Part 1: The map to "e-Profit" success

Tell us what inspired you to write e-Profit, and have the payoff strategies discussed in the book been successful even in this state of decline?
I wrote e-Profit as a result of a conference I spoke at sponsored by Fortune Magazine in early 1999. The conference was held in New York, Chicago and San Francisco for about 300 Chief Financial Officers of traditional companies. I was a panelist discussing e-Commerce and the CFO. The questions that these CFOs were asking at the conference suggested to me that there was a real need for a book that would examine e-commerce from the perspective of a financial executive, rather than simply to repeat the Internet hype that was so prevalent at the time. "e-Profit" was written to address the concerns of CFOs regarding e-commerce, such as:

• What are the e-commerce applications that generate high payoffs?
• How does e-commerce change a firm's competitive position?
• What are the managerial challenges of changing a firm to take advantage of the benefits of e-commerce?
• What is the role of senior management in designing the e-commerce architecture?
• How does senior management go about picking the right e-commerce vendors?
• What is senior management's role in e-commerce implementation?

The payoff strategies discussed in the book remain valuable. In fact, I am afraid that during the dot-com boom, many executives simply tried to replicate what the dot-coms were doing rather than following the strategies outlined in e-Profit.

Now the pendulum has swung in the opposite direction and many senior managers are cutting off investment in e-commerce altogether in light of the collapse of the threat from the dot-coms and a perceived need to conserve cash as the recession approaches.

How does e-commerce convert intangible assets into increased shareholder value even in this day of dot com failings?
This conversion will take place more slowly than managers had hoped. Specifically, managers must use e-commerce to monetize the intangible asset of purchasing scale (in the form of lower per unit costs), to share technical service solutions with customers (to increase customer satisfaction), and other e-commerce applications.

Over time, these e-commerce applications will result in lower costs and increased revenues per customer that will enhance a firm's earnings growth, an increase that will lead ultimately to higher shareholder value.

In light of the crash, what do all these collapsing business models have in common?
All the collapsing business models share at least one thing in common; they all depended on the willingness of investors to swap their cash for stock in businesses with scant profit prospects.

When investors decided that this swap was foolish, the business models needed to depend on some other source of cash to sustain their operations. Most business models collapsed because customers did not find enough value in their services to pay a high enough price to cover the business models' costs.

Tell us about the five myths of e-Commerce...

Myth #1: E-commerce companies make a ton of money.

The Reality: With over 20 million (and growing) customers, is a wildly successful e-commerce company. Amazon.com is also losing huge amounts of money, in the hundreds of millions.

Myth #2: E-commerce clinches a company's competitive advantage.

The Reality: In some industries, upstart e-commerce companies have already grabbed the lion's share of the market from the long-standing leaders. In other industries, e-commerce has barely made a dent. It is too early to tell whether e-commerce produces a sustainable competitive edge.

Myth #3: The key to e-commerce success is the right technology.

The Reality: The most common culprit for e-commerce failures is placing enthusiasm for a new technology above all other success factors, including economic benefit to participants.

Myth #4: Online word of mouth will bring customers to a strong Web site.

The Reality: E-commerce must be marketed aggressively, beyond the Web. As more and more companies build Web sites, it takes more than a Web presence to stand out and attract potential customers. Amazon.com spends about 70 percent of its revenue on marketing through "traditional" media such as TV, radio, and newspapers. As it turned out, for many e-commerce sites, all this spending to attract customers generated huge operating losses and customers whose loyalty, and thus long-term value, was highly questionable.

Myth #5: Every major corporation is committed to e-commerce.

The Reality: According to a nationwide survey, only 25 percent of traditional companies engage in any form of e-commerce. Many senior executives are frozen by fear of change and lack of knowledge about the technology. Many middle managers, particularly in retail, feel threatened by the competition from a Web site that sells the same products as their stores and catalogs. With the collapse of the dot-coms, it is likely that some traditional companies will breath a sigh of relief and wipe their hands of the Internet.

The dot-com crash has made it apparent to many managers that these myths are just that. The disillusionment thus created threatens to lead managers to reject e-commerce altogether. "e-Profit" is now more needed than ever because these myths have become apparent. Managers need a realistic roadmap that can guide them to achieving the tangible benefits of e-commerce. "e-Profit" provides that roadmap.

Why are managers intimidated by the term, "e-engineering" and what it entails?
E-engineering is the same as reengineering except that the technology involved is the Internet. What this means is that in order for companies to capture the benefits of e-commerce, they must change the way they do their work so that stakeholders are happier. The Internet can enable this process change. Managers are afraid of e-engineering because it threatens to undermine their power and to cost people jobs. Without e-engineering, however, the benefits of e-commerce are not likely to be achieved.

Why it is important to capture feedback as part of your e-commerce strategy?
In my view, capturing and acting on feedback from stakeholders is an essential business process if a firm hopes to adapt to changing market conditions. E-Commerce technologies provide a mechanism for generating such feedback very quickly.

However, if a firm does not react correctly to this feedback then it is likely to lose the loyalty of these stakeholders (e.g., the best customers, employees, suppliers, and shareholders will find other companies that do respond effectively to their feedback).

The competitive environment in which companies operate tends to change very quickly and it does not take much time for a company to lose its market position if it does not respond effectively to feedback.

How does a company achieve the highest e-commerce payoffs?
Here are 10 principles that companies can follow to achieve the highest e-commerce payoffs.

1. Encourage workers at all levels to experiment with e-business strategies.
General Motors' BuyPower website, for example was created not at corporate headquarters, but by a marketing team in its California regional office.

2. Make superior customer satisfaction the company's top priority.
Cisco Systems, a leading Internet infrastructure firm, rewards its employees for achieving quarterly improvements in customer satisfaction scores.

3. Build an effective working partnership between IT and non-IT people.
Cisco Systems excels at promoting shared goals, mutual respect, and seamless cooperation between its high tech specialists and its business units.

4. Apply nontraditional thinking to problem solving.
e-steel overcame the traditional fear of exposing its price structure to competitors by offering customized pricing to registered steel buyers based on supplier specifications.

5. Encourage line manager initiative within a disciplined framework.
Given the lower cost and enhanced speed of Internet development projects, companies should empower first-line managers to take the initiative.

6. Adopt a pioneering spirit.
Driven by a vision of creating the future of "Internetworking," Cisco's management spurred the development of its revolutionary website, Cisco Connection Online.

7. Strive to understand significant sources of organizational and customer pain.
By managing its FDA drug applications on the Web, Pfizer cut the standard one-year approval timetable nearly in half, while easing paperwork headaches for everyone.

8. Test and integrate systems, before an e-commerce application "goes live."
Compumotor's thriving "extranet" for handling industrial automation system product orders was delayed an entire year to resolve response time and integration challenges.

9. Market and retain aggressively.
It takes more than an Internet presence to attract customers. Success in e-commerce depends on attracting purchasers and turning them into long-term loyal customers by understanding their preferences and serving them in a cost-effective manner.

10. Emphasize the economic benefit to participants.
If the vision of technology is clearer than the financial payoff to employers, customers and shareholders, don't invest in e-commerce.

Continued...