E-commerce: Are you holding back?
- 05 November, 1999 12:01
Many Australian businesses have yet to implement e-commerce strategies. So for those watching the internet economy develop from the sidelines, what's holding you back?
The word is that to hang back on e-commerce is business suicide, that failure to implement will result in being swiftly 'Amazoned'. And that to lead the e-commerce revolution in our industries will result in untold riches, as we reap early-mover rewards.
So does Australian business recognise e-commerce as an urgent priority? And what are the concerns that can inhibit development of e-commerce strategy?
The clamour of analysts and consultants suggests that businesses should be formulating a comprehensive e-commerce strategy now.
A recent report from Forrester Research, entitled The Commerce Threshold, states: "In every geography, both [business and government] must proactively respond to the Net -- or lose ground to those who do."
However, research reveals that whilst business is aware of the issue, e-commerce is not yet topping the IT to-do list in many Australian companies.
IDC's most recent Forecast for Management survey of IS executives found they ranked electronic commerce as their fifth most strategic current or planned internet-focused project. IDC defined e-commerce as receiving electronic payments as well as taking online orders. The most popular options ranked ahead of e-commerce "centred around the use of the internet as a means to communicate with clients for support, advertising or business services", the survey says.
"It is clear that the long heralded electronic-commerce revolution has still to eventuate", wrote Peter Hind, manager of end-user research at IDC, in Computerworld's sister magazine, CIO (June, 1999 p48).
And Meta Group analysts have concluded that "despite the hype about 'e-enabled' enterprises, most companies are still in the earliest stages of e-business deployment and lack effective e-business strategies".
Of the Global 2000 companies surveyed by Meta 65 per cent spend less than $US1 million a year on e-business.
"E-business has not yet become part of a larger corporate culture and strategy," says Kirk Reiss, senior vice president, Meta Group Consulting. "The low dollar investment is indicative of stopgap measures and patch-up thinking."
"While Australian consumers are very interested in technology and the Net, Australian businesses have not been as aggressive in taking advantage of the Net, especially for business-to-business commerce," observes John McCarthy, US-based group director, research, Forrester Research.
In terms of e-commerce inhibitors, it would appear that a whole range of factors can hold businesses back. Some believe they have already missed the boat.
Not so, according to Reiss. "With the incredible amount of press about how the internet is exploding, a lot of companies may think it's too late -- that they've missed the e-business train. That's not true. We are still in the early stages of e-business deployment, and there's still time to get on that train and scale to the right level of investment." Others are holding back, because they feel unable to establish a business case for an e-commerce venture. "There aren't a lot of people making money on the Net out there," says Gary Moss, IT manager, Dymocks, suggesting that companies could be "waiting for the [e-commerce] business model to shake down".
McCarthy comments: "I think part of what's happened here is that the business-to-consumer sector is front and centre. Everybody hears 'discounting' and thinks: 'Oh Christ, my margins are going to hell', when in reality a lot of the business-to-business applications are win-win solutions.
"It's not the Darwinian pricing bloodbath that everyone has been talking about with the internet."
And he says executives' views of the internet are changing, as their heads are turned by the impact of 'dot com-ing' on company share prices.
Ron Gardoll, associate director, electronic business, at consultancy DMR, adds that companies should see e-commerce initiatives as being like any startup: they figure significant investment without the promise of immediate payback.
And whilst it may not make a profit from the word go, e-commerce can shave costs, Gardoll says.
In addition, in the e-commerce world ROI is often made up of intangibles such as customer retention, analysts say.
"We don't see our e-commerce site as a separate stand-alone business," says Hilton Brett, associate director, national marketing and buying, at retailer Liberty Liquors, which has 48 bricks and mortar stores around Australia. "It is a complement to our existing business; it's not run as a separate cost centre, it's an enhancement of our current modus operandi."
However, Brett does believe that Liberty Liquors will make money on the Web, estimating it will take three years for the company's e-commerce site, launched in October 1999, account for 30 per cent of sales. Often the task of formulating and implementing an e-commerce strategy is not viewed as urgent, because e-commerce has not yet begun to threaten profitability for most businesses.
However, businesses that wait until their 'bricks and mortar' margins are under threat could be too late -- it is much easier to implement e-commerce systems before it becomes a matter of business survival, the experts say.
"You have to be prepared to see that part of the traditional way a company does business may not be effective in the future, and that for some businesses that might even be the most profitable part of the business," observes Paul Shepanski, Qantas group general manager, e-commerce.
Another e-commerce inhibitor is that companies are preoccupied with other IT and business issues, such as GST and Y2K.
But Richard Melnicoff, partner, e-commerce, Andersen Consulting, warns: "Five years hence, these will be seen as the momentary distractions they are. It's critical to get past any denial in your management ranks that the economy is in the midst of a rapid transformation, and that immediate action is required."
