Is Your E-Business Plan Radical Enough?

During the dot-com frenzy of the late 1990s, most large, traditional companies scrambled to find successful e-business strategies to fight off the aggressive new challengers. Unsure of how to proceed, many turned over their Internet efforts to the CIO and the information-technology organization. In most cases, that was a mistake. However, a few enlightened corporations have made the Internet work for them by assigning e-business efforts to senior-level executives who know the business side intimately — and by placing technology-focused CIOs in the role of partner. Someday all business will be e-business. That’s why it’s important even in an economic downturn for companies to integrate the new e-channel with their other business channels and resist the current temptation to toss Web projects into roomy IT budgets overseen by CIOs.

The new e-business leaders, whether coming from sales, marketing, branding, finance or other business functions, hold in common strong management skills and business insight. Most have little, if any, IT or Internet experience, and not surprisingly, tensions with CIOs often spring up. In the best organizations, a visionary CEO champions e-business over the long term and helps forge strong relationships, but in many cases it’s the e-business leader and the CIO themselves who recognize how much they need each other’s perspective.

How We Got Here

The short, chaotic history of e-business has already taught some useful lessons. For example, particularly in the period 1996 to 1998, many companies learned it’s best not to create a Web presence disconnected from their other channels. Barnes & Noble attempted to take on Amazon.com by splitting off barnesand-noble.com as a completely separate operation from its brick-and-mortar outlets, essentially eliminating its competitive advantage over Amazon: an additional channel with which to reach customers. The strategy bombed.

After the dot-com crash of 2000, CEOs in companies that had failed to create an effective Web presence breathed a sigh of relief. The absurd market capitalizations and attendant stock-option riches disappeared overnight. “Now we can return to business as usual,” many thought.

But the CEOs in our study were different. Having built their e-businesses on traditional business precepts, they rode out the highs and lows. They knew that multichannel shoppers spend more money in each channel than do single-channel shoppers, and they valued the Web as one more desirable channel and as a catalyst for dramatically changing the customer experience. They kept the emphasis on identifying clear paths to online profitability, and they integrated the e-business with the core business.

The Role of the CIO

In the early rush to the Internet, the biggest mistake companies made was to lump the Web effort with IT, to the point that e-business efforts became technology plays rather than business moves. Now, with the economic downturn, even more companies are tempted to park their e-business initiatives in the CIO’s budget. Not only is that a bad idea when one considers how critical is a deep understanding of the company’s business activity and strategy, but it also makes unreasonable demands on the technical staff.

In April 1999, just as most big companies were making significant commitments to e-business projects, InformationWeek and Business Week jointly surveyed 375 senior business and IT executives. In June 1999, the magazines published their results, which showed that IT departments were experiencing intense pressure and stress from e-business responsibilities.

More than 70% of the 250 IT managers surveyed said e-business had put their departments in the middle of decisions about the business, and almost 60% said e-business had forced IT to lead business-process reengineering. In addition, 80% said employees were finding it burdensome to meet the requirements for new skills. Since that survey was conducted, little has changed.

Indeed, the need for IT professionals to become attuned to business and corporate strategy has been discussed ad nauseam since the CIO position came into vogue more than 15 years ago. At that time, IT vice presidents were suddenly supposed to become savvy business leaders and spearhead the drive to a digitized Promised Land. The CIO’s role has been at the center of controversy ever since, with the title covering everything from a strict focus on technical issues to a director-level understanding of business strategy.

On the face of it, the notion that CIOs should successfully harness swiftly changing technology strategies and weave them through global corporations while at the same time becoming knowledgeable general managers is unrealistic. Ensuring that IT keeps the business ticking efficiently is enough of a challenge.

So what is needed is an e-business executive who can reach customers, radically change the customer experience — and demonstrate enough technological understanding to enlist the CIO constructively. If e-business can bring about collaboration between IT departments and business units, companies may be on the verge of settling that long-running tug of war.

Already, despite some inevitable tensions, the partnerships between CIOs and e-business leaders are producing benefits. For example, in the companies we studied, the CIO emerges stronger than ever, a potent partner in the race to Web supremacy; and e-business leaders, having fully incorporated e-business into the organization, work themselves out of a job and move on to other duties. (See “Common Elements of Successful E-Business Companies.”)

