Despite the hype around e-commerce, it is predicted that 75% of
projects will fail. Liz Warren finds what it takes to be a
winner
The Internet revolution has brought IT directors into the front
line of business strategy development. At the same time, they must
take responsibility for delivering the infrastructure and solutions
to support electronic business.
According to industry analyst Gartner, this is no easy task. It
has predicted that 75% of e-business projects will fail to deliver
the desired business benefits. So just what will it take to deliver
the e-strategy dimensions of reach, richness and affiliation
outlined in a groundbreaking article published recently in the
Harvard Business Review? (see box left)
First of all, your underlying infrastructure has to be up to
scratch. Steven Heneker, manager of the e-business unit at Cap
Gemini Ernst & Young, points out that there are some
fundamental principles which will apply to most e-businesses:
systems must offer high availability, deliver appropriate response
times, handle data reliably and correctly, and allow content to be
refreshed easily and frequently.
Response times will be a key battleground. "If your service
levels and response times to the customer are not good enough, all
the effort you've put into getting your Web site up-and-running
will be wasted," points out Simon Stevens, director of Amdahl's
software division. "Equally, if it takes a painfully long time to
complete a transaction on the Internet and it's quicker to do it by
telephone, customers will use the telephone - or won't do it at
all."
However, a survey carried out by IDC on behalf of Amdahl found
that while 52% of companies considered response time to be the most
important issue for their Web site, nearly half of them had no idea
how long customers were having to wait to complete online business
transactions. Amdahl's Enview tool is one of a number of products
that will monitor user response times and allow systems to be
tweaked accordingly.
Quality of service can also be improved in a number of other
ways. One approach is to ensure every request for a page is
answered by the Web server offering the best performance. The
BIG/ip tool from Web management specialist F5 Networks sits on the
local area network and continuously monitors each server, directing
traffic to the most appropriate machine. Another F5 product, 3DNS,
provides load balancing across geographically dispersed servers, so
that a single URL will link to several servers and users will be
pointed to the one offering the best response, whether it's local
or on the other side of the world.
Matt Cohan, European director of e-business at Web solutions
consultancy Tanning Technology, warns that IT directors shouldn't
underestimate investment in security either, since the bad press
associated with a single breach can irreparably damage your brand.
He suggests firms should not only publish their security policy on
the site to reassure customers but should look at accreditation by
schemes such as Which? Webtrader.
Clearly the infrastructure for e-commerce is complex, failure
can be very public and, Heneker adds, the devil is often in the
detail, so a meticulous attitude to implementation and strong
project management are key. In fact, Heneker says, e-business
solutions have to be better than real world solutions because you
don't have the human element to provide customer service when they
get into difficulties.
E-commerce will certainly mean big changes for traditional IT
shops whose systems are based on online days, overnight batch jobs
and shutdown for back-up. Once companies start offering Web-based
services, Stevens points out, they have to provide support on a
24x7 basis. That means adopting technologies which allow back-up,
recovery and data maintenance to take place without taking systems
offline. Stevens adds that a company's disaster recovery strategy
may also have to be revised so that systems can be rebuilt in
application sequence, allowing customer-facing and trading
applications to be restored first.
A final headache on the infrastructure front, Cohan notes, is to
balance the careers of IT staff so that those people involved in
maintaining existing applications do not become disillusioned while
their colleagues work on new, exciting e-business projects. All
these infrastructure challenges suggest application service
providers (ASPs) may become key technology partners in
e-strategies. "ASPs are making a lot of expensive technologies
available on a more affordable cost profile and they allow
companies to focus more effectively on business issues without
worrying about technology," says Paraic O'Toole, vice-president of
e-business for Western Europe at consultancy Cambridge Technology
Partners.
