E-Profit: High-Payoff Strategies for Capturing the E-Commerce Edge

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Cohan, president of a management consulting firm specializing in new business opportunities, evaluates the value of getting into e- business, covering topics such as the economic benefits of e-commerce, safety and privacy concerns, the AOL-Time Warner merger, day trading and the investment possibilities of the Internet, predictions of the hottest e-businesses currently on the horizon and the future trends in electronic commerce. Annotation c. Book News, Inc., Portland, OR ...
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Overview

Cohan, president of a management consulting firm specializing in new business opportunities, evaluates the value of getting into e- business, covering topics such as the economic benefits of e-commerce, safety and privacy concerns, the AOL-Time Warner merger, day trading and the investment possibilities of the Internet, predictions of the hottest e-businesses currently on the horizon and the future trends in electronic commerce. Annotation c. Book News, Inc., Portland, OR
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Editorial Reviews

CIO Canada
Business executives looking for advice on managing change effectively as they take their companies on-line may find Cohan's e-Profit a good place to start.
e.now Report
If you are a member of senior management looking to move your company into e-commerce, e-Profit: High-Payoff Strategies for Capturing the E-Commerce Edge will capture you in the first few pages.
Australian Personal Computer
E-Profit provides an excellent framework for ensuring your organization benefits from the transition to ecommerce?. e-Profit is one of the most comprehensive books of its type, and is essential reading for managers struggling to deal with the impact of the Internet on their business.
Online Magazine
…a useful guide to issues and trends in ecommerce, without the hype.
Sloan Management Review
…Cohan focuses on three areas: financial and strategic evaluation of e-commerce, managing change and building an infrastructure. In addition to the case studies, each chapter offers methodologies and the principles supporting them, helping readers to understand in concrete terms what needs to be done and why….A virtue of Cohan's approach is that he suggests both what to do and what not to do.
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Product Details

  • ISBN-13: 9780814405444
  • Publisher: AMACOM Books
  • Publication date: 4/4/2000
  • Pages: 285
  • Product dimensions: 6.27 (w) x 9.31 (h) x 1.36 (d)

Read an Excerpt



Introduction


There was $74 billion worth of electronic commerce (e-commerce) conducted in 1998, a figure which is expected to grow to $1.2 trillion by 2002. Despite such dramatic growth forecasts—or perhaps because of them—managers maintain a high degree of skepticism about the role of e-commerce in our economy. For example, many comparisons have been made between Internet stocks and previous speculative fads, from the bowling stocks of the 1960s to the Dutch tulip-bulb craze of the 16th century. The difference with the Internet is that neither bowling nor tulips ever had the power to transform the economy.

The Internet is changing communications and commerce. Because it is changing so quickly, many managers underestimate its transforming power. Here is one historical analogy. In the early 1960s, when Haloid Xerox first developed photocopying, analysts computed the size of the market by multiplying the number of secretaries in the U.S. by the average number of letters they typed by the average number of carbon copies they made. It did not occur to these analysts that everybody would end up Xeroxing every document, leading to a market many thousands of times bigger.

The Internet is misunderstood because it arrived as a commercial phenomenon in roughly 1995, when Netscape introduced its first commercial Web browser. By comparison, the automobile developed much more slowly. For example, the commercial sales of automobiles began in 1895. It would be twenty-one years before windshield wipers were invented, nineteen years before the traffic signal and forty years before the parking meter.

The Internet has developedfar more quickly. In April 1999, 55 percent of all of Charles Schwab's transactions were conducted online. Amazon.com grew to become the third largest bookseller in the United States in only three years.

Intuit's Quicken Mortgage originated $375 million in mortgages in six months. The Web helps people comparison-shop and exchange ideas globally. People in business and academia use e-mail as their preferred form of communication.

Even if the magnitude of future e-commerce is grossly overestimated, there is no question that e-commerce is an important business phenomenon. Despite the tremendous hype surrounding e-commerce, there are actually not that many companies currently conducting it.