Aseem Prakash, chief executive officer at e-commerce consultancy Interactive Knowledge Online, believes that on top of the distractions presented by other projects, executives and IT professionals are often daunted by the task of grasping what kind of threats and opportunities the internet brings. According to Prakash, there is often a lack of management consensus on the e-commerce direction a company should take.
And McCarthy believes "conservative, uncreative thinking at middle management and board level" is the biggest threat to development of e-commerce in Australia.
Prakash warns: "In the next three to five years 30 to 50 per cent of the top 500 Australian companies will lose branding because of [the challenge of] the dot coms."
He urges companies to view the threat with "paranoia" and put e-commerce at the top of the board room agenda.
McCarthy concurs that if Australian businesses don't get into e-commerce now, "more aggressive companies from outside Australia will come in and dominate: [already] 10 per cent of the orders on Amazon and activity on eBay are from Australia."
Ross Bell, managing director, Frigmobile, admits that he personally found jumping into e-commerce "scary ... I was so inexperienced". But he says the payoffs have been worth the risks. "It's enabled us to maintain the clients we've got ... the customers are extremely happy and see us as second to none."
A subsidiary of the Swire Group, Frigmobile provides services to high-profile customers including Goodman Fielder, Coles Myer, Streets, Meadow Lea and Norco.
Developed by Data#3 Frigmobile's e-commerce solution is based around AS/400 servers, Lotus Notes Groupware technology and a frame relay wide area network. It allows the company's customers to make and query orders and acknowledge receipt of orders.
Even in cases where companies have missed the chance to be amongst the early adopters in their industries, Prakash says, they can still succeed online by establishing a niche presence or partnering with big players.
Australian bookseller Dymocks was very aware of established players when it implemented its online bookstore.
According to a CIO study of best practice on the internet, entitled "Best Practice in e-commerce" (published by Banchmark Communication and IDG Communications, September 1999) Dymocks met the challenge by capitalising on its history in the Australian book trade, its local presence and an understanding of its customer base.
The company offers customers up-to-date information on and access to books published in Australia and New Zealand; it leverages its local presence by offering delivery within 48 hours; and it has translated popular initiatives such as its Booklover monthly newsletter to the internet.
"We believe it's possible we'll make a profit [in the future]," Moss says.
However, while it is important to work out your e-commerce strategy, users and analysts alike stress that companies should not be so consumed by the need to get in early that they rush business planning and implementation.
Gary Smith, information technology director, TNT Australia, sees an advantage in being first to market with e-commerce features that add value to the customer. However, he adds that it is crucial that companies should take time to ensure the e-commerce initiative is backed up by appropriate back-end systems.
"People are under an awful lot of pressure to move forward ... but the question is: do they have the back end ready to move forward?" he saysAlso crucial for businesses launching e-commerce initiatives is a long-term commitment to the online medium, Smith says, and a realisation that transacting on the internet requires development of a business model, and re-engineering of business processes.
"I think we've been pragmatic [at TNT]; there is no point in leaping forward with technology platforms and functionality that customers aren't yet ready to utilise," Smith says.
In addition to ensuring back-end systems are ready, IT managers also have to find a way to combat the staffing shortage, if they are to proceed successfully with e-commerce strategies. Some companies train people up in-house, while others outsource at least some of the development and implementation process.
Gary Hinds, IT manager, Oceania at DHL, reports he has found it cheaper and simpler to outsource e-commerce development to service companies based in India and the Ukraine, rather than maintain and train an in-house e-commerce development team. Dymocks has also outsourced e-commerce development, choosing Logica; and Liberty Liquors outsourced development of its e-commerce site to Web development company Haymarket.
Another challenge to overcome, particularly for larger businesses, is managing the cultural change e-commerce initiatives bring.
Stephen Coulter, general manager, e-commerce at Commonwealth Bank, comments: "One of the biggest barriers -- certainly in large corporates -- both here and in the US, is culture.
"[E-commerce is] going to touch every aspect of every business. That then creates cultural issues in large organisations where ... you've got to change the way you do business end-to-end. That presents major challenges."
Whatever the pressure, it pays not to launch e-commerce until you are satisfied that your site is ready and will be effective.
Joe Sweeney, research director, Gartner Group, relates the story of a bank in Hong Kong that is hanging back on the launch of an e-commerce platform until it is satisfied the rollout has the capacity to deliver true competitive advantage.
"One of banks in HK has an incredible online private banking system. They have not launched it. I say to them: 'Why not?' And they say: 'It's very simple. Every couple of months [we] run a report to answer three questions: Will this get us new customers? Will it stop our existing customers going to the competition? Will it allow us to take customers from our competition? All three must be 'yes' before we turn it on.' That says to me: here's a company that thinks strategically. They are not viewed in the marketplace as being a leader. But when they do it, they are going into it big time.
"It's a great example of good, solid thinking."