Adding Clicks To Bricks

Dec. 21, 2004
Designing an Internet strategy? Concentrate on the process opportunities and cultural challenges.

Mike Cunningham has discovered the truth in the adage that teachers may learn more than their students. As CEO and president of Theoris Inc., Fishers, Ind., Cunningham's Internet consulting career has been focused on helping more than 250 small and midsized companies become Web-enabled -- and found that to do it effectively he had to reinvent his own company. "We started out 16 years ago as a systems integrator operating on the basic premise that the technology challenge was the foremost issue in leveraging the Internet," he says. "What we found was something quite different. "We learned that technology was only one aspect of the Internet challenge confronting small and medium-sized companies. To fulfill the broader needs of our customers, we found that we would have to reinvent ourselves as an e-business full-service provider. To leverage the Internet our clients need help to align people, processes, and organizational systems with that new paradigm." In Cunningham's view new technology such as the Internet is just a beginning -- a catalyst for organizational and process changes that eventually cascade through companies. Cunningham cites Curtis Dyna-Fog Ltd. and Aire-Mate Inc., affiliated companies in Westfield, Ind., as examples of two clients at different phases of process change. Curtis Dyna-Fog began its Internet journey in 1996 when it posted its first version of "Our top-most priority was to be the first in our industry to have a Web site," explains Dennis A. Roudebush, vice president, engineering/IT services. That site, developed primarily as a product/application information source, serves as a key tool for Dyna-Fog distributors in 70 countries. It provides access to product literature and market-application information covering more than 16,000 part numbers in its 150 Web pages. "By registering our site in key locations we have been able to steadily grow from 5,000 hits per month in 1996 to over 80,000 hits per month today. The downloaded information has seen an even more dramatic increase in activity exceeding 720 MB per month in June," adds Roudebush. His Internet implementation at Aire-Mate presented a totally different type of Web-site challenge. Aire-Mate is a manufacturer of industrial cleaning solutions as well as a distributor of Dyna-Fog equipment, says Roudebush. "Unlike Curtis Dyna-Fog, Aire-Mate can sell most of its products directly to the end user. To take advantage of the latest technology, Theoris recommended that be created based on the true e-business concept using a database structure to relate products and pricing, says Roudebush. His Aire-Mate efforts differ from those at Curtis Dyna-Fog by being focused on integrating the Web page with the company's internal IT structure. He says Aire-Mate's leverage of the Internet strives to maximize the business benefit by completely integrating the e-business activities into the company's internal processes. Roudebush is evolving a strategy for greater integration at Curtis Dyna-Fog. Users of that site soon will be able to connect and interact with the company's intranet, he adds. More than an online catalog Sharing Cunningham's view on Internet strategy and organizational impact is IBM Corp.'s Rishi Madabusi, Chicago-based global business development manager in the company's product-life-cycle management unit. "The most common mistake that I usually see is the blind application of technology. Usually a server is purchased -- they want to create a Web page -- then they take their existing catalog stuff and put it on a Web page and proceed to wonder what the payoff will be!" That wasn't the case for Madabusi's client Solo Golf USA, a family-owned start-up in City of Industry, Calif. An offshoot of the family's 30-year-old aerospace and defense business, Solo Golf came into being in 1994 when the family management team, all avid golfers, decided to further leverage their manufacturing skills, says Richard F. Mugica Jr., CEO. That prowess, accumulated at Solo Enterprise Corp., extended beyond casting, machining, and assembling weapon systems, bomb racks, and missile launchers. "For more than 10 years we had also designed or produced clubs for Callaway, Lynx, Founders Club, Cobra, Titleist, Andrews & Aberdeen, and Cleveland." Distribution, the missing ingredient in Solo Golf's business plan, became the cornerstone of the company's Internet strategy, adds Mugica. The conventional method of distribution -- through sales representatives and outside contacts -- can be very difficult. "With the Internet (, we can go directly to our consumer and avoid the hassles of trying to relay our marketing message into thousands of golf shops," says Mugica. The company also is using the site to establish a community with its customers and pros. Mugica admits that Solo Golf's Internet strategy is not yet as technically sophisticated as the one that's in place for Solo Enterprise Corp., the family's aerospace business. For example, Solo Enterprise is deep into Internet engineering collaboration with customers such as Boeing Co. and Raytheon Co., where information sharing can involve CATIA (CAD) files as well as issues of certification, terms and conditions, and payment. But Mugica says the golf site is moving toward a strategy of more personal interaction, especially with respect to customizing golf clubs for individual users. One principle IBM's Madabusi emphasizes is the strategic value of leveraging the Internet by collaborating in complex design issues rather than in chasing the lowest price for commodities. "Remember one is a question of value and the other is a question of cost. You don't want to walk away from cost -- it's the easiest thing the accounting mentality understands -- but cost cutting may not be the best way of growing a company. And a total focus on cost can be very misleading." He illustrates the point with a value-engineering example from the auto industry: "An automaker, convinced that it had wrung the per-piece cost out of a bumper assembly, decided to validate its contention by benchmarking a competitor's version. While its claim was upheld, it made a startling discovery that the competitor's