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Based,in large part,on extensive interviews with those at the forefront of the e-business revolution,Digital Transformation cuts through the hype and confusion surrounding doing business on the Internet to reveal the fundamental principles behind the digital transformation currently underway.
Executives learn from "the source" how to make the transition to a fully Internet-enabled organization Includes tips and insights from Cisco CEO John Chambers,Dan Shulman,President of Priceline.com,and other e-business gurus Reveals why some companies have been so successful while others tried and failed
The visionaries at Cisco,CMGI,and other big e-business winners share their insights into what it takes to succeed in the new Internet economy.
In the span of a few minutes, the professor was able to prepare a presentation correlating the shrinking of Brazil's Amazon rain forest with an increase in air pollution worldwide. He was also able to share this dynamically edited presentation with a colleague hundreds of miles away, in real time. The information for the presentation was gathered in seconds by searching through a combination of university libraries, and it appeared that he had done all of this wirelessly.
Thus, in 1986, nearly a decade before the Web's "Big Bang," Apple envisioned a world of people connecting, sharing information and using a spoken natural-language interface. Yet, at the time, most computer users had huge desktop machines running command-line (MS DOS) software. Interestingly, though, virtually every one of the technologies featured in that video - voice synthesis, voice recognition, internetworking, active-matrix displays, wireless data networking - had in fact reached technology status and were no longer still within basic research boundaries. Apple's visionaries simply combined them in a way that made sense, after extrapolating where those technologies might be by 2011.
We mention Apple's video because, once again, vision is a key success factor in excelling at e-business. It has been said that "It's not the destination, it's the journey," but for e-business, it's both. You've got to envision what you want to achieve before setting hammer to nail.
It can start with an idea such as buy.com's, claiming to sell products at "the lowest prices on earth." Or it can be a reverse auction idea like Priceline.com's, where buyers state what they are willing to spend for an airline ticket or a few nights at a hotel, then Priceline.com finds an airline or hotel willing to accept that price. An online auction is eBay's vision, while matching automobiles to buyers is the idea behind autobytel.com.
The idea cannot stop there. What does buy.com have to do to ensure it always sells at the lowest prices on earth? What kinds of alliances must it forge? What categories of products should it sell? Does buy.com simply act as a broker, transparently sending order information on to its various vendors, or does it actually acquire, warehouse and ship from its own facilities? These are the kinds of questions that emerge as you look beyond an overarching vision.
SIMILAR VISIONS, DIFFERENT BUSINESS MODELS
It's not unusual for two companies to have similar visions, but it is unlikely that these visions will lead to similar solutions. Take Sears.com and brandwise.com, for example.
In the consumer marketplace, brandwise.com decided to create a business that matches appliances with customers' requirements. Their Web site lets you select appliance categories, search by pre-defined characteristics (such as gas or electric cooktops), then compare prices, sizes and appearances. But the user doesn't purchase from brandwise.com. Instead, brandwise.com merely directs the user to appliance dealers in their vicinities that carry the particular brand and model they have chosen. Guess who pays for the referral?
Sears has a Web site that lets users do the same thing as brandwise.com. Users can select a category, limit the search by characteristics and compare features of selected brands and models. Sears's own brand is always among the choices and users can purchase the appliance online.
Two very similar visions, two distinctly different business models. One is an information aggregator and referrer; the other is an information aggregator and e-tailer. In terms of implementing their e-businesses according to their visions, brandwise.com and Sears.com both succeeded. But anyone who suggests that their playing field is level is mistaken. Sears has significant brand equity, and it offers more than just its own line of Kenmore appliances, from which it likely earns a profit too. Brandwise.com has more of an impartial feel because it doesn't sell anything, however it also does not provide the order and fulfillment steps.
Can you imagine developing a product with no clear idea of its size, shape and function set? Or, can you imagine creating a service without defining its content and scope? Well, you cannot hope to establish a winning e-business without a clear, succinct, statement of vision. To be sure, arriving at that vision is anything but an exact science, and one company's method may not work for another. However, this is a critical first step. Toward that end, visioning can be done in-house or as part of a consulting engagement. We'll take a look at both. ...
Who's Winning at e-Business?
