As many managers know, there is no such thing as a cultural transplant, especially as an organization moves from the bricks and mortar world to the virtual world. There are right and wrong ways of managing the transformation and some business models have a better chance of managing it than others. And as this author points out, one model is particularly better than most others in accommodating the newly formed e-business culture.
Many people today believe that e-business is one of the three pillars of the New Economy, along with knowledge management and partnering strategies. However, others remain unconvinced, arguing that in their industry, e-business will at best be a long time coming, and that Old Economy approaches will succeed for a number of years. Where you stand on this continuum will affect how you set up your own e-business activities, where you place them in your organization, who is in charge of these efforts, and the commitment you make to transforming your organization into an e-organization.
In my experience, executives and managers have adopted widely different approaches to preparing themselves and their firms for e-business. For example:
- Canadian National has recognized the importance of e-business initiatives by having the managers responsible for them report to a steering committee consisting of a steering committee of the COO, CFO, CIO and the EVP of sales and marketing. The reporting managers are assigned to the e-business initiatives full-time, but they remain responsible, as indicated by a dotted line, to their home function.
- At Hudson’s Bay, e-business activity reports to an Executive VP, who is also the CIO. Hudson’s Bay chose to begin this way so its e-business effort can span the various divisions and business units. Recently, as Hudson’s Bay became more comfortable with e-business, some activities were integrated with similar operations in traditional business units.
- A leading North American telecom company with an unusual approach to e-business has been enjoying considerable growth. New acquisitions are brought under the umbrella of the new organization, called Telecom II, where they are transformed and aligned with the new e-business approaches. As Telecom II grows, it will be merged with the parent, to infuse the latter with the e-culture.
- Kingfisher, a large European retailer, has formed four new e-business units. Every month, each one reports directly to a select committee, the Chief Executive—Sir Geoffrey Mulcahy—and the finance and strategy directors. Each unit lines up with the major U.K. businesses Kingfisher owns: B&Q, Comet, Superdrug and Woolworths. These new units will benefit considerably from access to the powerful brands and purchasing clout of their bigger sister. But they are also stand-alone to allow for possible IPOs.
- Nokia has formed groups within each business area to focus on e-business opportunities with customers, and perhaps more importantly, on internal processes. The managers responsible for these initiatives are located around the globe and are generally at a senior level.
E-BUSINESS: HERE FOR THE LONG RUN
A central thrust of my research is that e-business i here to stay, and in a big way. B2C e-business is introducing many businesses to new channels and causing many industries to rethink their existing approaches to reaching end users. In Singapore, Nokia has introduced an Internet-based service that allows their end customers to purchase cellphones directly from the company. This meant changes in Nokia’s relationships with its existing channels—phone companies, phone shops, department stores and other retailers. Though existing distributors recognized the need or Nokia to adopt a B2C channel, they still were unsettled as the world began to shift underneath their feet.
An even more fundamental set of changes for existing organizations is occurring in the B2B sector, which involves changing trading processes and/or refashioning internal business processes. British Airways has been doing both. It s moving to e-procurement both to cut sourcing costs and to free up valuable purchasing specialists for more strategic sourcing tasks, such as vendor negotiation, relationships management and more thoughtful analysis of current purchasing activities. In a relatively short time, this will result in price pressure on vendors, a reduction in the number of vendors, and a fundamental change in the job of procurement people with BA. Not only is BA changing its work with outside suppliers, it is also applying the logic of e-business to internal processes and work. For example, its E-Working project is piloting new ways of working using intranets to streamline internal processes like pilot and crew scheduling, and knowledge sharing.
In my research, which consisted of more than 100 interviews with leading large firms in North America, Europe, Australia and Asia, I observed that, in fact, firms are using one of five different approaches to prepare themselves for the move to e-business. In this article, I will focus on the strengths and weaknesses of each approach, the outline a more generic one that I believe will develop over the next three to five years.
