What's an e-comm manager to do? 02/22/99

Experts offer their advice on dealing with one fictional company's tough electronic commerce challenges.

Network World, 02/22/99

Taking a page from the Harvard Business Review, we presented a sticky management dilemma to e-commerce pros from a variety of backgrounds - legal, academic and consulting. The experts offered a range of advice on getting an e-comm effort into high gear with departmental support. Put yourself in the place of the fictional Susan Savvier at Idealwares, Inc., and see if you're taking the right steps toward online success.

Savvier is a vice president of network services who's trying to lead her company's charge into electronic commerce. Idealwares is a multibillion-dollar maker of store and restaurant fixtures, and it faces some difficult questions about what direction to take in the sometimes scary new world of e-commerce.

Savvier has been with the company for just six months. The CEO hired her because of her Internet savvy, and he's hoping she can pull together Idealwares' strategy for taking its business online. His goal is to increase profits, which have been weakening steadily because of increased competition from niche manufacturers.

Upon joining Idealwares, Savvier began tracking the Web activities of the company's traditional competitors and the new niche players. The good news? None of the firms are very active on the Internet. Savvier is certain Idealwares can capitalize on that if the company moves quickly in establishing a dynamic Web site that would serve as a customer's primary information source.

She envisions giving customers the ability to build virtual restaurants or stores using products from Idealwares' online catalog. That would en-able customers to visualize what the addition of a new product would do for their businesses. Then customers would be able to place orders, check the status of those orders and submit payment.

What's more, Savvier believes the World Wide Web presents Idealwares with the opportunity to expand beyond its traditional customer base of retailers and restaurant owners. She thinks Idealwares could generate new business by targeting homeowners looking for upscale fixtures.

Savvier faces resistance from some top managers, however. For example, the vice president of sales and marketing is concerned that the company wouldn't be able to uphold its standards for customer service. The chief financial officer (CFO) argues that the consumer market is unpredictable and too risky to pursue. The corporate counsel worries about copyright and quality assurance issues. The chief information officer (CIO) applauds Savvier's e-commerce plan but is concerned about the strain it will put on IT.

Idealwares' CEO wants Savvier to consider these and other concerns and come up with a plan for moving ahead. Here are the questions with which she's grappling:

How valid are the executives' concerns, and how should she address them?
Is it too ambitious to target existing and new customers?
Will the online effort really increase revenue or just shift it around?
What resources (people and money) would she need to launch the Web site?
How does she get the e-commerce ball rolling?

Here's how our experts would approach Savvier's dilemmas.

Jeff Nickerson
Director
PricewaterhouseCoopers Internet Practice

Don't lose heart

An e-commerce pioneer's job is to generate business. If Savvier listens to all the objections from those around her, she may lose heart. Idealwares will stagnate while a competitor moves forward. Worse, someone from outside the market may move into the restaurant fixture space and change the industry altogether.

For example, a consolidator could move in and distribute a range of products electronically to Idealwares' current buyers. The company may be funded by a competitor or may have an offshore partner that can produce goods to specification.

Savvier's first step should be to work through some possible future scenarios with the key stakeholders: the CEO, the vice president of sales and marketing, and the CFO. She should avoid the corporate counsel until she has a stronger business plan.

Savvier has to get her company thinking about future competition online, perhaps by running a strategy session for the Idealwares executives. What possible scenarios could unfold, from the probable to the extraordinary? How would Idealwares deal with them? During the session, it will probably become clear that one or two alternate strategies will prepare Idealwares to handle most possible future events.

With a common understanding of the threats and possibilities of the future, Idealwares can turn to tactics. It's here that Savvier can expect her colleagues to raise objections. She needs to understand and overcome these objections. Often the objections are emotional, and their sources may not be obvious.

Concerns from sales and marketing may stem from a fear that sales commissions will be lost when customers buy directly over the Internet. Once Savvier discovers the root of an objection, she's most of the way to a solution. In this case, she could suggest to the CEO that he change the sales plan to compensate salespeople for accounts that order over the Internet.

Savvier should fight for a budget immediately. She'll need to build a prototype site and coordinate development of a marketing program to get the word out to existing and prospective customers. Her first battle will be to get as much money as she can directly from the CEO or the board of directors, depending on the size of the opportunity. Bigger investments make more sense: Without marketing and technology, the effort will flop.