Everyone wants to be a winner. But what exactly does that mean in the context of e-business? Is it about size, profits, or market share? Is it about name recognition, Web site "hits," or the percentage a stock price increases? It's all of these and more. So who is an e-business winner?
Depending on your criteria, you might have picked Amazon.com, Yahoo!, eBay or AOL. We bet most of you didn't pick Cisco or Intel, though. Your oversight might be due to lumping Cisco and Intel into the brick-and-mortar side of things. Or maybe you were unaware that Intel and Cisco are e-businesses. If so, you certainly have an excuse because the media seems to be drawn to the b2c (business-to-consumer) dot.coms (the born-on-the-Web companies), while largely ignoring the b2b (business-to-business) community. And why not? Routers and microchips are less entertaining than online bookstores, portals, auctions and whatever category AOL falls into this month.
$1 billion-per-month, online
Did you know that Cisco sells about 80 percent of its products online? Did you know that Cisco rakes in about a billion dollars a month from those sales? Those results put Cisco's e-business income at about two-and-one-half times the total revenues of all the 180 or so born-on-the-Web dot.coms put together. At the same time, Cisco has slashed its operating costs by putting virtually everything online. Plus, the king of Internet hardware has transformed its supply chain from the traditional linear model into a non-linear model. That is, the hierarchy of a traditional supply chain has been replaced by a model where communication among all the participants is not only possible, but encouraged. (See figure 1.) The upshot is a significant reduction in order-to-delivery cycle times - about 75 percent, according to Cisco's president and CEO, John Chambers.
Everyone has heard of "Intel inside," but few outside of Intel's COIN (communities of interest) have an inkling about the success of www.intel.com. Intel developed its b2b Web-based capabilities in early 1998, and within three months of the Web site launch, it was selling more than $1 billion worth of product per month. The Web site caters to small- to medium-sized original equipment manufacturers, known as OEMs, and Intel's distributors. These sales intermediaries are able to check prices, view product road maps and buy products through a password-protected, customized Web site. The most immediate benefits are reductions in the transaction costs of products sold, and fewer errors in order processing and the order-to-delivery cycle.
We chose to briefly describe Cisco's and Intel's e-business prowess primarily because we knew that, for some of you, this is new information. In the words of Rodney Dangerfield, b2b e-businesses "don't get no respect" - at least not from the media. Yet it is the b2b sector that is really pushing the Web to new levels of diversity and reaping many of the benefits that today's Web makes possible. "Three years ago, people thought it would be business-to-consumer companies leading e-commerce on the Web," says Cisco's CEO John Chambers, "but it wasn't." Chambers sees a two- to three-year period before b2c catches up with where b2b is now. And CMGI's CEO, David Wetherell, believes the b2b sector will always dominate in e-business revenues and transactions "just as they do in the non-Web world."
Achieving competitive advantage in overnight delivery
Another e-business winner is Federal Express. With the competition growing among FedEx, Airborne, DHL and the US Postal Service, each was trying to differentiate its services. FedEx was first to create a private wireless network that tied all of its operations together, from package reception, to routing, to delivery. And FedEx was first to create a Web-based, interactive interface that lets customers track their own shipments instantly. It was simply a matter of time before FedEx integrated its Web-based and private network applications so that customers could print out their own airbills without having to talk to anyone. Once the customer completes the airbill and clicks on a button, the appropriate driver is notified to make the pickup.
But FedEx has taken its e-business even further by allying itself with numerous companies to provide warehousing, picking, packing and delivery as a fully integrated part of the supply chain. So, in addition to using the Web to make its operations more efficient, FedEx is using its e-business infrastructure to push its services further up the food chain.
Altering the playing field in electronics distribution
Another e-business winner is Ingram Micro, an electronics distribution e-business. Ingram Micro uses the Web to supply its technology resellers in the US, Europe, Latin America and Asia. It fields 78 distribution centers in strategic locations that, in aggregate, fulfill 150,000 shipments per day, leading the distribution industry in fill rate and same-day shipping capabilities.
One of Ingram Micro's value creation services is what it calls "pre-order management," which makes it possible for resellers to generate end-user quotes and send them, electronically, to their customers. This is yet another example of removing some of the latency from the supply chain.
