Web mania may have struck, but you'll still need a solid business
plan to secure E-funding, writes Julia Vowler.
However simple it may be for dotcoms to secure funding for
e-business ventures at the moment, for those enmeshed in the
corporate jungle, tracking down an e-business budget requires a
well-crafted business plan.
But how does the business plan for e-business differ from the
common-or-garden variety?
"The key issue is that it's a business plan, not an e-business
plan," stresses John Perkins, chief executive of the National
Computing Centre. "Just because it's on the Web doesn't mean you
can forget the basic disciplines."
You must understand the business thoroughly in terms of such
things as supply chain, routes to market, customer base and so on.
The bottom line for e-business is that it must either save money or
make money.
But by when? A lot of corporate e-business ventures, says Colin
Palmer, programme director at IT Directors club Impact, are going
into the lower right hand box of the traditional corporate
investment quadrant. That's the one that denotes low current value
but high future value. It's the box where experimentation is not
just allowed, but required.
That means, says Palmer, that the kind of strict cost
justification by such measures as return on investment or
discounted cash flow do not need to be rigorously applied.
Palmer warns that applying strict traditional metrics such as
these is likely to be "fundamentally wrong-headed". "But the
important question is, what are the appropriate criteria (to
measure e-business projects)? The organisation has to get its mind
round them," he adds.
The pilot or prototype approach is very popular for e-business
projects as companies do their own research intothe opportunities
and risks, spendingthrow-awaysumslike £100,000 on a pilot
e-business project in order to climb the learning curve.
Martin Gandar, principle Internet analyst at the Butler Group,
agrees that small is beautiful when it comes to making the case for
e-business.
"Do some simple prototypes and show them to the board," he says.
"Do e-business in bite-sized chunks and build it using rapid
application development. It's not looking for the killer app, but
lots of stand-alone ones."
Look out for areas where paper forms a bottleneck, or where
expensive support can be made self-service over a web site, or
where there's a long, interactive workflow process. But keep the
first ones invisible to customers, suppliers and, above all, the
public. Try them out internally using an Intranet.
High-profile e-business failures, warns Palmer, get you on to
the front page of the Financial Times for all the wrong
reasons.
But pilots don't always turn into full-scale investments.
Impact's member survey in January showed that "over a third of case
studies failed to get approval to full implementation," simply
because the expected benefits, such as improved service, acquiring
more customers or more co-operation with suppliers, were not
proven.
Palmer points out that those that do get implemented can find
they slip into the upper right hand investment quadrant, the
strategic investment that is absolutely crucial for the company -
the new-economy, transformational scenario of e-business.
As ever, there will be a tension between infrastructure
investment, typically in technology and bandwidth, and each
e-business application that leverages it. The business case has to
take into account whether the former has to be cost-justified
within one e-business project, or spread over many.
Timeframe will also affect costs in areas such as telecoms,
where tariffs are in turmoil as competition and new technology
change the economics fundamentally.
"We say, base the business model on the assumption that telecoms
costs will fall to virtually zero," says Gandar, "but make sure the
business case is supportable at today's prices."
Then, if tariffs fall, and Web-usage soars, apart from the cost
of increasing processing capacity, the project goes into bonus
time. This will also be the case, says Gandar, if new technology,
such as WAP, creates a whole new tranche of non-PC Web users.
What is proving fundamentally different about e-business
business cases, however, says Gandar, is the huge opportunity to
spend very little and get a lot back. He cites a shipping company
that spent £15,000 on a self-service Web site to cut out forests of
faxes and a raft of boring clerical jobs. When the cost-benefit
ratios are that vast, cost is not a major concern in the business
case.
But the e-business business case also contains hidden costs that
should not be ignored, ranging from fees to check out the legal and
tax liabilities of doing Web-based business, to training end-users
in the new processes. Some e-business costs are, as yet, little
understood. Capacity planning for e-business is a new art, and is
being learnt in action - and on the front pages of the FT.
However, it's worth pointing out that one of the most popular
approaches is still the act of faith (also known as the blind panic
method).
As NCC's Perkins states, "A lot of e-business investments
haven't had a business case at all. They're just flyers."
Julia
Vowler
Golden rules for e-business planning
Impact's Colin Palmer gives his three golden rules for putting
together an e-business case:
- Understand clearly on what basis you are making the case - is
it an operational imperative, a strategic direction, a support
function, or for research?
- Look significantly at the risk factors - both of doing and not
doing e-business.
- Recognise that the nature of e-business is fundamentally
different in many ways - it's faster, requires different thinking
in terms of business processes, and a lot of it will be delivered
by third parties.