AN E-BUSINESS BLUEPRINT

by: Issues: March / April 2000. Tags: Strategy. Categories: Strategy.

How you measure and manage the risks of an e-business will or will not give you that competitive edge. Here’s a model for success.

In today’s rush to establish a strategic presence on the Internet, many companies are finding themselves overwhelmed by the challenges of planning and managing their business on-line. Those responsible for leading the e-business agenda must quickly understand, compare and implement a rapidly expanding menu of technologies simply to participate in the hypercompetitive electronic marketplace. Because they have lacked an effective model for commerce operations, many have pursued costly technology initiatives that lack purpose or a plan for execution. But a model does exist that can help deploy an e-business infrastructure. It is called Internet Commerce Management (iCM).

THE CHALLENGE OF THE E-BUSINESS EXECUTIVE

According to the Yankee Group, a Boston-based research and consulting firm, the business-to-consumer electronic commerce market is expected to total $120 billion by 2003, while the business-to-business market will top $540 billion (all figures are in U.S. dollars). However, statistics can often misrepresent reality: The majority of established bricks-and-mortar businesses have yet to build a sustainable business on the Internet. This is not to say that most aren’t trying. Multibillion-dollar technology firms and neighbourhood dry cleaners alike are looking to the Internet for new and innovative ways to reach their customers.

A new breed of business professional, the e-business executive, has been charged with delivering the promise of this new global, interactive marketplace. However, the prospect of building complex, expensive and mission-critical systems from the ground up has given most of these individuals chilling pause. In the face of daunting technical challenges and a volatile business environment, they have been required to quickly understand the how-tos of building an e-business. What they have desperately needed is a simple, comprehensive model that represents the fundamental processes that must be supported to effectively manage an Internet commerce operation.

A MODEL FOR INTERNET COMMERCE MANAGEMENT

As with an off-line business, the success of an e-business is largely determined by how effectively it executes a set of fundamental business processes. Though these processes parallel those of traditional commerce, they are uniquely tailored to the challenge of doing business on-line. The Internet organization must identify, build and refine capabilities that range from servicing the customer, to marketing and delivering the product, to deploying the Internet business. Collectively, these processes comprise an iCM model that e-business executives can use to build a sustainable on-line enterprise.

Identifying and managing customer needs

When it comes to attracting and retaining business, the Service process is the most significant piece of the iCM puzzle. This front-office process is dedicated to identifying and managing the needs of the on-line customer.

The Internet customer should be capable of performing the same functions they are used to carrying out in the physical world. He or she must first be able to efficiently select products through the use of robust search mechanisms and intuitive, hierarchical product-information architectures. Next, the on-line customer should be able to execute transactions by performing product availability checks and back-orders, placing items in a shopping cart, presenting payment and making shipping requests. It is the Internet commerce infrastructure that provides the necessary tools to execute both selection and transaction for products and services.

Additional functions enhance the firm’s Service abilities, and thereby generate increased on-line business. Customer-care functions, implemented using chat and e-mail technology, help maintain relationships with customers. Alternative pricing and auction functions, along with configuration functions (appropriate for complex products such as PCs), can engage the customer in pricing and customizing products. By profiling individuals, data can be gathered and analyzed to develop a deeper understanding of the customer. Also, dynamic servicing functions can enable personalization, cross selling and targeting by leveraging the emerging technologies of collaborative filtering, rules heuristics and neural networking.

Generating product demand

While Service is trained on the customer, Market Management focuses on increasing demand for the product. Functions ranging from marketing analysis and e-merchandising to content management support this iCM process.

The cornerstone of Market Management is e-merchandising, responding to on-line customer needs by dynamically adjusting promotional campaigns and pricing models. The reporting and analysis of purchasing history provide on-line marketers with a precise picture of how their products are selling. At the same time, targeting rules can be developed to leverage transactions and profile databases into personalized discounts and promotions. On-line behavioural information, when diligently gathered, analyzed and acted upon, can also prove to be invaluable in shaping strategies for both product and enterprise.

To effectively drive product demand and brand perception, the e-business must effectively manage a core function of on-line commerce: content management. On-line organizations have discovered that they must efficiently manage not only product descriptions, specifications and pricing data, but an increasingly diverse mix of marketing, promotions and community-oriented content. The ability to manage large volumes of product information as well as rich media is becoming a key determinant in the success of the on-line enterprise.

Delivering product value

If the 1999 holiday shopping season taught e-businesses anything, it was ensuring that products delivery can be as important as capturing orders. The back-office process of Fulfillment deals with the particulars of supplying good and services, processing orders and managing distribution of the product.

The ability to effectively process the order must reside right beneath the veneer of the Web page inviting the customer to purchase (an iCM Service process). Inventory must be managed and products sourced from suppliers or initiated in the manufacturing process. In turn, action must be taken to notify all relevant parties; for example, buyers, suppliers, and departments such as production and accounting. And, of course, payment must be processed via credit cards, money orders or electronic cash mechanisms concurrent with product distribution.

