What does e-business really mean?

The most basic definition of e-business is simply this: using the internet to connect with
customers, partners, and suppliers. But the term also implies the transformation of
existing business processes to make them more efficient. To engage in e-business,
companies need to be able to unlock data in their back-end computer systems, so they
can share information and conduct electronic transactions with customers, partners, and
suppliers via the internet. And for some companies, engaging in e-business means
adopting new web-enabled business models—auctioning off surplus goods, selling
products directly to consumers, or joining in online purchasing cooperatives with their
competitors. Without a doubt, embarking on an e-business effort requires as much
thinking about business strategy as it does about technology.

How is e-business different from e-commerce?

In some instances, the terms are used interchangeably. But to purists, e-commerce
refers only to online transactions. The term e-business encompasses online transactions,
but it also refers to online exchanges of information, such as a manufacturer letting its
suppliers monitor production schedules via an extranet (a secure web site that can be
accessed only by authorized parties), or a financial institution letting its customers
review their banking, credit card, and mortgage accounts via a single web interface. In
this respect, e-business overlaps with the business-technology disciplines of customer
relationship management.

Just how much electronic commerce is being conducted via the Net?

Despite all the hype, Internet-based e-commerce currently amounts to only a small
fraction of the U.S. GDP. But experts predict e-commerce volumes will grow
exponentially over the next few years, particularly in business-to-business e-commerce
— that is, transactions between businesses and their suppliers, partners, and business
customers. Cambridge, Mass.-based market researcher Forrester Research Inc. predicts
business-to-business e-commerce in the U.S. will grow from $406.2 billion in 2000 to
$207 trillion in 2004. By contrast, Forrester predicts that business-to-consumer e-
commerce in the U.S. will grow from $38.8 billion in 2000 to $184.5 billion in 2004.

Who should be in charge of a company’s e-business effort?

In some companies, early web efforts were led by marketing or IT departments as

special projects. But that is starting to change as e-business becomes a higher priority
for the business as a whole. A recent survey of large global corporations by
Pricewaterhouse Coopers and The Conference Board found that nearly 50 percent of
them have full-time units devoted to e-business. A survey of dotcoms and traditional
companies by International Data Corp. (a Darwin sister company) found that roughly 50
percent of e-business efforts are headed by CEOs.

Have all companies jumped on the e-business bandwagon?

Not yet. PricewaterhouseCoopers and The Conference Board found that 70 percent of the
global companies they surveyed derive less than 5 percent of their revenues from e-
business. Several factors have kept some companies surveyed from rolling out e-

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business initiatives, including the following: potentially high and uncertain
implementation costs; lack of demonstrated ROI within their industry; concern about
tax, legal, and privacy issues related to e-business; and scant use of the internet among
their customers.

The seamless integration of Web and store operations hinges on having the right
technology, the right infrastructure, the right processes and, above all, the right mind-
set.

In 1998, Circuit City, the $12.8 billion consumer electronics retailer, put Web-enabled
kiosks in its stores to allow customers to build customized PCs. Surprisingly, 50 percent
of the people who purchased PCs through these kiosks wanted to pick them up in the
store rather than have them delivered to their home.

A year later, while the company was codifying its e-commerce strategy, it struggled with
how to fund its vision of multichannel retailing. Venture capitalists were not throwing
millions Circuit City's way. Though hype about the Web was brewing hotter and faster
than lattes at Starbucks, shareholders still viewed the new medium as a risky
investment. If Circuit City wanted to do something about the Web, it was going to have
to do it on a budget.

Circuit City's penny-wise attitude led it to use its own assets to set up its e-commerce
infrastructure. Had the company spun off its site as a separate entity (as so many other
enterprises did in order to fund their Web initiatives), Circuit City (like others) would
have wound up with a website that was not integrated with its other systems.

"We thought of the Web as just another store. We basically set it up as a virtual
location," says E-Commerce Director Steve Duchelle.

That notion that the Web store was no different from any other store led Circuit City to
adapt its proprietary POS technology—which already let stores sell from one to another—
to sell across channels and offer pickup services.

"We already had an existing capability called alternate-location sales where you can sell
the inventory of one store from another. It came to us that when you buy on the Web,
you're basically doing an alternate-location sale," says CIO Bowman.

