The Seven Steps to Nirvana: Strategic Insights Into e-Business Transformation
by Mohan Sawhney and Jeff Zabin
Tata McGraw-Hill Publishing, New Delhi
2001; 323 pages
Review by Madanmohan Rao
With a foreword by Dan Tapscott (author of "Digital Capital" and "Growing Up Digital"), this concise e-business guidebook is just what serious readers need in the "post-dotcom era" to sift through the confusing views and assessments of e-business out there.
Mohan Sawhney, e-commerce professor at the Kellogg Graduate School of Management in Northwestern University, is a prolific writer and speaker and serves on the boards of several startups; he was a keynote speaker at the India Internet World 2000 conference. Jeff Zabin is a writer and research fellow with strategy firm Diamond Cluster International in Evanston, Illinois.
The book also has an online companion (www.7StepsToNirvana.com). Referenced books include Leading the Revolution (by Gary Hamel), Intellectual Capital (Thomas Stewart), MetaCapitalism (Grady Means), ValueNets (David Bovet), and Enterprise E-Commerce (Peter Fingar).
"The Web has created an extremely fecund environment for entrepreneurship. Unfortunately, the get-rich-quick mentality that followed began to distort the assertion that "the Internet changes everything" (which is true) into the hope that "all things done on the Internet will prove lucrative" (which is rubbish)," begins Tapscott.
"Managers can stop worrying that some dotcom startup will crush them overnight. While this is probable true, it is no excuse to relax," he says.
In the new economy, companies can grow at a previously unimaginable pace - but assessing their potential has never been more difficult. Many companies are being unfairly punished in the dotcom backlash, though they have good business models and are poised for growth - investors still need to develop the new lenses that are required in the new economy. "No company has integrated the Internet into its business model and concluded that the pre-digital way was better," according to Tapscott.
The focus of the book by Sawhney and Zabin is more on the traditional old-economy "smokestack" industries than established technology players like Cisco and Dell. It is chock-full of case studies and anecdotes of successes as well as failures in e-business ventures of corporate America.
One chapter each is devoted to the seven steps which businesses must take in order to maximize e-business potential: broaden company and industry vision, chart incremental moves down the e-business evolution path, devise clever e-strategy, synchronise channels and internal departments, gear up e-infrastructure platforms, judiciously allocate financial resources and investments, and rally employees and partners around the e-business banner.
"Like the impact of the automobile, which revolutionalised far more than just the transportation industry, e-business is anything but an isolated event, touching a smattering of companies in a handful of markets," the authors begin.
Addressing the mad rush of the dotcom days to capture market share, the authors stress that the prize actually goes not to the early bird, but the first one to get it right: the first to generate sustainable businesses, leverageable advantage and profits.
"With very few exceptions, traditional assets such as brands, retail store presence, and buying power have proven to be more than enough to counter the initial lead of the startups," according to Sawhney and Zabin. It is the first finisher rather than the first-mover advantage which is key.
"Of course, that first movers frequently stumble and fall before ever crossing the finish line is the way of the world and not merely an e-business phenomenon. History shows that pioneers often end up with arrows in their backs; it is those who move swiftly and wisely down trails already blazed that generally reap the rich rewards," the authors observe.
In retrospect, it might be said that the new economy was the best thing to have happened to the old economy, according to the authors, especially the shining examples they set for speed, innovation and pure adrenaline flow. "Unlike anything before it, the massive wave of entrepreneurial startups energized Corporate America to change," they observe.
But people are also making the mistake now of believing that the coast is clear - Corporate America may be heaving a collective sigh of relief that the dotcoms are not going to eat their breakfast after all, but actually new competitors may arise from amidst their own ranks energized by e-business transformations.
The authors dismantle several prevailing misconceptions about e-business, and clarify that e-business is not a "bolt-on" or "plus-one" level to business, it is not just about technology but also change management, it should not be assigned to only the CIO but also the CEO, it should not be restricted only to one department or function, it is not just a middle-management initiative, and it is not a fixed but a continually evolving target.
