Research ResultsBy Terry Kirkpatrick
As e-business moves into the mainstream, it's becoming an increasingly integral part of the work conducted by companies large and small. More than 400 top IT execs told us what they're delivering to their constituencies with their e-business initiatives, and the news is that activity is widespread and far-reaching. Offerings range from customer-centric online commerce to internally focused business process management. But though many of the surveyed companies are actively rolling out e-business systems, with a number already up and running, the biggest challenge seems to be in matching expectations with the value these offerings are delivering.
CIOs are most focused on e-commerce systems and online customer relationship management offerings. Supply chain management is last, though larger companies are planning to move more heavily into this arena in the coming year.
Expectations for e-business systems vs. what's actually being delivered is often out of sync. Small businesses are often locked onto projected gains that haven't been realized. For larger companies, it's a mixed bag: In some cases, their expectations are too high, while in others they're actually realizing gains they hadn't anticipated. Gary A. Bolles
Gary A. Bolles is an independent technology and marketing strategy consultant based in San Francisco. He is the former COO of Evolve Software, former vice president of marketing for Network Products Corp., and was an editor at Yahoo! Internet Life and Network Computing magazines.
E-business is alive and well in most organizations across the land, albeit tempered by economic uncertainty and a certain hardheaded sobriety about what it costs and what's required to manage it.
"There's some retrenchment at a lot of companies," says Rick Wise, vice president at Mercer Management Consulting Inc. in Boston. "There's a lot more dispassionate reviewing of what are we doing here, how critical it is, what the priority is."
That's the case at Fort Wayne Plastics Inc., a manufacturer of injection-molded plastics in Fort Wayne, Ind., where Michael Durant, director of information services, is constantly reviewing potential e-business add-ons to his general business software system. As a third-tier supplier in the automotive industry, he sees e-business on the horizon. "I suspect there won't be many people who will be able to get by without it in the next few years," he says.
But right now, for him, cost is the issue. "Some scheduling packages are getting pretty sophisticated," Durant says. "But it's tough to justify the expense of a system like that for a business our size. You might spend $300,000 on hardware and software, and then have to hire 16 guys to maintain the database. The support issues are really the big hang-up. If we were at 95 percent of capacity, we might be more interested, but not at 75 percent to 85 percent capacity."
Costs, labor requirements and the economy may explain why slightly more than one quarter of our survey respondents indicated that they had no e-business system in place and no plans to install one.
"In general, most small businesses have less ability to fund and administer e-business solutions, so they tend to be more sparing about it," Mercer's Wise says. "They tend to have customers who are less e-business enabled and suppliers who are less e-business enabled. If folks on either end of you aren't digital, there's no reason for you to be digital."
Our survey reveals a strong bias toward investing in e-business to support customers: 81 percent of the respondents said customer service enhancement was a goal of their e-commerce investments, while 62 percent have or plan to have a consumer-focused e-business system. Fifty-one percent have or plan to have a B2B customer system. Only 23 percent are supplier-focused.
The focus on the customer side is channels, says Jean-Gabriel Henry, a senior analyst at the Internet research firm Jupiter Media Metrix Inc. "Everyone said the Internet would disintermediate the channel, because now you can sell direct," he says. "That hasn't been the case at all. If anything, the channel has become more powerful. You can't cut these guys out. So let's think about how we can arm them so they will sell more of our stuff than someone else's stuff. We've really shifted from disintermediation to empowerment. That's the big story in e-business."
Henry says that partner activity is occurring in two main areas: managing and enabling. Managing means tracking how well channels are performing, in which markets and why, and detecting where training is needed. Enabling means helping partners sell better, giving them the tools they need to be as skilled and competent as you are.
Customer satisfaction is the number- one objective of companies deploying an e-commerce system, our survey found. Henry defines this goal as "making it easier for our partners or our customers to do business with us. It's not making them 'happier' after the fact. It's making it easy for them."
This is the case at Airgas Inc., an industrial gas company in Radnor, Pa., which recently launched a new B2B Web site. "We'd ultimately like to see 5 percent of our sales go through the site," says Kelly Justice, vice president of e-business. "If they place orders there, great. But that's not its main purpose. It's primarily a customer service tool, which they can use to get product information, check their invoice history and the like. It's just another way in which we're trying to make it as easy as possible for our customers to do business with us."