total cost was much, much lower. Instead of targeting lower per-piece cost, the competitor focused on the value-engineering approach where cost of the completed assembly was more relevant. Instead of 50 assembly operations and 100 parts, the competitor did the same thing with five modules that came together in three operations." Madabusi says both cost and strategic advantages automatically accrue when you establish which suppliers offer the best modular design or the most appealing custom design. "That can be much more effective than approaching an exchange and only asking who is the cheapest part supplier." That's not to say that cost reductions achieved by dealing with supplier exchanges are inconsequential. For example, what helped convince General Motors Corp. to proceed with its supplier exchange strategy was a projected $3,000-per-car cost savings, says Kamal Kakish, chief information officer, NetSales Inc., Overland Park, Kans. (Kakish joined the provider of hosted e-business services after serving as GM's director of information technology, e-commerce and infrastructure.) The need for improving engineering and customer collaboration is driving the global Internet strategy at Krebs Engineers Inc., Tucson, a producer of cyclones for solids separation and pumps for abrasive slurries. The challenge for the 160-employee company is to keep the engineering staffs at five global subsidiaries on the same page. "The parts that we produce overseas need to be exact duplicates of those we make here in Arizona," says Mark Holmberg, engineering manager. "In the past that would mean periodically issuing updates via CD-ROM, fax, or even notebooks," adds Bill Miller, project manager. "Even so, we were never really sure everybody was working from the same information." As an Internet-based solution Miller's team selected SmartWeb software from SmarTeam Inc., a Beverly, Mass., affiliate of Dassault Systemes SA, Paris, the supplier of the CATIA CAD system now being used at Krebs Engineering. When the implementation is finished, SmartWeb will enable off-site personnel to access the company's databases, where revision management and document control take place. Miller says the Internet strategy is a continuing journey with other capabilities in the planning pipeline. For example, by the end of 2001 he expects to have systems in place that will increase customer interaction. "Most of our products are customizable and we want to facilitate the ability of our customers to present their preferences. In the future, our customers will use our Web site to submit their trial designs on how they want our systems customized." Holmberg estimates that capability could reduce delivery time by as much as 70% on some products. "Eventually our suppliers will be able to use that information to gain even greater efficiencies," says Miller. Holmberg is enthusiastic about leveraging the Internet. Miller, while he believes "the sky's the limit," also offers a cautionary note: "The greatest difficulty isn't in the technology, it's in changing the corporate culture. The technology is stable, proven, and demonstrates an enormous amount of functionality. The challenge is in people and process -- reengineering the way we do our business." Getting started Whether they should join the ranks of dot.coms is the question that most manufacturers still confront. In February the National Assn. of Manufacturers reported that a survey of its members revealed that only 10% could handle orders electronically. A major misperception among companies is that "many equate e-business with having a Web site," asserts Peter Keen, founder and chairman, Keen Innovations LLC, a Fairfax Station, Va.-based consulting firm. He says a misperception equally common is believing that e-business is either a competitive option or a business model that still beckons from the future. "The basic reality of our age is that the Internet is as much a part of everyday business as phones, fax, and PCs, yet most companies still have not formulated a strategy that goes beyond using a Web site as 'brochure ware.' To uncover the capital efficiencies possible with e-business, it is essential to begin thinking in terms of processes, alliances, and relationships," adds Keen. He is coauthor of The eProcess Edge (2000, McGraw-Hill) with Andersen Consulting's Mark McDonald, associate partner and director of the Center for Process Excellence. The authors maintain that beyond easy-to-create sites lurks a new business opportunity that changes business fundamentals about customers, relationships, service, and brands. Why go beyond a brochure-ware site? One reason is apparent in the results of a University of Texas survey of the Internet economy viewed in terms of revenue per employee. For U.S. business as a whole, average revenue per employee is $165,000, but for those that have tied the Internet to their internal processes, it is 65% higher. That suggests that managements should be vitally interested in initiating the process changes that the Internet enables, but studies of the business population show a surprising blindness to the process benefits possible with e-commerce. For example, in a 1999 Conference Board survey 25% of respondents indicated that while they are investing more in e-commerce, "they haven't established any adequate e-business functionality beyond that needed for basic online brochure ware," the study concludes. Electronic links to partners are absent in 60% of the respondents and less than 30% can process payments online. And yet half of those surveyed have staffs dedicated to e-commerce infrastructure -- up from less than 33% in the preceding year. Not surprisingly, Keen and McDonald conclude that most businesses simply are not seeing e-commerce as being about processes. Why the disconnect? Keen highlights two factors: "First of all, circumstances conspire to convince managements that e-business is a technology. Consider how similar the technology syndrome (designing the Web site) is to one's first exposure to the Sharper Image gadget boutique. Both can be overwhelming and intimidating." Unfortunately, that intimidation diverts management thinking from the real purpose at hand: the business-process reason the Web investment is being made. "Remember," says