Implementing Successful E-Commerce Initiatives: It's Time to Reexamine Your Investment and Figure out How to Make It More Profitable

By Epstein, Marc J. | Strategic Finance, March 2005 | Go to article overview

Implementing Successful E-Commerce Initiatives: It's Time to Reexamine Your Investment and Figure out How to Make It More Profitable


Epstein, Marc J., Strategic Finance


E-COMMERCE can be one of the most important value-creating activities a business can pursue. The key is in its implementation. Unfortunately, during the early days of the dot-com hype, many companies made large investments in this new way of doing business because they had a feeling that it was the right thing to do or because their competitors or colleagues were making the leap. But they took the plunge without thinking seriously about what drives e-commerce success, so many of them failed.

Now it's time to take a step back and apply to an Internet venture what we know about traditional business, management, and information technology so our investments in it can become profitable. These guidelines apply whether we're redesigning our website or whether we're deciding how far to extend those sites, what to sell, how to compete, and how much to invest in technology.

Before making another investment in e-commerce, companies must thoroughly evaluate their business environments--their external environments and their corporate strategies, structures, systems, and resources. Based on the evaluation of these inputs, they must develop proper e-commerce leadership, strategies, structures, and systems. The manner in which these processes will be implemented depends on the inputs, and the effectiveness of these processes will determine customer acquisition and loyalty, channel optimization, cost savings, value, and, ultimately, corporate profitability. See Figure 1 for an overview of how the inputs, processes, outputs, and outcome tie together.

[FIGURE 1 OMITTED]

CHARACTERISTICS OF SUCCESSFUL E-COMMERCE

To have successful e-commerce ventures, companies must show strength in four areas: leadership, strategy, structure, and systems. See Table 1 for some of the characteristics of success.

LEADERSHIP

To improve the prospects for a successful e-commerce implementation, dynamic and strong leadership is required. The CEO needs to be a firm believer in the benefits of e-commerce and must make sure other senior executives share this vision. The company must evaluate its position regarding e-commerce, must make resources available, and must make sure the corporate culture adapts. Only then is it prepared to begin developing and implementing an e-commerce strategy.

1. Commitment at the top. Leadership starts with a commitment by the CEO and other senior managers to consider a significant role for e-commerce in the organization. For this to occur, these executives should have a basic understanding of the technologies associated with e-commerce and IT as they need to explain the business implications to internal and external partners so that the company has adequate knowledge with which to make sound business decisions. In addition, senior management must understand some of the technical issues associated with e-commerce so that it doesn't appear they are ceding leadership to the IT specialists.

2. Thorough analysis of a company's e-commerce position. In crafting an appropriate e-commerce strategy, it's vital for the leaders to assess the company's e-commerce position relative to its competitors. Even if it seems that competitors are far ahead, a company can still gain a competitive advantage. For example, with a combination of online and offline services, Charles Schwab was able to build a significant advantage over competitor Merrill Lynch, despite having been preceded online by pure-play competitors such as E*Trade. Although catching up can be difficult, it's possible with a high level of investment and a willingness to explore new business models and processes. If a company is a late mover into e-commerce, it can still work toward being the first to provide a particular service, combination of services, or other unique value proposition.

3. Significant financial investment. The CEO, along with other key executives, is responsible for determining an appropriate level of investment to devote to the e-commerce initiative. …

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