Evolving the E-Business

Professor Michael Earl

Centre for the Network Economy

CNE WP02/2001

Evolving the E-Business

Michael J Earl

Introduction

Even discounting for the hype of the IT industry, the rhetoric of business writers and the

succession of wakeup calls from governments, few corporate leaders will doubt that e-

commerce is here to stay. Even the collapse of dotcom start-ups and the volatility of

Internet stocks cannot undermine this premise. Variously called e-commerce, e-

businesses, the new economy, and so on, incumbent companies as much as dotcom start-

ups are learning fast about the challenges of doing business in the information age.

Indeed, if we stand back from the continuous and daily experiential learning of

companies who have embraced the internet and associated technologies, we perhaps can

perceive a series of stages of business understanding and development that most

organisations go through – an evolutionary journey where not only lessons are learned in

each stage, but where also each stage leaves behind critical imperative.

This article suggests the typical six-stage journey that corporations are likely to

experience (Fig.1). It also proposes six consequential lessons for both becoming and

sustaining an e-business. The article therefore is both descriptive and prescriptive. The

underpinning model is interpretative, based on observing, working with and researching

corporations seeking to make the transition to e-business and on studying new start-ups

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whose raison d’etre is e-commerce. The six stages are “ideal types”, stylistic phrases

which capture – even caricature – the experiential learning of these companies; thus they

are not necessarily definitive periods of evolution from old economy to new economy

corporations. However we do find most companies identify with the model.

The spirit of the article is sense-making; the purpose is to help companies anticipate the

challenges ahead and recognise ongoing necessary, but not necessarily sufficient,

conditions for success in e-business.

Stage One: External Communications

Round about 1994/95 the cry “let’s have a home page” began to ring out across

corporations. The realisation that the Internet was a potential communications channel to

external stakeholders – investors, analysts, customers, potential recruits etc. – was

matched by the , perhaps tacit, recognition that the software and protocols behind the

World Wide Web provided an interesting and not too difficult means of designing and

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6.Transformation

5. E.Enterprise

4. E.Business

1. External

Communications

3. E.Commerce

CorporateHome Page

CorporateIntranet

Plus Key Capabilities

To Match

Decisionby

Wire

Let’s DropThe E.

Buying orSellingOn-line

2.Internal

Communications

Fig.1 Evolving the E-enterprise

publishing corporate public relations material. It was not long before “http://www….”

addresses appeared in traditional advertisements and HTML programmers were in

demand.

The visions behind creating such websites rarely extended beyond external promotion

and communication. Perhaps the only interactive nature was a provision for emailed

questions to corporate departments from external stakeholders. For some corporations,

the motive was little more than signalling that “we are a modern company”. Oftentimes

the web presence was owned – informally and unofficially – by the department who first

sponsored it or the department with most content on it. Before long, however, pages were

developed containing annual financial statements and the annual report, recent notices in

the press, the company’s products, how to contact the company, job vacancies and

recruitment details, frequently asked questions and perhaps some lifestyle or

entertainment content.

Then some fascinating and quite political issues arose. Who approved the site and the

way the corporate logo was presented? If this site is projecting our brand, is it purveying

the right message? Who is responsible for keeping the content fresh and updated? What

is the balance between richness of content and speed of access or download? Is the site

standing up to the increased volume? Who should really own the site?

Today such sites are often pejoratively described as brochureware. Indeed corporate

communications departments started to take on responsibility for them because in effect

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they were the corporate brochure and somebody needed to oversee design, provide

funding and manage quality.

However, maintaining and improving these web pages is a non-trivial issue. Both

corporate executives and web surfers will recognise or quote sites that have outdated

financial results, contact telephone numbers that are invalid, job vacancies that are filled

or not yet posted, pages that are tired or do not link backwards or forwards, press releases

that stopped two months ago and so on.

In other words, the critical success factor in Stage One – the External Communications

stage – is content refreshing. As one dotcom entrepreneur, who seeks to capture

transaction customers with rich and relevant information, commented, “content does not

renew itself”. The lesson that is left from stage one, however advanced the corporation

becomes in e-business, is the need for perpetual content management.

Stage Two: Internal Communications

Beginning in 1996, but continuing into 1998, there was a sort of “deviation” in the

journey of E-business, but one that left behind another crucial lesson. What happened in

several companies was that the IT department started to catch up with the Internet and

World Wide Web. Stage One often had been pioneered by media and marketing

departments with or without help from the IT function. However, I T professionals soon

saw the promise of these new technologies, but typically saw them more as a technology

solution than a business opportunity.