Working Oneself Out of a Job

GE Plastics was one business that was ready when, in January 1999, the CEO exhorted all General Electric units to make e-business their highest agenda item.

A $7 billion organization with 15,000 employees, GE Plastics had quietly emerged as one of the company’s Internet innovators. With GE Polymerland, in which the group centralized all its distribution, including Internet distribution, GE Plastics had entered the business-to-business space as early as 1997 by allowing customers to complete transactions online. By June 1999, gepolymerland.com brought in more than $2 million in online orders every week.

But that was just the beginning. Following the January 1999 directive, the Massachusetts-based division recalled 17-year veteran Gerry Podesta from the Asia-Pacific region to be its first e-business czar. Podesta had never worked in IT and had no Internet experience. However, he knew how to run a business, and he shared the corporation’s views on the skills needed for the e-business challenge.

Podesta staffed his new team with both insiders and outsiders. None had e-business experience. “Where would you have gotten it?” he asks. “We outsourced 100% of our Web-development work, so we don’t have a single person on the team who writes HTML. We looked for innovators, hard drivers, people who accept new ideas and go fast. That’s all.”

Working closely with John Seral, who had global responsibility for GE Plastics’ IT, Podesta helped build the e-business quickly. In one year, gepolymerland.com increased its online sales from $100 million to $1.5 billion. In 2001, online sales topped $3 billion.

GE Plastics has an increasing number of online offerings that let customers not only buy plastic resins and track their orders, but also choose colors, speed up transactions or work with engineers who are designing products. But as Podesta notes,“The basic concept of commerce hasn’t changed since the Stone Age. Someone sells something; someone buys something. The Internet may make things more visible, more open, more accessible, easier, but it doesn’t change that basic premise.”

Before Podesta could settle comfortably into his new job, he was kicked upstairs. In October 2000 he was named GE Plastics’ transition leader for the expected Honeywell acquisition. When that deal was scuttled, he moved to his current position as GE Plastics vice president for the Americas. Although his e-business duties were assumed by his assistant and later folded into Seral’s IT unit, Podesta’s position leading the e-business is unlikely to be filled. As he predicted, he worked himself out of a job.

When the CIO “Gets It”

Although the CIO may not be the best person to lead the e-business effort, sometimes a CIO’s insight is the secret weapon. General Motors CEO Rick Wagoner was quick to grasp that principle. He gave a prominent role to CIO Ralph Szygenda, even though he made GM veteran Mark Hogan the e-business leader.

Wagoner saw e-business as the last best hope to return the shine to a once dominant American icon, one that had been losing market share rapidly over a decade. He wanted the Internet integrated into every function and even into every GM vehicle.

Most people may not view GM as an Internet innovator, but Wagoner’s crusade has produced remarkable results. Every hour, 2,200 people visit the company’s consumer Web site, 125 people contact a GM dealer online, and one out of five buys a new GM product. Dealers average 1,000 leads daily through GM BuyPower, and the site has influenced 1 million sales. In 2000 alone, sales attributed to the Web site accounted for $8 billion in additional revenue. And 25,000 vehicles have been sold online to foreign consumers. Online technology, coupled with new design processes, has helped reduce GM’s product-development time from 48 to 18 months, saving $1 billion in engineering costs, and new, math-based data are enabling collaboration with engineering teams and suppliers worldwide.

Much of that success is due to the fact that Hogan, a strong manager, is known and respected throughout the company.“Most of the doors are open when I come,” he comments. But although a company cannot do without an e-business leader who understands business, the key to the new model is that rare CIO who also “gets it.” Szygenda, who had overhauled GM’s entire IT infrastructure after becoming CIO in 1996, is an example. He immediately grasped the potential of e-business.

When Szygenda first arrived, he made some IT changes that later benefited the e-business efforts. Taking IT responsibility away from the consulting firm that GM had recently spun off, Szygenda rebuilt the IT function piece by piece, outsourcing much of it to selected IT vendors, especially those that understood the Internet and might prove useful later. He eliminated more than half of GM’s 6,000 information systems, saving $1 billion, and scoured the world for 200 IT executives who had extensive business experience. Then he inserted his experts into every GM business unit and ensured that they reported directly to the unit presidents.