Companies are beginning to ask themselves some fundamental questions about e-commerce. The answers to these questions are likely to determine how widely companies end up embracing e-commerce:


* What is e-commerce?
* Which e-commerce projects have the highest payoff and why?
* How should managers evaluate e-commerce projects?
* How does e-commerce improve a company's competitive position?
* How can managers change their organizations in order to implement the highest payoff e-commerce applications have to offer, and sustain the benefits?
* What role should managers play in the design and development of e-commerce systems architectures?
* What is the role of senior managers in implementing these e-commerce systems?


What This Book Is about and Why You Should Read It

This book is about helping managers to profit from the transition to e-commerce. The book is for managers of companies of all sizes. For managers of large companies, the book will help identify high-payoff e-commerce applications, reposition their companies to compete against Internet-only competitors, manage the organizational change process, and drive the implementation of the highest-payoff e-commerce applications.

Managers of Internet-only companies will find this book useful by providing insights into the strategies and management approaches that their land-based competitors will attempt to use in order to compete with them. Internet-only competitors will find it useful to understand how larger companies are coming to grips with the competitive and organizational challenges that e-commerce forces the large company executives to face.

This book accepts the notion that e-commerce is a force that is not likely to fade as previous management fads. This is not to say that e-commerce will not change dramatically and unpredictably in the future. However, this book is based on the assumption that all companies will eventually be forced to rethink their strategies, management structure, and business operations in light of the economic benefits that e-commerce enables.

This is not to say that such corporate transformation will be easy. In fact, this book assumes that most companies will find the transformation to be a very difficult one. Many will not be able to accomplish it. In industry after industry, we observe three kinds of companies. The first kind of company is an e-commerce "pure play." The Internet-only company is able to challenge the land-based companies and adapt much more quickly to changing competitor strategies, new technologies, and evolving customer needs.

There are actually two kinds of land-based companies. The first kind is able to recognize that continued market leadership depends on the ability to cannibalize its business ahead of competitors. As a result, this first kind of land-based company is willing to take the short-term pain that such self-cannibalization demands. The second kind of land-based company is hoping that e-commerce will go away or that e-commerce simply does not apply to their industry. This second type of land-based company is the one less likely to survive.

This book has been written to help all three kinds of companies to profit from the ongoing change process of e-commerce. It is important to note that e-commerce actually forces companies to accept that they must always be in the process of becoming. Companies must become better at creating value for customers. New technologies provide the foundation on which such superior value propositions can be built. Competitors challenge the relationship between customers and their current suppliers by deploying new business models based in these new technologies. And customers—recognizing the increased bargaining power that e-commerce enables—are increasing their demands for quality, service, and value.

To help managers deal with these challenges, this book has much to offer. It presents many case studies from well-known companies such as Cisco Systems, General Motors, Barnes & Noble, Amazon.com, and Microsoft. It also develops case studies from less well-known organizations such as Toronto Hospital, DARPA, Eastman Chemical, and Homebid.com. From these case studies, the book develops principles of effective management and describes methodologies for such important processes as:

* Picking high payoff e-commerce applications
* Developing "e-strategy"
* Conducting financial evaluation of e-commerce projects
* Getting the CEO "on board" with e-commerce
* Managing the organizational change induced by e-commerce, creating a culture that sustains change
* Designing the e-commerce architecture
* Evaluating e-commerce suppliers
* Managing successful contract negotiations with e-commerce suppliers
* Implementing the e-commerce system

To introduce managers to this world of ongoing self-transformation, Chapter 1 continues by describing the research on which this book is based. Chapter 1 then introduces five important concepts that executives can use to help them profit from the transition to e-commerce. Chapter 1 concludes by describing how the remainder of the book expands on these findings and frameworks.


Research

This book explores these questions based on research conducted over the course of a one-year period. The idea for the book came from an open forum called E-Commerce and the CFO, in which I participated during three Fortune Conferences entitled Revolutionizing Corporate Finance With Technology in February and March 1999. This open forum was held in Chicago, San Francisco, and New York, with roughly 180 CFOs and other senior financial executives. These executives supplied their e-commerce questions to Fortune before the conference. A moderator posed the questions listed above to three or four panelists selected for their expertise in e-commerce software and Internet business strategy.

