The holidays are right around the corner, and Kristen Onken knows just what she wants: better visibility across the supply chain and paper-thin inventory. Not exactly Irving Berlin territory, but most CFOs can relate. December is a crucial month not only for makers of toys and molders of cheese logs but also for virtually every industry sector — particularly this year, when managers at many companies are praying for the first signs of an upswing in the fourth quarter.
The executive wish list hasn't changed much from years past, but the means for achieving it have. Onken, the CFO at computer peripherals maker Logitech Corp., headquartered in Fremont, California, and Romanel-sur-Morges, Switzerland, says a new E-business architecture that links Logitech to major retailers enables the company to see just how many units it has on store shelves. "We now see what we have out there weeks earlier than before, which helps us avoid stock-outs and keep our own inventory levels down," she says. The system can track about 70 percent of the company's sales in the United States and 50 percent in Europe. Logitech believes those figures will improve next year, but Onken admits that the company is limited to some degree by the technological capabilities of its retailers.
A year ago, such limitations seemed as quaint as a Currier & Ives print. E-business was hot, and few doubted that business-to-everything connectivity was about to write a new chapter in American business history. But now Logitech and other companies that invested heavily in E-business systems may have to wait longer than expected for their partners to catch up. And companies that launched major E-business initiatives on several fronts may have to scale back, putting some efforts on hold as they devote dwindling resources to the projects most likely to provide immediate payback.
The reversal of fortune for E-business has been dramatic. Or has it? Research firms and professional organizations have spent the past several months frantically taking the market's pulse, and in the process have produced a rash of contradictory findings: spending will drop, rise, or stay flat, depending on whom you talk to. Ditto for managerial commitment. Infrastructure is the hottest area. No, wait, it's customer service. Make that transactional systems. On the positive side, no one can say a herd mentality prevails.
Given the confusion, one could almost envy Gary Darst. He doesn't have to worry about setting E-business priorities, because he doesn't have any. Twenty months ago, Darst graced the cover of the first issue of eCFO for our story on "Internet Explorers." As director of financial planning at Litton Electron Devices, he led an effort to reduce that company's DSO (days sales outstanding) by adopting new Web technology designed to automate the many manual processes that surround cash management.
Now, as vice president of finance for Filtronic Solid State Inc., a Santa Clara, California-based wholly owned subsidiary of the U.S. holding company for Filtronic Plc, the British electronics manufacturer, Darst would love to do the same. Instead, he's forced to play a waiting game. With orders suffering (the company's primary client base is in telecommunications) and its stock share price down about 75 percent from a year ago, Filtronic is in no position to invest in much of anything. "We're handcuffed," says Darst. "We know that we have to pursue the potential of E-business, but in our business the fixed costs are huge, and we need to manage our way to profitability before we can extend our IT capabilities."
(Slow) Growing Pains
Although Forrester Research and Yankee Group have released negative surveys on technology spending, others offer a much more optimistic view. San Jose State University's ECM (electronic commerce management) program, in conjunction with Meta Group and Survey.com, surveyed companies of all sizes nationwide and found that nearly two-thirds said the Internet is more critical to their company's success today than it was 12 months ago. More than half said management now devotes more time and attention to E-business, and 37 percent said that E-business revenue has increased during the past 12 months, while only 10 percent reported a drop.
"These results show that E-business is a crucial part of infrastructure spending and is recognized by companies as something they must embrace or they'll disappear," says Mitchell Levy, CEO of ECnow.com and author of E-Volve-or-Die.com.
Companies are responding to these mixed signals in different ways. A few have staked their claims at either end of the all-or-nothing spectrum, à la Logitech and Filtronic, but most now find themselves charting a middle course — focusing on one major area of innovation that provides reasonably quick and measurable ROI, and then building on it.
At Toledo, Ohio-based Owens Corning, for example, the emphasis is on driving financial transactions into the electronic realm. "E-procurement is almost synonymous with E-business for us," says Chuck Dana, the company's vice president of E-business and global sourcing. Owens processes 600,000 invoices a year, creating an ongoing paper chase that eats up time and money. Moving those transactions from paper-based to Web-based systems has proven so effective that Dana says the current economic outlook won't slow his company's efforts. "We're accelerating our use of E-procurement," he says, "and plan to send out 75 percent of our payments electronically next year."
Those efforts will save Owens around $1 million in 2002, which provides a substantial incentive, but Dana says that other factors are also driving the company to approach E-business through a focus on E-procurement. For one, it doesn't cost much: The company can do most of the work by leveraging its existing ERP software suite and other infrastructure. That's a common theme at many companies, and analysts say one reason E-business spending isn't racing ahead is that companies are now attempting to leverage what they've already bought.
Another and more important reason is that E-procurement offers Owens valuable lessons in building better relationships. "As we learn how to interact with our vendors electronically," says Dana, "we see how those relationships get deeper and harder to break. That helps us understand how to best serve our customers in a Web environment." The company is not quite there yet. As Dana says, "It's easier when you're the customer, because you make the rules."
