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The damage estimates from the dot-com implosion and the ensuing economic downturn are still being tallied, but this much is already clear: The job of delivering successful e-business initiatives has become a whole lot more demanding than it was during the Internets heyday.
Granted, Fortune 1000 and Global 2000 companies, especially in industries such as chemicals, energy, financial services, manufacturing, retail and utilities, are still pushing ahead full-bore with entire portfolios of e-business projects. And according to a survey of corporate I-managers by Interactive Week, budgets for Internet products and services will continue to rise, in some large companies by as much as 20 percent.
But the attitude in the corner office has changed. Once viewed by upper management as the silver bullet that would resolve any and all corporate shortcomings, the e-business equation has been changed by the dot-com meltdown and the associated backlash. “The recent failures in Internet dot-coms sobered up everyone a little about the payoff of e-commerce . . . and many of the anti-Internet dinosaurs are feeling emboldened,” said Bob Otis, managing director at Atlantic Research Technologies, a worldwide executive search firm.
Put another way, todays I-managers — the business and technology executives charged with overseeing corporate Internet initiatives — are on the hot seat. I-managers are expected to deliver on the full value of business transformation.
“A lot of our clients are e-commerce executives in major corporations,” said Tom Pullman, a senior analyst at Forrester Research. “Up until the fourth quarter of last year, they were given a lot of rope. Now with the downturn, traditional line managers and business unit CEOs are scrutinizing e-commerce executives much more closely and holding them accountable to hard internal investment metrics.”
How are I-managers handling the economic downturn? To get a picture of the challenges theyre facing, Interactive Week surveyed Internet and interactive decision makers on the state of their Net initiatives, budgeting, return on investment (ROI), and top technical and business obstacles. Not surprisingly, the survey found that managing budgets and project deadlines were I-managers top two management challenges.
“The future is going to be tough for a little while,” said John H. Keast, who headed up Pacific Gas & Electrics ambitious e-business strategy and is currently executive vice president of operations and customer service at Asera, an e-business software company. “Senior management and shareholders arent letting go of high expectations and of getting value for the customer. The challenge for anyone in a customer-facing [e-commerce] initiative is to unlock value and put together a really incredible set of processes that reflect what the customer wants to do.” Forty percent of the I-managers polled were running customer-facing Web sites.
But the survey also found that I-managers are rising to the challenge. And whether they oversee sites serving customers, trading partners or employees, successful I-managers have a couple of things in common, experts say. They have a good feel for their business, are able to leverage brick-and-mortar resources, can align information technology (IT) and Internet initiatives, and can focus their efforts on results.
New Formulas for Success
There are examples of internet units that are doing just about everything right. Grant Freeland, vice president at The Boston Consulting Group, points to Delta Air Lines high-flying Delta.com e-center effort. Under e-commerce czar Vincent Caminiti, Delta.com generated $265 million in revenue in the first quarter, and the company expects the online unit to generate $1.4 billion in revenue for the year.
But Internet departments that dont meet the new mandate are being hit with layoffs. And the independent or semi-autonomous corporate e-business development and operations units that dont match up with the corporations overall business strategy are being integrated into the corporate fold or, in some instances, shut down. “Theyre taking their cuts like everyone else,” Keast said.
But some cuts may be happening too hastily. The success of units like Delta.com is one reason many analysts still believe in Internet unit independence. Closing or integrating e-centers, as some organizations have done, may be an overreaction. “If an e-center is very effective,” Freeland said, “it doesnt make sense to integrate it prematurely. It can probably operate very effectively off to the side for several years,” he said.
One danger of bringing e-initiatives entirely in-house: Many organizations overestimate their ability to roll these initiatives out internally, Freeland claimed. “They often get bogged down in a business-as-usual attitude. Unless you get the organization issues right, the effort is going to fail.”
To better their odds across the board, the Interactive Week survey found that companies are now placing a premium in e-business experience when they select senior managers to head Internet-based business programs. Most I-managers — two-thirds — have business management, as opposed to technical, backgrounds.
In April, Dun & Bradstreet put its business-to-business e-commerce initiatives under Senior Vice President Steve Alesio. Before joining D&B in January, Alesio was at American Express as president and general manager of American Express Business Services Group. With his background in business development, B2B marketing and strategic planning, Alesio was brought in to position D&B as a major player in B2B commerce.
Improving the Odds
There are a number of notable e-business success stories that cant be ignored.
Tesco, the giant English supermarket chain, played off its brick-and-mortar roots, which led to its current success with multiple online programs. “Tesco is a very capable organization with talented managers,” Freeland said. “It has an incredibly successful record of rolling out e-commerce efforts.”
Involved in e-commerce since 1996, Tesco provides everything from books and brussels sprouts to bonds and insurance online. Unlike some of its American counterparts, its e-commerce strategy was to build gradually while leveraging its brick-and-mortar assets wherever possible. As an example, through Tesco.com customers can order groceries directly from their neighborhood retail store and have them delivered, an approach that quickly won the approval of store managers — who benefited from the program — and proved minimally disruptive. Today, Tesco accounts for more than 50 percent of all the online grocery sales in the U.K., and has expanded its Internet-based offerings into Ireland.