Ingram Micro attempts to provide value at every step in the supply chain by offering virtual warehousing and logistics to smooth the way for manufacturers and resellers to more profitably assemble, store and ship their products. Like FedEx, Ingram Micro moves further up the food chain by offering inventory management, system configuration and financial services that enable its reseller partners to take advantage of new opportunities quickly. By providing its customers with outsourced business-critical functions, Ingram Micro helps their customers save money and spend their profits on their core operations. In other words, Ingram Micro is looking at their business from a completely new point-of-view, rewriting the rules and changing the nature of global distribution.
This is what e-business winners do. They:
For Cisco and Intel, the pace of new product development is unrelenting. Their e-business strategies enable them to keep pace with their markets' abilities to absorb new products. E-business allows them to provide more highly valued customer service. It gives them a more customer-centric view of future product requirements. And it lets them lower their operating costs. The results are:
On the other hand, FedEx and Ingram Micro are using e-business to:
By offering to take on more of their customers' front-office and back-office functions, they create loyalties that grow deeper and are more immutable. They also raise the table stakes for their competitors who want to stay in the game.
We could describe other e-business winners, but the point is that all of these winners have certain broad things in common. They did not approach e-business with an ad hoc attitude. They carefully considered what they wanted to accomplish, then drilled down to specifics to create the projects that would culminate in an e-business.
Although these companies take their e-business transformations very seriously, they didn't get caught up in analysis paralysis. They understood that e-business is not about stasis. It's not about precedence. It's not about entropy. At Cisco, for example, any e-business project that cannot be done by five people within 90 days is unacceptable. This is what they call "ruthless execution." If a project fails the ruthless execution test, it may be dropped, or it may be broken up into sub-projects that can pass the test. Regardless, no one at Cisco expects immediate perfection. They understand that time-to-market, even with less than perfect implementation of a plan, is far better than perfection banging at a closed window of opportunity.
The foregoing is not to say that Yahoo!, Amazon.com, AOL and eBay are not winners. They are. By being first with innovations in their markets, creating new categories and adding value to their products and services, they have, according to Cisco's Amir Hartman and John Sifonis, authors of Net Ready, gained the benefits of:
If we measured these four companies with the same yardstick as Cisco and Intel, despite their impressive month-to-month increases in new customers and revenues, we would find that they have yet to finesse their process models to yield truly impressive profit levels. After all, just about any company can increase its market share significantly by losing substantial amounts of money on each sale. The question is, for how long? So, when we talk about excelling at e-business, we mean more than just achieving brand- or channel-equity alone. We mean achieving greater efficiencies, higher profits, better customer relationships and increased value. It doesn't matter whether you are a b2c or a b2b company. Ultimately, your e-business excellence will depend upon proficiency in all business areas, not just one or two.
e-Business Excellence Yields:
You're reading this introduction, so we've got to presume you have an interest in e-business. To be sure, there is no shortage of books extolling the virtues of e-business and its technology underpinnings. This isn't one of them.
We won't talk about network equipment, software systems, or Web servers, because that isn't the kind of knowledge that will help you succeed. And we won't advise you to copy any particular dot.com's e-business strategy. That's the prescription for followship, not leadership.
We do write about e-business and why you should be taking it very seriously. And we will discuss the advantages and disadvantages of spinning off a separate e-business entity. We also want to say at the outset that this book is full of opinions - ours as well as those of several well-known business executives. This book is not meant to be an exhaustive, scholarly, precise analysis of all the nuances of e-business strategies and business models. That's because there were already a handful of new nuances the day after the book was published. But it's also because e-business is inherently imprecise. Besides, in the time it takes to be precise, someone else will have usurped your opportunity with a less-than-perfect solution.
Your commitment to e-business should either be profound or non-existent. There is no middle ground. Think about how many e-businesses you know of that sell books online. After Amazon.com and Barnes & Noble.com, who's left? Think about how many e-businesses you know of that provide online auctions. After eBay, how many more jump right to mind?
