As a former chief financial officer, Doug Maine knows all about return on investment and extracting the maximum value from investments in e-business.
As a former chief financial officer, Doug Maine knows all about return on investment and extracting the maximum value from investments in e-business. That may explain why, as general manager of IBM.com, Maine is running what is arguably one of the most successful and certainly ambitious web-based businesses worldwide tangible proof of IBM CEO Lou Gerstners claim that "e-business is real business."
Consider: IBM.com functions as an online center for more than 100 million annual service calls. It is an active repository for 4 billion pages of technical content, and serves as the venue for the lions share of the more than 500 million customer "touches" telephone and online contacts that IBM receives each year. Most important, IBMs e-commerce efforts generated some $26 billion dollars and placed the company second on this years Interactive 500.
IBM, of course, is hardly the first to discover the secret of generating real value from its Web investments. In fact, what has evolved into its so-called teleWeb strategy was years in development. "At the beginning, about four years ago, IBM accommodated and tolerated a lot of experimentation, before really settling on its current approach." says IMT Strategies President Stephen Diorio, author of Beyond "e": 12 Ways Technology Is Transforming Sales and Marketing (McGraw-Hill Professional Publishing, November 2001).
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Other Interactive 500 companies such as Cisco Systems, Dell Computer and General Electric developed their own successful formulas for using the Web to bolster sales and profits early on. Some airlines such as Delta Air Lines, Northwest Airlines and United Airlines have managed to cut overhead and drive ticket sales through extensive commitments to Internet travel. Prior to the Sept. 11 attacks, Delta.com and Delta.com for Corporations generated large increases in online traffic and revenue on a month-by-month basis. In July, Deltas online revenue totaled $120 million the airlines highest monthly total to date. And other online companies, including 1-800-Flowers.com, eBay, Expedia and Office Depot, have turned the profit corner.
In todays highly uncertain economy, however, many companies are still trying to come up with metrics that can be used to ensure theyre getting real payback from their e-business commitments.
The biggest and the best of the Interactive 500 companies are moving beyond traditional ROI measures and developing ambitious new strategies to achieve maximum payback from their e-business initiatives even highly successful technology companies such as Intel. "We actually have started to change our mindset about the ROI activity by rebranding it to be a broader category of business value that allows us to look at the aggregate," says Sandra K. Morris, Intels vice president and director of e-business.
Until fairly recently, the terms "return on investment" and "e-business" seemed to be mutually exclusive. "A few years ago, with the Internet cranking, no one had time to look at ROI," says KPMG Consultings Steven J. Sherman.
John McCain, President of Electronic Data Systems E Solutions organization, says, "If you back up two and a half years ago, there were no holds barred in terms of getting budgets to go chase after new Internet-based Web solutions, and channels to compete with that 15-person shop down the block that was going to put the billion-dollar company out of business."
That all changed abruptly when the air and most of the capital went out of the dot-com market. "When the IPO window shut, ROI and metrics suddenly became very relevant," Sherman says.
Today, with the economy in the doldrums, I-managers have come under extraordinary pressure to ensure e-business efforts yield returns. "People are now taking a much harder look at how this technology is going to add value to the business," says Bill Ebeling, a principal at Deloitte Consulting.
The problem is that no one seems quite sure which ROI metrics are truly valid when dealing with such things as e-commerce and customer relationship management (CRM). "Traditionally, the IT group would bring a specific project into a forum to be ratified," Intels Morris says. "IT was really looking for an ROI for that project alone."
Now, with Intel and much of corporate America knee-deep in ambitious, enterprisewide systems and e-business activities, Morris says that from an ROI standpoint, technology can no longer be viewed on an isolated, single-project basis.
At the same time, some of the early e-commerce benchmarks such as click-throughs and eyeball counts didnt have any more staying power than the dot-com startups that fostered them. Forrester Research recently issued a report indicating that e-commerce retailers that had calibrated their success based strictly on Web visits and online sales had been doing things all wrong. Instead, online sales should be valued simply as one element in a companywide ROI, since the Web impacts offline purchasing and efficiencies as well as online business, Forrester says.
"The problem with some of those e-commerce measures is that unless you drive all the way through to where youre making money, theyre not really valid," says Ann Senn, also a principal at Deloitte.
"Its not that these measures arent valid," Ebeling says, "but in general, just forming ratios of value to, say, click-throughs is a very bad way to look at business." As an example, Ebeling notes that iVillage, an online meeting place, clearly has as many if not more visitors as Amazon.com, but has an altogether different business model. Consequently, trying to gauge ROI on the basis of Web traffic in this instance is meaningless, since the two companies arent analogous models.
Many of the leading Web-based businesses are adapting new strategies to bolster payback on their own e-business portfolios.
Typically, these benchmarks may include technical milestones, such as bringing up a new e-business application by a given time or realizing the business impact and hard-dollar benefits of a transaction consolidation effort. With big, expensive e-business initiatives, EDS E Solutions and other IT services and consulting firms including KPMG are increasingly making their fees at least partially contingent on meeting client benchmarks. "With a select customer base, today we have what I call an earn-out or success-fee relationship, where I put all my profit and maybe some of my expense on the line, based on the business impact I believe I can have," EDS McCain says. "That represents the most comprehensive ROI collaboration possible between a consulting solutions shop like mine and customers today."