How much money does Savvier need? She'll have to make an estimate by looking at similar efforts in other industries. Millions would not surprise me. Should she undertake this project alone? Probably not. She needs to hire staff or find experienced consultants who can help with the business and technology issues.

Should Savvier go directly to the consumer? It may be a moot point. She probably won't be able to get a big enough budget to establish a brand identity with consumers, so she should focus on business-to-business sales. However, Savvier should understand that it may not be existing business customers who do the bulk of the ordering online. There is a demographic profile of corporate buyers actively purchasing over the Internet, and part of Savvier's job is to determine who these people are and seek them out.

Savvier and other Idealwares executives have to decide whether to sell existing products over the Internet or create a new Internet-specific line. The advantage of selling the old line is that the company already knows how to fulfill orders. By selling the old line, Savvier is making only one major change to the company's core processes.

However, if she finds that channel conflict issues run too deep, she'll run into the least resistance with a separate product line.

My closing advice to Savvier: Understand that you are the best hope for the company's future. Move quickly to establish a presence on the Internet and build the business. Be flexible, as you may end up selling to a new kind of customer.

Geoff Baird
Principal
Metamor Technologies

A chance to be a leader

Savvier and Idealwares are facing challenges common to companies entering the e-commerce arena. The implementation of an enterprise Internet system affects every facet of the business and must be a carefully considered undertaking.

Savvier wisely recognizes the opportunity to advance Idealwares to the forefront of its industry. Few businesses have the chance to truly lead an industry, especially at the multibillion-dollar level. She and Idealwares should move quickly to capitalize on this golden opportunity.

But executive team buy-in will be important to the success of Savvier's endeavors. Moving toward true electronic business requires a commitment to change. That's a critical success factor that seems obvious but is overlooked by many organizations. Savvier must address the team's concerns because they encompass many of the problems that catch organizations off guard and inhibit success.

The vice president of sales and marketing is concerned that Idealwares will not be able to maintain its standard of customer service. He's right to worry. Moving business functions online poses entirely new challenges for any customer service organization.

E-mail response systems and procedures - similar to call center systems - must be implemented, and staff must be trained. Additionally, the company has to ensure that it has the network bandwidth to handle increased customer service demands.

While Idealwares may not like it, a staff increase probably will be required because the current support system won't provide sufficient service in the short run. Consumers in the online world often expect a higher level of customer service than the usual telephone support.

The CFO is rightly concerned that the consumer market is too unpredictable for Idealwares to be successful. While Internet technology is a great enabler with respect to entering new markets, Savvier must make sure that Idealwares is prepared to respond to the challenge as an organization by asking:

Can the marketing organization craft a message and strategy to reach this new market?
Can operations and finance function efficiently to supply and distribute smaller orders?
Can customer service support the increase in buyers?

While penetration of this new market may have potential for Idealwares, it is unclear what that potential is, who the buyers are and what they want from the company. Savvier should focus development of the infrastructure to meet the immediate needs of Idealwares' traditional market.

The legal group is going to face copyright and quality assurance issues, and those will have to be covered in the site plan and the security strategy. If Idealwares is going to handle business transactions and make sensitive customer information accessible via the Internet, security planning must take place up front, rather than after the site is built.

Savvier and the CIO must decide how existing IT resources will be allocated and what new resources will be necessary. Failing to get a grip on real support requirements yet making a commitment to meet them is one of the most common oversights a company makes when developing an electronic business plan.

Idealwares' top managers will have to start talking immediately with the company's largest customers to ensure that the e-commerce effort is delivering real value to them. What do they want? What do they need? What worries them?

If Savvier and the executive team believe Internet technologies can change the way they do business, they should capitalize on the market opportunity and rock competitors with a comprehensive electronic business strategy. The strategy should be structured to give customers maximum value and ease-of-use, while putting Idealwares in a position to realize the benefits of e-commerce. These benefits include automated order entry and tracking, supply-chain management, transaction processing and enhanced customer support.