I was a panelist in each of the three conferences, serving in the role of "Internet Business Strategy Expert." Given the early stage of the evolution of the use of the Internet in business, such a title is, at best, provisional.

My credentials in this area come from having spent five years running a firm that provides strategy consulting services to companies that compete in the Internet business, and companies that use Internet technology to enhance their profits. At the Fortune conference, I was billed as the author of Net Profit: How to Invest and Compete in the Real World of Internet Business (San Francisco: Jossey-Bass, 1999). Net Profit defines nine distinct Internet business segments, analyzes the industry structure of each segment, and identifies the competitive strategies that the most successful companies use to dominate their markets. Net Profit provides a framework for investors to evaluate Internet company investments, a way for Internet business managers to develop winning strategies, and a method for non-Internet business managers to develop strategies that use the Internet to enhance their companies' competitiveness.

While this open forum received the highest performance ratings of the Fortune conference, the answers to the questions made it clear that there was absolutely no consensus. Ray O'Connell of AMACOM suggested that a book focused on these questions would be useful to CFOs, and I agreed to write it.

To address these questions, I conducted interviews and reviewed articles and books. Several of the senior financial executives who participated in the Fortune conference agreed to be interviewed for this book. While their interviews yielded valuable insights, many of the senior financial executives did not wish to participate in the research. A few disclosed the reason that they chose not to be interviewed—they did not wish to reveal their freshly hatched e-commerce strategies to their competitors.

Fortunately, the companies that agreed to participate in the research represent a wide cross-section of American industry. Senior financial executives in industries such as newspapers, automobiles, financial services, mining, and many others did agree to participate.

While this book began with a focus on helping financial managers, the research process revealed that because of the newness and strategic significance of e-commerce, it is much more helpful to think about e-commerce from the perspective of the CFO as a member of the executive management team, rather than as the chief accountant or chief treasurer. Therefore, this book is focused on dealing with strategic issues from the perspective of the senior management team of a company.


Key Concepts

To help senior executives deal with the challenges of e-commerce, this book presents five key concepts that are designed to answer the five most essential questions that e-commerce raises for senior executives. Table 1-1 outlines these questions and concepts.

Each of these concepts is introduced below.

Strategic Balance Sheet Analysis

With the advent of e-commerce, financial executives are finding that the return on capital is higher from investing in intangible assets than in tangible ones. As a result, financial executives need a way to pinpoint the intangible assets with the greatest potential to increase their companies' shareholder value. Strategic balance sheet analysis is such a process.

Strategic balance sheet analysis consists of three steps. First, a company must identify its intangible assets. Then the company must conceptualize e-commerce applications that can extract value from these intangible assets. Finally, the company must estimate how much these e-commerce applications will add to the company's profits.

As Figure 1-1 illustrates, companies that are successful at using technology are finding that their intangible assets contribute to the huge gap between their market capitalization and the book value of their equity.

As Figure 1-2 indicates, the e-commerce applications and the sources of incremental shareholder value tend to vary with the specific type of intangible asset.


Customer Relationships

The figure lists four of the many types of intangible assets that e-commerce can convert into increased shareholder value. Once a company has established initial customer relationships, the Web is an efficient way to sell additional products to existing customers. Two benefits of using the Web in this way are increased revenues and lower incremental selling costs. A third benefit is that the Web can help streamline the order-fulfillment process, particularly for complex products, by using artificial intelligence to guide customers through a process of ordering product configurations that can be manufactured. As we will see, Cisco Systems has used this approach to selling over the Web, adding more than $500 million to its profits in the process.

Customer Information

Customer information is another intangible asset that e-commerce can convert into added shareholder value. Web-based personalization allows consumer marketers to use the Web to learn about a consumer's preferences and interests. When a consumer makes a purchase, the marketer can then use knowledge of these preferences to recommend additional items that people with similar interests have purchased. With personalization technology, such recommendations have a very high chance of being followed. This leads to dramatic increases in sales per customer. Levi Strauss' Web site uses this personalization technology from San Francisco-based Andromedia, and has found that its customers accept 76 percent of the recommended additional items.

