Emerald Group Publishing Limited
Copyright © 2000, MCB UP Limited
E-commerce: changing the rules of strategy implementation
E-commerce: changing the rules of strategy implementation
Abstract While the advent of e-commerce has signaled a frightening wave of change, it has also breathed new life into the arcane process of developing strategy. In too many organizations, the planning document gathers dust on the shelf, and good ideas never see the light of day. Those actions that are taken have either a marginal impact or are outdated by the time they are implemented. In any era, these habits would be a prescription for trouble. In the e-commerce world they are a death knell. E-business has increased the importance of effective strategy implementation while changing many of the rules. The author describes major shifts in four strategic business principles.
Keywords: Strategy, Implementation, Business strategy, Internet
The question regarding e-commerce is no longer "if" or "when" but "how." It is no longer an issue of simply having an Internet presence, but the electronic impact on all aspects of your organization from sales and marketing to procurement and collections. E-commerce has also brought with it a profound redefinition of the rules of doing business. Long-standing theories based on market share, channel management, competitive advantage, customer service, and human resource management have been supplanted by new concepts. Failure to grasp the new rules and apply a coherent process to the implementation of your future direction can put you out of business … fast.
The "digital world" has spawned an environment where the successful implementation of your company's plan for the future must be the norm. The strategic vocabulary now includes words like richness, reach, disintermediation, deconstruction, and value proposition. Being able to acquire the key capabilities needed to address your digital opportunities, being able to focus on your growth/return requirements, and delineating all of the specific projects needed to make the strategy fly must be an essential feature of your methodology. Effective implementation, then, may best be achieved by a process approach – first asking the key questions about the scope of products, services, alliances, and infrastructure requirements and then systematically detailing the activities to be carried out.
One of the major dilemmas is whether the current organizational culture will tolerate a foray into e-commerce, not whether employees can master the technical competence. Many organizations are actually creating entirely new organizations to sustain their digital effort. Procter & Gamble reached this conclusion and launched Reflect.com (a health and beauty products business) as a totally separate entity. Surfacing and resolving these cultural conflicts may be the most critical part of implementation in the e-commerce world. Using a process approach is helpful because it usually incorporates a direct examination of the behaviors and attitudes that will ultimately govern the quality of implementation.
The old rules
To hop aboard the e-commerce bandwagon, your organization must recognize how the rules have changed and what this brave new world demands in terms of strategic acumen. Not everything has changed of course, but there are four new rules that are affecting the implementation of business strategy today.
Old rule: claim incremental increases in market share through a targeted product/market focus. New rule no. 1: be first in the market (maybe second) or you may not get in the game at all.
One of the most basic guidelines for a business has always been to concentrate on the creation of market share. The choices were nearly binary. At one extreme, you could work to attract a large number of customers and move toward a commodity-based strategy. At the other, you could target a specific niche of customers and give them highly customized service. Digital technology has changed much of that. The astute organization can now attract huge numbers and offer tailored products and services. In fact, emerging companies are now able to offer almost every customer his or her personalized version of the product.
While attracting and holding on to customers will always be important to business success, the introduction of technology has reframed the implementation of market strategy. Because a significant aspect of the product/service offering is increasingly information-based, customers must be viewed almost as if they were another form of competition. The key is to be able to provide a service for them that they cannot easily provide for themselves.
E-commerce technology will ultimately enable customers to search a virtually unlimited number of options at a cost approaching zero. The implementation of the various portal/search engines is focussed on acquiring as many customers in the shortest time possible. Yahoo, for example, became the clear leader, even given the basic deficiencies of search engines. Waiting in the wings is the next generation of engines that will probably allow you to ask a specific question and get a specific answer, rather than go through innumerable near-matches based on key words. Once this happens, the slate will be clean, and rule no. 1 will be in effect all over again.
A market-share orientation to strategy implementation works well when it is assumed that the "pie" can be cut into multiple pieces, with each piece capable of generating profits. The nature of e-commerce challenges this fundamental premise. To be first (and maybe second) is becoming the only choice in the implementation of strategy. The issue is that once customers get comfortable with a particular technology, it is very difficult to get them to change, which means that the first entrant who can build a critical mass of customers usually wins. Failure to grasp the new rules and apply a coherent process to the implementation of your future direction can put you out of business … fast.
Old rule: tightly control your supply chain and distribution channels. New rule no. 2: establish alliances and partnerships so you can own your piece(s) of the value chain.
The last 20 years or so have been the heyday of channel strategy. Retail markets, in particular, championed the strategic advantage of implementing tight control over all parts of the value chain. In the e-commerce space, the concept is now the "value net." The power of a networked economy lies in the distinction between the information the customer needs to learn about, choose, and purchase the product and the dynamics of the manufacture, warehousing, distribution, and delivery of the product itself. Because these elements can all be separated, it is the customer who now defines the channel.
Successful implementation has become a question of building your business model around alliances and partnerships. Rather than try to control the entire distribution and supply channel, competitors find a piece of the chain they can own and build a business around their capability. Establishing these partnership capabilities has given way to "RDI" (rapid deployment implementation) in which alliances are quickly formed. Competitors now develop new strategies in the midst of implementation.
