Impact of E-Commerce on Strategic Planning

TORONTO (06/27/2000) - Electronic commerce is not only changing the shape of the business landscape, it's also having a profound effect on the IT organization. We brought together five Canadian IT executives and one executive from the business side to discuss how e-commerce is impacting the IT decision-making and planning process, and how it is changing the relationship between IT and the business.

ROUNDTABLE PARTICIPANTS:

- Tom Atkins (moderator), Director of E-Commerce Strategy, Sierra Systems Group Inc. - Gary Comerford, VP International Marketing, Sun Life of Canada - Nancy Dudgeon, VP Consulting Services, Information Services, Manulife Financial - John Lahey, Senior VP Electronic Commerce, Canadian Imperial Bank of Commerce - Mark Saunders, Senior VP & CIO, BMO Nesbitt Burns - John Smith, Senior VP & CIO, Sears Canada - John Wilson, VP & CIO, Clarke ATKINS (moderator): You are all placing multiple bets, looking for that winning technology or process that is going to help your organization make that quantum leap. How do you deal with the portfolio management of those multiple bets from a technological, a business and an investment perspective?

DUDGEON: On the business model front, I think multiple bets definitely need to be made. There are a lot of new players and a lot of new types of organizations out there, and not to invest in multiple options at the same time would severely limit our position. At the same time, on the technology front, the need to start looking for better synergies across divisions globally and to ensure protection of the brand globally necessitates managing the multiple options. There isn't a formal process for doing this, but there's definitely a need for IT to be there, and for the CIO to play a lead integrating role. IT has to be close to the business, to understand what the various bets are, and to make sure that the business is well aware of implications of the various choices.

WILSON: In terms of transaction processing, it's hard to make a bad bet these days. Where the real issue around bets comes in is when you look at the new portals and new partnerships that are being formed between competitors within an industry. Six large players form a new company and start to do buying on behalf of themselves and others in the industry. What does that mean to you? Do you want to partner with them? Do you want to use those services? ASPs are starting to bring good technology applications to the industry. Do you want to scrap what you have in house? Do you want to align the company with that ASP and start to use their product? There's a huge fight going on in many industries as to who can connect all of the customers and suppliers and be the first to do that. The role of the CIO is to help make the bet as to who is going to be the winner at the end of the day. That's a tough role.

LAHEY: The most important thing is that you have a very clear view of what you are trying to accomplish from a customer perspective. From the technology forays that I've seen, when they end up going badly it's often because the objectives and the intent at the front end weren't well defined. I don't think there is any substitute for a well thought out plan. You don't have six months to think out a plan any more, but you still have to go through the basic fundamentals to understand what it is you're trying to accomplish and how technology can enable you to get there. So I think the presence of a very clear vision and reasonably clear metrics and indicators as to whether or not you are successful is important in evaluating technology investments.

SMITH: Although Sears has moved into the Web business, we haven't gone through the process that a number of the new E-commerce companies have of trying to create a whole new system. We've utilized much of what we already had, whether it's buying merchandise from a variety of suppliers, storing of products, distribution, or delivery through to the consumer. The front-end presentation is a little different and we've offered the consumer new ways of making a purchase from us, but we haven't changed many of the other things. Not to say that we aren't investing in new technologies. We give them careful consideration and select ones that we can leverage across the entire business.

COMERFORD: I see three courses of action. You can be a pioneer, where you make the big bet and do the development; you can be an early adopter; or you can be a fast follower, which in today's market is an oxymoron. There's precious little time between being a pioneer and an early adopter. At Sun Life we're not looking to throw in money in that pioneering sense. We're looking more to ride the coattails of what we see as the beginnings of success. By being early adopters we may be able to offer our clients something just a little faster and a little better than our competitors. If we wait for four or five of our competitors to do it, we have lost that competitive advantage. So there is a rhythm here; you can't afford to get in too soon but if you wait too long, you're not going to be one of the winners.

ATKINS: Is Electronic Commerce bringing the business and IT closer together in the strategic planning process?

SAUNDERS: Electronic transactions have made a big difference in terms of how we do business at BMO Nesbitt Burns. There is a much tighter coupling of business and IT; we're joined at the hip. There isn't a business strategy that happens in our company that doesn't involve technology. As a result, the business realizes that it can't be successful without technology. So it's helped break down some of the boundaries that once existed. IT used to be viewed as a support organization; now it's viewed as an enabler to the business.

