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What Can e-Business Do?
By Satish Nagarajan, President, Apsana Inc.

 A website does not an e-business make. Not all websites are e-businesses. Many are just electronic billboards on the information superhighway. An e-business goes beyond an advertising website:

Sell
E-business brings extraordinary scale to your business. E-business stores do not close for holidays, weekends or after "normal" business hours. E-businesses are open for business 24 hours a day 365 days of the year (366 days in leap years). Customers can buy what they want, when they want, from wherever they want. This freedom of choice, time and place is critical to the success of e-business. E-businesses can sell directly to the customer or help other channel partners more effectively sell.

Dell Computers (www.dell.com) is a good example of company using a direct sales strategy. Dell is quite remarkable because they use the direct sales channel exclusively, i.e. customers can buy Dell computers only directly from Dell using the web site or by phone. Another company that uses this strategy very effectively is Amazon.com (www.amazon.com). Amazon sells books, music, toys and collectibles. Historically, both Dell and Amazon have derived substantial savings from the direct sales channel. Their distribution costs are substantially lower than competitors because they do not support a complex and expensive retail channel. Dell also used this to great advantage all through the 1990s to maintain much less inventory and get many more inventory turns than competitors.

A company at the other end of the spectrum is Ford Motor (www.ford.com). Ford does not sell cars directly to consumer, instead uses a large collection of car dealers. Ford Direct (www.forddirect.com) is a web based auto selection and dealer referral service. Consumers can select models, trim, colors and options and then see which dealers near them have the vehicle in stock. On the luxury models you even have the option of custom ordering your vehicle, Jaguar (www.buildyourjaguar.com) and Volvo (new.volvocars.com). The custom orders are then forwarded to a participating dealer who then completes the transaction. The primary purpose of these e-businesses is to help consumers shop for their cars and bring more traffic to dealers.
A number of companies operate a mixed channel model where they retain the distribution channel for a bulk of their sales volume but use the direct channel to get closer to the customer. Compaq Computer (www.compaq.com) is a good example. You can configure your own Compaq laptop or desktop at the Compaq web site or buy almost any configuration from retail store or a partner web site. Compaq uses its e-business as a competitive response to Dell's direct sales strategy and to reach the segment of consumers who are willing to buy computers on the Internet.

Clothing retailer L.L. Bean (www.llbean.com) also uses a mixed channel model. L.L. Bean sells primarily through its catalog and e-business operation. L.L. Bean customers are well adapted to Internet shopping because it is a qualitatively similar experience to shopping from a catalog. The web site becomes a better catalog. They have done a good job of integrating the customer experience. A customer who has a catalog can use the product code to quickly find the product on the web site.

The "click-and-mortar" model is probably one of the most exciting recent developments in e-business. Companies like Banana Republic (www.bananarepublic.com) and Circuit City (www.circuitcity.com) allow customers to buy from the e-business or the retail store and return merchandise through either venue. This integration of the customer experience drives sales in both venues. Customers have a relationship and trust the brick and mortar retailer and can also use the convenience of the e-business to do their shopping at 2 AM in their pajamas. Look for many more companies to leverage their physical infrastructure to better advantage over the so called "dot coms" by becoming "click-and-mortar" e-businesses.

Service
Just as e-business can sell 24 hours a day, 365 days of the year, e-business can also provide customer service all day every day. This is a level of service that was unheard of only a decade ago, is now demanded in almost all industries.

A majority of the companies that use their e-business to provide customer service, use it as a supplementary channel. So customers can contact the company and get service through many different venues - telephone, e-mail, website, in-person or mail. The goal here is to give the customer lots of options and make it convenient. A great example of this strategy is the mutual fund industry. Industry players like Fidelity Investments (www.fidelity.com) and Vanguard (www.vanguard.com) have sophisticated customer service web sites. Now investors can get fund prices, account balances, prospectus and application forms at any time of the day without waiting in line on the phone or in person. In fact most customers demand this level of service and it is common in Business To Consumer (B2C) e-businesses.

