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Piloting Companies In The Brave 'Net World

CEOs had better adapt--and fast.

The splitting of the atom was a turning point in human history. Once the world understood its implications, there was no putting the atomic genie back in the bottle. Similarly, once business got a taste of Web-based commerce, it was hooked. People quickly became accustomed to the idea of the Internet's ubiquity, speed, directness, and economy. As was the case with atomic energy, the Internet is a turning point for commerce that at once poses both an opportunity and a threat. "The impact of the Internet is no less than a new economy," said Raymond J. Lane, president of Oracle Corp., at a recent conference in Orlando organized by Giga Information Group. "But most CEOs are sitting like deer in the headlights right now." Steven J. Johnson, codirector of the e-commerce practice at Andersen Consulting, agrees. "There is a sense that 'I'll keep my eye on [e-commerce] and as I figure it out, I'll act when the time is right,'" he says. Few, if any, companies can afford to ignore the challenges this new era presents. "The shot across the bow has been heard, and executives are asking, 'What can we do to avoid being Amazoned?'" says John Hagel III, a principal in McKinsey & Co. Inc.'s Silicon Valley office and leader of the consulting firm's electronic-commerce practice. "Amazoned" is a new business buzzword for what happens when an Internet-based competitor threatens your business (as has threatened booksellers). Certainly, the currents from this sea change for CEOs are both deep and wide-ranging. "The Internet does change what the CEO should be doing," says Andrew Bartels, senior research analyst for e-commerce at Giga Information Group, Norwalk, Conn., office. "In particular, it changes the whole relationship of the IT organization to the business side. With the Internet, the customer is quite literally face-to-face with the IT systems, and that hasn't been the case before." The implication, he says, is that "the CEO can no longer leave technology in the CIO's hands. This is not something they can delegate to someone else." Others say the change in the CEO's role should be more of a personal one, as a leader in using and demonstrating the new technology to the rest of the company. "You need to use the technology to understand its power and what can be done with it," says Douglas G. Duncan, president and CEO of Viking Freight, a San Jose-based freight carrier. "Once you're using the technology yourself, you have to be conversant with it." The CEO, Duncan believes, needs to take the lead in both understanding the technology and finding ways to put it to use in the business. "Recognize that it's a different channel to the customer and that it offers different opportunities," he advises. "And the CEO needs to recognize the absolute importance of technology to the business." Even so, Duncan thinks the basic tenets of good management are not affected by the advent of e-commerce. "I think the same principles of management still apply," he adds. Other senior executives tend to agree. "I view my role -- not being a computer or an Internet expert -- as making sure I have access to people who are and to make sure we don't fall behind the curve," says Robert W. Cardy, CEO at Carpenter Technology Corp., a $1.2 billion manufacturer of specialty metals in Reading, Pa. Of course, some industries such as retail and financial services are being affected more deeply by the Web. Top executives in those sectors find the impact on their businesses more apparent than those in manufacturing. Still, most companies, regardless of the kind of business they're in, are being buffeted by the change and must take steps to deal with it. "No matter what company you're in, knowledge is an important asset," says Oracle's Lane. "To many companies, it's even more important than a physical plant or building. And the real power of the network is intelligence -- how quickly you can pull information from that network and add value to it." He believes what distinguishes one firm from another is its ability to process knowledge. "The competitive value of a company is its knowledge and how fast it can assemble that knowledge, use it, and get it back into the market to compete," Lane adds. Viking Freight is putting the finishing touches on systems to conduct nearly all its business over the Internet, CEO Duncan says. "Our business is the physical delivery of the product, and that's not something that will be replaced by the Internet," he says. "But if you look at the costs of our business -- the accumulation of freight information, visibility into the status of shipments, and printing bills of lading, etc. -- e-commerce can replace or do away with all that." Customers of Viking's parent firm, FDX Corp., can place a shipment order on the parent firm's Web site, providing shipment date and desired delivery time, and FDX will determine the best transportation provider, notifying the carrier electronically. "We were able to leverage a lot of the e-commerce work that FedEx, our parent company, had already done," says Duncan. Duncan says he has become familiar with the Internet simply by using it for all kinds of things. "I receive the Wall Street Journal interactive edition every day over the Internet," he says. He credits his willingness to use new technologies to a CEO he reported to at another company. "He was a good teacher who forced me to use technology and to become comfortable with it." But some experts pooh-pooh the notion that a CEO must be a regular Web surfer in order to understand the technology well enough to be an effective champion of its use in the corporation. "With the exception of CEOs for technology companies or Internet start-ups, CEOs need not become experts in e-commerce technology to play their role effectively," writes Bartels of Giga Information Group in a brief on "The Role of the CEO in Electronic Commerce Strategy." But such experience can't hurt. The CEO's opinions and ideas for what the company should be doing in electronic commerce "will have greater credibility if the CEO has some proficiency in using computers and browsers and has been actively using the Internet," Bartels states in the report. Others assert that the need for the CEO to be familiar with the technology cannot be overstated. "I think personal experience is terribly important," says T. Michael Nevens, a McKinsey & Co. director and coleader of the firm's Internet and e-commerce practice in Palo Alto, Calif. "It is critical for the top six or eight people in a company to have some hands-on experience with the Internet. Without personal experience in using the Internet to do their jobs, it's hard for them to get the rest of the company to follow." Nevens adds that on a recent trip to Europe, "I was struck by how many senior people still don't use a PC." He suggests that executives familiarize themselves by checking out a customer's Web site prior to calling on that company. "You might learn some things for yourself that you may not find in the prepared briefing your staff gave you," he says. Later, when the executive is back in the office, an e-mail to the sales staff about the information that was sourced from the customer's Web site can be a subtle message to direct reports and others that they had better start getting used to the new medium. "All you have to do is once or twice drop that information back into