E-Business - Preparing for the new economy - Ten ways to e-succeed.

Gartner forecasts the worldwide business-to-business e-commerce market will grow from $145bn in 1999 to $7.29 trillion in 2004. This growth is fuelled by a mixture of investment financing, IT spending and opportunistic euphoria.

Another major catalyst will be e-market makers – organisations that develop a B2B e-marketplace of buyers and sellers within a particular industry, geographic region, or affinity group. E-marketplaces alone are projected to facilitate $2.71 trillion of e-commerce sales in 2004, or 37% of the B2B e-commerce market.

But there are challenges that may prevent the desired ROI from being achieved. Through 2004, Gartner predicts the difficulties of enabling suppliers and changing users’ behaviour will keep 50% of the Fortune 1,000 enterprises that implement e-procurement from reaching on-contract spending levels greater than 10% of total non-direct spending.

GARTNER GROUP’S TEN IMPERATIVES FOR E-BUSINESS SUCCESS

1. Never plan further than 24 months out.

While it is imperative to have a business strategy directing overall activities, a five-year planning horizon typical of traditional strategic plans is no longer feasible. Largely because of changes in the business environment brought about by the net, the pace of business change has reached the point where no more than 24 months is reasonable for a plan.

Beyond that, it is reasonable to assume the business environment will be sufficiently different that a new strategy will be required.

2. Do not attempt to develop an e-business strategy independent of the full business strategy.

Executives are pushed for the rapid development of an ‘e-business strategy’ independent of the business unit strategy. In many cases, this is driven by a desire for speedy reaction to the ‘new economy’. There is an assumption that developing a full business strategy is cumbersome, and so to wait until a business strategy is developed would cause the strategy to fail.

In fact, the reverse is true. First, business strategies can be developed in short periods of time. Second, an e-business initiative developed without understanding how it will affect existing distribution channels and the business in general can cause the business strategy to fail. For bricks-and-mortar enterprises, e-business strategies created in isolation from the business strategy are counterproductive and almost certain to fail.

3. Use separate strategies according to industry, geography and culture.

There is often internal pressure to create an enterprise-wide e-business strategy. This is effective in smaller enterprises focusing on a single buying centre. From business process re-engineering and customer relationship management, the most effective strategies focus on a particular market segment. While an enterprise-wide strategic technical architecture should be developed, business strategies should be developed for individual units that are focused on defined market segments. Market segmentation should take into account all factors affecting buyer behaviour and needs, including industry, geography and culture.

4. During analysis, give equal weight to the internal and external processes.

There is a tendency for enterprises new to e-business to focus on the impact the net has on either internal or external processes. This tendency is reflected in the popular terms ‘business-to-business’ and ‘business-to-consumer’. With B2C, the focus is normally on distribution channels and how a business sells its products. With B2B, even though external suppliers are involved, the focus tends to be on internal costs. An effective strategy should take into account how e-business can be used to improve internal operations and to create more effective external relations.

5. Obtain total board buy-in.

While getting approval for the substantial cost involved is certainly important, the understanding needed at board level goes well beyond that. Introducing e-business often means increasing the complexity of the business model. It may also mean establishing a market presence on the internet where none existed. The board needs to understand substantial time frames required and the metrics used to measure progress.

6. Deliberately execute alternatives to buy, spin off or transform business models.

When preparing an e-business presence, enterprises should consider alternative ways to attain strategic objectives. In some cases, it may be desirable (for independence or financial reasons) to create an internal e-business unit and then spin it off as a separate entity. In other cases, there may be a high degree of interaction between e-business processes and traditional legacy business processes.

7. Play by the ‘new’ rules.

As they are in their infancy, e-business and e-commerce operate under new rules. Recent dot.com start-ups must build market share quickly to compete with traditional businesses. To gain market share, they will go to great lengths that lead to short-term net losses. Market share is critical.

Late entrants or companies attempting to build a net presence must play the game with new rules. Even a traditional enterprise with an established brand identity that sells product on the web at prices higher than the discounted rates of the dot.com enterprises will fail. Traditional enterprises must be prepared to sell at the same deeply discounted prices as new entrants.

8. Enhance or destroy distribution channels based on their true power and value.

One of the much-heralded promises of the internet was reduced cost through disintermediation. While possible in theory, the promise was oversold.

In some cases, enterprises have used overinflated estimates of e-business revenue to justify creating channel conflict that resulted in lost revenue.

It has been common for manufacturers’ e-business initiatives to alienate distributors. Realistic estimates of e-business revenue over time must be used in the planning process.

9. Establish a metrics program that measures the effectiveness of the e-business initiative.

A ‘blind faith’ approach to e-business development involves building a site to sell products because ‘it is the right thing to do.’ This does not include a measurement program. Measuring the effectiveness of an e-business initiative will involve new metrics, but some metrics measuring effectiveness may be those used historically. New metrics such as ‘stickiness’ may be specific to e-business. Existing metrics such as market share may be applied to e-business initiatives. But the recent drop in the valuation of dot.coms shows traditional measures such as net income and earnings per share cannot be ignored.

10. Speed and ruthless execution are everything.

E-business places greater speed and efficiency demands on enterprise infrastructure than anything previously encountered. Because the business environment and the competitive landscape can change so quickly, it is imperative that e-business initiatives be implemented quickly. Red tape must be cut. Bureaucracy that impedes the progress of e-business initiatives must be bypassed or crushed. The manager responsible for the initiative must have wide latitude and authority to bring the project to fruition quickly. In ‘internet time,’ a delayed project is a failed project.