Financial returns insufficient gauge of e-biz success

Companies should not use financial returns as the sole measure of e-business success, said an IBM e-commerce expert.
Written by Anand Menon, Contributor
SINGAPORE--Companies should not use financial returns as the sole measure of e-business success, said an IBM e-commerce expert.

"One of the problems companies were having was that they did not understand the value of their (e-business) investments," said IBM Asia Pacific e-commerce executive practice manager Melodie Nicholes. "They were tracking the dollar of transactions that came through on their e-commerce sites and used that as a being the sole measure (of e-business success)."

Nicholes advised companies to look beyond top line financial returns, and focus instead on "strategic drivers", which include the ability to create customer value proposition, to run internal processes and capabilities.

She was speaking at the sidelines of IBM's eSolutions Week seminar here.

Stressing the importance of the three key strategic drivers in fuelling e-business, IBM has incorporated them (together with financial returns) into its own four-layer return on Web investment (ROWI) model. Big Blue claims this model helps companies to, among other things, establish a framework for evaluating e-business initiatives, measure revenue growth, market share and profit from e-business investments.

More importantly, Nicholes noted, the strategy contains customer value proposition, which helps a company find out what its customers care about--matters such as brand recognition, product availability and return policy. According to her, if companies assess customer value, they will be able to drive financial returns.

In terms of internal processes, she said companies doing e-business need to also look at measures such as fulfillment, making sure they have competitive pricing and good inventory management.

As for capabilities, "it's about people and technology and a good feedback method you have that enables you run your processes and create your customer value proposition and deliver your financial returns", she said.

Lessons from dot-com hype
Emphasizing on lessons companies could learn from the dot-com hype, which saw many businesses worldwide jumping on the e-business bandwagon to offer services online, Nicholes said firms have to recognize that by taking their businesses online, they have to drive value to their overall businesses.

She said it would be pointless to "just build a great site to meet the customer needs but not putting the internal processes behind it". Citing the case of Toysrus.com, the Internet unit of US retailer Toys "R" Us, which was one of the best-known e-commerce companies from the late 1990s Internet boon, she noted that the company forgot there was a huge fulfillment need to deliver its toys on time for Christmas, and did not get the toys out. "So, fulfillment impacted their brand. You cannot just accomplish one piece of your strategy," she said.

"We learned (from the dot-com hype) that understanding customer needs and being able to respond to them quickly is an absolute requirement," she said.

Meanwhile, among customers which have implemented IBM's ROWI model for e-business are Brisbane Airport Corp and Ryder Systems Inc, a provider of transportation logistics and information services. Nicholes said that to date, between 15 and 18 clients worldwide in the transportation, insurance, utilities and medical sectors have used ROWI.

She said IBM charges from about US$40,000 to US$200,000 for its ROWI model.

On whether she saw the ROWI service taking off in Asia, Nicholes said: "We see an upward trend for such a service working in Asia because the market is not going for 'we're just doing it because it's new and exciting'. There must be something tangible behind this. There is still recognition in the Asia Pacific marketplace that there are some other reasons for investing in e-business beyond just the obvious financial business case."

She also added that IBM sees growth opportunities for e-business in Asia despite the ongoing economic slowdown. "There is a lot of fear in the market, but if you can create a business case that will show that this will drive value for your corporate strategy, then it's an incredibly valuable thing to do," Nicholes observed.

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