To help the company identify which systems needed to interface in order to support
multichannel retailing, Circuit City developed a business process flow diagram. The
diagram made the integration look easy, but when the systems engineers got down to
work, they realized this was not just a matter of writing a bit of code and patching some
middleware between systems. It involved complex systems interface changes and
developing entirely new business processes.

If, for example, a customer arranged to pick up a portable Sony CD player in a store that
was priced on the Web at $99.99 but sold for $89.99 in her local store, the IT staff had
to write some business logic on top of the merchandising system so that the POS system
in the store would know to ring the CD player up at the lower price.

Once back-end kinks like that were ironed out, Circuit City was ready to roll. On July 21,
1999, shop online, pick up and return in store was inaugurated. The company soon
found out, however, that it had some wrinkles on the front end to smooth over.

For example, the process Circuit City currently uses to ensure that customers who

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reserve items online for in-store pickup actually get those items evolved over time.
"There were some issues at first," says Ken Pacunas, technology manager at the Circuit
City store in Natick, Mass. "The biggest one was that there was no time limit to how long
an employee could take to pick a product."

If an employee waited too long to get a pack of batteries off the shelf and put them in a
back room with the customer's name on it, another customer might buy it before the
first customer arrived. Result: one irate customer.

To prevent that scenario, Circuit City instituted a 15-minute rule. When an order for an
in-store pickup comes in to the store from CircuitCity.com, a printer connected to the
POS system issues a pick ticket with the product ID and the customer's name. When this
happens, a timer starts and store associates have 15 minutes to pick the item,
acknowledge that they've done so in the POS system and put it on a shelf designated for
in-store pickup. If the POS system doesn't recognize the completion of the task within 15
minutes of the pick ticket being generated, a beeping alarm will sound and a message
will appear at the bottom of every POS terminal in the store reminding clerks that a
pickup order needs to be taken off the shelf. If the POS system does not recognize the
completion of the task within 30 minutes, an electronic alert is sent to the customer
support center to call a manager and have him immediately set the product aside for the
customer.

Pacunas says that people buy online and pick up items in his Natick store every day and
that 5 percent of his store's business comes from individuals who shop online and
arrange to pick up their merchandise in the store. "It's the convenience factor," he says.
"Most people pick their items up the same day that they order them online. They want
that instant satisfaction."

Online shoppers are anxious to open their wallets, dig out their credit cards and buy
stuff, even in a fragile economy. The latest data from Cambridge, Mass.-based Forrester
Research reports that North American consumers spent $4.3 billion online in April 2001,
up from the $3.5 billion expended in March and a billion dollars more than was spent in
April 2000.

But when the bills come rolling in, consumers are less likely to hop online and settle their
balances, according to research by Doculabs, a Chicago-based technology analyst.
Instead, they’re using the time-honored stamp, lick and seal method. According to Jeetu
Patel, executive vice president of research at Doculabs, online billing in its current form
does not provide enough of value for consumers.

“What is being promised [to consumers] is not being delivered right now,” Patel says.
“Different companies are implementing billing differently. If you have 15 different bills to
pay you may have to go to 15 different websites and remember 15 different passwords
to pay them. There’s a lot of tedious work involved for the consumer.”

According to Doculabs, it will be another five to seven years before e-billing sees the
kind of popularity that online shopping now enjoys. And it will take a collaborative effort
on the part of billers and service providers to present consumers with an easy-to-use
alternative to mail.

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When information flows like water, all men must be sailors, and the princes among them
will be the navigators. But where does one go to learn these strategies?

Three New Models

There are three notable solutions among clever executives for transforming their
organizations into Internet-ready enterprises that will stay afloat in the deluge.

1. Internal incubation, as J.P. Morgan has done with its LabMorgan business unit.
Former J.P. Morgan CIO Peter Miller says LabMorgan is a vehicle for reinventing existing
business models. LabMorgan is about finding faster, better, more cost-effective and
more client-focused ways of executing wholesale finance, even if that means embracing
competitive threats to products and services that are profitable. Recognizing that no
business unit is eager to jeopardize existing revenue streams, LabMorgan partners with
J.P. Morgan business groups and makes them stakeholders in new ventures. The
company has learned that if you get the upside potential right, people will move quickly
to embrace change.

The internal incubator must have the endorsement of top management, but the CIO's
role is to ensure that he and key IT staff are engineers and carpenters on the "e-swat
team" that constructs the ark. Their knowledge will be a key differentiator in the
generation of ideas—and perhaps even more significant in the selection of those projects
that will pass successive feasibility gates.

