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. They must build bandwidth, or develop the network infrastructure to connect stakeholders; automate and Web-enable the five key functions cited above; and innovate through networking —that is, combine and leverage networking and existing core capabilities to develop leading-edge products and services. Even accomplished companies may take many years to complete that journey. For example, cement manufacturer Cemex began the process in the late 1980s, introducing a Web site in 1995. However, by 2000, less than 10% of the company's IT processes were Web-enabled.

Companies striving for IGC status also encounter numerous obstacles during the transition process. For instance, in a seamlessly networked community, every stakeholder must have access to the network, as well as possess the sophistication and savvy to navigate in it. Not every company boasts that combination of hardware, software and stakeholder “mindware.”

In addition, corporations can't force customers to embrace Internetworking. (Witness people's unexpected reluctance to buy cars online.) For a time, companies may need to maintain dual infrastructures — one to serve those customers who are unwilling to make the transition, the other to make Internet-based channels available to those who are ready to use them.

As another source of friction, companies must engage in meticulous process mapping once they do slate an activity for Web-based conversion. In large companies, multiple legacy systems frequently operate in parallel. Reaching agreement on a standard solution among the many different players takes time.

Finally, the sheer scale of the IGC transformation — and the organizational and leadership skills required to guide and negotiate it — almost guarantees a glacial pace. In big, established companies, the process entails reconfiguring value chains into focused competency areas performed by network members. A company needs sophisticated partnering skills and technical know-how to build and maintain these competencies — while simultaneously leaving small-business units free to transform the activities under their purview. The organization must also call on its project-management talent to facilitate cooperation among business and technical experts as operations are being converted to Web-based infrastructures.

In light of these challenges, what can companies do to ensure that their transformation is as successful and as speedy as possible? The authors offer a number of recommendations centering on leadership, project management and organizational structure. Some suggestions — for example, executives must make the conversion process a top priority — are straightforward. However, others may strike managers as counterintuitive. For instance, the authors encourage corporations to differentiate between operational and strategic IT investments — and to seek gains from both. In addition, they maintain that past IT failures are actually a predictor of future Internetworking success. Thus companies should experiment freely, then leverage what works. Finally, the authors counsel against formulating a complex master plan covering the entire transition process. Rather, companies should Web-enable in digestible pieces and manage them accordingly.

Through a combination of established wisdom and fresh thinking, companies can accelerate their Internetworking journey and reap the primary benefit that the technology offers: the ability to create innovative products and services quickly, inexpensively and profitably.

The January 2002 study is “Building Internet Generation Companies: Dispatch from the Front Lines of the Old Economy” by Peter J. Brews, an assistant professor of information technology and e-commerce at Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, and Christopher L. Tucci, an associate professor of entrepreneurship and innovation at NYU's Stern School of Business.