LAHEY: The business and IT have to get closer. If you're not adding value, you just get ignored in the whole process -- the business leaders will go off and do what they need to do. So you need to find a way to interact with them. I think what's really driving the two together is how much power is being put in the hands of the consumer. That is fundamentally shifting some of the basic assumptions around how you do business. So one of the biggest challenges in strategic planning is getting your mind out of the box that your company has been in for a long time. IT professionals have a unique role to play in helping business figure out what to do with the increasing power of the customer.

COMERFORD: I'm the guy at the other end -- in the business unit that's evolving and changing. The world I live in is a lot different than it was five years ago when we would use information technology to make things faster, less costly, more efficient -- those were the prime drivers. Today that's just the ante to get into the game. The individual in charge of IT was looked on as an important contributor and enabler in getting things done. That role has changed dramatically -- from being a participant to being a leader. CIOs have to enable the business unit to move forward. They have to really understand the business and where it's going, where the business is changing.

ATKINS: Is the strategic planning process in your organization becoming more of an ongoing function rather than an annual or bi-annual event?

SAUNDERS: It's very much a combination of tactical and strategic planning, and you have to strike that balance in the middle. The traditional method of IT going away and coming back in three years with a solution is not acceptable any more. We're doing electronic commerce initiatives now that go to market within six months of the initial thinking around them. At BMO Nesbitt Burns we have a three-year technology plan that's a roadmap of where we are trying to head. But at the same time you have to be realistic enough to know that you are going to have short-term tactical things that are going to cause you to bob and weave along the way, so it's very much an iterative strategic planning process. You start off with your budgeting process but at the end of the day you always spend more. The chief operating officer will throw me another few million and say "Let's do this or that along the way." And we do it.

WILSON: The business strategic plan is in a state of upheaval right now, and it's the new economy that's doing that, particularly for supply-chain oriented companies. There are so many different business models out there.

Intermediaries are suddenly disappearing. Three years from now, if you look at the business models that your company has embraced and compare them with what you started with, I don't think you'll find much of a match. Everything is changing so rapidly that you'd better have your infrastructure in place and it had better be solid -- then the flexibility that you build on top of it can shift and change with new opportunities that present themselves.

SMITH: You get some that say, "Why do a strategic plan? If we plan today for even three years down the road, it's going to change." Yes, it will, but it's important to look that far ahead in order to create a vision of what you are going to do in that timeframe -- what things are going to be important, what direction you should move in so that you will be able to serve your customers more effectively. But at the same time, you are always looking at new customer requirements and new competitors arriving on the scene, and figuring out how to respond to them. So strategic planning is not like it once was, when you spent a month building it and said, "Okay, now that job is done for a year." You're always tuning it now, based on what's going on.

DUDGEON: We need to promote strategic thinking and make it a part of day-to-day leadership. The variation in terms of customer demands and the impact of different levels of technology enablement mean that we have to be living the strategic plan. It can't even be monthly; it's got to happen daily in all the decisions that we make. We need to encourage the right kinds of flexibility, as well as to forward new kinds of business cases and models. We have to have regular discussions around funding alternatives, and we need to have leadership that encourages the right kind of risk-taking.

ATKINS: Is an annual budgeting process frequent enough to support your business planning?

WILSON: Yes it is. You do the traditional budgeting process on an annual basis but the caveat is always there that if an opportunity comes along you can change those numbers. They aren't cast in stone. The business doesn't stop and say, "There are no dollars in the budget. We can't go there." Most organizations are flexible enough to shift gears based on new opportunities.

SAUNDERS: A new term that has emerged in our organization is the "sidebook".

That's the area where all of these other things wind up. I'm wondering how long it's going to be before my sidebook at the end of the year is going to be bigger than my original IT budget. It's very fluid. It has to be, due to the dynamic nature of our business.

COMERFORD: I really like the notion of the sidebook, and I think it's going to be more of a necessity than a "nice to have" in the future. We've done a lot of our tactical planning on a yearly basis, and I see that as becoming a quarterly activity. We have to be prepared to cut off those ideas that were good six months ago, but that just aren't up to snuff today.

ATKINS: Words like scalability and robustness have never been in the strategic plan before and I've heard them a couple of times this morning as being quite strategic in terms of moving quickly in your businesses. How do those words start figuring into the strategic context today?

DUDGEON: There's no question that reliability, scalability, and availability are all absolutely essential in the E-business world. I've heard one company say that they will make sure that they have enough capacity for 50 times headroom. That's a very serious commitment and it gives a sense of what some very active E-commerce organizations are saying about volatility and its impact. Once companies have determined what is going to be necessary, they have to take a very hard look at whether that's core to where their strengths are, where they are heading, and where they should and shouldn't be investing.