When it comes to technologies for each of the dimensions of
e-strategy, there are a number of options. Reach, for instance,
comes in three forms - products, customers and suppliers - and each
demands a different response. It has already been shown in the real
world that reach not only presents new challenges in terms of
fulfilment but may also stretch the credibility of your brand. That
means you will need to partner with organisations that have the
appropriate status to offer products, advice and information in the
areas you're moving into. James Pemberton, marketing manager at Web
marketing solutions supplier Unipower, suggests retailers and
manufacturers that are pursuing a strategy based on increased reach
will face resource issues when collating and handling this
third-party content; although technical solutions for content
management may not be complex, they must be efficient.
The headaches of dealing with third-party information will be
compounded still further if firms are also looking to offer rich
product data. Cohan suggests traditional catalogue publishing
solutions often don't provide the level of granularity needed on
the Web because they tend to be designed around physical pages,
whereas Web consumers want to access individual products and to
search at a detailed level on selected attributes. Content
solutions need to be able to aggregate information at different
levels for each channel.
Furthermore, if you're working with associates which are
responsible for fulfilling orders placed through your site, you
will require good integration between the back-office systems of
the various partners. "You have to be the co-ordinating point. If
someone drops the ball at any stage, that will affect your customer
relationships and your brand image," Pemberton points out.
On top of that, as you increase the number of partners you trade
with, it quickly becomes impossible to develop point-to-point
interfaces to each of them. Cohan sees technologies such as XML
easing the process of sharing data, while content or service
providers - such as finance companies offering banking services to
portal partners - will publish flexible interfaces which their
partners can brand and integrate as they see fit.
When it comes to increasing customer reach - which is, after
all, one of the inherent attributes of the Internet - Cohan points
out that you are likely to find yourself dealing with different
types of customers, with different needs and different interaction
styles. That means developing a range of channels, multi-lingual
capabilities and systems to suit different cultures and legal and
fiscal regimes. Chris Potter, of PriceWaterhouseCoopers, adds that
it means you need to consider which platforms - such as digital TV
and wireless application protocol (Wap) as well as the PC - to
support. Each of these devices will demand a different style of
user interface.
Companies pursuing the richness dimension will need to look at
technologies which improve the speed at which content can be
downloaded. It may even be preferable to shift some content offline
and distribute it in the form of CD-Roms driven by the Web site,
although Pemberton points out that this solution is only really
feasible where you have a regular customer base.
Companies delivering rich content entirely through the Web will
certainly want to move it to the edge of their networks, so that it
reaches consumers as quickly as possible. Cacheing is a fairly
simple solution for relatively static data, but as data becomes
increasingly dynamic - and most e-commerce data and applications
involve highly dynamic content - it becomes harder to replicate it
in real time. Products such as F5 Networks' global/SITE allow
content to be distributed and synchronised in line with user
demand.
If you're looking to pursue richness in terms of customer data,
you may be considering a customer relationship management (CRM)
system. However, Heneker believes many CRM implementations are
either not exploited properly or are misused, alienating customers.
"You need a marketing view of what you are going to do with that
information - and if you don't know, maybe you shouldn't do it," he
says.
O'Toole points out that customer knowledge is often muddied by
the fact that many people create alternative identities when they
go online. That means e-traders may know customers' credit card
numbers and dispatch addresses, but not much else, and it can be
dangerous to assume the knowledge we have about customers is
accurate and extrapolate from it.
Cohan agrees that if the technology fails at any point of the
marketing process, from customer segmentation to service delivery,
you will fail to gain customer loyalty. He also argues that CRM
systems must integrate data from all your channels, not just the
Web site. He adds that Web marketers will want easy-to-use
applications which allow them to create campaigns and deliver them
to a particular customer group quickly. They then need to be able
to identify the effects of those campaigns on purchasing patterns
and on-site behaviour within a couple of days, so they can tweak
the campaign while it is still running.
Finally, Stevens notes, there will be significant storage
implications to capturing rich customer information, so you need to
make sure your storage solutions can handle those volumes and deal
with issues such as back-up and recovery.