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This was well demonstrated in a workshop held at London Business School with leading

edge UK companies on “Doing Business over the Internet”. The participants, mainly

from IT departments, opined early on in proceedings that trading on-line was not the key

opportunity. Rather it was building intranets – using Internet and www techniques to

build internal communications channels. For some the opportunity was about eroding

Microsoft or Lotus Notes strangleholds on desktop platforms. For others it was about

designing consistent and user-friendly front ends to email, groupware, administrative

support systems and so on. For still others, the opportunity was about creating bulletin

boards, forum pages, directories and knowledge-based materials for the whole

corporation.

Most of these ideas were not invalid. Intranets have raised the information and

communication capacity of organisations. An integrated, familiar front end to frequently

used internal applications does appeal to end-users. Knowledge management applications

have evolved from this rather techno-centric stage. And sometimes having internal

access to the same information - or brochureware – that is provided externally is well

received! In fact as companies later trade on-line, it is important that the external channel

is also visible internally.

What was soon learnt, however, was that just as in business systems generally integrity

matters. Not only was security an issue – which led to intranets being segregated from

extranets and the internet – but data consistency across systems, synchronisation of

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database updates and perhaps above all compatibility of message formats, standards and

releases between the component intranet applications mattered.

This lesson of architectural integrity was one IT professionals could appreciate easily.

However it was to carry over into the next stages of the journey as another condition for

success in e-business.

Stage Three: E-Commerce

By 1996, some companies had been experimenting in small ways with buying and selling

on the Internet, but these were often local, unofficial experiments – except in the case of

dotcom start-ups who were the principal pioneers of business to consumer, and business

to business, e-commerce.

One or two years later, some start-ups had become household names, for example

E*Trade or Amazon.com and early mover incumbents had begun to launch what they

often called their internet strategies or their first co-ordinated attempts at buying or

selling on the World Wide Web. Schwab had launched E.Schwab and in the UK

companies such as EasyJet and FT.com were promoting electronic channels and services

to complement their traditional forms of distribution.

E-commerce was the name we quickly coined for buying and selling on-line. The spirit of

this stage is “let’s do business on the web” and the drivers are first mover advantages of

learning, customer acquisition, pre-emption, and brand-building or sometimes more

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simplistic rationales such as image creation or “not being able to afford not to”. By the

first half of 2000, companies seemed to be in a race to announce new initiatives and

multimillion-dollar initiatives in e-commerce. The going rate in the UK seemed to be

anything from £100m to £500m.

Stage three is still to begin for many companies and is still unfolding for others. This is

partly explained by the normal imitation lags that underpin the classical curve of the

diffusion of innovation. However, most companies can take some years to learn about e-

commerce and be confident about their new channel strategies.

There is a host of issues to work through. How do you promote your e-commerce

channel? In other words, how do you inform customers or suppliers that they can trade

with you on-line? In the case of start-ups, how do you identify and attract customers – a

challenge which explains much of the infamous cash burn rates of dotcoms as they spend

heavily on advertising. If you are selling on-line, what pricing policies do you adopt and

how do they relate to pricing in your traditional channels? If you are buying on-line,

which products and services are suited to electronic market trading and where will you

wish to retain traditional buying relationships? How many and what sort of

infomediaries and affiliates will you work with and how quickly are you willing to

cannibalise physical channels? Above all, what is your electronic brand proposition in

selling or your “unique purchasing proposition” in buying? In particular, how do you

create and maintain trust and what sort of interactive relationship are you building – What

Evans and Wurster (1999) call brand as belief and brand as experience?

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The bottom line is that in incumbent companies the stage of e-commerce is concerned

with working out channel strategy. Rarely is this a question of selecting either electronic

or traditional channels but of the balance and relative positioning of both and allowing

customers choice. For start-ups, some may discover the same lesson; new suppliers of

both physical and digital products and services sometimes discover they need high street

presence as well as virtual channels. Those who are purely on-line companies still have

to work out – and experiment with – many of the detailed channel decisions listed above,

especially of course developing, testing and understanding the new paradigms of online

buying and selling.

We therefore can capture the challenge and residual lesson of stage three as formulating

electronic channel strategy.