Whenever there is a major transition that needs to be made, you need to think about the alternatives.

SMITH: Business is still about buying and servicing and selling. All E-commerce is doing is enabling the capability for those activities to happen faster and in new ways that they couldn't in the past. When people talk about scalability it's generally because they were burned -- they didn't do the planning. If you do a promotional activity, obviously you are going to sell a lot more than you would normally. Do you have the resources in place to deal with those peaks?

The important thing is thinking those issues through beforehand and understanding the impact in terms of your customers' behaviour. By understanding your customers and how they will respond to your business initiatives you will be able to put in place the resources required to effectively serve all customers.

SAUNDERS: In our business, there is obviously a big issue around scalability and robustness. In March BMO Nesbitt Burns did a million and a half trades, about triple what we did a year ago. The impact of that on your infrastructure is critical because customers come to rely on that service being there. If the market is heading south, you have to be there when the customer needs you the most. That's very critical for us. When we do capacity planning, we're typically doing five times current in terms of headroom to give us that capability. We spend a huge amount of money on redundancy and fail-over capabilities. But there is no sure bet in this. You will find that you are going to have problems. You just have to work hard to minimize them and mitigate some of those risks.

LAHEY: One of the biggest worries I have with scalability and robustness is how much you have to invest to have them, against what you can actually make. Take the discount brokerage business, for example. The price you can charge to trade is continuing to go down because the business has become commoditized. It's dependent on very high volumes to generate the revenues to pay for all the infrastructure. What happens if the volumes die? You have to be really careful about the degree of scalability and robustness that you're prepared to invest in. No matter what you put on the table, that then becomes the standard and the consumer will want more. This is where the CIO interacting with the business is very important. You still have to make money at this. If you can't, what's the point?

COMERFORD: My attitude as a consumer is, "I don't care; I just want dial tone."

Business units expect dial tone. In order to protect yourself, you build scalability or size to the point that you achieve a safety factor. On the other hand, the business unit can't afford that any more. So that's where it comes together -- on the money side. But I think there is always going to be an impatience between the business unit and the technology provider because there is an expectation that it's just dial tone. While it's got to be there, it doesn't add one new customer or a single dollar to the bottom line.

ATKINS: One of your primary objectives is finding ways to serve your customers better, and hopefully being more profitable as a result of doing that. How successful is technology at enhancing those traditional client relationships?

WILSON: Like a lot of other firms, Clarke is constantly trying to measure which method of customer service best enhances client relationships. There is a vast array of responses coming back. Some clients, who have always been hungry for information and control, have embraced e-business. Others have not. There are still those who like to form a relationship, like to know who they were talking to, and must know who they can hold accountable for the business being transacted. This has created a segregation of our customer base. In an industry survey conducted recently, we found 83 per cent of respondents said they would prefer to pick up the phone and talk to a person about an issue, rather than go on to a Web site and deal with it there. That's a significant number. There is a barrier there in how fast we are going to be able to evolve to the new ways of doing e-business. At the end of the day, it's about dealing with the customer in a way that he or she wants to be dealt with.

SMITH: If you find a way to serve the customer in every way imaginable, you will discover that the customer, depending on the activity that he or she wants to carry out, may do business with you in lots of different ways. Very few customers will do business with you only in one way. In our experience at Sears, customers that do business with us through multiple channels are actually better customers. They spend more money in each of those channels than customers who only deal in one channel. We think it's because we give them that flexibility. We enhance the overall relationship. We instill a greater sense of confidence in their mind that we can meet their needs.

LAHEY: The important thing is to keep very close tabs on what your value proposition is to your customer. Sometimes technology is central to it, as in the case of President's Choice Financial, where we offer virtually no personal service. In return, the customer gets low price, high interest on savings, and value points with Loblaws, so the value proposition requires a full range of electronically based choices. On the bricks-and-mortar retail side, the only thing that you're putting in front of the customer that's distinguishable from everybody else is the person. Technology then becomes an enabler, a support.

You want to use it to dramatically enhance the customer's face-to-face experience. So it's important to be really clear about what distinguishes us from our competitors, and to use technology in the appropriate way - either central to the offer or as an adjunct or enabler to it. It can be very different depending on what game you're playing.

DUDGEON: The ultimate promise of doing business electronically is to forward the notion of "markets of one" -- meaning the whole customer experience, from design of the product through to after-sales service. All of the technologies that are available now need to be brought to bear to deliver the specific value proposition that an organization has for its particular customer base. That is putting the power where it belongs, in the hands of the customers.