Keen, "an e-business investment is different from an exuberant infatuation with a Sharper Image purchase. You're not expected to put it away when its presence becomes embarrassing or boring. You're expected to leverage the business investment!" But, he says, the technology influence tends to linger. "One sign is the isolation of the technology's custodians from the business units. That results in an Internet strategy when what's needed is a business strategy. The end result is that no one is thinking about how to leverage the Internet technology. Remember, the point is to combine the new technology with business processes to generate faster revenue growth and profits." Keen says business managements are victims of a fallacy shift: "The old one was 'build a better mouse trap and they will come.' Today's version is: 'Build the right Web site and they will come.'" He insists that "technology never solves a business problem -- it merely makes your business more of what it was going to be. If you're good at customer relationships, then there's a good chance your Web site will be better at customer relationships. If you have a chronic customer-relationship problem, simply adding a Web site won't adequately substitute for that management deficit. Keen and McDonald suggest starting the Internet journey by focusing on ways of turning the Web-site opportunity into business-process advantages. "To really facilitate the company's business mission, the Web site must be integrated with the business processes of the enterprise," emphasizes Keen. "In fact," he adds, "start by first designing the customer experience, then go back and design the Web site to meet that expectation. You want that site to be even better than your best sales rep, so use the same considerations in the site design. Ask yourself what your best reps do. The obvious answer: They know a lot about the customer, always keep in touch, and are terrific in managing your company on behalf of the customer. Demand no less from your Web site." McDonald advises that an Internet strategy session needs to begin with the consideration of three key assets every company needs to leverage: knowledge of the customer base, product knowledge, and intimacy with company operations and strategy. "Companies that rush into the Internet space because everybody else is will not automatically achieve any kind of a breakthrough and will have a higher chance of being disappointed," he observes. "Instead, research what Internet success and/or failures competitors are experiencing. What we've found in our studies over the last 18 months is that the notion of first-mover advantage is fickle in e-commerce. The winners are generally those who can get in there, get experience, learn, and continuously improve their offering." Both Keen and McDonald emphasize that Internet winners come as the result of processes tied to the Internet, not the Web site itself. They outline the three process choices that need to be prioritized and executed:

  • Plan for software to convert people tasks into an interaction at the Web site.
  • Consider electronic links to partners, either to out-task functions such as shipping or finance to a best-practice partner or to in-source a new capability that adds to the relationship.
  • Think about people, work flows, and software that provide exceptional handling of the situations that make or break the customer relationship.
In terms of leveraging customer relationships, trust is a unique issue for e-business participants, adds Keen. "There is a myth that says that the Internet is about price, but trust is what brings customers back." Your core competency will have to be the management of that trust. Keen also emphasizes operating from a customer's point of view. For example, integrate your IT structure so that regardless of how a customer communicates with the company, all channels of distribution will be aware of -- or at least able to access -- information to handle inquiries. Lack of integration, a sign of channel conflict, spells haphazard inconsistency from a customer viewpoint. To create a win-win for inquiries via the 'Net, consider embedding processes into software and turning your expensive back office into the customer's front office, adds Keen. Handsome annual payoffs have been reported -- $15 million for Cisco Systems Inc. and $500 million for IBM -- simply by letting their customers handle their own inquiries." Smaller firms also can reap big rewards, says Keen. Product development The major process impact for e-business is the new choices it offers about how work is done. Consider product development. Carrier Corp. is a big-company example of how to collaborate over the 'Net and pare decision-making cycles by 40%. Carrier implemented Envision-i software from Vuent Inc., Sunnyvale, Calif., to streamline its decision-making process. The solution centrally aggregates and publishes relevant build-to-manufacture information over the Internet, allowing technical and nontechnical contributors to immediately access and collaborate. Engineers and suppliers do not have to wait for critical information, says Carrier's Larry Sweet, vice president of operations. That eliminates multiple annotation cycles and reduces miscommunication errors. The Internet also makes it possible to rent software solutions from application service providers (ASPs). Increasingly popular with small and midsized companies, ASPs are expected to reach $5.3 billion in revenue in 2001 from a mere $400 million in 1998, estimates Dataquest. In addition to letting someone else deal with the headaches of running, maintaining, and updating software solutions, ASPs also bring what some call "economies of skill" to their customers (see ASPs Enter the Mainstream). In The eProcess Edge, Keen and McDonald rightfully see the Internet as a business-process issue with menus of new choices for how customers and suppliers interact, how work is done, and how firms collaborate. But the benefits (reducing a company's cost of doing business, halving overhead, and increasing capital efficiency) also have profound macroeconomic effects, adds Keen. "The business use of the Internet provides the most profound disinflationary force we've ever seen."

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