When it comes to affiliation, Pemberton suggests that sites
looking to align themselves with customers by using their joint
buying power will need to look at automating the process of
negotiating with preferred suppliers or matching customer and
supplier bids. Unipower's AuctionMagic can support real-time
auctions on the Web and is already being used by Netherlands-based
wine and spirits retailer Gall and Gall to auction vintage wines,
exclusive spirits and promotional offers on its Web site.
According to Pemberton, the technology on which AuctionMagic is
based can also be used to support real-time interaction with
customer service staff, allowing Web sites to replicate the support
by shop assistants in the real world. Kevin Kelly, European sales
and marketing director for OnLink, points out that replicating the
shop assistant function on the Web is vital. "Customers like to be
listened to in conversational terms, they like to present their
needs in their own words and they often have a requirement without
knowing how to translate that into items within a product range,"
he argues. "Suppliers need to embed the black magic of good
salesmanship into e-commerce systems."
One way to achieve this is through callback technologies which
connect the customer to a call centre agent. For example, NetCall's
HyperphoneLink can initiate a phone call from a Web browser,
digital TV screen or Wap-enabled device.
Another option is the virtual buyer's assistant: OnLine's suite
of sales assistant tools and Selectica's Internet Selling System
can help customers by capturing their requirements and relating
that to the company's product set.
However, the emergence of intelligent agents or shopping bots
will present a new threat to companies adopting richness as a key
focus. "Bots have implications for marketing, because people won't
be reading banner ads or looking at clever Flash animations.
They'll decide what they want and ask the bot to look for it and
present it in the format they want," O'Toole points out. "There's
no point worrying about the design of supermarket aisles if no one
walks down them."
There are some other basic ground rules if you're focusing on
the affiliation dimension. Cohan says anything consumer-facing must
be "absolutely appropriate to their needs. That means designing
collaboratively with users and, once you're online, observing them
constantly and responding and evolving your services rapidly." He
adds that you should also expect to develop a range of online
channels.
"For instance, if you've dealt in the past with a small number
of large customers and now you're attracting SMEs and consumers
through the Web, they may want to use the site in a completely
different way," he explains. "Traditional users will want fast
repeat ordering. For new users, you will need product education and
navigation through to purchase. You need to develop twodifferent
front-ends."
Dave Gill, European managing director of F5 Networks, offers a
final warning. "Unless your infrastructure matches your strategy,
the system could fall over when you try to deliver," he says. "That
investment needs to be made up front - if you don't have the right
infrastructure, all that other effort is wasted."
What is meant by richness, reach and affiliation?
No one would dispute that the Internet has torn up the rulebook
by which businesses have traditionally operated. The new rules are
still being formulated, but a clear pointer was provided by a
December 1999 article in the Harvard Business Review by Philip
Evans and Thomas Wurster, co-leaders of the Boston Consulting
Group's media and convergence practice.
In their article Getting real about virtual commerce, Evans and
Wurster pointed out that Internet technologies have allowed
"navigation" - the process of helping consumers to identify
relevant products and services - to become a business in its own
right. Once you have the basic technologies for navigation in one
area sorted out, you can expand into other markets relatively
quickly: look at the way Amazon has moved away from its initial
focus on books into music, videos and online auctions. Equally
rapidly, power can shift away from those which have traditionally
provided the navigation function: high-street retailers, for
instance, which have helped us find products by selecting stock to
promote through their stores.
Evans and Wurster go on to point out that Internet technologies
are also redefining the three aspects which have previously
circumscribed companies' strategies and their ability to act as
navigators. The first aspect is their reach, in terms of the number
of customers they can access and the number of products they can
offer. Instead of operating a couple of hundred high-street stores,
each carrying no more than a few thousand lines, the Internet
allows companies to offer tens of thousands of products to millions
of computer and digital TV screens.
Secondly, there is the richness or depth of the information
which companies can provide to customers and acquire about them.