the internal dialogue," Nevens says, and people get the message that they should be using the Web, too. Otherwise, many people in the company may avoid changing the way they do things to fit the new e-commerce model. "Very often even young people become captive to systems and processes, the ways things have always been done in a company," he says. Another tack is for the executive to -- believe it or not -- set up his or her own personal Web page on the company intranet. The CEO at one of McKinsey's clients did this; the result, Nevens says, "was that everyone at the level of manager and above did it." The point, he says, "is that executives should understand what's now possible with the technology. Companies shouldn't have to wait 20 to 25 years for an executive familiar with the Internet to come up the ranks." Unfortunately, though, CEOs tend not to be big Internet users themselves. According to a PricewaterhouseCoopers/World Economic Forum survey of 802 CEOs, only one in four of those responding were regular Internet users. Some executives, while admitting the Internet is something they should keep an eye on, choose to delegate responsibility for managing the company's use of the technology to others who are more knowledgeable. "It's not something I feel compelled to be an expert in," says Carpenter's Cardy. "I use a PC on my desk at the office to get performance results, but my view of the technology as a tool hasn't changed." Adds Cardy, who is 62, "If I were a 35-year-old CEO at a technology company, maybe I would think differently." At Brady Corp., a $500 million provider of graphics, specialty tapes, and direct-marketing services, the CEO has delegated responsibility for e-commerce to a steering committee of top executives. "We believe top management must take control and create a strategy review board to set business goals and oversee their execution," says Steven Hasbrook, e-commerce manager at the Milwaukee firm. Brady's Web-based infrastructure offers the company several direct links with its supply chain. The company communicates with customers via an extranet, offers online ordering via an electronic catalog process, connects with its largest distributors through electronic data interchange (EDI), offers a host of Web-enabled products and services, and maintains an intranet for employees. About 500 distributors currently use its Bradyserve online connection. Not all companies are experiencing a big shift in sales or in the way they operate or manage as a result of the Web, though. In the steel industry, for example, not all executives say their jobs are being transformed in any major way. At Carpenter Technology, CEO Cardy says no customers have asked the company to start selling its products online. "Customers have to be willing to do business that way, and right now nobody is pressing Carpenter to do business on the Internet." But that day may come, he admits. "There is no way anybody is going to stand in the way of this development," he says. "We keep asking ourselves the question, 'Are we missing something?' My job is to surround myself with people who can help answer that question." Carpenter's Web site provides information to customers, but actual order-taking is done by a sales representative working with the customer. The reason for this, Cardy says, is that the high-tech steel products the company makes require a lot of discussion between the buyer and seller. "A lot of our products call for a dialogue between two people," he says. One reason Carpenter hasn't seen the need to move to Web-based commerce is that the company already does much of its business with regular customers via EDI. "These customers want to manage our inventory with us," he says. "They tell us what the consumption is likely to be. We function as their warehouse." For some businesses there are high-level concerns that too much of a shift of sales to the new medium could hurt traditional channel partners, including internal sales staff. "What is happening in the executive suite is that there is too much worry about cannibalization of the core business," says Abhishek Gami, research analyst at William Blair & Co., Chicago, and a leading Internet observer. At the companies that Gami says have the best track record in dealing with the challenge of Web-based commerce -- Land's End, Eddie Bauer, The Gap, and Dell Computer, to name a few -- "the CEOs aggressively go after new business and were able to make the transition to the new world." He's not the only one who believes that, instead of trying to protect the store, CEOs should think more aggressively vis--vis the Internet. "There is a mind-set issue with CEOs, particularly at large companies," says McKinsey's Hagel, coauthor of NetWorth (1999, Harvard Business School Press). "CEOs tend to view electronic commerce from a defensive, cost-reduction mind-set." Corporate leaders tend to want to use the technology to take costs out of the business, or else they're concerned about competitors taking away their customers, or both. "Obviously, no company wants to be Amazoned," says J. Bruce Harreld, senior vice president, strategy, at IBM Corp. IBM has made a huge commitment to supporting Web-based business both internally and for its customers. Worry over being Amazoned may be a valid concern, but it shouldn't be the focus of a company's e-commerce strategy, Hagel advises. "If I'm so vulnerable to the competition, why not create an opportunity to drive new forms of growth?" he asks. "Why not use the Web to go after new customers, to start new businesses?" Although e-commerce strategy is, in fact, the area where the CEO has the biggest cards to play, he or she is likely to find that the game has changed. Because the Web creates so many new ways of relating to and dealing with the customer, it automatically becomes a key driver -- as opposed to a support function -- to any business strategy. "At the end of the day, an e-commerce strategy is a business strategy," says Giga's Bartels. "Executives have to rethink business rules, such as whether they want to expose their inventory levels to all their customers," says Roland Archer, president and CEO of Haht Software, a provider of software for Web-enabling enterprise-resource-planning systems in Raleigh. "It really forces companies to rethink all parts of their business." Bartels, for one, thinks the process for creating business strategy needs to be revised as a result. "The historical pattern in which the CEO and the business leadership set strategy and then the business units set their own strategy, and then finally IT sets its strategy, just doesn't work with e-commerce," he says. Bartels recommends opening up the process. "There need to be strategies created from the bottom up and from the top down," he adds." You need a much more iterative process, and the CEO needs to take the lead to help bring that new approach to bear." CEOs also should be more open to frequent revision of that game plan. "The idea that a strategic plan is viewed as being operative for a year doesn't make sense in the world of the Internet," Bartels observes. "Your e-commerce strategy should be reviewed every quarter or even more frequently." Whether the top executive chooses to delegate, change the way corporate strategy is developed, or takes a hands-on approach, one thing is certain: The Web is having a dramatic effect on the way senior executives think and operate.

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