Laying the Bricks to Click on Success

SINGAPORE (07/17/2000) - Now that the dot-com fever is breaking into a sweat, investors are dripping with anxiety as they watch the value of dot-coms fluctuate unpredictably in a highly temperamental high-tech market.

Is the old business of brick-and-mortar winning out? Or will the hybrid of clicks and bricks do the trick?

Moving to a click-and-mortar model opens the door to new business and organizational possibilities, and paves the way for new partnerships and "inter-enterprise connections", said Terence Chan, executive vice president and Singapore's managing director, SAP AG. "No forward-looking company today can afford to ignore the potential of the Internet to redefine business-to-consumer and business-to-business services," Chan said.

"The options for a traditional brick-and-mortar company looking to the Internet are nearly limitless, whether it is to grow core businesses, fight competition, or to build entirely new businesses."

For the "bricks" companies, embracing an e-business strategy would mean extending their business reach and scope to the Internet, said Ramon Jocson, general manager, IBM Global Services Asean/South Asia. They will then be able to add new commercial dimensions to their existing relationships, Jocson aid. In particular, they will be able to take advantage of identified customer sets or enhance linkages with business partners, he added.

"Given the proliferation of dot-coms, the process of establishing and mining relationships will become the prime challenge for established businesses to increase their pool of new customers and further competitive advantage," he explained.

The obvious advantage of a move to the Internet is great market awareness and penetration, said Ross Eades, director for vertical support group, JD Edwards Asia-Pacific. But before moving from bricks to clicks, businesses must first consider the transition very carefully, where it is not sufficient merely to build a home page or an online storefront, Eades cautioned.

"If a company wants to penetrate the market in this manner, then it must have a fulfilment engine to deliver the promises posted on the Web page," he said.

At the same time, the industry is seeing major "click" companies move more into the traditional methods of operating where, for example, Amazon.com is now investing in distribution centers and beginning to hold inventory of popular products, he noted.

"While a company today needs to have an Internet face to the world, it must not forget about its bricks background," Eades said. "In other words, the important thing is to concentrate on both bricks and clicks."

He cited last year's Christmas in the U.S. during which the retail market there drew in US$700 billion, only 10 percent of which was transacted over the Internet. In other words, an overwhelming 90 percent of retail business in the U.S. was transacted in traditional, physical stores, he noted.

"Can a company then hope to move to the Internet and forget the traditional ways of doing business when 90 percent of business is done in the traditional manner? We think not," he argued.

And while a click-and-mortar infrastructure may be ideal for some, it may not be necessary for others, Chan noted. For example, Internet banks in the United States have found it necessary to open physical outlets once their business has expanded to a certain size, he explained. Other businesses such as e-auctions may have no need to do so because their business model is built around the click strategy.

Companies moving from bricks to clicks have the advantage of strong brand name recognition, where the public are assured of "a genuine company behind that Web site, and not just some other fly-by-night operation which might vanish from the Web the next minute," said Philip Sim, managing director, Sino-America (UIC) Tours.

For clicks-to-bricks organizations, it is about capturing the market segment that has yet to go online, Sim added. It also offers customers a convenient way to return goods, try out products or simply getting good advice in person, he said.

"While a transition from clicks to bricks can bring some benefits, like increased real-world visibility, the jury is still out as to whether click-based businesses can ultimately survive and thrive without combining with the brick world," Chan said.

"Studies show that any technology advantage will only last for at least six months before other competitors can copy the same model," Jocson noted. What matters then, is the company's ability to build on that technological advantage and establish other competencies, some of which are based on the "brick world" concept of alliances, be it in fulfilment, marketing, or customer acquisition and retention, he explained.

But ultimately, the decision to brick, click, or blend hinges on the organization's needs and objectives.

Whether to go "click" or "brick" depends on the company's business requirements and model, said Soohaeng Oh, director of electronic commerce, Intel Asia-Pacific. There are businesses that may not require a physical infrastructure, such as stock trading, Oh added.

One of the mistakes a lot of companies make is thinking that they need to go one way or the other, which is not really the case, urged Rowan Schaaf, group marketing director, Ixonet.

"As long as you know what your business is, the technologies out there, and who your customers are, look at your business and decide what's best for you," Schaaf said. "In most cases, it's going to be a blend of (bricks and clicks)."

For Chew Keng Wah, chief executive officer of Logipolis.com, the answer is very clear - try both.

The question is not whether to adopt a "bricks or clicks" model since having both would be the way to go, Chew said. The real question is whether "brick" companies should build their own or work with "click" companies to achieve the same effect, he added.

For Internet companies that are developing e-businesses in Asia, some of the challenges they face include developing strong brand equity, finding a market niche, and identifying the right alliance partners, said Mark Stevens, CEO, NetCel360 Singapore.