Supply Purchasing Volume

Many multidivisional companies purchase large volumes of supplies at the division level. Since these companies do not centralize purchasing, each division forges unique contractual arrangements with suppliers. In many cases, each division buys the same item from different suppliers. As a consequence, these companies leave money on the table by not purchasing these items from a single corporate location, and not negotiating volume discounts with a preferred supplier. Electronic procurement is a Web-based application that enables companies to capture these volume discounts while streamlining the administration of the purchase process. Large companies such as General Electric are implementing electronic procurement systems. By doing so, GE is saving $1 billion on its $5 billion worth of corporate office supply purchases annually.

Technical Service Information

Companies that sell complex products typically offer technical service. Most companies that provide technical service keep records of each interaction between the technical service professionals and the customer. In many companies, these records are kept in file drawers. As a result, if a customer in one country has a particular technical problem with a product, it is unlikely that the customer service representative in that country will be familiar with all the solutions to that problem that may have been developed around the world.

Therefore, there is a risk that the technical service may spend hours or days devising a solution to a problem that may have already been solved elsewhere within the company.

Web-based technical self-service enables customers to tap into the cumulative technical service experience of their vendor. It enhances customer satisfaction because technical problems are solved faster. It saves the vendor money by limiting the need to hire as many additional technical service people as a company grows. It also saves the vendor the cost of printing and mailing updated technical brochures and software patches to customers. Cisco's Web-based technical self-service application saved more than $100 million in the latter category alone.

While each company must follow its own process of strategic balance sheet analysis, these examples should provide financial executives with a feeling for how successful users of e-commerce have proceeded.

Competitive Opportunity and Threat Analysis

While financial executives are finding that strategic balance sheet analysis is a useful way to get started in thinking about how best to deploy e-commerce, this analysis should not be conducted in isolation.

As Figure 1-3 illustrates, the Internet can change the structure of many industries. A new company that uses the Internet to create competitive advantage can grow much faster than the average participant in that industry. An incumbent company, growing at an average rate, faces an adaptation gap. The adaptation gap is the difference in growth rate between the incumbent and the new entrant. If the incumbent adapts its business model effectively, it can accelerate its rate of growth and survive the onslaught of the new competitor. If the incumbent adopts a wait and see attitude, it may be too late to adapt.

The book-selling industry is one example of this phenomenon. Amazon.com sells books, CDs, and videos over the Web. While Amazon.com has been growing at more than 100 percent per year, Barnes & Noble and Borders are growing at less than 10 percent annual rates. The stock market has rewarded Amazon.com with a market capitalization that is greater than the sum of Barnes & Noble's and Borders' combined market capitalization. Barnes & Noble chose to adapt, somewhat slowly, through a two-pronged strategy. First, Barnes & Noble began to sell books over the Web itself. Second, Barnes & Noble attempted to purchase Amazon.com's chief book supplier, Ingram Book Group. This proposed acquisition was terminated in 1999 following pressure from the Federal Trade Commission. It remains to be seen whether Barnes & Noble will be able to accelerate its revenue growth and impede the progress of Amazon.com. As I noted earlier, executives must find ways to enhance the value of the company's intangible assets. The competitive adaptation gap analysis suggests that executives must also analyze the strategies of new competitors, like Amazon.com, who can use the Internet to put the company at a substantial competitive disadvantage. In fact, executives should also develop ideas for e-commerce applications that can put the company in a position to accelerate its growth rate relative to these new entrants. Executives should also consider strategic moves that can position the advantages of the incumbent company against the weaknesses of the new entrant.

While the majority of incumbent companies are likely to wait until a new entrant has established a presence, in every industry there will be a few companies that will take the initiative (and the risk) necessary to implement game-changing e-commerce applications ahead of their peers. Executives in these companies must create competitive opportunities.

As Figure 1-4 suggests, there is an important sequence of activities that must be performed to identify valuable competitive opportunities. First the company must talk to customers in order to identify specific unmet needs with the industry's products. Amazon.com found that customers wished that there were a more efficient way to search, select, and take delivery of books. Office Depot found that small businesses were looking for a much more efficient way to select, take delivery, and pay for office supplies.

