Creating an Integrated E-commerce Strategy

The Bonds of an E-commerce Strategy

The foundations of a strong e-commerce strategy lie in the preparation of the ground before the functional issues are addressed. In this section we will consider three of those issues-leadership, infrastructure, and organizational learning (see Figure 2.2). As we have already seen, the creation of successful e-commerce can reap major rewards for an organization; failure can mean that even the most senior managers are vulnerable and frequently are replaced following an e-commerce strategy failure.

Clearly there is a strong interaction between these three components. For instance, when eBay had its outages, the leadership learned from the experience, upgraded the systems infrastructure, and moved on. Other organizations fail to learn from their experiences and consequently diminish or, like Levi's, are forced to leave the Internet space completely while they rethink their overall strategy.

Leadership

Previous research has shown that the primary drivers of change and the creators of strategic vision in an organization are the CEO and senior executives, a finding mirrored in this research. In every successful e-commerce project studied for this book, a strong project champion was present in the form of a senior executive or someone in a position to demonstrate to a senior executive the potential added value such a project could bring to the organization.

Figure 2.2 The Bonds of an E-commerce Strategy

• An example of such a leadership-technology meld can be found at Motorola Corporation. Bob Clinton, Director of the Internet Business Group, describes the discovery process:
  
  Originally we had started back in the summer of 1994 and at that time-this was even before we were aware of the Web-one of the things we were looking at was trying to find a communications vehicle so we could better communicate with our partners. These are channel partners, folks who would sell or resell our equipment. So we created a concept and we called it MOCA for Motorola On-Line Channel Access. Fortuitously, just about this time, around August 1994, going into September, a Motorola employee called me to say he had found a little thing called Mosaic, and we went back to his office and saw him all excited about it and trying to pull it up on the screen, and the thing kept crashing and he kept swearing at his computer. But he said when you finally get around to seeing it, it's really cool! We did see it. The graphics capabilities were pretty limited at the time-just a few icons-primarily text. But the whole concept of this as an available technology was amazing. We saw the opportunity with the Web, we started kicking it around, and I put together a business plan.¹

This mimics the experience at many other organizations, including:

• Charles Schwab, who had a similar moment of Web enlightenment when a group of his researchers put together an experimental demo system for Web-based transactions. They demonstrated it to their chief information officer (CIO) and subsequently to Schwab himself, who subsequently refocused that organization to be a Web-based organization rather than following a traditional brokerage model (see case study, chapter 5).

• IBM's Louis Gerstner, who repositioned and transformed that organization based upon the e-business concept.

• Ford's Jacques Nasser, who has made e-business an integral part of Ford's strategy.

The search for excellence in leadership within the e-commerce arena and the value corporations place on it can be seen by the rabid activity of the head-hunter community and the speed and volume at which senior executives of traditional organizations are leaving or being poached by dot-com operations. Perhaps the best example of this is the move by George Shaheen from Ander-son Consulting to start-up Webvan.com, becoming its president and CEO. Shaheen had been Anderson's managing partner and CEO since the firm became an independent unit in 1989, building it into a $9 billion organization. However, the challenge of developing a very well-funded start-up-in addition to receiving 1.25 million shares of Webvan.com plus an option for 15 million more²-was too good an opportunity to turn down.

The market for intellectual capital in the form of experienced, proven, and successful leadership has never been more extreme. However, it is also a time for executives to expand their vision for their organizations and develop creative strategies that can be effectively executed. Failure to transition or demonstrate leadership will inevitably lead to a subsequent change in leadership.

The lessons for executives here are clear:

1. Keep an open mind with regard to all new technologies.

2. Don't get isolated from new and experimental technologies that are coming over the technology horizon.

3. Encourage a "skunks works"³ (a quickly thrown together, in-house) research team thinking and philosophy.

4. Be ready to make the necessary amount of change in corporate strategy as indicated by the "seismic shock wave" of the technology.

Webvan.com

Webvan is a full-service, online grocer and drugstore that provides free delivery, offering customers the most convenient and affordable way to shop. Customers simply place their order online 24 hours a day, 7 days a week, at www.webvan.com and select a 30-minute delivery window at the time most convenient for them. Orders are then hand-delivered to the customer's desired location on the same day or up to 7 days later.