Susan Nycum
Attorney
Baker & Mackenzie

Be the firm's best communicator

Savvier's plan to increase sales through e-commerce is a great one. Studies, including those from the U.S. Department of Commerce, show Web-based sales are increasing daily and equipment manufacturers are among the most successful companies selling over the Internet, through distribution channels and directly to end users.

But building an interactive site is a major task. The CIO will likely need to hire staff or outsource the development of the site and its integration with order fulfillment, accounting, credit, payment and other applications. All of these systems must work together smoothly to satisfy customers.

Savvier has to get the corporate counsel participating in the project early on to raise and address legal issues. Should Idealwares block access from outside the U.S., where some local laws on warranties and other commercial issues present challenges? To date, Idealwares has sold only to other businesses, so selling to consumers, as Savvier envisions, will involve dealing with a whole body of consumer law with which staffers may not be familiar. Case in point: The company's counsel will have to advise Savvier and others about how to ensure customer privacy when asking for personal data for marketing and sales purposes.

Marketing and sales executives are likely to be Savvier's closest allies. Experience with other industries shows that interactive Web sites provide a great way to sell more to existing customers. Ads and other types of communication can be targeted to specific buyers based on an analysis of the buyer's previous purchases. The site can also be used for feedback on new products and services.

Since the project will consume resources - dollars, people and time - the CFO will want to know that Savvier has adequate data on comparable efforts at other companies, as well as some assurance that the expected return will be worth the investment.

To start, I'd advise Savvier to scale back the project and focus her efforts on the existing customer base. Idealwares needs to get solid experience working with traditional buyers before going after consumers. I'd also recommend allowing access by U.S. visitors only, a technology issue that the IS department will need to be aware of from the start.

Savvier should pull together a core team of key executives in the marketing, sales, IS, legal and finance groups to map out the initial scope of the e-commerce effort. Experience shows that small teams accomplish more and provide mutual support and reinforcement. If Savvier can convince this group that she is right about her proposal, its participants will help convince others and get the support she needs to make it work.

What else? Savvier and her team must have due diligence on how other companies have implemented interactive Web sites and what successes and challenges they encountered. Idealwares should consider finding top-notch consultants to help with the project, from initial planning to Web site design and actual implementation. Knowing who these experts are at the outset will enable Idealwares to bring them on promptly when the need arises.

Savvier also must become the company's best communicator. The e-commerce project will have a bearing on company practices and procedures, often in ways team members can't predict.

Idealwares may need to revise advertising and public relations procedures and rethink content for use on a Web site that reaches customers in every part of the U.S., rather than discretely targeted regions. Someone will have to handle the job of registering new trademarks associated with the site or obtaining rights to use third-party trademarks.

Keeping all departments apprised will allow colleagues in other departments to share their concerns before they blossom into major technical or political problems.

Get backups for team members and document everything along the way. People may be reassigned or leave during the project, and continuity must be preserved for a smooth and efficient implementation.

Amelia Boss
Professor of law
Temple University School of Law

Get used to life on the frontier

Savvier is a visionary in her ability to foresee the impact of the Internet on businesses, particularly in the consumer area. If Christmas 1998 is any indication, consumers will be increasing their use of the Internet for all purchasing activities in the near future.

Savvier's challenge is to take advantage of that potential market growth by developing a sound business strategy, an approach that must include all the top managers within her firm.

The CIO is legitimately concerned about the need for adequate staff to properly design and construct a serviceable Web site. But proper design requires more than IS staff. It requires the input of sales and marketing personnel, to assure the appropriate presentation and marketing of the merchandise; customer service representatives; the financial staff; and corporate counsel, to ensure that all legal concerns are addressed.

The vice president of sales and marketing is correct that customer service concerns need to be factored in to the strategy. These concerns may be met by:

Creating a Web site that includes information customers want and need, such as the terms and conditions of their purchases; information about the merchandise they are purchasing; e-mail addresses and fax and phone numbers for customer service representatives; and forms for soliciting comments.
Giving customers a way to monitor outstanding orders online.
Building the site to ensure quick access at all times, including peak usage periods. That will require redundancy planning so if one server fails, another swings into operation.
Maintaining sufficient service personnel to answer questions pertaining to Web site purchases.