The best method for distributing product to the customer is driven by the nature of the product itself. With physical goods, customer shipping and payment preferences must be translated into real-world logistics that accommodate en-route status checks, while ensuring that appropriate taxes are calculated. Electronic goods, on the other hand, require technologies that can distribute quickly and securely over congested public networks such as the Internet.

Building and maintaining the Internet storefront

Of the four iCM processes, Deployment is the most specific to conducting business on-line. This iCM process deals with creating and maintaining the Web presence, which supports the Internet business channel.

If the Web site is to perform any of the iCM functions previously discussed, it must first be developed to accomplish those tasks. Web-authoring functions, handled by producers tasked with shaping the site’s “look-and-feel,” must be coordinated with process customization and application integration activities led by developers. Internet commerce software vendors have recognized the importance of these functions by bundling them with their solutions tools for store creation, scripting languages and Application Programming Interfaces (API) to extend the capabilities of their products.

If the e-business is to become profitable, it must, of course, be kept running: To ensure its reliability, efforts must be focused on meeting the immediate performance expectations of both customers and internal users. This means addressing issues such as site responsiveness and availability. As it must be scalable, efforts must be oriented toward meeting and exceeding those expectations as the on-line operation grows. A properly developed and maintained Internet infrastructure is fundamental to being able to respond to changing customer needs and emerging competitive threats.

MIND THE GAP: THE ICM CAPABILITY ASSESSMENT

The scope and ambition of contemporary Internet initiatives are impressive, even more so when the element of time is taken into account. In response to pressing competitive threats and tremendous market opportunities, industry-dominating e-businesses are being created in unprecedented time frames. Consequently, strategic product and technology decisions are often made without adequate consideration for the long-term impact of those decisions. Driven by deadlines and constrained by insufficient capital and human resources, some companies discover too late that suboptimal, myopic decision-making processes can compromise the viability of the enterprise.

This is precisely when a command of the iCM model begins to pay dividends. To avoid the problems that are likely to result from hastily begun Internet projects, the e-business should conduct a strategic self-assessment against the iCM model. This can be accomplished in a number of ways, but we propose a simple two-phased approach that identifies those iCM capabilities that must be developed and those factors that might constrain their development.

The first phase consists of a comprehensive, metric-driven “gap analysis” to identify those iCM processes and functions that must be developed and refined (see diagram above). To accomplish this, the firm should get a read on its existing iCM capabilities by assessing them against the model’s four processes of Service, Market Management, Fulfillment and Deployment. It should then determine the level of capability required for each functional area to effectively execute its on-line strategy.

The goal of the second phase is to identify the organization-specific factors that constrain the development of those capabilities, such as existing business processes and technology infrastructure. These “iCM constraints,” as potential showstoppers, might surface in any of the following areas:

  • Competence: The organizations skill levels in technology, operations, marketing, and customer support versus those required to execute on-line
  • Performance: The organization’s current operational performance levels compared to the expectations of the on-line customer
  • Leverage: The extent to which existing systems and business processes can be leveraged in the interactive marketplace
  • Functionality: The functional capabilities of current business systems with respect to the four core iCM processes
  • Adaptability: The flexibility required of new technologies to model existing and future business processes
  • Cost: The budgets and anticipated costs for developing and deploying the iCM infrastructure and business processes.

Whatever method is pursued, the iCM Assessment should produce an evenhanded analysis of the organization’s strengths and weaknesses with respect to the iCM model. A focused effort on filling iCM capability gaps will result in a more resilient technology infrastructure and e-business operation.

STRATEGIES FOR DEVELOPING ICM CAPABILITIES

In the end, the e-business infrastructure must be built to execute Internet commerce. Using the iCM Model as a guide and the iCM Assessment as a blueprint, the e-business executive will be well equipped to make the critical decision of whether to build, buy or rent an iCM capability. While each option has its merits, the adoption of an ill-matched development strategy can have dire consequences for Internet commerce initiatives, either by scuttling ventures when they are young or slowly eroding their efficiency and profitability over time. The strategy that is ultimately pursued is driven as much by market strategy as by internal capabilities, which are the focus of the iCM Model.

Build the iCM infrastructure

Firms have been customizing software to fit the needs of their business since the dawn of the Information Age. Today, many of the most established Internet names, like Amazon.com and Dell.com, support custom-developed platforms to conduct the most basic functions of on-line commerce. The operating sophistication of these First Movers in many ways necessitated a custom approach, as technical innovation was and continues to be a key factor of their on-line competitiveness. But they were often forced to develop code in-house, due to the fact that tested solutions were unavailable in the nascent Internet technology marketplace.

Even in the best cases, custom-developed software requires significant ongoing investment. Personnel require specific training to maintain complex, unique technology solutions. Should the technologies in use become obsolete, firms will usually suffer the high costs of switching to new platforms or retooling old platforms for use beyond their original intentions. The result is “First Movers Liability”; after as little as three years, the code of the First Movers has effectively become “legacy,” requiring constant development and enhancement. As enterprise-level software solutions become more commonly available, many of these firms will revisit their development model after realizing the high costs of supporting custom code.

