Fast forward in e-commerce

by Robert Heller

May 3, 2001 —

What's the prudent stance on e-commerce in a slowing economy? Forge full-steam ahead.

Item: A construction company CEO listens to a rousing talk on how the Internet has changed everything; he applauds vigorously. Asked about his own strategy, he confesses to having "a totally passive take on the Internet." He proposes "to do nothing."

Item: The chairman of an association of procurement managers listens to a similar wake-up call and skeptically asks the speaker: "We've had Total Quality Management, Management by Objectives and Business Process Reengineering. Isn't e-commerce another fad like those?"

Item: The CEO of a company with $43 million in global sales of gadgets for holding furniture together tells an audience how he is integrating all his data flows onto a Web-enabled enterprise suite to support expansion to more than $150 million by 2005.

These are not fictional examples. So which of these people is best poised to exploit their technological opportunities and reap the fruits of future success in the global economy?

It is, of course, no contest. The third guy must surely win -- as an overwhelming majority of CIOs would presumably agree. Yet, remarkably, just as large a majority are imitating not the single progressive but the two laggards.

The conservative procurement executive is very far from alone. On one informed estimate, only 8 percent of global companies use e-procurement. In Europe the proportion is far lower still. Yet e-procurement is a basic building block of the digital company, only slightly more advanced than e-mail. It's quicker and slicker -- and saves money. Even if prices for the actual purchases don't fall, you save 30 percent to 70 percent on transaction costs.

But the shift to e-procurement isn't being held back solely by head-in-the-sand purchasing officers. Adrian Slywotsky of Mercer Consulting, coauthor of How Digital Is Your Business: Creating the Company of the Future, reckons that only 5 percent of U.S. businesses are truly digital -- and that, he accepts, may still be an exaggeration. The lag in e-procurement is merely symptomatic of general reluctance among corporations to embrace a proactive Internet strategy. Too many share the totally passive take held by our friend the construction CEO.

This passivity is currently being fueled by two negative forces. The first is the prospect of recession in the United States. More on that later. The second is the widespread collapse of e-ventures -- not only overcapitalized, overhyped and underperforming dotcoms -- but big company forays into this brave new world. Disney, for one example, closed down its Go portal after heavy losses. Many other ventures are being put on hold, especially as the wave of failures rolls into Japan -- from which I've just returned in some amazement at the deep digital lag that exists there.

But neither of these temporary negative forces has any real connection with the issue of whether to digitize the company and its information flows. They are, in the original meaning of the term, red herrings, and irrelevant.

Now, the boss of that $43 million fastener company is not about to transform his humdrum business into some Silicon Valley e-destination targeted on a lucrative IPO. He -- and other wised-up and wired-up managers -- are simply working, slowly and steadily, toward what futurist and author Don Tapscott, calls a "business Web," or "b-Web." His definition: "a distinct system of suppliers, distributors, commerce services providers, infrastructure providers and customers who use the Interrnet for their primary business communications and transactions."

The b-Web operates globally. It makes no distinction between units or customers in Tulsa or Bangkok, Bavaria or France. The infrastructure and the data it carries are common to everybody and available at equal, real-time speed. True, these Web converts may well be using the same suppliers, the same distributors and the same service companies to satisfy the same needs of the same customers -- but they will most likely be using different infrastructure providers. This is already bringing fast-growing business to companies supplying b-Web software.

In January, for example, SAP surprised the stock market with fourth quarter results that showed revenues up by 31 percent at a time when gloom was spreading around the software industry. The growth engine was a 412 percent jump in sales for MySAP.com, the company's Internet platform (which the fastener manufacturer aforementioned happens to have purchased). MySAP.com may be small beer compared to the massive ERP systems on which so many CIOs have lavished so much time, trouble and corporate millions, but it's clearly making the stock market salivate; in that one quarter, MySAP.com accounted for 30 percent of all SAP's sales.

But what about that recession? It's a sad truism of management that the two best times to invest for the future are also the worst -- booms and recessions. In booms, companies don't invest in radically transformed systems because they're too busy making money. And nobody modernizes the infrastructure during recessions, when there's slack, because they're preoccupied with saving cash. This last is especially sloppy reasoning in the new economy.

The cost-cutter will find no better ax than digitization. Not only does it bring down costs to combat the slowdown in revenue growth, but it also establishes a lower and more efficient platform for the next phase of expansion -- and may well accelerate that expansion through the greater functionality of digital systems. Leaders in digital transformation such as Cisco Systems have transformed their financial returns, winning huge improvements in costs, capital requirements, cycle time, productivity and so forth.

It took the digital pioneers four to five years to achieve this. The payoff should be much swifter for followers, who can turn to packaged solutions and reference sites when implementing their Web strategies. But will it? CIOs have seen it all too often -- overhyped solutions that don't actually work as promised, or even work at all; panaceas that cure no ills; and paybacks that don't pay off. Software suppliers, systems integrators and consultants have become skilled in peddling their digital wares in the face of skepticism.

In this case, the skepticism is misplaced -- at least if you believe not the digital peddlers but a sober enough bunch of their customers: managers in financial services companies in the United States, United Kingdom, France, Germany, Italy, Ireland and Sweden interviewed for a survey published late last year by Unisys titled "Risk and Reward."

The majority of respondents (especially the Americans at 89 percent) said new delivery channels had attracted new customers. Another majority believed new technology improves service quality, and most reckoned that customer satisfaction also improved (a point made powerfully by Slywotsky, who puts the gains at 20 percent to 30 percent).

As a subset, the CEOs in the survey were even more enthusiastic. More than three-quarters were certain that investment in new technology produces competitive advantage; all of the strategic planners and more than 90 percent of the IT managers agreed.

It's just one industry and just one survey -- but it's nonetheless a welcome counterpoint to the continual implosions of collapsing dotcoms. Strike now, while most competitors are still depressed by the economy and hamstrung by conservatism, and you may emerge from 2001 with an unassailable lead. The trend toward Tapscott's b-Web is almost certainly irresistible, and the growth in e-business suites is symptomatic of that trend. Riding the bandwagon promises to be a sight more comfortable than letting it rumble over you.

CIO