The Airgas experience is not unusual, according to our survey. Respondents indicated that they were receiving, and expected to receive in the future, a very low level of revenues through the Web.
Customer service is also important to Donald Jewell, a director at General Dynamics Decision Systems (a subsidiary of General Dynamics Corp.), which sells advanced computer and communications systems to the government. Although most of our survey participants have not ventured into wireless initiatives, Jewell wonders how he ever lived without his wireless pager. It's a real help when he's with a customer. "While sitting in a meeting with a client, I can pull out my pager and send an e-mail to someone in my company who knows the answer to a client question, and I can get an answer in two or three minutes," he says. "Nobody's even aware I'm doing it."
Although our survey showed a low level of interest, several companies we talked to are hooking into various B2B exchanges. For example, National Welders Supply Co. Inc., in Charlotte, N.C., is moving into a utilities and energy services exchange called Pantellos, where some of its existing customers, like Duke Energy Corp., will place orders. Previously, the company dealt with Duke by EDI, phone or fax, says Rick Smith, vice president of planning and technology.
"Our system uses XML and Java," Smith says, "and it can talk to other sites and computers. Our goal is to build a bridge so that we can do all this electronically. I hope one day we can just push a button to make these connections without re-entering the data."
But Smith is also building a Web site where customers who aren't already in exchanges can place orders, track orders and check pricing.
It is nearly impossible to estimate ROI on e-business initiatives, survey participants told us. Some of the larger firms have hired consultants to help estimate the return, but others just know how many people they would have to hire to replace an automated system.
Nevertheless, there is a renewed focus on ROI, says Mercer's Wise. "In general, folks tend to discount a technical organization's ROI assessments. A large percentage of technology initiatives end in failure or don't reach stated goals, and that breeds skepticism. One big issue we focus on with our clients is that a lot of initiatives are launched from the technology world and not from the business end. The initiatives are not always strategic to what the business needs to achieve."
Most of the CIOs we spoke to say their e-business plans were either hatched in the corner office or had top management's full support. "If you want to do e-business now," says Justice at Airgas, "you've got to have executive sponsorship, and our leaders heavily support us. We're having a lot of fun here." Terry A. Kirkpatrick
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Conclusion 01: Focus of E-Business
E-business systems have significant mindshare among top IT executives. Seventy-three percent say they have installed, are installing or intend to install an e-business system. Yet just 37 percent of those surveyed now have an e-business offering.
Companies are more likely to focus on e-business systems intended for consumers than for their supply chains. Sixty-two percent of all businesses said they had implemented or were implementing a consumer-focused offering, vs. 23 percent for suppliers.
Larger companies are significantly more likely to look at e-business offerings intended for use by employees, such as online human resource information systems. In bigger businesses, such employee-focused systems were second in line to be implemented, at 59 percent, with business customer-focused offerings third, at 44 percent. Smaller companies flipped these priorities, with business customer systems at 54 percent and employee systems at 32 percent.
CIOs have some specific concerns about their e-business initiatives. Thirty-one percent wish they'd scoped their projects better, and 33 percent said their actual costs were at least 10 percent over budget. Only 40 percent believed they were at no risk of having a project cancelled. What's most at risk? Supply chain management and business process automation projects, considered potential cancellation material at 15 percent each.
Conclusion 02: E-Commerce
Why implement an e-commerce system? The most common reason is to enhance customer satisfaction, which was cited by 81 percent of respondents. Companies want to increase revenues and decrease operating costs, but e-commerce still isn't contributing in a big way to most companies' bottom lines.
When it comes to e-commerce, two services stand out: Online product/service information and online transaction systems, which companies say they have invested or plan to invest in about 90 percent and 87 percent of the time, respectively. Net-based fraud/abuse management and mobile commerce come in at less than half those numbers, at 43 percent and 42 percent, respectively. The latter figure seems a solid counter to recent hype over mobile e-commerce, showing that companies have yet to invest in the arena. However, larger companies are more likely to have already implemented such systems than smaller businesses, at 15 percent vs. 6 percent.
The majority of responding companies are generating minimal revenue from their e-commerce efforts, but a growing number of firms expect those figures to improve. Only 14 percent said they had made 30 percent or more of their revenue from online sales last year, and that 14 percent is projected to rise to 20 percent this year. Next year, however, 27 percent expect to reach or exceed the 30 percent level.