2. Partner with external incubators. The corporate partner gets an opportunity to

observe new ventures form and grow—learning tricks of agility, rapid decision making
and business-model morphing. The incubator gets a window on large business
perspectives, a business partner for some of its ventures and an idea stream from
thousands of the large company's employees. The CIO becomes an evangelist to the
enterprise, selecting and proselytizing key business-unit heads to join meetings with
startup ideas that could catalyze and quicken the larger company's business rebuilding.
Further emphasizing the importance of communication as a key CIO skill, the CIO acts
as a conduit to the incubator for ideas from the parent and as a bridge-building diplomat
between cultures as disparate as any in the Middle East.

3. Create an internal e-business unit, as GM and Dell Computer have done. The
purpose of this approach is nothing less than the transformation of the entire parent into
a global e-business, by growing multiple new, e-speedy enterprises under the wing of
the parent. This is really difficult for the e-business employees and requires top
management air cover from the CEO and CIO.

Kevin Rollins, Dell vice chairman, explains that his approach is to divide the e-business
workforce into "atomic units" that are heavily protected and nurtured. "Give them special
goal-related incentives. Let them have a sense of control over their destiny," he says.
"The culture will form around the mission. Environmental stress, including competing
with other parts of the organization, will bind the team together. Aided by the thrill of
the brand new."

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E-business

The process of conducting business on the Internet.

E-commerce

The process of selling and buying goods and services on the Internet.

Public Key Infrastructure

A system for securely exchanging information within a company, group or worldwide

that includes a method for publishing the public keys used in public key
cryptography and for tracking expired keys.

Public Key Cryptography

A method of coding in which encryption and decryption are done with public and
private keys, allowing users who don’t know one another other to send secure or
verifiable messages.

Platform for Privacy Preferences

A project of the World Wide Web Consortium that will give consumers a way to
learn about and react to the way websites may be using personal information.

Digital Certificate

A digital document issued by a certification authority that contains the holder’s

name, serial number, public key and the document’s expiration date. Digital
certificates are used in public key infrastructure to send and receive secure,
encrypted messages.

David Simbari, CEO of Optum based in White Plains, NY answered readers

questions about improving fulfillment and the critical holiday season as e-tailer
fulfillment again comes into the spotlight.

How can companies fulfill orders both reliably and profitably and turn
fulfillment into a competitive weapon?

Companies must embrace a “virtual fulfillment” model that allows enterprises to

compete supply chain against supply chain. Working with trading partners will not
push cost upstream, but instead extract cost out of the total process resulting in
lower inventory, lower cost of goods sold and better service to customers.

What are the top three issues that fulfillment outsourcers need to solve in
the short term?

Outsourcers have the same issues as a company streamlining their fulfillment in-
house – finding and attracting logistics talent. However, the need for an outsourcer

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to gear up for a visible high-volume, fast-moving connectivity and integration is
even greater than in an in house operation. The outsourcer must have an even
greater understanding of complex, multi-channel fulfillment and get good at
communicating over the Internet.

Active multi-channel shoppers might be costing retailers money

There’s a group of online shoppers that are the apple of every retailer’s eye. They
buy and research merchandise online. They buy in stores, and they order through
catalogs. Jupiter Research calls them active multichannel shoppers, and they
account for 19 percent of the online shopping population (16 million shoppers) and
24 percent of Web revenues. So why does Jupiter suggest that some retailers
should be wary of them? “Retailers can’t just look at the revenues or the benefits
that this group brings,” says Juliana Deeks, a Jupiter analyst. “They have to look at
the costs involved.”

According to Jupiter, 17 percent of active multichannel shoppers would shop at a

new store to save 10 percent on a purchase. This group is also three times more
likely than other online shoppers to download or use a coupon from the Internet. In
addition to being more sensitive to price than other online shoppers, active multi-
channel shoppers are also more likely to use website tools that are costly for the
company. According to Jupiter, 20 percent of active multichannel shoppers use live
help—more than double the next nearest group. They are also more likely to use
tools for viewing merchandise such as zoom and spin capabilities.

“We’re not suggesting that companies pull the plug on these types of resources,”
Deeks says, “but companies have to know what the costs are. The first step is to
identify your own multichannel customers.”