For instance, a CD site can provide artist biographies and
discographies and samples of recordings, together with independent
magazine reviews, all of which may help the customer decide what to
buy. At the same time, the site could capture information about
customers, so that it can recommend recordings which people with
similar profiles have already purchased.
Finally, the Internet is changing affiliation. Companies in the
physical world which are promoting a limited range of goods - in
particular, brand manufacturers - will want to push those products
as hard as possible. In extreme cases, such as the pensions
mis-selling scandal, customers will be encouraged to buy those
products irrespective of their ability to meet consumers' needs. By
contrast, the interests of pure navigation companies more typically
lie with those of consumers. They want to attract consumers by
getting the best deal or finding the right solution for each
customer. For instance, letsbuyit.com aims to bring together
consumers so they can use their joint buying power to drive down
prices from manufacturers.
According to Evans and Wurster, companies must decide to what
extent they want to pursue each of these dimensions - and be
prepared repeatedly to revise their ideas as their e-business
evolves. They must also be prepared to rethink radically the
structure of their organisations, as individual functions become
businesses in their own right, and not shrink from competing
against and cannibalising from their bricks-and-mortar
operations.
Strategies for IT directors
Navigators, Brokers and "Independent" Service
Providers
Business strategy: don't take the boundaries of your business for
granted but constantly evaluate consumers' perception of a
meaningful "search domain"; affiliation with consumers is a major
competitive advantage but you must also compete on richness and
reach
- IT strategy: implement solutions to deliver content from other
e-commerce providers; create close integration with partners'
fulfilment systems; implement purchasing solutions which support
negotiation with suppliers
Electronic Retailers
Business strategy: define your business in terms of a "search
domain" which is meaningful to consumers, rather than traditional
product categories; be wary of exclusivity deals with product
manufacturers which will result in you sacrificing reach and
consumer affiliation; improve the richness of your consumer
information - and use it - and get smarter at logistics
- IT strategy: implement solutions to deliver content from other
content and e-commerce providers; strengthen fulfilment systems;
implement customer relationship management systems
Product Manufacturers and "tied" Service Providers
Business strategy: richness, especially when it comes to product
information, is the most powerful competitive weapon you have and
on the Internet can be used to enhance the brand as an
"experience"; be prepared to re-evaluate the structure of your
business and develop strategies for individual functions; look for
alliances which provide reach and change the balance of affiliation
to provide greater credibility than can be achieved by each member
alone
n IT strategy: implement systems to support rich content and
deliver it quickly to customers; implement links to systems run by
partner organisations, such as trading hubs
Case study - Health and Diet Group
According to Margaret Peet, group managing director of the
Health and Diet Group, you have to apply the same principles to any
type of shopping, whether in the real world or on the Internet.
"It's still about a good shopping experience," she says.
The Health and Diet Group is the British operating arm of
US-based General Nutrition Centres (GNC), the world's largest
health-food retailer. The UK operation has turnover of about £28m
and consists of 44 stores under the GNC or Health and Diet Centres
brand names, as well as Manchester-based supplement manufacturer
FSC.
The Health and Diet Group's Web site will be launched next
month. Peet says she felt moving into e-commerce was a necessary
step because a growing number of existing customers will want to
shop that way and she doesn't want to alienate them - but she spent
a lot of time looking at the Internet market and what purely
Net-based companies were doing before devising the group's
e-strategy.
"What we can do, which the pureplays can't, is bring to bear our
years of customer service and product and nutritional knowledge,"
Peet says. "Very few people know as much about retailing and
distribution of vitamins and other health products as we do, and
what we're trying to do is translate our strengths - our variety of
products, knowledge of formulations and skills in recommending
products - onto the Web." So, although the site will offer all of
the 2,000 or so products and 81 brands currently sold through the
group's shops, its main focus will be to offer a rich customer
experience.