The next step in the analysis is to study competitors to understand where they would be vulnerable if they chose to offer a product that satisfied the customers' unmet needs. Amazon.com found that traditional bookstores could not stock all the titles in print, nor could they create an efficient way of matching a consumer's interests with all the possible books in print. Office Depot found that many competing office superstores would be reluctant to sell over the Web because the Web channel would compete with in-store, catalog, direct marketing, and telephone sales forces. These incumbent methods of office supply distribution would not welcome the additional internal competition from a Web site.

The final step in the competitive opportunity analysis is to think of ways that the Internet can change the game to favor your company. More specifically, the challenge is to imagine a way that your company can use the Internet to satisfy unmet customer needs in a way that will be difficult for competitors to copy. Amazon.com realized that selling books over the Web would enable consumers to select from a larger set of books more efficiently and take convenient delivery at a competitive price. Furthermore, given the high relative costs, lower selection, and relatively inefficient search process of traditional book stores, Amazon.com would enjoy a sustainable competitive advantage.

Office Depot is hoping to achieve significant sales growth by using the Web as a parallel channel for distributing office supplies. It remains to be seen how effectively Office Depot's Web-based selling of office supplies will work. Nevertheless, Office Depot's experience represents a credible demonstration of the value of competitive opportunity analysis for an incumbent company seeking to take the initiative in its industry.

e-Commerce Risk Evaluation

The financial executive is particularly concerned about how e-commerce initiatives identified through the previous analyses may increase the risk of loss to the company. In many cases, executives' fear about the additional risks that e-commerce introduces into the company is as great as the absence of tools to help evaluate and manage such risks.

As Figure 1-5 demonstrates, e-commerce introduces three new kinds of risk into the company. While fraud has always been a problem for companies, the Internet creates the potential for an unscrupulous purchasing agent to create bogus Web-based suppliers. If the company is not aware of the fraud, the unscrupulous purchasing agent can create false transactions with the bogus Web-based supplier and use these false transactions to steal from the company. One solution to this problem is to use authentication technology.

While information security has always been a concern, e-commerce opens up the risk of information security breaches to a larger number of individuals both inside and outside the company. To combat these information security problems, the policy-based network security management products offered by software manufacturers enable companies to secure their information assets from theft and tampering in an integrated fashion.

Finally, e-commerce introduces new control problems. For example, an electronic procurement system streamlines the administration of the purchasing process. There is a danger that this streamlined process will open up opportunities for employees to obtain bogus approval for the purchase of valuable products and services.

Many electronic procurement system vendors offer companies the ability to embed business rules regarding approval of purchases into the electronic procurement system, thereby sustaining managerial controls.

Despite these technologies, the e-commerce risks are real. Executives must evaluate them diligently and take a cautious approach to the adoption of the technologies outlined above. We will examine in greater detail the procedures that executives can follow to identify the risks of e-commerce, and take steps to protect their companies from losses.

Enterprise Value Assessment

The research for this book reveals that there is nothing new about the method of financial analysis that executives apply to e-commerce projects. However, as Figure 1-6 suggests, e-commerce applications present opportunities for financial executives to consider factors in their financial evaluations that are typically associated with mergers or stock buybacks, not information technology projects. In other words, some e-commerce projects can significantly boost shareholder value.

Executives attempt to quantify the cash flows associated with each e-commerce project. The costs of the project are typical of other information technology projects, although often the cost of the hardware and software is less than that of the Web consulting services. Furthermore, the time frames for systems development should be dramatically shorter because in many cases, e-commerce applications are intended to be introduced to the market quickly and subsequently modified, based on user feedback.

Nevertheless, the real benefits to the company that must be measured have to do with two factors that influence growth in a company's stock price. The first factor is the extent to which the e-commerce project enhances the company's profits by lowering costs and/or increasing revenues. The second factor that is particularly powerful in the case of e-commerce applications is the extent to which the application increases the price/earnings ratio that the market assigns to the company's earnings.