The Net is no place for also-rans. There is no opportunity to win if you're trying to be Amazon.com or eBay. But, like all the possible moves in a game of chess, the Net and the new economy it has spawned offer countless opportunities to do something different. And to quote a line in Net Ready, the recent book by Amir Hartman and John Sifonis, "Different isn't always better, but the best is always different." (Hartman is Managing Director of Internet Strategy at Cisco and Sifonis, directs Cisco's Internet Business Solutions Group.)
Because of its penchant for lowering the cost of information dissemination and transactions, the Net is a petri dish for innovation in the creation of business value. Rather than focusing on current business rules and supporting technologies, we'll focus on things you can do to change the rules of the game. You can create entirely new value chains that have non-linear relationships. You can leverage brick-and-mortar legacies into click-and-order primacies. The Net offers many ways to separate form from function and to provide customers with unfettered function.
We'll look at what it takes to make a profound commitment to e-business. We're talking about digital transformation. If you think being "in e-business" means suturing on an e-commerce appendage to your body corporate, then think again. We promise you that won't work. You've got to become "an e-business." You've got to be prepared to let that e-business commitment ripple through and shake up that body corporate. And like experiencing an 8.0 earthquake, you must be prepared for the rearrangement that will inevitably occur.
If you currently run a brick-and-mortar business, be assured that a profound commitment to e-business will have a profound effect upon your existing business practices. If it doesn't, there's something wrong. Being an e-business is not about changing the way you do one thing, or simply adding a new channel to your existing channels. It is about changing everything. It is often a bet-the-company gambit. Charles Schwab won because it was willing to risk cannibalizing its old ways of doing business, while its competitors were not. Cisco Systems won because, from its CEO on down, e-business became a crusade that transformed the entire company.
Like any credible business book, this one has its case histories. But, here, the intent is not to have you copy a strategy that worked for any particular company. Rather, the intent is to help you see the common success factors that underscored each company's efforts. One of the success factors is vision. Another is leadership. Many e-business efforts have failed because of the ad hoc nature of their strategy and management. They were like trucks careening down a highway with no drivers, no road maps and no real destinations in mind.
The nature of the Net is destined to change. Its demographics are changing. Its technology underpinnings are changing. Its infrastructure is changing. While the foundation of the World Wide Web was laid with Tim Berners-Lee's creation of HTML, the hypertext markup language that enables point-and-click navigation online, it was Netscape co-founder Marc Andreessen's development of the Mosaic browser, along with Eric Bina's programming savviness, that set the spark for today's Internet explosion. Who will be the next Andreessen? What will be the next Mosaic? How will the Net evolve? What effect will XML and wireless access have upon e-business? How do you prepare for the unpredictable? Even big players find themselves unprepared sometimes. Just ask Microsoft's Bill Gates and AOL's Steve Case. Neither anticipated the speed or extent of the Internet's effect upon their markets. Even with some knowledge about the near-term future, there is no guarantee of smooth sailing. But it may help you avoid being blindsided, and it may ignite some visions about new value creation, improved efficiencies and enhanced customer interaction.
When you finish this book, you'll know what it takes to win at e-business - and the rewards are compelling. But there are two prerequisites: courage and innovation. These traits are critical if you are to accept the inevitable cannibalization of parts of your current business and their replacement by more efficient, highly valued aspects. But take heart. As marketing luminary Peter Drucker said, "It is both cheaper and more profitable to obsolete yourself than it is to let your competitor do it for you." And, like the phoenix, the e-business that rises from the ashes will be a much stronger contender in the new economy of the 21st Century.
So, let's move forward. You've seen them all. Companies whose stock opened at $6 per share and, within a year or two, is selling at close to $300 per share. Thirty-something CEOs joining the mega-millionaire club seemingly overnight. And you've seen the statistics. More than 200 million Net users, with millions more going online every month. The Internet has reached 50 million users in far less time than did television, radio or personal computers.
You've seen AOL initiate a merger with Time-Warner. You've read that the number of people making online purchases has increased significantly over the last year. You've seen Yahoo! announce record profits in its last calendar quarter of 1999. And Amazon's "brand" recognition is a Web legend, even though profits still elude the company and it has lost nearly $600 million since it started.
