The rise of e-business has been anything but smooth and many once-bullish online enterprises have either gone bankrupt or beaten a tactical retreat to nurse their wounds.
Although it is easy to be wise after the event, the fact remains that this did not happen by chance. Much has been written about the idea of Internet companies not looking before they leapt, failing to use basic business rules and underestimating the huge costs of acquiring customers. However, the true picture is far more complex.
Jim Jones, regional manager for Northern Europe of interBiz, the e-business application division of Computer Associates, says, "You have to start by defining e-business. If you take it in its simplest form for most companies it's just another way of getting orders."
He also draws a distinction between e-commerce and what he calls "true e-business - electronically communicating with the world and guaranteeing that customers stay with you." And the bottom line? "I think e-commerce is overrated," he says.
Jones says the reality is that most companies lost money through e-business. "Even those that thought they gained actually lost," he says. This is because they were measuring gains the wrong way. They thought that increased market share meant they had gained when in fact the benefits were outweighed by the huge costs involved in attracting new customers. "A lot of people have spent a lot of money and few have reached adequate return on investment," he says.
The problem is that people want to believe they are making gains through e-business, even when they're not. "At best they've got tactical, not strategic, improvements," says Jones. And he sees a big difference between the two. He uses the example of companies implementing SAP as a strategic move where "at best it moved them tactically". Although it brought processes together the company still needed to put business intelligence tools on top. Not having the intelligence in place to monitor the effectiveness of e-business applications and get a true picture of the situation is another key failing, he says.
Business intelligence tools should be used to help identify buying trends and offer a more visible and up-to-date record of stock levels and customer credit limits to provide a more accurate calculation of risk. "Intelligence is key", says Jones, and by that he means "intelligence across the business and your extended enterprise and disparate systems". Companies need something proactive, he says - something that will help them to make decisions rather than simply monitor previous ones - after all, every decision has an element of risk attached. The aim is to reduce that risk. But Jones cautions that not all the business intelligence offerings on the market are cut from the same cloth.
"Some business intelligence products will just tell you 'there's a problem here'," he says. Again the onus is on integration - it is this that will determine the level of success. Companies also need access to real-time information, says Jones. Real-time is relevant to your business, he points out. It could even be 24 hours for some companies.
Jones believes that a major reason for companies failing to make gains through e-business is that they failed to integrate it into their business. "That's like putting new putty into old windows," he says. He sees integration as central to a successful e-business strategy. Many companies are made up of isolated departments or "silos", he says. Data effectively belongs to each silo and problems arise when they fail to communicate with each other or share information.
Another big problem is when the chief executive has no contact with the chief information officer. The fact that most chief information officers are not on the company board has been a big problem, he says. Like the silo issue, it leads to a breakdown in communications - what Jones calls "a total disconnect". This problem is exacerbated by the fact that many chief executives do not use technology and do not know what it does or the potential business benefits, says Jones. Yet it is they who make the major decisions and shape company strategy.
He uses the example of the chief executive of a "high street name" company who refuses to use technology and does not even have a desktop PC, let alone use e-mail, despite the best efforts of his long suffering chief information officer.
Chief executives are often surrounded by "yes men" on the board who effectively shield them from bad news and act like nodding dogs when asked for a customer relationship management or an enterprise resource planning system simply because they know of another company that has one. It is then left to the chief information officer to deliver. This is what Jones calls "the CEO filter, which turns bad news into good news". Chief information officers are also more likely to know what the real situation is. As such, they should play a major part in the formation of strategic rules at board level, says Jones, and these rules should be revisited frequently, not just once a year.
This lack of chief information officer input has had a major impact on the effectiveness of companies' e-business strategies. "CEOs in their ignorance said, 'Hey we've got to be in here' and got badly burned," he says. They simply jumped in without adequate forethought and attempted to develop an e-business strategy on an ad hoc basis.
However, Jones admits that getting the IT director on board is not as simple as it sounds. "How many strategic thinking IT directors are there?" he asks, such as the chief executive who knows about the business side but does not know about the technology, often the chief information officer or IT director's knowledge will end at the technology. For the situation to work they will need to gain a working knowledge of the business.
But Jones still believes that "the way forward is to start planning to get these guys to come together" as "the strategic model needs to be known by everyone who can influence it". And this strategic plan needs to be moulded from all the disparate silos.
Another problem is that too many companies took a half-hearted approach and simply bolted new interfaces onto their old legacy systems, effectively storing up problems for the future. Instead of proactively pursuing a policy of integration, he says companies have more operating systems and databases than before.
A more fundamental problem is that many companies overestimated the power of e-commerce to shape customer behaviour, such as shopping habits. "I think that we get confused with the idea that e-business will change the way that people think and behave," says Jones. "For a lot of people, shopping is a social event. You can't make it sociable for people to look at your screen. That's part of where the failure comes in - they've forgotten why people shop."
Many companies did not realise how much it would cost and there are problems with fulfilment. Jones uses the example of delivery drivers for Marks & Spencer's online service who would arrive at a block of flats which had no lift and, rather than climb the stairs, would return to the depot and say that no-one was home to receive the goods.
He says many companies did not research the e-business model properly, did not look at the financials and ignored the problem of "human integration". Many simply jumped on the bandwagon when the share price was high. "A lot of companies are reeling back from that now," says Jones.
He uses the example of the financial director of Harvey Nicholls who asked, "Why do we need e-business?" After all, the company sells one-off dresses and its customers seem to enjoy the social experience of going to its stores, where they can also buy matching accessories. "I think he was probably right, though missing part of the story," says Jones.
The point is that people are starting to ask more questions and that can only be a good thing. "The situation is different now, " says Jones. "Most people have Web sites and they are trying to justify the expense. People are starting to ask, 'Where are the benefits?'"
All too often, he says, there are none. But he believes people are increasingly willing to accept this fact and to close unsuccessful e-business operations. And that can only be a good thing.
Why do e-business projects fail?
Jim Jones, identifies the following reasons for e-business failure:
- E-commerce is overrated
- Most companies lost money through e-business
- Many companies spent a lot of money for little gain
- Many companies did not research the e-business model properly, didn't look at the financials and ignored the problem of "human integration"
- The problem is that people want to believe that they are making gains through e-business, even when they are not
- A major reason for companies failing to benefit from e-business is that they failed to integrate it into their business
- Chief information officers should be on the board and play a more important part in the formation of company strategy
- Many of companies over-estimated the power of e-commerce to shape customer behaviour, such as shopping habits.
interBiz' recipe for success
1. InterBiz aims to help companies to take advantage of e-commerce opportunities through its business intelligence suite, Bizworks - particularly in the areas of wholesale distribution, general finance and banking.
2. Bizworks offers enterprise resource planning and third-party logistics along with supply chain, warehouse and financial management.
3. Key customers in the UK include Flymo and Fiat in manufacturing; Capita Group and International Book Distributors in commercial; London Fire and Civil Defence Authority in local government; and GAN Insurance in finance.
4. Its European headquarters is in Slough, Middlesex.