E-Business Planning Audit: helping businesses make good on the promises and avoiding the pitfalls of electronic business.

• Author: Spotts, Harlan

Abstract

Moving at harrowing speeds, businesses have been created and destroyed in the tumultuous e-conomy. The topic of e-business has been a major focus of all businesses as they strive to determine what is the best approach to developing a profitable e-business application. Given the results of the stock market and the number of dot-com companies going out of business during the year 2000 and first half of 2001, it is clear that businesses need to better plan for their electronic business ventures. This paper proposes an e-Business Planning Audit to help managers and entrepreneurs better plan the launching of new electronic applications. Drawing upon traditional planning audits from the academic and trade press literature, the proposed audit involves a comprehensive tool to guide e-business development from concept development through implementation.

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us." Tale of Two Cities, Charles Dickens The above quote seems to be an apt description for the e-commerce environment today. In a relatively short time, e-commerce has achieved some of the highest of highs, thought to be bullet-proof to the vagaries of the old economy and rewriting the rules of business as previously accepted, to the lowest of lows. The latter half of the year 2000 brought the dot-com party to an end and the sobering reality that there was more to this business than having a web site and a few fancy computers. In some respects, e-commerce has become a much more complex business, given the speed with which dot-com businesses can be up and running.

Traditionally businesses evolved slowly, taking time to develop their capabilities and customer base, and establish their value proposition and distribution infrastructure. However, in the virtual world, ideas can be put into action before thinking through the value proposition and distribution or logistics. While there has been much excitement over operating in cyberspace, some businesses have entered into e-business too quickly. In a recent interview with eCompany, Barry Diller, Chairman and CEO of USA Networks, said, A lot of companies were out there running a race where the winner didn't win anything. Many dot-coms have not had the chance to properly develop, capitalize, or establish a customer base.

Businesses have rushed to the virtual marketplace in order to be first. Armed with a web site and venture capital, adequate planning was sacrificed for immediate operations. When asked what his biggest mistake was, Marc Schiller, co-founder and CEO of ElectricArtists, responded (eCompany, 2001), Not evaluating every aspect of our business often enough. We should have, every month, dissected our business from the top down, but we were moving much too fast. Some existing businesses, however, moved slowly, hesitant to proceed into this new environment given their lack of expertise. This is not a bad move for an existing business according to Richard Branson, Chairman and founder of Virgin Group PLC (eCompany, 2001). Branson advises that for some existing businesses it makes sense to, hold off until someone else has it right. If you have a strong brand, you should do well.

Both types of businesses could benefit from conducting an e-business audit to help develop a sound business strategy before implementation. Currently, there are few tools to help business owners, managers and entrepreneurs to evaluate their abilities to engage in e-commerce. Some of the tools that do exist are proprietary to e-business consultants (i.e. Forrester Research), and others are published in trade books (Hartman and Sifonis, 2000). An e-business planning audit for businesses considering entry into cyberspace is proposed using the classic Marketing Audit (Kotler et al. 1977) as a starting point to help bring success in the implementation phase.

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Differences between Dot-coms and Traditional Businesses

Importance of the New Economy. While businesses still try to discern what works and what does not work in the new economy, there is no doubt it has had and will continue to have a tremendous impact on both the domestic and worldwide economy. Forrester Research projects $3.5 trillion in business to consumer (B2C) and business to business (B2B) sales by 2004 in this country alone, with over $7 trillion worldwide. B2B e-commerce is projected to account for $2.7 trillion of this amount. While there is still much growth in this sector and many profits to be made, managers need to determine how to successfully take advantage of this potential.

Clicks versus Bricks. There are some differences between the old and new economies. E-businesses move at the speed of a mouse click. Traditional businesses are built with bricks. While both are engaged in commerce activities, there are factors involved in e-commerce activities that provide unique challenges.

Traditional businesses have physical facilities that serve specific geographic regions. As businesses expand over time, they have the luxury of being able to experiment with different business models and to evolve. While mistakes are made, many businesses are able to compensate and learn. For example, businesses can develop organizational and logistic structures gradually to accomplish the various tasks required for success. Marketing functions are established to communicate with consumers and help develop direction for the company in terms of product and service development.

E-businesses live in a much more tumultuous and fast moving environment. It is referred to as spatial, not linear (Bishop, 1998). Dot-coms were created in cyberspace. Aside from the technology involved, many companies exist only as web sites. The virtual corporation has evolved (exhibit 1), where most of the business processes (manufacturing, supply, logistics and customer service) have been contracted out to supply chain partners. The critical management, research and development, and marketing activities are all that remain within the virtual corporation (Applegate and Gogan, 1995). To the casual observer, many of the early success stories, such as Amazon.com, Yahoo, and etoys, helped to perpetuate the belief that a successful dot-com was built only with new technology. Thus, a new business model was created. Armed with the Internet, business was supposed to be easier for both the entrepreneur and the consumer. However, recent market events reveal that even dot-coms have to be concerned about traditional bottom line profit issues.

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In a very high profile disaster, Toys R Us learned first hand that e-business success requires more than just taking orders over a web site. They learned, during Christmas 1999, holiday season, the expensive consequences of not delivering the product to customers on time.

Critical success factors are now beginning to emerge that will help dot-coms become more successful and long-lived. Businesses, both dot-coms and traditional, need to address the following issues when considering the jump to cyberspace:

Business Process: Long before creating the first web page of an e-business storefront, managers need to understand the fundamental business process currently used to deliver value to consumers (Afuah and Tucci, 2000). Dot-coms have learned that it is not fancy technology, but providing consumer value that counts. An extensive analysis of value creation is required. However, it is important to determine how the use of e-technology can actually add value to the customer over that which is already received from the bricks side of the business (Hartman and Sifonis, 2000). For example, Autobytel, Carpoint and other cyber intermediaries allow consumers to purchase cars and trucks on line. What value is added over and above that provided by traditional car dealerships? One Answer: Consumers can now enjoy a larger selection of vehicles from which to choose. This increases the probability of their getting a vehicle that exactly satisfies their needs without having to place a special order with the manufacturer.

Organizational Structure: One of the major differences between the dot-com world and traditional businesses concerns organizational structure (Hartman and Sifonis 2000, Windham 2000). Given the entrepreneurial nature of dot-coms, their organizational structures are relatively flat. This allows for flexibility and quick adjustments to environmental change, a critical strength when the industry is changing almost daily. In February 2001, Disney restructured its e-commerce initiative with Infoseek that created Go.com. The restructuring, brought about by poor revenue and profit performance, resulted in the elimination of the e-commerce division as a separate entity. Disney brought e-commerce in-house to better manage the business, its brand, and improve financial results.

Technological Resources: If a company does not have the technology, it cannot compete in cyberspace. However, having the technology does not mean a company will be successful. Napster was wildly successful in creating a new model of peer-to-peer exchange by allowing individual users to exchange MP3 music files.

The business had great technology, fantastic acceptance and penetration among high school and college students, but ran afoul of music industry copyright laws. The ensuing legal battle put the company out of business despite its technology and success. In the traditional business, technology, while playing an increasingly competitive role, is not as critical to the mission of the company as it is to dot-coms. Record stores do not need the most advanced technology to conduct business, whereas Napster did. Record stores, however, are still in...