Getting the most from your E-Strategy
Many companies have launched successfully in the network economy. But not all have survived. The problem is two-fold, in that firstly they have forgotten the rules of normal business, and secondly they have not understood the fundamental differences in the market.
Amazon for example, perhaps the best known and one of the best loved 'E' businesses did all the right things - focused on the customer, got the technology right and got the right team in place from the outset. But having claimed the internet limelight it proceeded to re-invent the mistakes of its bricks and mortar forbears - going for vertical integration and losing concentration on its core competencies.
Surprisingly, it is some of the most staid industry sectors like utilities and public services, which have produced the most consistent performance to date in the networked economy. Jolted into the network economy by aggressive deregulation, companies in these sectors have proved most adept at learning the lessons of the new e-world. Other traditional bricks and mortar companies such as supermarkets and insurance companies have been equally successful in their e-business ventures, primarily because they understand the markets in which they operate and have a clear view of the needs of their customers. The fact that they have recognised brands that help to generate customer trust and loyalty is also a significant advantage.
Understanding the networked economy
Successful strategy in the networked economy can only be built on a profound understanding of the forces driving market development. There are many of these forces but some of the most important are:
Increased acceptance of the free market model.
Fragmentation in social attitudes among employees.
Accelerated development in technology.
The networked economy is so-called because it is built on networks. Loose connections between components, like manufacturing, warehousing, distribution and retail which were formerly integrated into a formal, vertical value chain.
In liberal Western markets, the bonds that hold the traditional integrated value chain together have been broken. In the drive to increase shareholder value and deliver enhanced services to customers, businesses are no longer united by formal, legal ownership structures. Instead they are forming new alliances. Partnerships, service agreements and joint client teams are providing the dynamic, responsive corporate structures which enable more nimble participants to seize new opportunities.
The networked economy has really taken off where the labour market is dancing to a different beat, where no job is 'for life', breadth of experience is valued, and home or small-group working is felt to be more fulfilling and more convenient. In those countries where younger people have taken career development into their own hands, moving jobs frequently to acquire new skills and broaden their contact base, the form and shape of the business landscape has changed accordingly. There is a prevalence of privately-held owner-managed businesses and 'new' corporate structures based on a fluid, virtual workforce.
The networked economy is a natural extension of the way industries develop in a truly free market. Hence it has succeeded most spectacularly in parts of Western Europe, the US and parts of South America.
Technology is clearly fundamental to the development of the networked economy. It is both a core component of the market and a key driver of the changes, which have made it possible. Successive generations of new digital technologies, including the internet and broadband, have drastically reduced the costs of transmitting and processing information.
The networked economy has thus developed as a result of slow and powerful market forces, not as a result of a technological 'Big Bang'.
Key to creating a successful e-strategy in the networked economy is the ability to understand these forces. It demands deep and creative strategic thinking from the entities that will exploit it to best advantage. Simply sticking 'e' on the front of a company's strategy, customer processes, supply chain or financial management system suggests a superficial grip on the task in hand.
The accompanying case study illustrates that Move.com is a good example of a company with a strategy arising out of a deep understanding of the networked economy and the forces that created it. The company wanted to exploit its international potential and needed help adapting its business model and picking the right locations in the right sequence.
Case Study: Move.Com
But how would the European business fit with the US-developed model? The team, conscious that modifications were needed to help the business achieve its full potential, set about building the 'architecture' for a US business in Europe. It then devised a phased European rollout plan - starting with the UK.
With the 'green light' from US decision-makers, the rollout began. The Andersen team worked closely with the Move UK team to:
Measures of success
Subsequently Cendant has sold Move.com to Homestore for $800 million.
Measuring up to the strategic challenges
Digesting the lessons from Move's experience and other internet successes, Andersen believes the key challenges for strong players of the future are to:
Understand the external environmental forces and their inter-connections.
Select the right partners for the right jobs and forge new connections with them and new ways of working.
Manage the transition from simple 'single entity' management to multi-component management.
Understand the direction and possibilities of new technology and position your business to reap the benefits.
If the strategy is right in these areas, then companies should be well placed to compete. But how will they know that the strategy they selected was the right one, that they got the maximum value from the strategy process?
There is only one viable measure of the quality of corporate strategy, and that is shareholder value. Companies rarely make a public statement linking the two and, in general, have been loath to attempt the creation of a formal measurement system on that basis. Putting a value on a vision, a relationship or a communication process is difficult but unless the strategy results in a consistent increase in value for shareholders, the City will be critical.
So what can companies do to maximise value from the strategy setting process and maintain that all-important increase in shareholder value?
In Andersen's experience there are five golden rules for successful e-strategy implementation:
Get the plan right and stick to it.
Get the technology right but don't worship it.
Get the right team and keep them talking to each other.
Get the right partners, but recognise this will take time.
Remember the customer in everything you do.
They sound like common sense, and in many ways they are, but few companies consistently follow them.
Get the plan right
For many dot coms, leadership by young, inexperienced entrepreneurs has led to lack of direction and planning - the classic example being Boo.com. Effort needs to go in to up-front planning with even more rapid implementation through parallel, not sequential, work streams. Programme management needs to come from experienced and skilled staff who can respond flexibly to real-time events.
Get the technology right, but don't worship it
Cahoot's web server was unable to handle the volume of site traffic on rollout and had to be taken off line and re-configured. Having the right platform from the start is essential, as is rigorous testing each time new functionality is developed and added.
Get the right team, and keep them talking to each other
Toy company Mattel tried to set up internet activities without setting up a distinct Internet team. Consequently, progress was slow and the focus for a successful site was lacking. Andersen believes that project teams need to be multi-skilled, the organisational structure needs to mirror the business structure and flexibility, communication and speed need to take preference over hierarchy and silos.
Get the right partners, but recognise this will take time
Many B2B exchanges are struggling to generate liquidity due to flawed partnering strategies. Lastminute.com was forced to postpone its relaunch as its technical partner failed to deliver.
No company can succeed in e-business on its own. Integrating the right partners is key to tying in back-end opportunities and unlocking the potential to increase sales and improve transaction efficiency.
Remember the customer in everything you do
FT.com lost early users because of complex slow graphics, while FleetScape's plan to take a percentage of each transaction failed with buyers and suppliers used to conducting their business free of charge. More rigorous strategic thinking would have determined the value proposition more precisely and might have prevented these failings. The user experience has to be in line with the value proposition and the customer needs to be at the heart of all the decisions including design, pricing, fulfilment and partner selection.
The future face of the networked economy
Successful companies tomorrow will not look like the successful companies of today. They may combine the traditionally separate roles of supplier, manufacturer, consultant and even customer, re-packaging the way they do business to create new fees, revenues, capital and syrup (creation of a piece of IP that can be diluted repeatedly).
Companies like this are the result of the forces driving the development of the networked economy. They are the new face of the networked economy.