E-business can play a key role in four ways: cost reduction, revenue expansion, time reduction, and relationship enhancement. E-business plays not just to the bottom line but also to the top line, where it can lead to the transformation and reinvention of entire industries.
Companies like United Technologies and Eastman streamline purchasing via e-procurement. Citibank leverages CRM for online initiatives, and Proctor&Gamble uses Web sites to improve information services quality for its products like Tide, Crest and Vick's. Xerox harnesses the Web to lubricate its relationships with its numerous resellers. Consultancy firms and Fortune 500 innovators like GE use Intranet-based knowledge management systems to capture, codify and recycle the learnings gleaned from every project and every employee.
Climbing the ladder of e-business initiatives involves four steps: launch a basic presence on the World Wide Web, automate key business processes, integrate processes across the entire enterprise and partner networks, and finally reinvent and transform the entire mode of business operation and even the entire industry.
"Becoming a real-time enterprise means gluing together all business processes that impact the entire value network. This can be a monumental task," the authors caution. The evolution of established companies down the e-business path is bound to happen at a slower pace than did the revolution of the dotcoms.
Some companies have attempted to spin off their e-business initiatives as separate ventures, with mixed results: some have failed, as with NBC and NBCi, or CompUSA and CoZone.com; some have succeeded, as did Herman Miller in the office furniture industry; and the jury is still out on P&G's Reflect.com site for consumer-oriented beauty products.
"Henceforth, contests will be won not by how quickly a new company can get to an IPO, but by how successfully it can visualize - and then actualize - the next big idea," the authors predict.
A key requisite for uncovering e-business potential is to think like an architect and re-structure the business proposition: via new schemes, new configurations and game-changing business architectures.
Companies should focus not just on selling via the Web, but the entire consumer experience: learning, evaluating, comparing, maintaining, monitoring and servicing purchased goods and services. The authors cite Kodak's PhotoNet initiative for online photograph management and the Palm VII network of modem and content alliance partners as good examples of a seamless user experience.
"Unmet and under-served needs are the foundation for any business initiative," the authors observe. Multiple channels, customized offerings, end-to-end value chains, consumer convenience, and price are all important considerations in this regard.
Identifying a profit engine and a growth engine - especially via building lifelong relationships with consumers and business partners -- are fundamental drivers for such initiatives to take off. Sectors prime for leveraging e-business in this regard are the travel, cargo, telecom, contract manufacturing and professional service businesses.
One of the key impacts of the Internet, Intranet and Extranet is to break down traditional barriers within the company between its departments, geographical units and employees, and on the outside to connect the company seamlessly with its customers, suppliers, distributors and business partners.
E-business should be harnessed to create external synchronization across channel silos, and internal synchronization to facilitate learning and creation of customer knowledge bases. After all, customers today expect synchronization of prices, inventory, return policies and customer service.
Companies have taken different approaches to achieve this synchronous state: for instance, Wal-Mart has named its online venture WalMart.com and opted for deep synchronization and integration, whereas K-Mart has called its online venture BlueLight.com which is synchronized at a selective level and is aimed at new customers with new offerings.
Knowledge synchronization within the company can help learning across boundaries, as exemplified by P&G's worldwide ad-testing system and GE's knowledge sharing across business units.
As for channel impact, the authors caution against viewing the Net as merely a new channel which can cause channel conflict with existing channels. "The Internet should be viewed as an enabler of all existing channels, rather than a substitute for existing channels or as a disintermediator of existing channel partners," according to Sawhney and Zabin.
Drawing on past examples, the authors show how the advent of TV led radio to specialize in the U.S. into a medium for car drivers, and how the growth of the videocassette industry actually spurred movie viewing in theatres.
The Net has multiple effects on channels and brands: channel augmentation (eg. direct selling by Cisco and Dell), brand augmentation (eg. Web sites of Ragu sauce and Crest toothpaste), channel proliferation (eg. book sales), and channel deconstruction (eg. Travelocity and Expedia).
Accordingly, companies may leverage the Internet in hybrid manners via a front-end configuration (eg. Homestore.com's site Realtor.com) or side-by-side hybrid (eg. Charles Schwab, where 80 per cent of trades are done online but 75 per cent of new accounts are opened at its branch offices).