Corporate counsel also has legitimate concerns, but again, those concerns may be addressed by the development of appropriate legal strategies. These include:

Designing the site such that customers using it and making purchases are aware of the terms and conditions of the access and the purchase.
Instituting appropriate levels of security so the site may be accessed safely (without fear of viruses) and data, such as credit card information, does not fall into the wrong hands.
Making the appropriate legal and business arrangements for linking with other Web sites. Carefully planned cross-linking can increase the number of hits on the site and resulting orders.
Ensuring that information posted on the Web site does not violate the intellectual property rights of others.

The immediate financial concerns are important, but the real question is one of long-term gain. Until recently, the main benefit to be gained from many corporate Web sites was advertising-related: People used the 'Net to get information about what was available but stuck with traditional channels to acquire goods.

That's all changing, as more and more customers begin ordering directly on the Internet. But there are still many people who - whether concerned about privacy or security - use the Internet to get all the information they need up to the moment of purchase. At that point, they pick up the telephone to call in their credit card numbers.

Companies such as Idealwares should be aware that the impact of Internet marketing will not be limited to orders actually placed online. Phone and paper orders can be expected to increase as a result of Internet marketing. That affects not only the bottom line and requires careful accounting to ascertain what orders were triggered by the Web, but also means that enough people must be available to handle the increase in traditional orders.

Ultimately, however, the challenge is worth it. The Internet is the frontier of the future. Pioneers, such as Savvier, who venture out and settle it will reap the rewards of the gold rush.

Stephen Mucchetti
COO
Scient Corp.

Proceed post haste

Savvier faces a classic dilemma in business today: How do I bring about substantial change when the management team has entrenched views about how the business works, and inherent fear and skepticism about new business models - particularly electronic business.

Savvier needs to come up with a plan that shows how Idealwares can manage the risks involved with change, and protect and improve relationships with existing customers while simultaneously bringing the business into the future. Seems like an insurmountable "opportunity," doesn't it?

The concerns of Savvier's peers are indeed valid, and the way she deals with them is key to the project's success.

Savvier should start by acknowledging that the other managers' views are valid and will be addressed. She can point to companies that have succeeded or failed and discuss what led to their experiences. She should offer examples of companies that overinvested without first doing the appropriate research on customer demand. They failed because what they thought their customers wanted was not what their customers actually wanted.

She can also discuss companies that underinvested only to discover that they had gauged the customer demand correctly but hadn't provided adequate infrastructure and transaction capacity.

Most important, Savvier can highlight companies that, through solid analysis and balanced investment, gained a first-mover advantage and became market leaders or category killers. These pioneers annihilated the old ways of doing business.

The key to e-commerce success is to build a business case on tight analysis, business logic and best practices. Above all, don't overpromise on the results that can be delivered. Underpromising and overachieving will quiet the concerns of peers.

There's no question that Idealwares can increase revenue by launching a new electronic business. The technology is available today to service customers and enable them to place orders and close transactions in a secure environment over the Web. Leading sites use interactive customer care and service systems that bond companies tightly with their customers. The sites encrypt transactions to protect buyers and automatically build customer profiles to tailor services to specific customer wants and needs.

Further, the most successful sites offer a raft of payment and delivery options that enable customers to pay in the way that is most convenient for them. These companies deliver real value to their clients, which in turn creates customer evangelists and makes the cost of going to a competitor so high that the customer doesn't even consider it.

The Internet is becoming the principal way of starting new businesses and launching new services, as well as testing new markets and ideas safely and efficiently. With traffic doubling every 100 days, the Internet is well suited to solving exactly the business problem Idealwares faces. Done well, e-commerce requires a minimum of capital investment - perhaps as little as $5 million to do the market analysis, architect the Web site, purchase all hardware and software, engineer and build it. In addition, it can be implemented in a relatively short time - three to six months - and reach profitability in the first month of operation.

Savvier is on the right track and using the approach outlined above, she can allay the concerns of other business managers, move Idealwares into a new business area of substantial value in a short time and take advantage of the dynamic growth the Internet offers.

In this "here today, gone later today" environment, in which dominant market positions are won and lost in one financial quarter or less, Savvier should proceed post haste in drafting the electronic business plan.

If Idealwares executives don't embrace the plan with passion and speed, Savvier should quit her job and join a company that will.