Source: www.webvan.com

Infrastructure

Once the need to develop e-commerce in some form had been identified, the single most important issue facing the executives and technologists charged with developing Internet-based projects is infrastructure. This spans the technology spectrum from a single Internet file server connected to a commercial Internet service provider (ISP) all the way to the information-intense online transaction processing of a company like UPS, the giant global parcel delivery company. UPS's site assisted customers in tracking 12.92 million packages a day during 1999, hitting a peak of 18.7 million packages in a single day during the busy holiday peak shipping season as customers increasingly embraced the Internet and retail e-commerce and tracked their parcels online. Online tracking activity at UPS's Website established a new all-time record of 3.3 million requests in a single day.⁴ To handle the volume, UPS employed 90,000 additional workers, adding more than 3,000 additional trucks to a fleet of 149,000 tractor-trailers, vans, and delivery vehicles, as well as coordinating the activities of the world's tenth-largest airline composed of 229 aircraft.

UPS's infrastructure also includes a growing set of online partners and tools utilized by over 15,000 of its customers to improve its efficiency at both the B2C and B2B levels.

The infrastructure needs to be considered at several levels:

• strategic
• organizational
• physical

At the strategic level, the focus is on determining the impact future technologies will have on the market and the organization.⁵ The aim is to align future business planning initiatives with the new technology challenges. This issue is considered fully in chapter 4. The first level at which the implications of technology and strategic change become apparent is the organizational. At this level, the challenge is to align the work practices, process flow, and structure of the organization to execute the strategic goals effectively and efficiently. The execution occurs through the physical layer: the hardware and software of the computing environment, in conjunction with the telecommunications infrastructure. Keith Butler, Director of Internet Commerce at Office Depot.com comments on the balance required between the strategic, organizational, and physical levels, together with the role of executive sponsorship:

the [online] initiative was triggered internally; it was a champion inside the company who knows the industry well enough and knows the opportunity of e-commerce and said, "Look at this...", and two things came into play. First of all, the infrastructure that we had in place could support a move to the Web very robustly. And second, the web itself had reached critical mass or mass enough that it represented a great opportunity to generate new revenue. It was really driven from the fundamental get-go internally. It was a corporate decision that this was the right thing to do.

However, not all organizations have the ability to be nimble in responding to these challenges. Frequently, in mature organizations the infrastructure has grown old and lethargic, unable to adequately cope with change when asked to, at least within the allowable cost and time parameters. Successful organizations and their CIO's have recognized this and worked toward a fluid and flex-ible architecture that allows for change, whether that change be of organic growth through corporate acquisition, or of streamlining through divestiture, or of a complete strategic turnaround due to the pressures of new technology.

It is clear that it is easier to create a brand-new value chain that is based upon a Web pipeline philosophy than it is to change an established value chain which has inertia built into its practices and processes. Butler of Office Depot indicates that an organization needs a solid infrastructure to succeed in deploying an Internet channel: "All of our delivery centers currently operate under a common order processing system, common warehouse management system, common inventory system"-an eclectic approach to infrastructure may not have worked so well.

Again, several lessons for executives can be distilled:

1. Create a flexible infrastructure that can act as the "shock absorber" of change.

2.  The factors that influence the infrastructure come from strategic, organizational, and physical levels.

3. Infrastructure creation requires open levels of communication at and across all levels of the organization.

4. Create a technology solution that is scalable, secure, and robust

5. Maintain awareness of all standards as they evolve and attempt to influ-ence the development of standards where possible. Plan for their integration as soon as is feasible, so that actual integration will not occur in a pressurized environment.

6. Executives cannot divorce themselves from technological understanding: the Techno-CEO is the leadership model of the future.