Another example of this strategy is the auto industry. Most people are uncomfortable with the whole car shopping experience. Especially shopping for used cars. They dislike the pushy salespeople and being rushed to buy a car. Some auto dealers are now using e-business to publish their new and used car inventories and details on web site. Now a consumer can do their research, ask questions via email and be more comfortable throughout the entire shopping experience. One good example can be found at Dwyer & Sons Volvo and Subaru web site (www.dwyerandsons.com).

However a few innovative businesses have gone further to use their e-business and website to deliver services that could be delivered cost effectively without these technologies. An interesting example is Lands End, the catalog/web based clothing retailer. The Lands End web site (www.landsend.com) allows the customer to create a virtual model of themselves - using various body measurements. Then they can try on different apparel on the virtual model to see if it would fit. This addresses a key problem for many catalog and web shoppers - it personalizes the purchase. It answers the question how will this look on me, in my house, with this accessory etc. Most brick and mortar retailers provide this service by building expensive large retail stores. Lands End achieves some of the same goals at much lower cost with their virtual model.

Another company that does a very effective job of using technology is FedEx (www.fedex.com). From the beginning FedEx allowed customers to track their packages by calling customer service with a tracking number. Now FedEx's e-business provides a web site where customers can enter the tracking number thereby reducing call center costs for FedEx and improving response time for the customer -- a win-win strategy. FedEx also integrates their tracking software with many large corporate customers logistics systems to provide better access to shipping data.

Royal Dutch Shell company's euroShell Online Intelligent Fleet Reporting System (www.euroshell.com) is another example of using e-business to provide a valuable service to customers. Shell's fleet operator customers can use this system to track their operating costs. Shell customers who use a shell card and use Shell fuel in their fleet vehicles can download from the euroShell web site reports on their fleet operating costs.
A similar service focused on consumers, is the ability to download monthly credit card and bank statements directly into personal finance software like Quicken and Microsoft Money. Many banks and credit card issuers provide this kind of service.

Buy
There are two primary ways in which companies can use the web to reduce purchasing costs. They can interface with an e-marketplace (a specialized e-business) in their industry or they can setup their own supplier portal to interact with their suppliers. Some of the largest companies have chosen to do both.

If you have substantial market power in your market segment then creating a purchasing or supplier portal e-business can reduce your total cost of purchasing. The cost savings arise from two changes:

• Reduced administrative costs through automation
• Increased competition among your suppliers through better visibility in a market setting

If you are a supplier to a large company you are going to be required to interact with your customer through their supplier portal. This can be profitable if you can take advantage of the situation:

• Reduce your selling costs by connecting your order entry/order fulfillment systems to your customer's supplier portal
• Use the increased visibility to your customer's needs and your competitor's actions to improve your position

Unfortunately there are few standards and most systems are not inter-operable. So taking advantage of this opportunity is going to require substantial rethinking of information systems and business processes.

Visteon, a spin-off from Ford Motor and Tier 1 automotive supplier has a created a supplier portal (www.visteonsupplier.com) which suppliers use to exchange information and to define and satisfy purchasing requirements.

BASF uses its purchasing portal (www.basf.de/en/produkte/rohstoffeinkauf/purchasing/network) to describe their purchasing process, technical specifications, current requirements, request proposals and qualify suppliers.

The other way to reduce purchasing costs is to create or join an e-marketplace. An e-marketplace provides a common virtual trading floor for all market participants. Suppliers and customers can use the e-market to exchange technical information, purchase orders and payments and to track order status.

GM, Ford and DaimlerChrysler joined together to create Covisint (www.covisint.com) to be the premier e-marketplace for their auto suppliers. There are literally hundreds of e-marketplaces for different industries. OceanConnect (www.oceanconnect.com) is an e-market where cargo and tanker ship owners, port services companies and customers can connect to do business.
 
About the Author
Satish Nagarajan is president of Apsana, Inc. a business and technology consulting firm located in Plano, Texas. He is an expert in strategic applications of technology and technology enabled process improvement. He has over 17 years experience in management consulting and IT. Satish@apsana.com