Companies like Ariba and CommerceOne help companies take apart channels and put them together again by flexibly configuring relationships with suppliers, wholesalers and retailers. "The tools that make synchronization ultimately happen are the databases, software applications, and hardware that keep the modern enterprise humming," according to the authors.
Elements of partner-facing selling and distribution functions include adaptive lead management, content management, promotion management, order/quote configuration, consultative selling, e-commerce storefronts, and forecasting/planning.
The supplier side includes direct materials (which go into products), indirect materials (maintenance, repair and operations), and services (IT, marketing, management, human resources).
The vendor landscape - which is experiencing rapid convergence -- accordingly includes players in MRO procurement (Ariba, CommerceOne), SCM (i2, Manugistics), collaborative design (Agile, NexPrise), content and catalogue management (Vignette), configurators (Trilogy), integrated marketplaces (Ariba, CommerceOne, Oracle, VerticalNet), direct sales (BroadVision, Intershop, OpenMarket), logistics (i2, Yantra, GoCargo), payment (Verisign, iEscrow), CRM (Siebel, Kana) and customer analytics (E.piphany, Cognos).
"Despite the unbridled enthusiasm for the Net as a channel for direct selling to customers that besets many companies, the fact remains that most selling still takes place through partners," according to Sawhney and Zabin.
As for internal or 'employee-facing' communication and collaboration, enterprise portals and knowledge management applications should be leveraged to offer indexing, categorization, search, publication, distribution, personalization, and workflow to enable cross-organisational learning. KM initiatives will succeed only with proper cultural change, incentive alignment, and business strategy alignment.
The future, according to the authors, lies in collaborative commerce via component-based architectures (as with HP's e-Speak and Microsoft's BizTalk) - eventually creating 'business operating systems' for entire industries, such as Covisint in the automobile industry, Exostar for aerospace, Transora for consumer packaged goods, and Elemica for chemicals.
Shared business vocabulary, standards, platforms and information backbones for some industries are emerging, but not all companies may participate in such industry consortia - especially those who consider SCM to be a key competitive differentiator, as with Dell, Cisco and Wal-Mart.
The next key set of issues which then arises is in financing of e-business initiatives: who will finance them, how should they relate to current corporate structure, how should they be integrated further on down the road, and in what outside start-ups should a stake be taken.
Due to a combination of fear and greed, many established players may have swung off course for some time on the investment front: such as Starbucks (which invested in Living.com, Kozmo.com, Cooking.com and TalkCity - but has re-focused now) and Nordstrom (which took a $20 million loss on Streamline.com).
Some, however, have successfully juggled a suite of investments, such as MRO supplier W.W. Grainger which invested over $150 million by the end of 2000 in Grainger.com (digital storefront), OrderZone (for SMEs), FindMRO.com (for discontinued supplies), MROoverstocks.com (for surpluses), and TotalMRO.com (e-procurement solutions for large companies).
Factors to assess such initiatives
include scope of impact, anticipated payoff, time to payoff, competitive
differentiation, trialability, and risk. By investing in other start-ups,
companies can gain access to "windows into the future, borrowing eyes
and ideas from innovative entrepreneurs" about new technologies, business
architectures, channels, and business cultures.
Examples include Kraft Foods, which gained valuable learnings (if not earnings) about online impacts on grocery shopping via tie-ups with Webvan, NetGrocer, Peapod, Food.com and EthnicGrocer.com. Accenture Technology Ventures has invested in Asera, Jamcracker, Rivio and MarketSwitch.
CEOs, CIOs and heads of operating units within a company have a key role to play in catalyzing, motivating, skilling and externalizing of e-business vision and capability. Notable leaders in this regard have included GE CEO Jack Welch, Boeing CEO Phil Condit, Eastman CEO Ernest Davenport, and McDonald's CEO Jack Greenberg.
The ultimate compass in the e-business journey, the authors conclude, has to be nothing other than the customer value proposition.
"Internet start-ups paved the way for established companies to move faster, think more creatively, and execute more effectively," according to Sawhney and Zabin.
The writer can be reached at email@example.com
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