THE E-CULTURE CHALLENGE
Insightful executives are increasingly recognizing that e-business culture may well become the business culture in most industries and countries within the next three to five years. In my research, I observed that there are six characteristics of an e-culture. It:
- Operates at Net speed. Speed, speed and more speed is central to e-culture. Things are just done much faster than in traditional firms. A team from one large consulting company discussed how they were jointly working with another large consulting firm on a project for a client. One afternoon, they had discusses setting up a portal for one of the client’s functions. On their return to the client the next morning, they were astonished to find that their competitor had set up a prototype of the portal overnight. They reflected that it would have taken weeks to reach the same point using their traditional approach. They had learned something important about e-business: Dot-com firms view their ability to create and respond at high sped as a capability that big firms simply cannot match.
- Executes dynamic strategy. Responsiveness is the key. An E-culture accepts fast changes in response to a hyper-competitive market and is willing to build and launch new business models on a regular basis.
- Has global reach. The Internet recognizes few national boundaries, and only those created by language, culture and brands. E-culture stresses worldwide learning, customer segments in many countries and 24/7 service.
- Enables e-initiatives. Technology is not an absolute, but an awareness of what is currently possible and economically appropriate is important. It is helpful for a good cross-section of people, including senior executives, to become technology enthusiasts. Moore’s Law enables new possibilities every 18 to 24 months.
- Engages in internal collaboration. Cutting across traditional functional silos are multifunctional teams, the norm in e-culture. Speed is all-important, and wearing your functional hat too firmly will delay getting product to market. Teams are formed, and they focus on their goal; they are broken up once they’ve achieved their goal.
- Integrates with partners. In the New Economy, no one firm can do it all. Small firms see this as self-evident; large ones are learning it at a slower rate. Working well with other organizations is a demanding skill and one that does not come naturally to those who grew up in the competitive ‘70s, ‘80s and ‘90s.
It should be stressed that in the organizations I studied, e-culture was not always seen as a positive attribute. In part, this was because it inevitably clashed with most existing cultures. But I also noted that even in stand-alone or quasi-autonomous, Internet-based business units, senior managers pointed to the need for experience, financial acuteness, and often a mix of backgrounds and approaches, rather than one unified e-culture. Several cited high-profile Internet start-up failures caused, for example, by the lack of some Old Economy management practices.
The cultural challenge that our companies faced was invariably the same, though they experienced it in different degrees, depending on the mode of organization they adopted. The cultural challenge can be portrayed this way: How do we leverage the strengths of e-culture and assimilate them with the existing cultures in our organization without negative consequences? With this short background on e-culture in mind, I will now describe the different ways in which firms are choosing to organize their e-initiatives.
WAYS OF ORGANIZING
The six key dimensions on the right side of Figure 1 will help senior managers decide which approach is best for their firm. Each of these six dimensions involves an issue that is central to the success of e-commerce.
- Impact on an owner-firm culture. Believing that e-business is an important issue for your firm is critical. If a CEO thinks e-business is the wave of the future, and indeed of the near future, it may be worth considerably more to undertake the transformation of the organization into an e-firm than to merely generate some additional profitability from a short-term, ad-hoc e-business initiative.
- Degree of management control. Again, the pivotal issue is whether e-culture is perceived as being the next new thing. If it is, senior managers will want to be able to manage and control their firms’ e-initiatives. No CEO is likely to want to confess t his board that e-business is very important, but that he is nevertheless not putting a senior team or significant time and energy into it.
- Contribution to shareholder value. Internet stocks enjoy considerably higher P/E multiples than most large firms. How to convert a firm’s multiple into one that approaches an Internet firm’s is a tantalizing question for CEOs. One approach is to set up separate organizations that will be easily recognized as Internet plays—and hopefully be valued accordingly. The new organizations enjoy the added benefits of their links to the dominant brands and access to large-firm supply chains.
- Retaining a Net culture. A central concern is that the culture of the parent firm will effectively “nip” the buds of Net firm’s culture. For many firms, Net culture is still a “fragile flower” which will be overwhelmed by the parent firm’s traditionally ways of doing business.
- Attracting/retaining key employees. If a firm has a Net culture, it is non-hierarchical and can offer stock options. It will find it easier to attract and retain hard-to-recruit young, e-capable staff.