While some firms have the resources to develop Internet technologies in-house, most solicit the help of a new type of systems integration shop to do the dirty work. With skills in rapidly emerging technologies extremely hard to come by, these Systems Innovators give companies quick access to talent ad bring along solid development practices inherited from their previous work in client-server migrations and systems development projects.

The custom approach benefits mostly those firms looking to leverage sophisticated customer-oriented technologies and tight integration with legacy assets to achieve competitive advantage. The costs are high, but necessary to maintain the First Movers’ competitive edge.

Shop for off-the-shelf solutions

Purchasing standardized solutions rather than building code enables firms to deploy advanced functionality more quickly while at the same time relegating the task of code-base enhancement to a third party. The benefits of standardized, off-the-shelf platforms are significant in almost every aspect of the software life cycle, especially in development, training and ongoing support.

To be fair, off-the-shelf solutions have their liabilities. Extending these products can prove as challenging as developing solutions from scratch, especially when functional exception cases become prevalent. Integration with legacy systems can be difficult or impossible, as certain vendor solutions lack APIs that adequately interface with other systems. Like custom software, off-the-shelf solutions require a significant commitment from the organization to maintain skill and release levels. As well, the combined costs of up-front licensing fees, support contracts and services procurement quickly add up.

Over the last few years, start-ups and established software vendors alike have emerged with products that address the requirements of iCM. Originally, these were designed to address specific iCM functions and were limited in functionality. Today, however, iCM vendors provide more comprehensive, robust solutions. These solutions fall into two categories: packages, which are in advanced releases and often provide a deep, if not broad, iCM capability; and platforms, which have emerged more recently as the architecture of Internet systems has matured. These solutions present compelling options to those less than thrilled with the prospect of developing and maintaining costly custom code.

The off-the-shelf approach is ideal for firms desiring a core set of best-of-breed functionality and the advantages of platform standardization. Firms looking to leverage a standard set of functionality and get to market quickly will find that these solutions can significantly close the gap between Fast Followers and their First Mover competition.

Rent from the Commerce Service Providers

By going with a Commerce Service Provider (CSP), a company can sidestep many of the issues that surround custom and off-the-shelf application deployment. CSPs are firms that choose to rent iCM software rather than sell it. This model can liberate firms looking for rapid entry into on-line commerce from the timeless Build versus Buy Dilemma. The e-business need not to be concerned with infrastructure issues and skill development, as both technology and personnel are the responsibility of the CSP. And unlike off-the-shelf applications, the vendor in this case must hold costs and service to acceptable levels or risk losing its contract.

Advantages in speed, cost and manageability come at the price of flexibility. Typical CSP solutions can be “one-size-fits-all” in terms of functionality, a consequence of balancing the demands of several clients. True extensibility of the service can be limited and tight integration with legacy applications might be impossible. From a strategic perspective, it’s important to note that CSP solutions are generic, yielding competitive advantage only in rare circumstances.

Given that the CSP model is new, few firms are offering these services and even fewer established bricks-and-mortar operations have signed up with them. But the market is rapidly evolving and will likely produce a number of significant providers in the near future. Leading the way will be CSPs targeting small- and medium-sized businesses, which lack the resources or motivation to tackle the challenge of building or buying an iCM capability.

E-businesses considering this route are encouraged to identify and selectively outsource non-core processes to CSPs, focusing scarce resources on mission-critical activities. The CSP model is perfect for those firms looking to hand over the challenges of infrastructure management and solution development to someone else.

THE MANAGER’S CHALLENGE

The e-business executive faces enormous challenges, perhaps one reason why so many Internet initiatives are overextended and overbudget. Measuring and managing the risks inherent in Internet commerce development are important, and or article has outlined steps to achieve this goal. In building the Internet commerce infrastructure, the e-business executive must:

1. Understand the processes of iCM. Take into account the Service, Market Management, Fulfillment and Deployment processes that must be developed to successfully execute an Internet commerce initiative.

2. Assess the iCM capability gaps. Evaluate the organization’s capabilities and ambitions against the iCM model, and identify areas for investing capital and resources.

3. Select an iCM strategy and partner. Choose the development path (build, buy or rent) most appropriate for the e-business and do business with the vendors and/or providers best positioned to deliver the iCM capabilities required.

Until recently, the majority of e-businesses were required to create from scratch—and at significant cost-the technologies and processes to support their on-line objectives. Today, however, software vendors and service providers have emerged with a host of options that can and must be considered. If anything, the maturation of the e-commerce software industry has made understanding the fundamentals of Internet commerce even more difficult, a problem the iCM Model was designed to remedy. In the end, it is one tool among many that the e-business executive can use to establish a competitive advantage in the interactive marketplace.

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