What to Expect
First movers—the dot.com companies that reached the market first—appeared to win the war for e-market leadership. But in reality, the war has just begun. Although these early entrants have won many battles, we are in the early stages of the conflict between the challengers and the established firms against which they compete. The battlefield is shaped by three dominant factors driving the new economic revolution: the shift from supply chains to demand chains, the emergence of Web and mobile commerce, and the escalating pace of technological innovation. These are just three reasons why business-as-usual has changed forever.
In order to thrive in this dynamic environment, companies must consciously choose the next phase in their growth and evolution: the age of continuously innovating e-business design. In this new era, competition is not primarily between one product versus another or between one technology versus another. The true competition is between the viability of traditional business design in a business environment increasingly dominated by e-business design.
The challenge confronting today's manager is in the creation, execution, and ongoing evolution of a successful e-business design. How do you craft an e-business design? How do you trans form a traditional business design into an e-business design? In this chapter, you'll learn e-business design secrets from three successful market leaders. You'll learn the right questions to ask and the right answers to seek.
e-Business can be a blessing or a curse, depending on your perspective. When asked the main issue they lose sleep over, the majority of winning e-business executives we questioned expressed the following concern. They fear not being proactive and farsighted enough to make smart decisions about where their companies should focus their attention. The reason for this is simple. A CEO can think of many interesting ideas and directions to improve company performance, but the company has the time, resources, and people to implement only the best ones. What if the CEO chooses the wrong cutting-edge concept or strategic path? In a fast-moving environment, every mistake made gets magnified, and few companies, much less their managers, get second chances. We call this architecting e-business.
e-Business success depends on how well company executives make such decisions while crafting an e-business path that was not preordained but that is of their own choosing. When crafting its e- business direction, management must pay careful attention to three interlocking layers: e-business design, e-business application infrastructure, and e-business infostructure (see Figure 4.1).
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Figure 4.1. e-Business Interlocking Layers
e-Business designs are the first-level strategic weapons in the new digital economy. In an environ- ment in which multiple variables—technology, customer requirements, supply chains—are chang- ing simultaneously, the old weapons of differentiation—low cost, quality, and incremental process improvement—are playing a lesser role in sustaining growth. Business design is no longer an op- tional part of corporate strategy; rather, it's the very core. To create an innovative e-business design, you must first answer the following questions.
• What business design can make your customers' shopping and service experiences unique and memorable? —Although it's not easy, a good way to outperform competition is to render it passé by pleasing customers in novel ways. Essentially, that's what e-business is all about. e-Business uses technology and processes to keep the finger on the pulse of the customer. Over and over, we see examples of innovators leapfrogging over competition by delivering better end-to-end service. Total and complete service is important because it's what a customer experiences and, moreover, truly cherishes. When assessing a business design's value, ask yourself whether it meets your customers' priorities not only today but also in the future.
• What capabilities and competencies create rich customer experiences? —This question helps define the capabilities required to match your customers' most important priorities. These deci- sions determine what your customer sees and encounters when interacting with your e-business design. For example, at Dell, value is defined as the convenience of purchasing a high-quality product at a low cost. Making the purchase process convenient has resulted in an explosive growth of Dell's Web-based sales. In the quest for customer-centricity, are you product or proc- ess oriented? How do you sell to the customer—through a sales force, reseller channels, or a call center (direct)?
• In the quest for efficiency, how do you structure your organization for efficiency? —Dell is inno- vative in how it not only sells but also manufactures computers. The company uses a build-to- order (BTO) business model. Dell doesn't start building a machine until an order is received.
This helps keep computer components and finished-computer inventory levels low, which in turn
Thinking e-Business Design: More than Technology 73
controls costs. Understandably, competitors Compaq and IBM are working overtime to replicate Dell's BTO e-business design. In the quest for cycle-time reduction, how much does your com- pany manufacture internally, and how much does it outsource? How do you distribute your product?
Each of these e-business design elements must be in alignment for your company to excel at pro- viding exactly what customers wish to experience when doing business with you. Once this design is in place, you are ready to move to the next level: creating the application infrastructure.