Jupiter research estimates that “Web-impacted spending,” online spending

combined with online-influenced spending will grow from $256 million in 2002 to
$582 million in 2006. During this period, the share of active multichannel shoppers
will remain relatively flat. Multichannel shoppers, those who buy across channels of
different retailers, generate 56 percent of this spending in 2002, and that number
will grow to 64 percent by 2006. The growth of this segment can be attributed to
more adults aged 50 and above getting Internet access. Active multichannel
shoppers are younger and most of them already have been shopping online for two
years or more.

“Companies need to think about how to allocate their limited resources to attract
and service these customers,” Deeks says. “The original multichannel shoppers
were self-selected and not driven to the Web through incentives. New multichannel
shoppers may behave differently.

August 14, 2002 - CXO Media

How do technology initiatives fail? Each in its own way. Mail Boxes Etc. spent $25
million to position itself as the real-world shipping partner to the virtual e-tail
space. It was indisputably a great idea. Only one problem. The technology doesn't
appear to work. Many franchisees are in revolt against the system, calling it "a pipe
dream." Headquarters insists everything is just fine. But key customers are

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disenchanted. Read on for a cautionary saga of frustration, stubbornness, poor
communication, arrogance, raw power and wasted opportunity.

It's a busy lunchtime at the Mail Boxes Etc. on Beacon Street in Newton, Mass. A
well-heeled matron needs to send a trio of cashmere sweaters in sherbet hues to
her vacation home. Uniformed delivery guys hustle in, grab their packages and go.
The phone rings constantly.

Owner John Sousa maintains his good humor as he moves briskly to help his
customers. His smile fades, however, when he attempts to price a customer's
package using an Internet-based shipping, or manifest, system called iShip. "I
have attempted to connect every hour on the hour, and it still hasn't worked," says
Sousa, who owns another Mail Boxes Etc. (MBE) in Brighton, Mass. Getting no joy
from iShip, he turns to an archaic DOS-based system that dates back more than a
decade. "It's not sophisticated, but it works great," he says with a shrug.

It wasn't supposed to be like this.

The iShip system is part of a massive technology overhaul MBE embarked on two
years ago. The brainchild of MBE President and CEO Jim H. Amos Jr., the project
was meant to position San Diego-based MBE as the premier shipping partner for e-
tailers. "Because of our bricks-and-mortar on the ground, I thought we might have
an opportunity that no one else had," says Amos.

By building a satellite network to connect the 3,500 domestic franchises with

corporate systems, an Internet-enabled point-of-sale (POS) system and the iShip
manifest system, shipping at MBE would become enticingly simple. The idea was
that a returning customer would need to give only his phone number to the MBE
clerk for service. Up would pop his entire order history and recipient address
information. Customers would no longer need to carry their address books into the
store. They would feel instantly at home, as if they were part of a special group. At
least, that was the plan.

"It's a great idea, all right. It just doesn't work," says Sousa. Besides using the
DOS manifest as the default shipping system, Sousa has ditched the satellite
network in favor of a local digital subscriber line (DSL) provider for Internet
service. He relies on paper forms in duplicate to do the bulk of his business. To
Sousa, the new systems have been a big disappointment. "None of it connects.
This is all a pipe dream."

CIO Magazine - E-Business Research Center

http://www.cio.com/research/ec/
Get the scoop on B2B and B2C with this large collection of Web resources, white
papers and articles in the E-Business Research Center.

What Causes Customers to Buy on Impulse?

http://world.std.com/~uieweb/whitepaperlinks.htm
This white paper refutes the commonly held belief that impulse purchases are
related to price. (requires free registration)

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GoodExperience.com

http://www.goodexperience.com/
Creative Good, a New York City-based customer experience consulting firm, offers
a free weekly newsletter that highlights and analyzes current customer experience
news stories.

In Search of E-Commerce

http://www.goodexperience.com/reports/isoe/index.html
GoodExperience.com's Mark Hurst highlights major customer experience snafus at
top B-to-C e-commerce sites. While the examples are dated (last updated 1999),
the report offers useful insights for any B-to-C site.

SellIt! On the Web

http://www.sellitontheweb.com/
This U.K.-based Web magazine, geared towards small and mid-sized businesses
who want to set up Web storefronts, includes news, product reviews, technology
overviews, and useful resource links.

Shop.org
http://www.shop.org/
A non-profit association for Internet retailers. Includes highlights of a report on the
state of online retailing.

* Taken from Darwin Publications

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