Organizational Learning

The ability of established organizations to react, understand, and deploy an e-commerce solution is very dependent upon the ability of an organization to effectively leverage its organizational learning. Roy Stata, Chairman of Analogue Devices, Inc., has stated that "organizational learning occurs through shared insights, knowledge, and mental models... [and] builds on past knowledge and experience-that is, on memory."⁶ Organizational learning, however, is not an isolated process; it is clearly linked to our earlier discussion on leadership. The learning that occurs in formulating and creating brand, technology, market, and service leadership positions as well as the interconnection between these focuses are just as important as if not more important than the individual elements themselves. Leadership with vision facilitates, encourages, and allows an environment to develop within the organization where institutional learning and memory thrive. A few factors drive this: senior executives place trust in their colleagues at all levels; they stimulate an environment of intellectual curiosity; they facilitate new concepts and technologies even when a traditional return-on-investment metric may not be applicable.

Successful organizations have always been able to internalize the learning brought about by developing an understanding of their processes and functions. Henry Ford, for example, internalized process control, while American Airlines internalized passenger yield management. In doing this, these enterprises gained a dominant position in their respective fields. Therefore, it would not be unexpected, within the emerging e-commerce arena, to find organizations exhibiting similar leadership characteristics developed through superior organizational learning skills. The front-runners such as Priceline.com, Officedepot.com, and BMW.com all demonstrate great creative and visionary leadership, but they also differentiate themselves through their ability to execute that vision. Two of the keys behind the success of the leaders in e-commerce are their ability to understand the metrics that drive their e-commerce marketspace, and their ability to understand their own relationship with their customers. From these two issues, the leading organizations have determined how to respond to those metrics and then improve the processes, structure, and communication accordingly. Many organizations start this process through the use of easily accessible metrics; for example, Alamo Car-Rental measures the yield ratio between metrics such as click-throughs and reservations, building upon its strong organizational understanding of yield management.

Leading organizations clearly understand the importance of metrics. BMW's Carol M. Burrows constantly assesses the customer and retail feedback through BMW's site, which attracts over 1 million hits a day. BMW then builds this into retail connectivity. Burrows states, "We communicate with retailers all the time. They are very, very complimentary of our site and very pleased with the amount of individuals that come to our site and who then use our link to their local retailer, to whom we refer someone for a test drive and to get a close-up look of a car. We provide a kit for all of our retailers to help them get on-line and to do it in a way that we think is complimentary to the brand."⁷ Not only is BMW measuring its hit rate; it has also created a mechanism to involve all dimensions of the organization in the creation of its site, including customer service, dealer network, and financial services, to provide reinforcement of the BMW brand. In doing so, BMW has aligned the e-commerce strategy with the organizational strategy as a whole.

Several key drivers with regard to organizational learning can be gleaned:

1. Create an environment that stimulates and fosters organizational learning. This is vital not only for the successful introduction of technology but for long-term organizational survival.

2. Organizational learning has to have a focus and that focus has to be driven from the strategic objectives of the organization as a whole, taken one at a time in the areas of brand, technology, service, and market and then combined to provide holistic learning.

3. Organizational learning creates an environment of positive change and continuous process refinement. Should this not be present, organizational inertia will cause the organization to "stall in flight."

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1. Phone interview with author, January 19, 1999.

2. Fortune 140, no. 8, October 25, 1999, p. 44.

3. "The Skunk Works was created to design and develop the P-80 Shooting Star, America's first production jet aircraft. Lockheed Martin Skunk Works is a research and development division that continues to serve as a wellspring of innovation for their entire organization and, indeed, the industry itself-one of the world's preeminent sources for advanced aerospace prototypes, technology research, and systems development. They aim to continue to follow in the footsteps of the first alliance of dedicated engineers formed and led by legendary innovator Clarence L. `Kelly' Johnson. As in Kelly's era, we're also not big on titles or protocol-just getting the job done, regularly meeting schedules on time and under budget." Adapted from www.lmsw.external.lmco.com/company_overview.html.

4. Press Release: UPS, "UPS's Record 4th Quarter Results Cap Year of Outstanding Financial Returns," Atlanta, January 31, 2000. www.ups.com/news/20000131results.html

5. "Gerstner on IBM and the Internet," Business Week, December 13, 1999, p. EB40.

6. Ray Stata, "Organizational Learning-The Key to Management Innovation," Sloan Management Review, Spring 1989.

7. Phone interview with author, September 1998.