Cash for E? Go get a plan

Web mania may have struck, but you'll still need a solid business plan to secure E-funding, writes Julia Vowler.

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.

  • Read more on Web software