Becoming an Internet Generation Company

The Internet has been described as the most radical innovation of the 20th century — a technology poised to transform every aspect of business. For some companies, that interpretation certainly seems accurate. With their constant network access; standardized and automated online processes; and user-driven, online support services, “Internetworked” businesses operate faster, more flexibly and more precisely than their technology-shy rivals. Such companies also create higher quality products or services at lower cost.

In light of these benefits, we might expect every company in every industry to make the leap to the New Economy. Yet a recent study reveals that there is surprisingly slow overall progress toward Internet-based organization. Drawing on international fieldwork and questionnaire responses from 399 industry executives (primarily from large, well-established corporations), the authors set out to define what it means to be Internetworked, uncover why progress in that direction is slow and generate ideas for accelerating the transition.

To be sure, large companies that already have an IT orientation have long been deeply Internetworked. Specifically, these Internet generation companies (IGCs) have moved management of five key functions — human resources, supplier/ partner dealings, finance, purchasing, and customer and supply-chain operations —online. As one example, more than 85% of Cisco System's orders are placed online, and more than 80% of the company's service inquiries are handled electronically. Cisco reports that it saved $1.5 billion over three years through deep Internetworking.

Even some decidedly non-IT-oriented corporations have reaped substantial benefits from moving their operations online. Consider Caterpillar, the manufacturer of heavy earth-moving equipment. Caterpillar's extensive intranet enables its more than 180 dealers to deliver parts to stranded machines immediately — a capability that has become legendary in its industry.

On the other hand, several industries that could benefit similarly from being Internetworked have shown less inclination to initiate the transition. According to the study, most heavy industries (including auto manufacturing, utilities, and plastics and chemicals) are becoming Internetworked at just half the rate of IT-oriented industries. Financial services (such as banking and insurance) are moving even more slowly.

What explains these patterns? According to the authors, one reason is that the process of transitioning toward Internet-based infrastructures demands extensive time and effort. Aspiring IGCs must advance through three stages before they can consider themselves sufficiently Internetworked.