Part of that rich information content will be provided by the
Health and Diet Group, but some of it will come from Healthnet
International, which offers a turnkey e-commerce solution to
retailers of natural products. Healthnet hosts the site and offers
solutions for the mechanics of e-commerce, such as catalogues,
ordering and credit card processing systems, all of which can be
customised with the Health and Diet Group's branding. However, it
can also supply health news and information sections, including an
online health encyclopaedia, multimedia illustrations and videos,
and interactive health tools such as calorie counters.
Peet says partnering with Healthnet not only provided additional
content but also gave the company access to the skills and
experience needed to develop and maintain the site. "It's like
shopfitting: I might design the stores and how things will be laid
out, but I don't want to fit them myself," she explains. "On the
Internet, that means I'm concerned with how many clicks a customer
is away from a purchase and how they purchase, but I'm not
interested in the back end." On top of that, working with Healthnet
has reduced the risk of investing in e-commerce because Healthnet
gains its revenues by taking a percentage of the sales made through
its servers.
The site will be supported by the call centre that handles the
Health and Diet Group's existing mail-order business and will link
to the fulfilment systems used for the mail-order operation. Peet
says the main headache in the fulfilment operation is developing
stock allocation procedures to balance the interests of different
parts of the business calling off the same stockholding.
Case study - Jungle.com
Jungle.com exemplifies the notion that an e-tailer's offerings
must relate to a "search domain" which is meaningful to customers
but which may bear no relation to its historical roots. Jungle.com
was initially set up to provide computer products, but quickly
added other home entertainment goods such as CDs, videos, DVDs and
games, all of which have a digital focus. Adding these low-value
items has increased the frequency with which customers revisit the
site, helping Jungle to build brand loyalty and repeat custom.
"At one point, we had visions of providing pretty much anything
as long as we had a fulfilment operation, but we quickly realised
that was hard to accomplish in reality," explains Jungle.com's
managing director Chris Alexandre. "We decided it would not make
sense to offer other products, because they wouldn't fit with our
customer profile and our strengths."
Jungle.com has also placed a strong emphasis on customer
affiliation, particularly when it comes to service. Its key aims
are to make online shopping quick, easy and fun - and to offer
customers lower prices in the high street coupled with high levels
of service. This is partly because Jungle was the brainchild of
"service evangelist" Steve Bennett, the owner and chairman of
Software Warehouse, a leading UK computer retail and mail-order
company.
Jungle was initially set up as an independent company in June
1999, but hired Software Warehouse to provide its fulfilment
operations. Then, earlier this year, it took over Software
Warehouse and merged the two companies' operations. "Because
fulfilment is so critical to e-tailers on the Internet, we felt we
needed to control that ourselves," explains Alexandre. "A large
part of the success of e-tailers is based on getting the fulfilment
right and delivering when you say you will."
At the front end, Jungle.com has ensured its technical
infrastructure is set up to maintain good service to customers. For
example, it is using products from F5 Networks to measure the
performance of its site from the customer perspective and to load
balance the traffic to its Web servers. It also surveys customers
to find out what they like and dislike about the site and where
they are struggling, so that the site can be redesigned.
Alexandre points out that a particular headache when designing a
computer-based shopping interface is that it can't replicate the
one-to-one responsiveness and intuition of a human salesperson who
can, for instance, work with the customer to determine the best day
for delivery.
As part of its service-based strategy, Jungle.com has also
pursued the richness dimension through its attempts to provide
customers with a wealth of information to help them in their
purchasing decisions.
This content is provided partly through Jungle.com's own efforts
to obtain - or link to - data from suppliers and partly through
links to independent information sources such as magazine
reviews.
Furthermore, Alexandre points out, the company needs to provide
significant product reach as well. For example, most music sales
over the Internet are made on back-catalogue items which are
difficult to source on the high street.
Here, a key requirement is for efficient search mechanisms to
help customers locate products and rank them in order of
suitability. This navigation role is also supported by a consistent
look-and-feel across the different stores within the site.