Conventional companies will perish in the e-commerce world, unless they can forge strong partnerships that provide robust and diverse service offerings, said Des Lee at the third annual CIO Magazine Conference yesterday.
In outlining the brave new world and its potential dangers, Lee, who is a partner in the UK-based Information Group, provided the following boardroom scenario.
"Our margins have taken a hit for the third straight quarter. Our competitors are talking to our customers in their own homes! Infrastructure? We spent millions on those damned computer systems! Are you telling me we don't have enough information to run this business?"
The scenario, Lee suggested, would be the downfall of companies who failed to recognise the power of the partnership. The conversation might be imaginary but, asked Lee, "does it sound familiar?" To the 150 CIOs present, it undoubtedly did, if their reaction was a fair indicator.
Lee said that when the performance of IT-reliant businesses starts to fall, it's often the CIO who gets the blame. He said that given the growing importance of e-commerce in the New Economy, partnerships would become too powerful to resist.
E-commerce savings can be immense, said Lee. Take banks: one analysis found the typical cost of a counter transaction done by humans to be $1.07; the same transaction done on the internet would cost no more than 10 cents.
He said that e-commerce had lowered the costs for retailing, telcos and manufacturing; yet insurance company costs, for example, had gone up.
"Insurance businesses have had increased costs because they (in common with 80 per cent of CEOs surveyed recently) don't have a strategy for dealing with customers directly (via e-commerce). They risk losing out to dotcoms with low capitalisation and overheads," he said.
Strategic partnerships have, according to Lee, the ability to fight back. Alliances such as that between the British banks NatWest and the Bank of Scotland realised significant savings, with 30 per cent staff reductions and the closure of many duplicate branches.
Lee also cited the alliance between pharmaceutical giants Glaxo-Wellcome and Smith-Kline Beecham as an example of a partnership that "got it right", where company cultures, management structures and technology platforms were well matched. On the other hand, he noted that the association of BMW and Rover, both makers of excellent products, hemorrhaged money after their alliance was formed.
In fact, 58 per cent of mergers and acquisitions don't work, Lee said.
"Potential partners must ask themselves: Do we want to save money or increase earnings? Augment or replace existing sales channels? Increase market share? Raise awareness and educate our customers? Advertise? Enhance customer service? They must know who their target audience is, and how they want to reach them, and they mustn't be afraid of building relationships with traditional rivals."
Lee closed by advising the CIOs to ensure that there was clear input into their organisations' e-commerce and partnering strategies. They should be "architects", not just "plumbers".