Wall Street has had a seemingly insatiable hunger for dot.com stocks. And practically every CEO in the Fortune 1000 is putting e-business near the top of their priority lists.
Something is definitely going on out there. And no one wants to be the last one on the block to embrace it. But hold on. Before you either plunge headfirst into the maelstrom or order a complete makeover of your current e-business strategy, take a deep breath and continue reading. As you already know, there is a big difference between an emotional decision and an informed one. This book is all about making informed e-business decisions.
There are those who say the Internet is a magical place that is transforming practically everything about our lives - how we learn, how we have fun, how we shop, how we think. There are others who say the Web is just another channel to use, and we shouldn't blow it out of proportion. We think they are both correct. In fact, every perception of the Web is correct, because, like the elephant being groped by blindfolded people, it feels different from every side and angle.
The Web has different implications for companies that plan to engage in business-to-consumer (b2c) marketing and sales than it does for those who use it for business-to-business (b2b) purposes. Yet they all share the Web's penchant for keeping communication and transaction costs low. The difference is in those purposes behind the communications and transactions.
The most "wrong headed" notion is the one that says, "Build it and they will come." Even Amazon.com, with arguably the Web's highest name recognition, is spending several million dollars through traditional advertising to bolster its customer base. Did you see how many dot.coms were advertising at millions of dollars a pop for a 30-second TV spot on Super Bowl XXXIV?
A Web presence is absolutely no guarantee of increased sales or expanded markets. For example, both IBM and Levi Strauss have stopped using the Web for online sales of PCs and clothing, respectively. Ask yourself why. We asked Roger Siboni, CEO of E.piphany. He thinks it was mostly an issue of channel conflict for IBM, but he shook his head about Levi's, saying, "I'm mystified by Levi's announcement, because the Web is such a natural distribution channel for them."
There's another misplaced idea that brick-and-mortar companies are at a natural disadvantage compared with born-on-the-Web companies. But you simply cannot generalize. Certainly, Barnes & Noble has a different cost structure than Amazon.com, but Barnes & Noble can offer its customers the convenience of returning books purchased online to any of its retail stores, whereas Amazon.com cannot.
Selling groceries online is another area where an existing infrastructure may be far more important than any Web-only strategy. For example, a born-on-the-Web grocery business will have to create alliances with neighborhood markets, much as Priceline.com has done in New York City and Philadelphia. But an established national grocery chain already has that infrastructure and can concentrate on e-business strategy and tactics, rather than building infrastructure.
Similarly, Cheap Tickets must issue printed airline tickets that are delivered by Airborne Express. As a result, they do not book reservations for departures less than five days ahead. American Airlines, on the other hand, offers its AA.com customers electronic tickets. Therefore, they can conceivably handle online orders within hours of a flight, rather than days.
Of course, not every physical-space concept will play on the Web. For example, one of the attractions of shopping malls is the aggregation of diverse retailers within the same enclosed area. There is certainly a convenience factor in being able to drive to one location and find one parking space. Web shopping malls, on the other hand, offer only the convenience of an aggregation of URL links. The customer doesn't have to leave his or her browser to go to any other retail URL. So, the added convenience factor these URL aggregators provide is minimal, at best.
You've read about the millions of new users who go online each month and the thousands of new Web sites that join them. One popular notion is that Internet users are somehow much better informed than their pedestrian counterparts. To be sure, there are Web sites that provide side-by-side comparisons of life insurance policies, automobiles, appliances, mortgages and the like. Do you know which ones? Does the person new to the Web know which ones?
Just go to three search-engine sites - Yahoo!, Alta Vista and Excite, for example - and enter the same key words. Then compare the first 20 links each of them returns. Great correlation, right? Wrong. And, as the Web is flooded with more and more URLs and pages, the search disparity grows.
"Okay," you say. "In time, users will find what they're looking for." Then you see the statistics that show that the average new online user visits 100 Web sites, bookmarks 14 and stops bothering to search after that. How do you ensure that your Web site is one of the 100 visited, much less one of the 14 bookmarked? The obstacles are immense and growing bigger every minute.
