FRAMINGHAM (04/24/2000) - Step inside a typical e-business and you'll find executives seeking funding, working toward an initial public offering (IPO), courting analysts to bolster their stock price or plotting to sell the company.
The demand to entice and impress investors has never been as widespread in the technology sector as it is now. But investors shouldn't drive your e-business strategy, particularly when it means a company is sacrificing customer value to satisfy investors.
Investors might argue that what's good for them is good for the customer. But establishing a company where the goal is taking it public and turning over major profits for initial investors is very different from building a business based on a long-term, customer-focused vision. Consider the recent Wall Street Journal story about the plan by 14 oil and chemical giants to launch an electronic procurement exchange to reduce supply-chain expenditures. The creation of this exchange, which is open to any oil or chemical company, demonstrates how an industry can collectively leverage the Internet to radically reduce procurement costs. It also raises certain downstream concerns.
Controlling interest in this exchange is in the hands of 14 large corporations.
Assuming this venture succeeds, what guarantees do future participants have that the founders won't dominate the exchange? Say, for example, that you run a small oil company that, along with thousands of other midsize companies, begins to purchase supplies through the exchange. As you dismantle existing supply-chain relationships and expand your use of the new exchange, major investors in the exchange gain significant leverage over you and other small companies. Although the article said no company would dominate the exchange, a small group of the founding members is likely to wield significant board-level control. The company could run up fees, limit supply-chain access, sell the operation or shut down the exchange.
This scenario leaves users of the exchange and their customers open to risks.
But there's an alternative to the IPO strategy. The partnering companies could establish a member-owned organization like the one used to launch Visa in the late 1960s. No member or group of members can dominate Visa, and Visa can't be taken over because it's owned by the 22,000 financial institutions it serves.
Most important, the primary focus of the member-owned enterprise is to serve all participants and customers equally, without the distractions inherent in an investor-driven operation. Building such an organization involves combining chaordic organizing disciplines, pioneered by Visa founder Dee Hock, with the Unifying Systems Model (USM), created by organization development consultant Hina Pendel at US Partners in Santa Cruz, California. (Chaordic organizations effectively leverage order and chaos.)In a member-owned organization, founding companies form a design team, draft a purpose and outline a set of principles under which the company will operate.
The design team then creates an organizational framework and drafts a constitution forming a legal entity. The organization's design is based on USM hub structures where each hub organizes participants, suppliers and customers into functional or regional substructures. New hubs could form, based on a particular need in accordance with organizational principles. Centralized hubs serve as regional and corporate boards. A participating company could join the exchange by agreeing to and abiding by the constitution - and leave whenever it wishes. No company or small group of companies could dominate or take over this organization.
The member-owned concept isn't restricted to supply chains. Virtual marketplaces that sell or trade products and services, application service providers or other customer-driven enterprises could employ this business model.
IT leaders being asked to share information or costs with industry partners should promote the member-owned approach to ensure that a new e-business remains customer- and participant-focused and doesn't cater to investors' whims.
Given analysts' recent souring on technology stocks, this may be the best thing to happen to some of these organizations.