- Remaining attractive to alliance partners. Partners often find it attractive to co-brand with the powerful brands of large firms, but, typically, they are concerned about how fast those large firms can move.
Greenfield describes a situation in which a firm puts its e-business activities into a separate organization, isolating it from the parent firm, except for a link with the head of the new unit. Often, as with Kingfisher, the head reports to the CEO or another senior executive. This model has several advantages. It:
- Allows for a spin-off through an IPO.
- Is a good way of retaining a Net culture that the parent can’t stifle.
- Is often excellent for attracting new people and retaining staff who may be tempted by dot-coms.
- Is also potentially attractive for partners who want access to the parent firm’s brands, but without the perceived hassles of a big-firm hierarchy.
- Semi-autonomous relationship with parent firm. The e-business side of the company has more linkages with the parent than in the Greenfield approach, but fewer than in the fully integrated model. This is a compromise that is appropriate when there is considerably support among senior management for e-initiatives, ad where the corporate culture is more open to innovation.
- Fully integrated with parent. The e-business division reports to functional and business-unit heads. Volvo, and Singapore’s Oriental Chinese Banking Corporation (OCBC) take this approach. OCBC has formed the first stand-alone e-bank in Asia. This new venture offers products from a number of OCBC’s competitors as well as its own products. It is run as an autonomous division. Concurrently, OCBC is running major e-business projects whose heads report to the Director of Strategy. The advantages are twofold: Senior management is more apt to be fully engaged in making the firm e-ready, and the e-culture may be spread through the firm fully, transforming it into a 21st-century enterprise. The disadvantages are serious. In today’s stock market, the share price of few large firms, with the prominent exceptions of Ford and GE, has gained considerably as a result of their e-business activity. Perhaps analysts will be more receptive in a year or two. The critical issue of Net culture is an ongoing one. Most observers believe that large firms’ traditional cultures will overwhelm Net culture, rather than the reverse. Strong leaders, such as GE’s Jack Welch and Ford’s Jac Nasser, may be able to lead their firms to adopt a broad Net culture, but the jury is still out. Attracting and keeping staff, and attracting alliance partners, are all put into doubt with this model. In spite of these problems, the firms in our study tended to feel that this model is the way forward.
- Integrated with the parent firm’s IT department. Allowing IT to lead the way is one variation of the fully integrated model. The idea here is that technology is sovereign. A lading Scandinavian telecom—a former monopoly—is taking this approach. However, some of its mangers question the impact that e-initiatives will have if business units are not directing the development of them. The technology tail is wagging the business dog. This approach may work if the IT department is business-oriented.
- Parallel organization. This is an intriguing model, and I have seen it used by only one of the dozens of firms that I studied. The company is a large North American telecom that is expanding rapidly through acquisition and internal growth. One of their “rising stars” has been appointed to run a new group, Telecom II. This new organization will be e-enabled—piloting and experimenting with e-approaches and e-culture from its start. New acquisitions will become part of the new division. This firm believes that new acquisitions are a good place to start its transformation into an e-organization because the acquired firm is already anticipating the major change that will come when it becomes part of a much larger firm. In time, the two organizations will be merged, in the hope that the e-culture part will “leaven” the mother firm with its new e-approaches.
What does the future hold? So far, I have outlined five approaches currently being utilized by a number of large firms around the world. Considering our six critical issues, each model has considerable strengths and weaknesses. Deciding which one to adopt depends on your view of the relative priority of the six critical issues. Also, what are the competition drivers in your industry? What is your firm’s history and capabilities? And what are senior executives’ views of the future? These are the key factors that will affect your stand on the six issues.
In industries where e-business has already had an impact—books, electronics and airlines, for example—managers may consider going straight to the fully integrated model. To do so means not merely fine-tuning the organization, but transforming its culture. This is no small task! Unless the CEO and top team support and—preferably—champion e-business, proceeding more slowly may be better.
I believe that most firms will adopt the fully integrated model. But for most firms, this may, and probably should, occur in three to five years time or even more. Most firms will start out at other points, and may well pass through one of the other models as appropriate midway stations.