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1.EXTERNALCOMMUNICATIONS

2. INTERNALCOMMUNICATIONS 3.E-COMMERCE 4.E-BUSINESS 5.E-ENTERPRISE 6.TRANSFORMATION

STRATEGY

METAPHOR

MINDSET

RESULT

CRITICALSUCCESSFACTOR

Corporate PR Organisational Glue

Online Buyingor Selling

BuildingE-processes

Business DevelopmentandOperation

ContinuousReinvention

“Let’s Have AHome Page”

“We’re Buildingan Intranet”

“Let’s DoBusiness on the Web”

“Let’s Do ItProperly”

“Let’s BehaveLike a . Com”

“It’s not newanymore”

A Modern.Com Company

A Front-end and/or

Communication Channel

A ChannelFor Commerce

A NewBusinessModel

A NewManagementModel

A DynamicModel

BrochureWare Groupware EarlyLearning

CapabilityBuilding

Decisions By Wire

Comfortable in The New Economy

ContentRefreshing

ArchitectureDesign

ChannelDevelopment

ProcessRe-engineering

InformationLiteracy

LearningOrganisation

Table 1: Evolving the E-Enterprise

Stage Four: E-Business

Many companies – and even more so customers – are discovering a critical lesson.

Building an online channel on top of inadequate or inefficient business processes

achieves only one goal: it broadcasts and magnifies the fact that a company’s back office

systems or operational processes are really bad. So the fourth stage of e-business is about

re-engineering or redesigning business processes to match customers’ expectations in the

new economy.

Consumers already will recognise the signs of business processes that are not

synchronised with the demands and expectations of e-commerce; goods that do not arrive

on time; emailed requests that do not receive responses; clumsy handling of returns;

inability to track order status; network access that breaks down … and so on.

Voss (2000) has demonstrated that often the service levels provided by start-ups

outperform those provided by traditional businesses. This is often because incumbent

businesses have legacy processes, legacy systems, legacy partnership agreements and

legacy supply chains. Even if these operational capabilities were re-engineered in the

early 1990s, the performance metrics that were established were ‘old economy’ norms.

Companies did not anticipate the expectations online customers now have of speed of

service and fulfilment, of information and confirmation, of personalisation and

customisation, and of security and privacy.

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Some exemplar e-businesses, however, very clearly recognise the value of sound and

redesigned processes. Jeff Bezos, founder of Amazon.com, suggests, “In the offline

world companies spend 70% of their resources on marketing and 30% on providing a

good customer experience. In the online world it’s the other way round”. Michael Dell,

founder of Dell Computers, observes that “the whole idea about virtual integration (of the

supply chain) is that it lets you meet customer needs faster” and Adam Hamdy and Guy

Mallison, co-founders of Rules.com, recently stated that “our priorities are clear. We

have to get our systems and operational processes in place before we commit to other

significant items of expenditure, particularly on marketing the service”.

Indeed some traditional companies too are postponing going on line (stage three) until

they have re-engineered their processes and replaced their legacy systems. In other

words, some managements have anticipated stage four and now regard it as stage three.

However, most firms learn the hard way or treat stage three as inevitable, evolutionary,

experiential learning and then accept the cost (and slowdown) of reverse engineering of

processes and reverse architecting of their technology base. The lesson of stage four is

that high performance processes are not optional.

Stage Five : E-Enterprise

In the era of business re-engineering, some companies realised that management

processes as well as business processes could benefit from being redesigned (Rockart,

Earl and Ross, 1996). They were not synchronised with the newly designed business

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processes, they were not fully supported by new technology and information systems, and

they were often based on old ideas of organisational design.

Web-enabled online business puts new pressures on management processes. Dotcom

start-ups show us why. Decision-making increasingly is “by wire”. Transactions can be

monitored and analysed real-time. Information can be collected online. New ways of

representing and analysing these data are being developed. And we are about to witness

new ways of communicating across the enterprise using wireless and mobile

technologies.

All this means we can track, analyse and understand consumer behaviour and operational

performance continuously. We can do real-time test marketing and modelling of both

new business ideas and channel strategy decisions. Indeed as some business to consumer

start-ups are demonstrating, if dynamic pricing, fulfilment options and customisation

facilities are offered, then decision-making by wire is a sine qua non. So is the ability to

communicate decisions by wire to those in the company impacted by the decisions as

quickly as possible. So stage five also provides a new impetus to stage two.