Tesco played to its strength. And while there is no surefire formula for success in pursuing e-initiatives, particularly in todays dicey economic climate, I-managers can certainly improve their odds by addressing several key issues proactively.
First, e-business executives outside the information technology department can reduce political tensions within the organization by reaching out to their counterparts in corporate IT. “The e-commerce people have seen that they need to be friendly with the information systems group to make use of the network infrastructure and databases,” ARTs Otis said. “The IS people have come to see that, all in all, when youre working with computers, youre all on the same team ultimately. . . . In many companies, weve seen a gradual and natural fusion of e-commerce and IS staffs under a CIO [chief information officer] or CTO [chief technology officer]. In some of these places, its like a baseball team with right-handed pitchers and southpaws — theyre both seen for their special value and strengths, and function as members of the same team.”
A case in point, Computer Task Group, an international IT services firm in Buffalo, N.Y., just named Alex P. Alexander, an executive with e-business experience, as vice president and CIO, reporting directly to CEO Darrell Jennings, and put its entire e-business portfolio under him.
It was Alexanders understanding of Internet commerce, plus earlier experience as a regional manager at Electronic Data Systems, that served as a springboard to the new job. “The experience at EDS, where, as a regional manager, youre basically CEO of a small business, plus what I learned from the e-business side, allowed me to have the perfect fit for the CIO role,” Alexander said.
In his consulting work at CTG, Alexander said he “had been working with a lot of our clients, helping them create e-business strategies and actually running their e-business operations in some instances.” In this role, Alexander had a birds-eye view of the clients IT infrastructure, as well as those of their customers and supply partners. “That allowed me to understand that, if the internal IT infrastructure is not in order, it is going to be very difficult to make the whole e-business thing happen. Thats the CIOs responsibility, but many of them were focused on point solutions and didnt have a strategic plan they could point to.”
Wells Fargo, another organization that has established a highly successful track record in launching e-business efforts, takes a centralized, integrated approach. “Wells [Fargo] has all of its Internet activities around one head, Clyde Ostler [group executive vice president of Internet Service],” said Steve Ellis, executive vice president of the Wells Fargos Wholesale Internet Solutions Group. “We spend an enormous amount of time working with the business group heads on how we design and market the various products and how they fit into the service channel. This is a relationship business, not a technology business.”
Even so, Ellis group works closely with the banks internal IT group in evaluating vendors and consultants it may want to use in deploying a new business initiative. In addition, the technology and business people work as a team in implementing projects. “We decided up front, with our [internal] technology partners, that we needed to build fairly rapidly and be able to work with a lot of changing technology,” Ellis explained. “As a result, the business and technology people actually sit right next to each other and function as a physical, not virtual, team.”
Using this approach, Wells Fargo has launched various customer-oriented e-offerings, including WellsExchange, a suite of B2B services that allow midsized and large corporate customers to perform a variety of domestic and international transactions, such as cash management and foreign exchange online. Already, 20 percent of the banks commercial customers have signed up for the service, Ellis said. He expects that figure to be more than 50 percent by years end.
Another way I-managers can hedge their bets is to pay close attention to shifts in the corporate wind. If I-managers havent done so already and are managing an autonomous or semi-independent e-center — what Forresters Pullman calls a “dot-corp” — they need to develop an integration plan, pronto.
“Most dot-corps were established to function as temporary, transitional organizations,” Pullman said. “But some companies are now taking a very soloed approach to everything relating to e-business.” While keeping the dot-corp operation independent may be the best strategy for the long haul, some companies — especially those under financial pressure — may have to transfer their e-business back into the lines of business.
I-managers who draw up a comprehensive integration plan well in advance of what Pullman sees as an inevitable transition are going to be better positioned to ensure that e-initiatives and their own careers dont get caught up in corporate red tape and inertia.
Payback
Given tighter resources and the pressure to show an ROI, I-managers have to establish priorities and make some hard choices. Noted Pullman: “Right now, a lot of e-commerce executives are scrambling around saying, Ive got all these e-business initiatives going on right now. Which ones can I cut loose? Which ones make the grade and get top priority, and which ones need more investment?”
If you focus on the project that will produce a quick, six-month return, you may be looking too much to the short term, and placing expediency ahead of value, Pullman said. “The quick payback is, frankly, not always realistic,” he said.
Instead, Pullman recommended zeroing in on the longer-term projects that, in the end, are going to make a real difference. As for the need to show an ROI: “There are ways to structure large, two-year projects in bite-size chunks that have a real return,” he pointed out.
Jon Derome, senior analyst at The Yankee Group, also recommended taking a more modest approach as a way of dealing with cost-of-ownership issues. “For example, many B2B projects were originally going to connect to the entire e-marketplace,” Derome said. “Now, a lot of these initiatives have been scaled back and are only connecting to a companys existing supply chain partners. People are also building on existing B2B capabilities today, such as EDI [electronic data interchange], rather than scrapping them and starting over from scratch. Thats a more pragmatic, realistic approach.”
Indeed, for the near term at least, pragmatic and realistic might well serve as the watchwords for I-managers struggling to come to terms with the post-dot-com era.