Meanwhile, brick-and-mortar companies have to find the best method to gain alignment and integrate their online and offline strategies, whilst achieving speed to market, Stevens added.

For "both clicks and bricks", Asia's complexities present additional significant challenges from managing differences in language, culture, currencies, and infrastructure development through to diverse business and political environments, he noted.

Make sure that the underlying software system is one integrated network that covers every link in the supply chain from first customer contact, be it through the Web, telephone or in a store, to order taking, to procurement/production, to fulfilment, to customer relationship management, said Henrik Jeberg, Managing Director, Navision Software SEA.

"The challenge today is not about bolting 10 different subsystems from different vendors together to form a workable solution," Jeberg said. "The challenge is in providing a flexible solution that can adapt to changing requirements, for example, when the customer wants to grow or change in terms of new procedures, markets, or products."

"If the system consists of isolated silos of information, they have to start the whole integration process all over again, and change many different components in the system," he said.

It is absolutely critical to ensure that ultimately, organizations must realize that they are doing "e-business, not e-commerce", which does not mean simply putting up the presence of an online storefront, advised Koh Weng Him, director of strategic services, Organic Singapore.

But how worried should companies be about whether their online sales will cannibalize their traditional offline sales? JD Edwards' Eades does not see online sales channel gnawing dangerously at the bits of a company's traditional offline sales, referring again to last Christmas' retail earnings in the United States.

"The total sales has remained constant or gone up over the past three years, where only a small percentage were transacted via the Internet," he said. "Therefore it is reasonable to assume that people still like to buy from people, and they want personal contact and attention when selecting products."

"A company that wants to implement a bricks-and-clicks operation should consider how the two environments can complement each other, not how they can compete," he noted.

And business should worry about not having any sales at all, rather than about where the sales are coming from, said Steven Tan, territory marketing manager, WRQ Software Asia-Pacific.

"Companies should view online channel as an additional way to increase sales and revenues," said Noelene Lim, business development manager, eBusiness solution, Asia-Pacific, i2 Technologies.

"Online customers are in a different market segment from customers of traditional offline sales," Lim said. "If customer profiling and target marketing are implemented correctly, there are great benefits to both online and offline sales."

It will balance out, said Geoffrey Maclean, executive vice president, business development, Carlson Marketing Group Asia-Pacific. Although some offline customers will move online, there will also be new online customers, Maclean said.

When developing an e-business strategy, companies must carefully evaluate both the existing brick-and-mortar channel and direct online sales, said Boey Chern Yue, small medium businesses manager, Business Customer Sales Organization, HP Sales Singapore. Boey added that channel integration and implementation has to be wrapped around the company's strategy.

"Initially, some companies may face the risk of a fall in revenues during the transition to click-and-mortar due to channel conflicts," he noted. "Having said that, e-business is not just about selling over the Internet. The next phase of the Internet will move beyond the buying and selling of products."

"With the pervasiveness of the Internet, the world economy will evolve over time to the point where virtually all appliances are e-services enabled, where trillions of dollars of the economy are delivered via e-services and all infrastructures are optimized to deliver on e-services."

In the long-term, going online will only bring greater sources of revenue and business opportunity for companies, Boey assured.

Companies that have "a conscious and well-planned strategy to go ‘click'" have nothing to worry about, specifically if they have considered factors such as introducing new online revenue streams, partnerships, and product lines, that were impossible before the Internet, Koh said.

Businesses should focus on how to add "extension, not replacement" to the value chain, he explained.

"In any case, if a company does not go online, someone else will do it. Then, you'll lose your offline sales anyway," he added.

"The question is not whether it will cannibalize your business, but how to do it effectively so both streams are working in parallel with each other," Chew urged. "It is better to ‘cannibalize' your own business than to allow your competitors to do it. Rest assured your competitors will."

And ultimately, it is the customers and the need to meet their demands that is vital for businesses today.

In today's Internet economy, customers have more freedom and more choice, where if their expectations are not fulfilled, "they will defect", Chan said. "In the online world, more so than in the brick-and-mortar world, branding becomes more than just advertising," he explained. "It's all about a customer experience. How companies deliver and fulfill customer expectations is more critical than ever before."

Whatever the strategies or methods used, winning the battle for mindshare and market share in the new economy will depend on "understanding and intelligently managing relationships with customers", he urged.

Within the first two weeks of launching its e-business strategy, Intel's customers were "so thrilled with having data at the tips of their fingers", Oh revealed. "But that lasted seven to eight weeks because they then understood it better, and began asking for more."

"So businesses must be mentally ready for that," she said, urging organizations to build an infrastructure that is easily scalable because "you're looking at a fast-growing customer database that will leap from the hundreds to thousands".

The power of e-business is that it provides the one-to-one communication path with the customers, something that does not come by easily, she noted. "So you need to have a system that regularly updates your customers' profiles," Oh added.

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