Certain e-commerce applications can cause the market to assign a much higher P/E ratio to the company's expected earnings. Dramatic examples of such applications have become increasingly common. For example, when Zapata Corporation, a maker of fish extract, announced that it was going to purchase Internet companies, its stock promptly doubled. While such extreme examples are not likely to apply to traditional companies, they do indicate the extent to which companies are able to improve their market capitalization through investment in Internet subsidiaries. We will explore the specific steps required to make the sorts of investments in e-commerce applications that can both create value for customers and sustain high shareholder returns.

e-Commerce Portfolio Analysis

Once executives have completed the foregoing analysis, there is a need to integrate all the potential e-commerce applications and choose the ones that the company will build. In order to make this choice, executives need a framework that appropriately weighs the right factors and compares each potential e-commerce application using the same factors. Figure 1-7 illustrates how such a framework might be deployed for a hypothetical set of five potential e-commerce applications.

While the data has been developed for purposes of illustration, the Figure 1-7 is useful for explaining the methodology used to evaluate a set of potential e-commerce applications. There are four evaluation criteria in this case. Competitive shield means how much the potential e-commerce project protects the company from loss of market share to competitors. Minimize risk refers to the extent to which the project is conceived to limit the loss to the company from fraud, security breaches, or weak controls. Customer value add measures the extent to which the project will cause the company to do a better job of satisfying unmet customer needs. Shareholder value add refers to the extent to which the potential e-commerce application will enhance the company's stock price.

The weights are an attempt to measure the relative importance of these four criteria in evaluating the potential e-commerce projects. This example places the least weight on customer value add and the most weight on shareholder value add. Each project is force-ranked on each criterion, and the weighted score is included in the table. The weighted scores are added, and the projects are ranked in descending order of weighted score. This ranking may help companies with limited budgets to decide which e-commerce projects to fund, and which to defer or cancel.

Overview of This Book

The remainder of this book uses these five frameworks to address executives' questions regarding e-commerce. Part I focuses on financial and strategic evaluation of e-commerce. Part II shows how executives manage the change induced by e-commerce. And Part III provides a road map for building the e-commerce infrastructure.

Part I includes Chapters 2, 3, and 4. Chapter 2 explores the evidence of high payoff e-commerce applications. It describes the methods that executives are actually using to determine the costs and benefits of e-commerce applications. It presents case studies of some of the most successful e-commerce applications, including Cisco System's Cisco Connection Online. Based on these case studies, the chapter presents ten principles that characterize the most successful e-commerce applications. The chapter concludes by examining some less successful e-commerce applications, and highlighting three common e-commerce application pitfalls and how to avoid them.

Chapter 3 first looks at what CEOs and CFOs are doing with e-commerce, and the factors that are driving their thinking. Then the chapter scrutinizes the success measures that were used in IBM's successful e-commerce projects. Next Chapter 3 examines Healtheon/WebMD, a dramatic case of how the stock market is assigning value to intangible assets. Based on the general trends of e-commerce adoption and the specific case studies, Chapter 3 concludes by introducing a new method of conducting financial evaluation for e-commerce projects.

Chapter 4 begins with a case study of how e-commerce has altered the sources of competitive advantage in the book-selling industry by profiling the competitive dynamics between Amazon.com, Barnes & Noble, and its online subsidiary bn.com. The chapter then uses this case to develop key principles of e-commerce and competitive advantage. Chapter 4 concludes with a ten-step methodology that applies these principles to help managers use e-commerce to create competitive advantage.

Part II includes Chapters 5 through 8. Chapter 5 starts off by looking at some general statistics that gauge the trend in senior executive attitudes toward e-commerce. Next, Chapter 5 examines a framework that executives can use to identify which of four types of organization they belong to with respect to the CEO's attitude toward e-commerce. Then, the chapter examines case studies of each of these types of organizations in order to explore the issues that face senior executives seeking to take advantage of e-commerce. Chapter 5 concludes by outlining a process for getting the CEO engaged in building a new "e-strategy" that enables the company to maintain its competitive position against Internet-only competitors.