One of the problems with trying to organize the Web is its freeform underpinnings. In contrast, the telephone company knew exactly who was connected to its wires and could print very precise - and comprehensive - directories. About the only control that exists on the Internet is the allocation of domain names. Every attempt by a company in the US to exert some control over access to the Internet has at least raised the eyebrows of people at federal regulatory agencies.
The very privacy that Internet users hold on to with the tenacity of a dog and its bone is also a major impediment to any attempt to organize the Net. For b2c companies, the challenge is to get permission from privacy-conscious users to market to them, and, before that, to figure out how to get them to your site.
Now, most of the problems alluded to, thus far, are really problems for b2c e-businesses. And none of them need be showstoppers. We mention them simply to press the point that b2c e-business is neither simple nor foolproof. It takes more than a jazzy Web site to excel at e-tailing. It also takes a thorough understanding of the current state of e-tailing affairs and the identification of new ways to interact with customers - ways that those customers value. It will also take a thorough understanding of your current business model (assuming you have one) and identification of ways to inject greater efficiency into your business, even if it means turning your business model on its head (and it probably will).
As we mentioned earlier, b2b e-businesses have different Web priorities. Their concern is less about driving consumers to their Web sites and more about using the Web to shorten the order-to-delivery cycle, to reduce their cost of sales, to reduce their overall operating costs and to increase their overall profitability.
In many cases their communities of interest (COINs) are well-established. Agilent, Hewlett-Packard's spin-off of its non-computer-related business units, mirrors the pre-computer HP. Test-and-measurement instruments are a major product area, and engineers are part of its COIN. The typical engineer looking for information about a logic analyzer knows enough to enter www.agilent.com in a Web browser. These engineers would also know about www.tektronix.com. Neither Agilent nor Tektronix needs to spend millions of dollars on TV advertising to drive their prospective buyers to their sites. Similarly, neither Intel nor AMD needs to advertise its site to prospective microprocessor purchasers.
These and other b2b businesses have other priorities than keywords and search engines. When they built Web sites, their prospective customers did come. For these companies and others in the b2b space, the Web is far more than another commercial channel. It is an opportunity for them to experiment with new business models, to reconstruct their supply chains for lower-latency responsiveness, to attack front-office costs, to be different.
Remember, the b2b world already has experience with electronic business. It was trying to make a go of electronic data interchange (EDI) long before the advent of the Web. The obstacles, however, were platform dependencies and industry-specific standards. The Internet has effectively eliminated both of these obstacles. Now you can quickly create a networked supply chain without worrying about whether desktop units are PCs or Unix workstations, nor whether servers are Unix-based or Windows NT-based.
As you'll see, whether your interests are b2c or b2b, some e-business principles are universally applicable; others are b2c- or b2b-specific. Regardless of the nature of your business, if it existed before the World Wide Web, then a commitment to e-business will require fundamental rather than cosmetic change.
A Kmart located 50 miles from the nearest Wal-Mart need not worry too much about differentiating itself from Wal-Mart. But every dot.com is equally convenient from your browser. Differentiation is not important - it's absolutely critical. Statistics also show that when a visitor leaves a Web site dissatisfied, that visitor never returns. So one universal principle is that it is better not to have a Web presence than to have a mediocre Web presence. The first costs you nothing. The second costs you plenty. And neither produces incremental revenues.
Read on and see what being an e-business winner entails.
Posted August 23, 2000
There is no real substance to this book. The 'essentials' receive only a high order reference with no depth of discussion or application. In general the book reads like a consultant's presentation with a few more words to tie the everything together. It is a great sales pitch for KPMG, Cisco, and others, but that is not what I thought I was buying. I was very disappointed.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted July 28, 2000
This book is a quick read, which in part describes why it left me hungry for more. The authors scratch the surface of e-business and spend far too much time and text re-stating press releases. The case studies are not in any way related to what an MBA student has experienced (a la Harvard case studies), but rather capsules which summarize tremendous transformations in one brief paragraph. In this sense, the book felt more like a selling tool for their services than a 'tell all' book. In the final analysis, I felt the book was well worth the deeply dicounted price I paid because of the emphasis on these two points (and I quote): 1) Your commitment to e-business should be either profound or non-existent' and 2) The most 'wrong-headed' notion is the one that says 'build it and they will come.'Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.