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spacer March 12, 2001
Redefining Business:
Proving Grounds

E-Commerce: The Plot Thickens

As businesses' online experience grows, some common themes emerge

By Michael Drapkin

A s the Web moves into its more complicated Act II, managers need to balance two goals that often conflict: building organizational structures for E-commerce that maintain control, while still moving quickly enough to keep pace with fast-moving markets.

Studying the lessons of Act I suggests there are several key areas that are sure to cause problems in a growing E-commerce effort, unless managers keep their eyes on them. Here's a short list of those areas.

Channel harmony

The Web may be a sophisticated worldwide communications network, the next generation of commerce, and a host of other futuristic-sounding things, but E-commerce is ultimately direct selling and direct marketing. One of the fundamental principles of E-commerce is the concept of disintermediation: reducing to zero the number of intermediaries between you and your customers. The Web creates a direct link for marketing, selling, and supporting.

That sounds beautiful. And efficient. It seems like a great structure on which to conduct business. But it also can be the beginning of an internal nightmare known as channel conflict. Channel conflict doesn't have to be inevitable, and there are creative ways of working around it. For example, look at how Gateway Inc. handled it. Initially, Gateway's phone-sales representatives were sabotaging Web orders. When customers called to check on online orders, the reps discouraged them from ordering online. To work around the problem, Gateway changed the phone number of the Web site to connect to a team of dedicated Web sales reps. As soon as the structure was put into place, the level of repurchase of Web customers increased, and the percentage of order cancellations plummeted. The issue that Gateway didn't solve, however, was how to offer incentives so general sales reps were willing to cannibalize their own business and tell their customers, "Use the Web site. It's great."

The Web shouldn't necessarily be the only channel, and conventional distribution still might be a foundation of your business. But the Web can provide a channel, a platform, and one more way to communicate with your customers. Say a company has retail or telephone-based channels. If it plays its cards right, it can gain a much stronger position by providing customers with the ability to choose how, when, and where they do business. Brands that touch customers in lots of media, and in lots of environments, gain power.

Flat organizational structures

Successful Web shops--and this applies to technology organizations in general--are relatively flat. The collaboration among different disciplines and the cross-functional nature of Web teams tend to undermine hierarchical organizations, and vice versa.

For example, to get jobs done, project managers for a business-line initiative need to manage creative and technology staff. That requires flexibility, so don't consider reorganizing a sign of failure. Most growing E-commerce organizations reorganize themselves every six months, on average. They do this to take into account changing business goals and to accommodate the need for different management skills.

Strategy first

Success on the Internet demands that managers plan before building. Managers leading their first E-commerce initiative often make incorrect assumptions about the time, cost, and difficulty of doing business online. Some things that might appear very sexy and out of your league may be technically rather trivial to implement. Conversely--and unfortunately, far more likely--the functions that you see on big consumer sites are often dif-ficult to achieve and may be beyond your company's resources.

This leads us to an often-mentioned and often-ignored point about formulating strategic and organizational formulas for successful management of Web sites: Technologists need to sit in on strategy meetings. If technologists are ordered to execute a business vision without having been included in its formulation, opportunities will invariably be missed. Business managers new to Internet business need to be connected to a technology expert when deciding what to attempt online.

Conduct periodic reviews of business plans and be prepared to modify them if necessary. Keep reviewing E-commerce projects against the most basic questions:

o Who are your customers?

o What are you trying to achieve?

o What do you do?

To see if a project's vision and goals are clear enough, try an easy test called the "elevator positioning exercise," something entrepreneurs prepare before pitching business ideas to investors. If you're on an elevator and someone asks you what your project does, could you describe it in a clear and concise manner before that person got off at the ground floor? If not, there's a serious problem.

Performance measures

Service-level agreements are important when making deals with vendors, and internally in large companies when setting up interdepartmental processes. An SLA can be either a legal or an organizational artifact. When well-constructed, SLAs can save you.

This may sound pretty obvious, but it's surprising how many companies, from huge businesses to little-bitty shops, pay major setup costs and recurring fees but still receive terrible service. Even more surprising is how many of these abused customers have no recourse because the terms of service stated in the SLA are either vague or nonexistent. Quantifying the expected performance of a service provider lets a customer measure performance and have some recourse if it's not delivered.

The less direct control a manager has over a process, the more carefully crafted an SLA needs to be. Someone depending on another company to run the IT arm of the business had better spell out expectations exactly, and they need to be things that can be measured. Phrases such as "Party will make reasonable effort to respond to issues as soon as they're reported" are useless.

This is so critical because senior executives--or judges and juries, if it comes to that--don't have common perspectives, so evaluating who's right or wrong in an E-commerce situation is difficult. Concepts such as "reasonable" and "best effort" and "quality" may mean something in older industries with decades of history.

With E-commerce, what's ridiculous and unforgivable to one person may seem perfectly OK, not only to a court of law but also to millions of users who don't know any better.

Service-level agreements are also useful if you're running a Web site within a company. The sales staff, for example, might have an unrealistic expectation as to how much effort is required to do site maintenance.

An SLA can act like a minipartnership agreement, specifying the level of service each party expects and eliminating potential misunderstandings.

Quick quiz

With the bloom off the dot-com rose, are you worried that you could be summarily voted off dot-com survivor island? Here are three key questions in these tough economic times. Answering yes still doesn't guarantee Internet millionaire status, but it does suggest a foundation for running a viable business.

o Do you have sufficient funds? Many companies mistakenly assume money will quickly flow in through an Internet channel and that they don't need a reserve of funds. Bottom line is you can't pay with shiny beads around here. You have to have enough cash, be generating enough cash, or know how to raise enough cash to last you until your company is profitable. Don't waste money on nonrevenue-generating items such as fancy offices, and don't expect to win the grand prize: an initial public offering. Consider that market dead for now. However, business models that offer a path to profitability are still raising money. That means you need to rethink the way you'll grow your company.

o Are you a good chief with a strong management team? If not, vote yourself out of the job and bring in someone who is. The key is finding someone with leadership skills who can assemble a great management team, acquire funding (and keep acquiring it if needed), and lead both projects and a company. On this team, everyone needs to be an achiever and work together for the success of the enterprise. Key personnel include an expert in the industry your Web site revolves around, a Web technology guru, an E-commerce sales and marketing expert with an ability to build partnerships, and a finance executive who can help keep you from running out of money.

o Does your company provide a valuable service or product? The proliferation of Web sites means that no company should expect to raise money unless it's providing real value to customers. Remember, the two reasons people will hand over their hard-earned money are that you make their life easier, and you save or make them money.

Discovering what makes your customers tick involves interacting with them on a one-to-one basis. Let them be the guide for the value you provide them. And keep making it easier for them to do business with you.

Michael Drapkin adapted this article from "Three Clicks Away: Advice From The Trenches Of E-Commerce" (John Wiley & Sons), to be published this month. Reach him at

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