He also persuaded Wagoner to hire managers he called “process information officers.” These new executives had IT responsibility for engineering, manufacturing, sales, service and marketing, functions that crossed many business units. The approach not only helped link people, but also provided checks and balances. “In every business unit, I then had a horizontal and vertical view, and if there was a problem, I’d always get two different opinions,” Szygenda says. His work ultimately furthered the goal of making every business manager at GM an e-business manager.

GM’s success online is, of course, tempered by the realities of quarterly earnings pressure and a slow economy that has hit Detroit hard. But with the partnership between a CIO who understands business needs (Szygenda) and a traditional GM leader quick to absorb the technological ideas (Hogan), the company has a powerful model. Not that there are no conflicts. Figuring prominently in Hogan’s observations that may help other e-business leaders is the likelihood of disagreements with the IT folks. But he says GM is lucky to have a strong IT group and insists that without its strength, the e-business effort would be in vain. (See “Advice From an E-Business Leader.”)

Victoria’s Surprising Secret

The secret of e-business success at Victoria’s Secret, a women’s lingerie and sleepwear company, is men. Particularly bashful men who feel uncomfortable asking salespeople for help when buying lingerie gifts in retail stores. Mail-order catalogs would help these men shop at home, but how could Victoria’s Secret deliver catalogs to these unidentified potential customers? The Victoria’s Secret story is similar to yet different from other large companies’ e-business stories.

In developing its Web site (and eventually rescuing male shoppers from acute embarrassment), Victoria’s Secret adhered to a simple principle: The brand drives the Web site, the Web site doesn’t drive the brand. Even Jon Ricker, the CIO, talks more like a vice president of marketing than an IT engineer.“The Holy Grail for us is to provide the same brand equity across all three channels — retail stores, catalogs and online,” he says. “That’s how you win.”

From the start, such understanding from a CIO made the job easier for Dan Finkelman. Finkelman is the vice president in charge of brand development for parent company Intimate Brands and the person who launched the e-business initiative at Victoria’s Secret. Like other leaders we studied, both men knew what the key value proposition of the e-business effort had to be. As Finkelman told the IT team, “I don’t want to see anyone’s picture on the cover of Geek Today touting our Web site. Our objective isn’t to win any technology awards. Our objective is to make our customers happy.”

Ricker’s team knew that Victoria’s Secret was perfect for the Web. Possessing a brand that was highly visual, easy to display and prestigious, the company had a huge advantage over startup dot-coms, because it already boasted a fulfillment infrastructure for its catalog business. Finkelman hired an outside design firm to build the Web site in late 1998 and launched it before Christmas.

Ironically, it was a massive technology failure that gave the e-business its big boost. Before Ricker’s team had fully analyzed the likely impact of the new site, Finkelman and the Intimate Brands president of brand and creative services decided to produce a live Webcast of a Victoria’s Secret fashion show in February 1999. One 30-second Super Bowl commercial generated unprecedented interest in the Webcast, which occurred two weeks later. The site and its technological underpinnings suffered a meltdown when more than 1 million people tried to access the site simultaneously.

But the resulting avalanche of publicity was a boon, and the technology failure merely energized Ricker. The IT team went back to the drawing board and made the necessary fixes. Ricker has reason to be proud of the results. Within a year, Victoria’s Secret was able to collect more than 3 million e-mail addresses from customers willing to receive shopping updates, had reenergized the company’s 1,000 retail stores and, importantly, had given men a place to buy gifts. During holiday buying, the company registers a huge spike and has identified 60% of sales during those periods as being to men — triple the usual number.

The site also is playing a role in the globalization of Victoria’s Secret, which has expanded its sales to 140 countries without laying a single brick. “Building brick and mortar overseas doesn’t always deliver the results you want,” Ricker says. “Customer expectations have changed and the process has changed.”

Still Time To Reconsider

An economic downturn sometimes offers laggards a chance to get back into the game. Large companies with ineffective Web presences should take advantage of the current window of opportunity to improve e-business. That means resisting the temptation to fob it off on the IT department. It needs to be treated as a long-term, strategic, integral part of the enterprise.

The few traditional companies that have successful e-business operations offer valuable lessons: Integrate the new channel with other channels, build on your strengths, don’t let technical considerations be the tail that wags the dog, and find a CIO who thinks like a business leader. And as Meg Whitman, the president and CEO of Internet success eBay, has said about the person who should lead the Internet effort, “You can teach the dot-com stuff quickly, but you can’t teach the business quickly, so hire someone who knows the business.”