The good news: 53 percent of larger companies saw their operating costs decrease through their e-commerce systems. The bad news: 84 percent had made this an objective. Results are somewhat less dismal for smaller companies, but only because their expectations were lower, with just 66 percent shooting for cutting costs. Just behind in the disappointment race: Two thirds of large companies thought they'd increase revenues, while only 45 percent saw an increase.
Conclusion 03: CRM
Enhancing customer satisfaction was the most regularly targeted goal for CRM systems. But many firms seem to be missing an opportunity to generate more income from existing customers: 49 percent had no plans for customer loyalty programs.
Customer self-service offerings were most popular, with 78 percent of respondents planning to implement or already implementing programs. Automated support and customer data analytics were closely matched, at 70 percent and 68 percent, respectively. But customer loyalty programs came in last, with only 51 percent having or planning to implement them.
For larger companies, the differences between CRM goals and what was achieved were minimal. For ex-ample, enhancing customer satisfaction was the goal for 85 percent; it was achieved 83 percent of the time. And while only 28 percent expected to create a new sales channel, 33 percent actually achieved this result.
By contrast, smaller companies were typically well off the mark with their CRM offerings. Sixty-five percent expected to generate more revenue from existing customers, but only 34 percent reached that goal.
Conclusion 04: Process Automation
Internal process automation has long been the domain of large-scale ERP systems, but the new breed of Net-based services is starting to gain traction. Human resource information systems are the most widely supported, with 63 percent of companies already implementing or planning to implement.
Product development and management systems, marketing program automation and sales force automation offerings are all within a few percentage points of each other, with companies implementing or having intentions to implement from 54 percent to 57 percent. In most cases, smaller businesses were more likely to be implementing or planning to implement such systems; they ranged from 56 percent to 62 percent, while large companies ranged from 44 percent to 51 percent.
Once again, larger businesses had more reasonable expectations for their offerings. Though they were unrealistic in their expectations that profit margins would be increased by process automation systems30 percent hoped for vs. 19 percent achievedfor most other attributes (except for operating cost reductions and faster product/service to market) large companies actually achieved slightly better results than expected.
Small businesses were once again radically off the mark with many of their expectations. Sixty-nine percent thought they'd get better use of business intelligence, while only 41 percent succeeded.
Conclusion 05: Supply Chain Management
IT executives have yet to embrace e-business for supply chain management. The most frequently planned or implemented option is electronic procurement, which only 46 percent have initiated. And 72 percent have no plans to implement strategic sourcing. Overall, businesses are putting few supply chain management systems in place.
Two thirds of large companies are committed to an e-commerce procurement solution. But they're much less interested in other supply chain management offerings. Around 60 percent of those in larger companies have no plans to implement demand forecasting and pricing, logistics, so-called strategic sourcing orthe buzzword of early B2Belectronic marketplaces. Small businesses significantly drag down the averages for electronic procurement and strategic sourcing. Sixty-two percent have no intention of implementing e-procurement, and 78 percent don't plan to implement strategic sourcing solutions.
While many larger businesses missed their goals for decreasing operating costs (96 percent expected gains, while only 81 percent achieved them) and increasing profit margins (53 percent expected, 31 percent achieved), these losses were balanced out by surprising gains in getting products and services to market more quickly (37 percent expected, 56 percent achieved) and creating new lines of business or products (22 percent vs. 38 percent).
E-business is alive and well. It's a significant focus of IT executivesa number of systems are in place, and a few are generating greater benefits than expected. E-commerce systems are becoming more commonplace, and the uptick in focus on customer satisfaction suggests that e-CRM systems will continue to be rolled out. However, there are still holes to be filled in. Supply chain efforts will be the last major arena for significant implementations. And if our respondents are any indication, it's unrealistic to anticipate exceptional increases in revenue or decreases in costs. Instead, focus on harder- to-measure but still valuable goals like increasing customer satisfaction or creating new lines of business.
How the survey was done: CIO Insight designed the e-business survey in partnership with Survey.com, a San Jose, Calif.-based supplier of custom online research services. CIOs, chief technology officers and vice presidents of information technology and services from a number of sources, including third-party lists and other Ziff Davis Media publications, were invited to participate in the study by e-mail. The survey was then posted on a password-protected Internet site, and 403 people responded between Oct. 15 and Oct. 17, 2001.