Chapter 6 explores how companies evaluate potential e-commerce applications. Chapter 6 organizes thinking about this topic by discussing the different intellectual constraints faced by self-reinventors versus the change avoiders. The chapter then explores two cases that exemplify the different approaches to evaluating e-commerce applications: Citigroup, a self-reinventor, and Merrill Lynch, a change avoider. From these cases, Chapter 6 describes specific principles for evaluating e-commerce applications. Chapter 6 concludes by outlining a process for evaluating potential e-commerce applications that incorporate these principles.

Chapter 7 describes four different kinds of change processes depending on the source of the e-commerce strategy, and the extent to which that strategy alters the company's basic business model. Then Chapter 7 examines cases from Microsoft, Merrill Lynch, and Provident American that expose the anatomy of these change processes. The chapter then extracts principles for successful e-commerce-driven change management. Chapter 7 concludes by outlining a methodology that financial executives can use to help guide their organizations in a change process that will help their organizations to realize the expected returns from e-commerce.

Chapter 8 explores the management techniques that work most effectively for sustaining change induced by technology by presenting two brief cases from Digital Equipment Corporation (DEC) and Microsoft. Chapter 8 then uses these brief cases to develop principles for sustaining change and principles for inhibiting it. The chapter continues by presenting the case of Hewlett-Packard (HP) and the InkJet printer market to illustrate how a large, successful company like HP can adapt—going from being a change inhibitor to a change sustainer. Chapter 8 concludes by presenting the implications for managers seeking to sustain the change induced by e-commerce.

The book concludes with Part III, "Building the Infrastructure," which includes Chapters 9 through 12. Chapter 9 defines what is meant by e-commerce architecture. Then it describes how companies can partner with ISPs to experiment with e-commerce in a way that does not put their entire business at risk, while also enabling the business to learn. The chapter continues by exploring how Eastman Chemical and Weyerhaeuser established e-commerce architectures for their electronic procurement systems. Chapter 9 continues by describing two e-commerce architectures, one from Charles Schwab and the other from eBay, to demonstrate effective and ineffective handling of e-commerce architecture. Next, Chapter 9 develops six principles for designing e-commerce architectures. Chapter 9 concludes with a methodology that senior managers can use to design effective e-commerce architectures.

Chapter 10 presents two case studies of e-commerce supplier evaluation. The first case study focuses on the evaluation of five e-commerce application software packages. This case study will help managers gain insights into the specific characteristics of an effective e-commerce software evaluation process. The second case study illustrates the process that the Defense Advanced Research Projects Agency (DARPA) used to evaluate suppliers of Virtual Private Networks (VPNs) for its intranet. This case helps demonstrate the complexities of evaluating the purchase of network services. Following each case, Chapter 10 develops a set of lessons on how best to conduct e-commerce vendor evaluation. Chapter 10 concludes by presenting a methodology that senior managers can use to help build and administer a process for evaluating e-commerce suppliers.

Chapter 11 begins by outlining the vision for a successful purchase negotiation outcome. The chapter continues by outlining the risks that managers must anticipate and overcome in order to achieve this vision. Chapter 11 presents four mini-cases of successful and less-than-successful contract negotiations (Horizon Healthcare, Children's Hospital of Los Angeles, Whirlpool, and Toronto Hospital), to illustrate these concepts in greater detail. Chapter 11 concludes by outlining a methodology that managers can follow to translate their vision for e-commerce into a successful purchase negotiation process.

Chapter 12 helps to address these issues. The chapter begins by outlining the most important elements of successful e-commerce project management. It continues by presenting four cases of companies that have managed e-commerce projects (United Airlines, Allied Signal, American International Group, and Homebid.com). Chapter 12 continues by highlighting several principles that managers can follow to increase their chances of success in managing e-commerce projects. It concludes by presenting a methodology that managers can follow to implement e-commerce projects successfully.

For your company, the potential economic benefits of e-commerce are great. Let's explore together how you can capture these benefits for your customers, employees, and shareholders!

Shaping the Adaptive Organization
Landscapes, Learning, and Leadership in Volatile Times


By William E. Fulmer

AMACOM Books

Copyright © 2000 William E. Fulmer. All rights reserved.

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