The e-business application infrastructure supports the e-business design by providing the software functionality required for the business design to work. Early in the e-business revolution, many businesses raced onto the Web only to discover—often quite painfully—that having a URL doesn't spell automatic success. If you attempt to win the business of the e-customer without rock-solid, bullet-proof e-commerce applications and back-office integrated systems, you will succeed only in alienating that customer. In order to ensure their e-business success, companies must create a strong application infrastructure foundation from which they can deploy their e-business applica- tions. Addressing enterprise-wide infrastructure needs first means avoiding the integration issues resulting from disparate systems, data formats, and legacy applications.
The e-business infostructure is the structural foundation supporting the application layer. Building a reliable infostructure ensures that applications are working and that online operations are acces- sible and available. A well-built e-business infostructure
• Is a balance of structure and flexibility
• Harnesses, safeguards, manages, and permits use of information in ways that are fast, safe, and simple
• Comprises the technology, utilities (tools), and services needed to enable an uninterrupted flow of commerce
In this chapter, we discuss the why, what, and how of e-business design. We use case studies to illustrate the various aspects of successful e-business designs.
The Race to Create Novel e-Business Designs
Jack Welch, CEO of General Electric, once said, "When the rate of change in the marketplace exceeds the rate of change in the organization, the end is in sight."[1] The demands that corporations place on their managers in charge of corporate strategy have never been greater. CEOs are asking their managements to invent the next generation of breakthrough products, find innovative ways to cut costs and manage channels, and develop a strategy for getting products to market faster—all while achieving quality throughout. More than ever before, corporate strategists responsible for new product and service offerings are held accountable for getting it right the first time, in terms of cost, time to market, and quality. Aside from the obvious competitive pressures, huge dollar amounts are at stake if any of these factors is misread. Choosing the right strategy accelerates market penetration and minimizes cost. Choosing the wrong strategy can cause years of repercussions in cost, quality, customer satisfaction, and supply chain issues—serious problems no amount of tinkering will fix.
The business world provides us with a number of exemplary firms whose management teams dis- cern and implement new strategies with consistent success. Why do some companies always seem to be in the right place at the right time with the right strategy? How does American Express con- tinually improve service in the competitive charge card and business travel markets? How was Dell able to operationally outmaneuver Compaq, IBM, HP, and others in the cutthroat computer industry?
Why are Cisco's competitors losing market share to this innovative supplier of networking gear?
What sets the truly great organizations apart is their ability to use state-of-the-art e-commerce pro- cesses to transform themselves. They do the following three things well.
1. They redefine value for their customers.
2. They build powerful e-business designs that outperform the competitions.
3. They understand customer priorities and consistently raise customer expectations to new heights.
In other words, these companies change the rules of the game with their new business designs.
They use business designs to leverage emerging trends before the rest of the world—and their competitors—catch on. For example, the giant car warehouses CarMax and AutoNation recognized that customers are looking for a more friendly experience in buying a car. Customers want no-hassle treatment, cars at low prices, and a wide selection of new and used vehicles. CarMax and Auto- Nation have reshaped the car dealer network by consciously selling an experience as much as a product.
When transforming a business today, the focus is no longer limited to process improvement. Im- provements in isolated company processes bring only incremental benefits in a new business en- vironment requiring enterprise-wide change at a minimum. Today, the focus of change initiatives has shifted to business redesign. Innovation in business design is gathering momentum with the rise of e-commerce. The retail drug industry provides an excellent example. Drug retailers, such as CVS, Walgreen, and Rite Aid, suddenly faced competition from Internet start-ups, such as drug- store.com and PlanetRx, which sell over-the-counter medicines, medical supplies, and prescription drugs (an $87.8 billion market).[2] The established drug distributors are responding to the e-com- merce threat by revamping their business models. Walgreen customers can also order prescription refills over the Web. Rite Aid not only offers online refills but also uses the Web to remind its cus- tomers when their prescriptions are due to be refilled. Today, members of Merck-Medco Managed Care network, which handles prescriptions for more than 60 million consumers, can refill their orders electronically. Also, Medco is clobbering the online competition. Every week, it processes 80,000 online prescriptions, raking in $10 million in revenues—about what planetrx.com sells in a quarter.
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So, what's the single best next opportunity for your organization to pursue? Business success de- pends on how quickly a company can formulate novel business designs and adapt them to its mar- kets. Incremental process improvements won't work. If you're pressed for time, would you take a horse-drawn carriage if you had the option of taking a car or, better still, an airplane? Today's busi- ness environment is driving the switch to e-business design by demanding not only enterprise-wide change at the individual company level but also total supply chain and marketing channel transfor- mation.