In short, as incumbent businesses advance through the stages of e-business, they seek to

behave like the dotcoms of today and stage five is labelled “e-enterprise” because it is

about decision-making becoming entrepreneurial and communicating decisions across the

enterprise. In many ways this stage is the dawn of cybernetic models of management

promised some decades ago. The critical success factor, of course, is recruiting,

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developing and empowering people who have the skills to use information and act on it.

They can be thought of as “infopreneurs”. More graphically, perhaps, the need today is

for information literacy as much as computer literacy.

Stage Six: Transformation

Stage models generally suggest an end of the journey which represents variously

equilibrium, pervasive assimilation, maturity – or some other representation of nirvana or

eldorado! This model is no exception; however there is an important caveat.

The label “transformation” implies that a company has successfully negotiated the

journey of e-business. The challenges of the previous stages have been met and the new

business and management models required for the new economy are embedded. Indeed

they have become the norm and managers talk about now dropping the “e” of e-business.

In many ways, that is the goal. However, what we probably all recognise is that nothing

stabilises anymore – if it ever did! Market forces drive continuous change. The social,

political and economic environments do not stand still. And in the digital economy, new

technologies keep arriving to pose new threats and opportunities. We already see that

“mobile commerce” enabled by WAP protocols, mobile appliances and 3G

communications will not just be a replication of pc-driven e-commerce. In the last 50

years’ history of information technology in business, rapid obsolescence has

characterised any models of either application or delivery.

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Thus while the aspiration in stage six is to be “comfortable with the new economy”,

comfort can only be based on acceptance that our business and management models have

to be dynamic. Michael Dell puts it eloquently, “I get scared when I hear people say ‘the

model’ because I know that nothing is ever 100% constant”.(Magretta, 1998).

The acid test of the transformation stage is whether an organisation has built a capability

for continuous innovation and renewal – even reinvention. So the critical success factor is

building a learning organisation where everyone takes responsibility for change and

adaptation.

Using the Stage Model

This six stage model is an ideal model; not only does it not fully represent organisational

reality, it may not even be an approximation! However, even if it is a construct or

fiction, companies do seem to be able to place themselves in a stage particularly when the

characteristics summarised in Table 1 area articulated. Most, by Spring 2000, assess

themselves at the intersection of stage two and stage three. Some incumbent are facing

up to the challenges of stage four and a few of the longer established dotcom start-ups are

displaying the characteristics of stage five. Clearly multi-business corporations can be at

diverse stages. Finally, businesses find they have to revisit some stages as they did not

learn and apply the lesson of each stage.

Having positioned your firm, the model potentially helps in identifying upcoming issues

and thus provides a framework for planning and orchestrating the journey to e-business.

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It should be clear that executive responsibilities shift through the stages. The first three

stages often are led functionally – from corporate relations through IT to marketing

and/or purchasing. From stage four onwards, leadership has to come from the top

although strategy and business development may well come from deep down in the

organisation. However, once top management recognises the criticality of the lessons left

by each stage it should be clear that neither delegation nor abdication of e-business

leadership is recommended.

Fig.2: The Lessons from Each Stage

Indeed the six lessons in Fig.2 represent a robust and essential agenda for evolving the

business. This may be the principal benefit of the stages framework as a prescriptive

model. However, the descriptive element of the framework perhaps demonstrates and

explains why these “rules” for evolving the e-business really matter, for both dotcom

start-ups and incumbents.

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Lesson 1

PERPETUALCONTENT

MANAGEMENT

Lesson 3

ELECTRONICCHANNEL

STRATEGY

Lesson 4

HIGHPERFORMANCE

PROCESSES

Lesson 5

INFORMATION-BASED

DECISION MAKING

Lesson 2

ARCHITECTURALINTEGRITYMATTERS

Lesson 6

CONTINUOUSLEARNING

AND CHANGE

References

Evans P. and Wurster T.S. (1999), Getting Real About Virtual Commerce, Harvard

Business Review, Nov-Dec 1999.

Magretta J. (1998), The Power of Virtual Integration: An Interview with Dell Computers’

Michael Dell, Harvard Business Review, March – April.

Rockart J. F., Earl M. J. and J W Ross (1966), Eight Imperatives for the New IT

Organisation, Sloan Management Review, Vol.38, No.1, Fall, pp 43-55

Voss C. (2000), Developing an E-Service Strategy, Business Strategy Review, Vol.11,

Iss.1, March.

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