While there is a lot of focus on business-to-consumer sales, the real action will soon be in transactions between companies. The implementation of effective supply chain and procurement strategies will dwarf consumer business both in dollar volume and in the implications for being a digital organization. The creation of alliances and partnerships will take on a whole new set of ramifications with the potential of drastically reduced costs and cycle times. Companies will gravitate toward e-businesses that help them get paid faster, or trade platforms and exchanges that are based on profound industry knowledge. When integrated into the routine daily transactions of an organization, the power of effective implementation will be felt in every nook and cranny of your company.
W.W. Grainger, the nearly $5 billion MRO company, launched an electronic catalog in 1989, which made its 200,000 products easily accessible by business customers. Through alliances and partnerships, Grainger is now able to offer over five million products through 12,000 suppliers covering 100,000 brands. The company has progressively dominated successive pieces of the value chain while significantly lowering the product and process costs inherent in the industry. This "learn as you go" approach is a significant departure from the lockstep methodologies that organizations have typically used in their approach to owning the channel.
Old rule: seek competitive advantage based on factors such as asset base, experience, and a high performance-to-value relationship. New rule no. 3: gain competitive advantage through continuous learning as you implement.
As well as redefining many of the rules of business, e-commerce is slowly transforming the factors that have governed corporate success. For example, businesses have always used asset base as a competitive advantage. In industries where vertical integration was considered important, this was a crucial element in eliminating competition. In an information-driven setting, asset base may be the most serious disadvantage as it limits flexibility. Even the fledgling garage-based operation now has the tools to dismantle your business by offering a new proposition to your customers. The entrenched nature of organizations that have heavily invested in assets makes them easy targets for competitors.
From a macro perspective, all corporate business strategy is designed to ultimately increase shareholder wealth. The basis for valuation has always been performance emanating primarily from profitability. E-commerce has introduced an entirely different scenario. The valuation of companies like Home Warehouse have had little to do with performance. The criterion has shifted to the expectation of growth in the critical mass of customers, especially loyal ones. In the case of Dell, this expectation comes from the prospect of being able to take business away from suppliers as well. Although this condition is not likely to last much longer, it has broad implications for strategy implementation in terms of being able to quickly generate demand and attract that critical mass in the customer base.
In the e-commerce environment, competitive advantage is more likely to be gained through the strength of your business alliances and partnerships than from your experience or reputation in the industry. Once the value chain is recast, only the most powerful of brands will matter. Competitive advantage is also more likely to be obtained from prowess in the technology itself. For example, at the highest levels, the ability to set and control network standards in the business-to-business and the business-to-consumer space would be a formidable weapon. In the near future, much of the leverage will come in the form of infrastructure technology. Being able to provide greater security or to increase the quantity of digital deliveries will introduce a whole new set of value propositions and sources of competitive advantage. Anticipating new developments in these and other areas must now be a core element of your strategy implementation.
Old rule: emphasize high-touch customer service and interaction to build loyalty. New rule no. 4: build loyalty through ease, reliability, and reliance on the underlying technology.
Remember when "relationship management" was all the rage? Once the dot-com entrepreneurs began to recognize that you could create a business by distinguishing the information content of a product from the product itself, they also uncovered another startling reality – customers would often accept less personal service for more choice and freedom in the buying process. This concept of "good enough" has changed the dynamics of creating customer loyalty.
Though the idea of relationships will never totally be abandoned, strategy implementation must now approach it from a different angle. The genius of businesses such as Futurestep, Inc. (Korn/Ferry's collaboration with the Wall Street Journal in the middle management recruiting space), is that it has created tremendous growth in customers and loyalty. Man Jit Singh, president and CEO, has implemented a strategy that allows the customer to expend a significant amount of time and energy registering without getting bored. The site has abundant content for job-seekers as well as a personalized chat room and e-mail service. Having experienced Futurestep, it is highly unlikely you would try anyone else.
Here again, the grasp of emerging technology and what it means for customers will increasingly be the key to effective strategy implementation. The role of navigators in the Internet space will logically become one of the most lucrative sources of competitive advantage. Outsourcing capabilities and the technologies that enhance the speed and security of transactions will be potent aspects of customer service. At some point, we can predict that even the largest e-commerce sites will give way to hackers. Being able to minimize the impact on customers when it happens will ultimately become a new frontier of strategy.
Customer service in the e-commerce space depends more on reliability than anything else. Strategy implementation must first maintain the credibility of the company's message by its ability to deliver the goods from "end-to-end." At the front end, the promises made in advertising must match the message in a Web presence. Too many organizations have fallen into the trap of publishing magazine ads that emphasize glitz and sizzle, only to lead customers to a boring, mundane, and complicated Internet site.
At the back end, the product itself must be readily available and arrive in customers' hands fast enough to offset the perceived value of getting it "now" at the mall. This makes the implementation skills of the Yahoos and the Dells of the Internet world even more impressive, given that they sell their products first and then build or buy them. The same discipline must apply at each stage between the front and the back ends. In fact, with the introduction of "jelly beans" (microchips attached to products that do their own tracking, ordering, or maintenance requests) and wireless access smart products, we may be on the verge of an even more radical shift in business as we are still trying to understand the current one.