ATKINS: In two years, what will the CIO's role be?

WILSON: The CIO will remain a key member of the executive team as it is now.

Their role will be enhanced with the responsibility for the development of technology partnerships required to support new business models with greater reach into the marketplace. Whether it's called the CIO or something else, it's a role that starts to have a broader vision than just looking internally at the company and its immediate customers. It has to do with starting to recognize the range of capabilities that exist out in the marketplace and determining how best to assemble the correct partnerships to bring greater value to the customer.

DUDGEON: The role of the CIO could follow one of two paths. First, the CIO may become an integral part of the business management team, even more so than in today's most integrated corporations. He or she will understand the drivers of the business every bit as well as the leader of the business, will have a specific focus on understanding new business model opportunities, and will have a strong ability to assess and articulate the risks, opportunities and management strategies around them. The CIO will also be, much more so than today, a broker of new kinds of corporate relationships, employment relationships and so on. The alternative is that there is no CIO as a continuous development from today; instead, the business leaders will be so knowledgeable about the new opportunities associated with technology that they will be able to do a lot of that strategic leadership themselves. They will be looking for a senior technology officer to support them in that regard.

LAHEY: I think the CEO will be the CIO. Technology is so much a part of the whole spectrum of doing business that the notion that it's somehow a separate organizational function from running the business, overtime, I think, will disappear. There will be a real need for that chief technology officer in terms of understanding how to harness the available technology. The timeframe will be different from company to company, but the notion of information as a strategic resource will increasingly become the responsibility of the CEO.

COMERFORD: I'm not sure that the role will be that much different two years from now. As for the CEO being CIO, will that CEO have time to do all that is required? I still see a separate role in most large organizations. But the CIO will be a very important contributor -- the word that comes to me is a leader.

As a member of the executive team that runs the business, the CIO has an important role to play because many of the things that we are going to be moving towards are going to be made possible because of technology.

SMITH: In organizations today, I see more and more team-based activities. It's not the role or the job description of one position or another to define how things get done, but it's the talents, experience and capabilities that individuals bring to the team. The CIO is generally a member of the executive team. Because of the background of the CIO, he may have a perspective on technology and what it can do that allows him to bring a different type of thinking to the boardroom discussion. It's this that is going to continue to evolve. I don't think it's going to drive a major change in the role of the CIO.

SAUNDERS: If we continue on the same trajectory that we've been on, I just see more of the same -- CIOs being drawn into the business forum, being the business partner. And then there is the emergence of mini-CIOs. In my organization, all my VPs are like mini-CIOs working with the heads of businesses. A lot of businesses that we support are very different. We have institutional businesses, mutual fund businesses, term deposit businesses, broker businesses, and all of them have their own dynamics and are sizeable businesses. Those people now sit on the management teams of those businesses, so there is almost a hierarchy of CIOs evolving.

ATKINS: You are all in industries where you've had to think about E-commerce for two or three years. What advice would you give those who are coming behind you who are just starting to think about this now?

SMITH: Keep a very open mind. Continually scan the horizon to see what's out there. There are new business models and new ways of getting things done that traditional approaches would never imagine. Don't hesitate to experiment and learn from your experiences -- otherwise you are putting your organization dangerously at risk.

SAUNDERS: It won't play out the way you think it will. So when you are making your pitch to your CEO about how much you need to spend, what standard you are going to use, and why this is all going to be good, remember that you will be rebuilding that application in probably 18 months. So start small and start with some flexibility.

WILSON: Don't try to do it all yourself. The market has become so big and is changing so fast that you need to find the right partners -- partners you can trust, that are well plugged in to your marketplace, that can bring skill sets that you don't have and probably won't be able to hire. So pick your partners well and look at building your business with them.

COMERFORD: I see it as a game of snakes and ladders, and the advice I would give is to look for the ladders. The keyword is partnering; don't invent. If you are just starting now, look for partners who have been there and have proven track records. Look for the ladders.

DUDGEON: Really understand your business well. Really understand what your differentiating value proposition is going to be. Partner very closely with the business to bring opportunities and new perspectives on evolving business to bear.

LAHEY: Keep it simple. Start small. Keep your head up and your eyes open. And don't bet the farm.

David Carey is a veteran journalist specializing in information technology and IT management. Based in Toronto, he is managing editor of CIO Canada.

CIO Canada wishes to thank Tom Atkins of Sierra Systems Group Inc. for moderating this event, and the six participating executives for sharing their time and viewpoints with CIO Canada and its readers.

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