IT managers encouraged to take e-business by the horns

IT managers are often excluded from making the key e-business decisions, but the Economist Intelligence Unit has found ways for...

IT managers are often excluded from making the key e-business decisions, but the Economist Intelligence Unit has found ways for them to become more influential in business transformation. Guy Campos explains

A very odd thing is happening in e-business, according to a report released by the Economist Intelligence Unit (EIU) last week.

A survey of 327 international companies found that, while at many companies the IT departments did not fully understand business strategy, there were some exceptions.

The report said, "In many cases, a savvy and involved IT director is being asked to lead the e-business project."

What did these IT directors know about business that set them apart from those who were not so highly regarded? One key finding is that e-business leaders know that they are not simply trying to make the company's existing business more successful.

They know the Internet revolution creates entirely new business opportunities, such as moving into markets that were previously out of reach and extending a company's range of products and services.

To illustrate its point, the EIU has developed a three-stage model of e-business. Stage one, dubbed e-commerce, amounts to putting the marketing department on the Internet.

"For many, the Web is simply a platform to strengthen the brand or drive in-store sales. This effort aims to expand existing business by cross-selling and up-selling to customers and prospects," the researchers said.

Stage-one companies use the Web for sales, marketing, order-taking, delivery, payment, customer service and post-sales support.

Stage two is to put business processes online. This appeals particularly to companies that sell to business.

Stage-two companies use the Web to inform users and suppliers about inventory levels quickly. They use it to publish up-to-date product catalogues. They also use it to cut the cost of raw materials, components or contracted services, speed-up delivery and payments, cut inventory and improve sales forecasting, allow buyers to assemble and submit orders and make customers more knowledgeable about how products are made.

Value chain

Stage three, described as value chain recreation, is rethinking the way the company works with suppliers and customers. The Web makes it easier to manage outsourced functions, making it possible to contract out core manufacturing and service delivery in the manner of Dell Computers.

The Internet makes it easier to take on more functions for the customer, in the way that FedEx in the US has gone from providing transport services to providing warehousing and inventory management for some customers.

If IT managers are not getting the right e-business experience at their employers, they can always jump ship. So which companies should IT directors work for if they want to go beyond e-commerce and business-to-business e-commerce into business transformation?

One answer is to work for computer services firms because they are most likely to expect to change their business in the next two years and to avoid manufacturing companies because they are least likely to expect to change.

Another more sophisticated answer is to use a checklist of factors that distinguish innovators and early adopters from slow movers. The EIU found that fast-moving companies have a number of traits in common.

Fast movers are more likely than slow movers to expect to generate more than 20% of their sales over the Web in three years.

They plan to use the Web to enter new markets. They are also more likely to use speed of product development; increase in market share; and cross-sales to current customers as yardsticks for measuring the value of e-business investment.

Fast movers also acquire people with specialist e-business skills, use supply-chain excellence as a competitive weapon, and integrate information flows to make their customers more productive.

Another factor to look for, or to create, in your employer is a recognition that Web-enabling an organisation means changing the way it works.

The authors emphasise that change requires strong leadership from the top but senior executives do not understand the issues. They need to have a mentor to teach them about the Internet.

Goal sharing

There also needs to be an understanding that systems development should be done in months if not weeks, not years. The increasing use of middleware makes this possible, the report said.

One useful practice that requires no technical knowledge also emerged at some successful firms. This was the promotion of goal-sharing or cross-functional partnerships, which in practice means getting buy-in from sales staff at the existing business.

For instance, at - the e-business arm of the company that owns clothes retailers Burton and Top Shop - retail sales staff get commission for online sales made by customers living in their catchment area, leading them to recommend the Web site.

Another success factor is that Web-savvy companies regard their e-business plan as a form of research and development whose costs should be written off over years rather than as an immediate expense.

Successful e-businesses regard the cost of not taking e-business seriously as too high, a view that can be recommended to IT directors when considering their careers.

E-business Transformation by the Economist Intelligence Unit is available on 020-7830 1007, priced £425.

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