Successful strategy implementation using the new rules
I believe the dot-com hysteria will end sooner than most people think. While it is still too early to codify all of the best practices in the implementation of e-commerce strategies, there are a number of common elements among the more successful players. Once the value chain is recast, only the most powerful of brands will matter.
A facilitated process. A fact-based approach in which a band of young MBAs furiously digs for the answers may work fine. However, the risk is that the right questions may not be asked. In addition, organizations are discovering that the best implementation is a fast, iterative series of actions rather than a comprehensive long-term plan. These actions will invariably raise tough issues like cannibalization of the existing business or the competitive need to opt for a radically different business model. There may not be enough objectivity in the room to handle these and other tough trade-offs. The use of outside resources to facilitate your approach may become vital to strategy implementation. Outside resources can be perfect for stimulating the type of radical thinking that is necessary to conceptualize opportunities and threats. Process methodologies also tend to generate a significantly higher level of commitment among senior and mid-level managers because of their active involvement in the discussion and analysis. The participative nature of thinking through strategy implementation may also foster greater teamwork and executive-level cohesion.
A comprehensive strategy profile. Because e-commerce will ultimately touch every corner of the organization, your implementation approach should be drawn from a comprehensive decision-making framework. For example, the potential for an e-commerce effort to cannibalize customers from your existing business means that, at the onset, trade-offs in each product/customer grouping need to be understood. In addition, there will often be a need to develop new and different capabilities in order to launch any degree of e-commerce venture. You may determine, for instance, that it makes sense initially to just put your toe in the water to stay abreast of the competition. In another instance, it may be a strategic necessity to implement a complete conversion of your basic business. At either extreme and at every level in between, the capability requirements will vary. Although Amazon was a wunderkind in the books and video business, it failed miserably with toys, because it lacked the same formidable warehousing and delivery capability.
Scenario development. The need for speed in e-commerce has made strategy formulation and implementation a continuous and iterative activity. It is important that you develop a number of realistic scenarios drawn from extensive strategic intelligence gathering. These scenarios are simply different pictures of what the future business and competitive environment may look like. Choosing key variables and then generating assumptions about the future develops these pictures. Data should be gathered only as they concern the relevant trends in the industry, the ebb and flow of competitive forces, technological advancements, and other internal and external factors.
Developing scenarios in advance of changes in the environment will allow you to quickly alter your direction and satisfy the need for speed. Here again, a process approach is better suited than fact-based methods. The latter must make certain ongoing assumptions about the environment in order to develop strategies. Process approaches simply pose a variety of good questions, which can then create a variety of realistic scenarios. Witness the fate of the Encyclopaedia Brittanica. Roughly three years after the introduction of the Encarta CD encyclopedia, the door-to-door dinosaur was about ready to close up shop. Thanks to the ingenuity of people like Janice Castro, Brittanica.com's editorial director, the venerable institution has been given a new lease on life. Castro brought the needed pioneering expertise from her success in taking Time magazine online in 1993. By tracking changes in environmental assumptions, Brittanica.com has become essentially a "live" encyclopedia.
Project management expertise. Standing between your strategic goals and the ability to take effective actions in the marketplace is a laundry list of issues, obstacles, opportunities, and requirements. The failure to successfully implement most business strategies stems from the lack of methodology and mechanics to systematically address each of these critical issues. This is especially true in e-commerce, where few actions are taken independently and collaboration is essential.
Using a project management system provides the perfect platform to address the full range of implementation needs. Project management also keeps implementation objectives clear and communicates them across organizational boundaries. The ability to change business models in response to a new scenario is also facilitated by a well-constructed project management system. It is much less likely for critical actions to fall through the cracks if implementation is driven by a master project plan acting as an umbrella protecting the strategy.
ECiti is the electronic wing of Citibank, which, as any Web surfer knows, has made an all-out assault on the e-commerce financial space. ECiti offers a wide variety of digital services that cover the breadth of business-to-consumer and business-to business financial needs. Mark Ambrose, who heads up the e-commerce fulfillment solutions group, has created a masterful project management approach. His cadre of brilliant techno-types, skilled managers, and astute e-business marketing wizards all focus on the value proposition of each eCiti business that is implemented. Their project management expertise allows them to track and monitor each entree from conceptualization to soft launch to hard launch.
The more things change, the more they remain the same
Eventually, even the most ardent follower of e-commerce must admit that no matter how much technology influences the formulation and implementation of strategy, business will always begin and end with people. No matter how deconstructed the value chain becomes, someone will ultimately have to deliver the product into the hands of the customer. To that end, FedEx or your local trucker may be the biggest winners in the digital world. No matter how much one separates the information content from the physical product, there will still need to be a human interface to provide technical support or answer questions.
Many organizations have discovered that the investment in the training and development of people is heightened in the e-commerce space. Better problem solving, decision making, process improvement, and performance management will put the "commerce" in e-commerce. The quality of the human resource base may still be an indispensable part of strategy implementation.