The new e-business value paradigms that are emerging extend across the entire enterprise and incorporate a range of business metrics that bears on both top- and bottom-line results.
How IBM Measures Success
IBM has gone further than most Interactive 500 leaders in terms of moving its business onto the Web. IBM.coms Maine, who had been CFO of both MCI Communications and IBM before taking the helm of IBM.com, explains how this came about: "Prior to January 2000, we had separate channels for the telephone side and the Web." That changed when IBM consolidated its e-channel and teleSide into the teleWeb approach.
"IBM has done an unbelievable job of building an e-channel and integrating it with its call centers," IMTs Diorio says.
This consolidation harnessed the power of IBMs telesales to address what the company perceived correctly several years ago as a vast and largely untapped small- and midsize-business market. In a watershed organizational shift, it also brought IBMs direct sales an area that in the past had been the sole province of IBMs renowned sales force firmly into the e-business fold. Today, Maine is responsible for IBMs e-commerce activity and is a peer of the companys chief information officer, Philip Thompson.
The consolidation of telesales and direct sales into an e-channel couldnt have happened without the head of sales and distribution and the head of marketing two extremely powerful positions at IBM agreeing to the move. It also couldnt have happened, Diorio says, without IBM creating an executive-level office for IBM.com and putting it under one of the companys top executives, namely Maine.
The upshot is a hugely ambitious Web-based organization that provides sales and support to all of IBMs big enterprise customers; its small and midsize business customers, which currently account for 75 percent of all IBMs revenue; and its 45,000 business partners. "IBM.com is not only a whole new channel, but a sales and service unit that will complement the existing channels provided by our face-to-face sales teams and business partners," Maine says.
Operationally, the teleWeb centers at the heart of IBM.com "are run pretty much like a traditional sales operation, in that you have sales reps with quotas who report to a manager whose quota is the sum of all the reps quotas," Maine says.
In addition to the 2,000 dedicated telecoverage reps, who maintain ties to IBMs existing customers, the teleWebs are also manned by specialists who help facilitate Web interactions. "We did that because of the complexity of IBMs products," Maine says. "This isnt like going on the Web to buy a book from Amazon.com. We felt it was important to integrate people into the process in large part for convenience, so if the customer had a question or got stuck, the whole process would default to a knowledgeable service or sales rep."
Currently, IBM is taking the teleWeb approach even further by combining e-business with Siebel Systems CRM capabilities. "This allows us to do things like collaborate with customers in creating online sales presentations and marketing campaigns, " Maine says.
According to Maine, IBM employs eight key measures to calibrate the business value of its new strategy: improved sales or productivity, reduced service or support costs, improved marketing return, reduced transaction costs, new customers, customer satisfaction, customer procurement requirements and finally, serving as a positive reference for IBM customers a measure that is esoteric to IBM. "We want to show our customers IBM can duplicate the approach for them," Maine says.
Its too early in the game to gauge the full impact of IBMs new e-business initiative, but the early reviews have been raves. "IBMs new strategy is likely to revolutionize e-commerce in much the same way its e-business strategy made the Internet an acceptable tool for business," Summit Strategies noted in June.
From IBMs point of view, however, its really only the numbers that count and to date, those look highly favorable. "By our most recent estimates, about 70 percent of all our customer touches are now coming through IBM.com," Maine says. "The pendulum is continuing to swing toward the Web."
Intel: How the Net Chips In
Another e-commerce leader, Intel which is No. 3 on this years Interactive 500 has carried out a number of far-reaching business systems and e-business initiatives. These include connecting its entire supply chain end to end and connecting its financial reporting to the overall supply network. "In evaluating these investments, we have to look at the aggregate," Intels Morris says. "As a really good example of this, our CFO, Andy Bryant, says weve been able to bring our raw materials down as a percent of cost 67 percent over the past few years. That isnt because of one particular systems investment. Its because of a set of investments weve made, plus a change in the overall business process how we look at inventory and how we manage data across the company."
Generally, Intel has two ways to calculate business value. One is pure productivity measures, which Morris describes as: "Does Intel, as a company, get operating efficiencies through the implementation of any system?" The other is a set of business metrics that the company put in place to look at its competitive advantage. These metrics include improving time to market for new technologies, from suppliers to assembly to customer delivery. "If we can improve by three days, that will make a big difference for us," Morris says.
Intel gauges other indicators within the context of the competitive market. For example, now that the company has connected 100 percent of its customers to its Web, about 30 percent of the management of orders between Intel and its customers occurs after hours in any geography around the world. "Thats a level of customer service we just cant get without the kinds of technology investments weve made," Morris says. "Its really a customer service advantage for us, but you cant put a hard number on that."
As the executive charged with driving Intels transformation into e-business the companys top I-manager Morris and her worldwide staff of 200 are responsible for ensuring that Intel integrates its business and Internet strategies in terms of connecting with customers, suppliers and employees. Morris works as a peer to Doug Busch, Intels vice president and director of IT, and both report to Bryant.
"One of the challenges of a group like this is to stay very tied to the business," Morris says. "I run a very highly matrixed organization, so that almost everyone on my staff matrixes to another area of the corporation. Our charter is to understand what challenges the business is facing, and how technology and e-business can be applied to those challenges."