market. One level of diligence may reveal that the proposed e-business initiative will actually cut the average development/launch cycle by an average of two weeks based on streamlined processes and improved information flow. This analysis required a detailed workflow analysis (current and e-business versions) to have credibility. A further level of diligence may reveal that the product development cost is $150,000 per day in total. With six product launches per year, the bottom line impact of the e-business initiative is in excess of $9 million. This specific and defensible case for business impact is much more likely to get the green-light than a case based on generic claims that have no level of specificity attached to them.
Present A Comprehensive Vision and Budget
A solid financial commitment from the CEO is a crucial element for the success of any substantial e-business initiative. Without one, executives often find themselves having to justify ongoing investment through every budget cycle or every stage of a phased project.
This is why a forward-looking perspective with incremental goals and funding targets is imperative for a successful e-business vision. But there is a significant hurdle here: IT executives often lack the business understanding to justify expensive, but potentially high-value e-business initiatives. For many, focusing on well-defined, discrete, low-cost initiatives seems to be the easier way to go.
More modest e-business projects generally do not require you to get "immersed" in the business. But on the down side, the potential for real strategic impact on the organization is never articulated and therefore may never be realized. A better methodology is to develop a "vision" for what the e-business solution will ultimately consist of, and the benefits that will be realized. It is critical to ensure that these benefits are strategic in nature and directly support the priorities of the CEO. Present this full vision and its impact to the senior management team and gain enthusiasm for the fully realized vision.
How? You can build enthusiasm by presenting an authoritative business case supported by hard data and multiple levels of detail. Make the vision pragmatic by breaking it into staged projects with staged levels of investment. Specific performance and business benefit thresholds need to be established to ensure that approved budgets are spent in a responsible fashion, only after the concept is incrementally proven by crossing "benefits thresholds" along the way.
The days of unlimited e-business budgets are gone. But more than ever before, an effective e–business strategy is an essential element of any successful business. The Internet has become deeply embedded in our daily lives, and will become more so in the coming years. Selling your e-business vision to management today may be harder than it was in 1998, but informed, prepared e-business executives can still make convincing and successful cases for investing in projects that deliver real business value.