In the future, the company plans to extend its E-business environment to better serve its own customers, an effort Dana says will entail more than simply moving transactions from paper to wire. "When you turn your attention to customers," he says, "you need your business processes to be aligned, because you don't want to disappoint anyone." Logitech's Onken agrees, and notes that one challenge to E-business is "staying in line with your suppliers and customers, both in terms of what they can do and what they want to do."
Some companies focus on customers first and let E-business strategies evolve from there. At Bristol-Myers Squibb subsidiary Oncology Therapeutics Network (OTN), that has meant combining more than 30 separate customer databases into one sophisticated Web-based version that helps the company distribute cancer drugs and related services more effectively. In the decade since its founding, San Francisco-based OTN has evolved into an almost total E-business. "You still need feet on the street," says vice president and CIO Sue Dubman, "but aside from our sales force, much of our resources are being channeled toward our E-business efforts."
OTN specializes in providing cancer drugs to community-based oncology practices, a growing market now that chemotherapy has become largely an outpatient procedure. While the health-care field is somewhat immune to conventional economic pressures, it does feel its own form of pain from intense competition and regulatory requirements. OTN hopes to preserve its margins by making itself indispensable to customers. To do that, it offers a host of services, most of them delivered electronically.
Content Is Not King
Two years ago, for example, less than 25 percent of OTN's business (by dollar volume) was conducted electronically. Now the company does more than 75 percent of its business that way, and believes that by next year it can crest 85 percent. "Customers find it faster and simpler to do business this way," says Dubman, "and it allows us to provide them with enormous detail on what they've bought, and when." In fact, in its early days OTN was simply a retail distributor of medications. Now it supports oncology practices in all aspects of inventory management, tracks the status of orders, provides invoice record-keeping services, and continually polls customers as to what related services they'd like OTN to perform. "We've become a services marketplace," says Dubman, "and that all hinges on E-business technology."
Even a company as reliant on E-business as OTN, however, feels certain constraints. Dubman says that during the past 18 months, the company has performed a sort of triage, concentrating only on enhancements that seem tied to revenue generation or that are needed to keep the systems running. "We are primarily focused on the transactional nature of the system," she says. "For example, we've scaled back plans to provide lots of content on the site. That might help customers in certain situations, but it's hard to see how to make money on that. Look at how many medical content sites have gone under."
David Yokelson, an analyst at Meta Group, a consulting firm in Stamford, Connecticut, says the same attitude prevails at many companies. "Everyone wanted a good-looking, dynamic, high-performing Web site," he says. "Now many companies realize that they're better served by concentrating on streamlining the 'undernet,' the whole rash of intranets that create a lot of shadow IT costs. Companies that simplify their undernets get immediate payback."
Despite the tight purse strings, in fact, Filtronic recently paid a systems integrator to consolidate several of its Web sites into a single system, providing better customer service while cutting maintenance costs. That may be good news for Darst, who has not given up on his E-business ambitions. "In the absence of financial capital," he says, "we're investing plenty of intellectual capital. We are studying a number of E-business systems very closely, so that when we do have the budget, we can take action."
It may be that we haven't heard the last of business moving at "Internet speed" after all.
Survey Says...a Decidedly Flat Chorus
Many market-watchers say the immediate outlook for E-business is not bright. "Technology buyers have been disappearing faster than Hell's Angels from an NSync concert," says David E. Weisman of Forrester Research, in Cambridge, Massachusetts. Having surveyed 1,016 Global 3,500 companies in September, Forrester found that fewer than 20 percent had increased E-business budgets, while 27 percent had cut them, often deeply. And 48 percent said more cuts were likely if conditions didn't improve in the fourth quarter.
Expectations have also been reduced. Forrester found that nearly a third of the companies surveyed expected E-business revenues to decline, while most of the remainder expected them to stay flat. Only a handful of the respondants, primarily in insurance and business services, predicted an uptick. A similar survey by Yankee Group, conducted in August, found waning interest in E-business on the part of senior managers. When the research firm asked E-business decision-makers whether senior management at their businesses viewed the Web as important or very important to overall business strategy, only 55 percent said yes, compared with 76 percent the year before. —S.L.
E-biz Ups & Downs
How E-business budgets have changed in key business sectors since the start of this year.
- Services: 5.8%
- Business services: 4.2%
- Financial (noninsurance): 2.3%
- Insurance: 0.9%
- Finished-goods manufacturing: 0.1%
- Chemicals and petroleum: 0%
- Global 3,500 average: -0.3%
- Primary production: -0.7%
- Retail: -0.8%
- Intermediate manufacturing: -1.2%
- Technology and telecom: -2.1%
- Electricity, gas, sanitary services: -2.8%
- Wholesale: -3.3%
- Transportation: -5.3%
Source: Forrester Research