e-commerce, globalism, IT

Commerce over the Internet, even though expanding at a phenomenal rate, remains small in relative terms. Yet already, bookselling, personal computers, travel, car retailing and many industrial markets are being tranformed by direct selling via websites. No business can afford to neglect the potential - and new net-based businesses are being born every day. Computer bugs apart, the calendar Millennium has no real significance. The all-significant Millennial sea-change has already taken place.

You can express this unstoppable surge very simply. Open a site on the World Wide Web, and your business is automatically international. Through that site you can link up with suppliers (who may make everything you sell in toto), tell customers in detail about your products, and arrange for their purchases. Make your products and services available to this world-wide audience, by establishing distribution with partners who are linked via the Net,and - hey presto! - you're a fully-fledged global business.

This process, moreover, doesn't take a generation: thirty years, the traditional time needed for a company to become a big-time player. Thirty days is ample for the start-up, and thirty months could see you with a gratifyingly high turnover. Yet the web site may be all your company has, as when Amazon.com launched the first global bookseller. You need money (which the investment community is delighted to supply) and you need brains, both commercial and technical. But that is all.

These asset-poor upstarts intensify the pressure on the wealthy old order. For a start, the upstarts are often not poor. Their initial backing is adequate, and public appetite for their equity is such that, even in a much less hysterical stock market, they will rapidly generate all the wealth they need. Established companies can observe this phenomenon, but they cannot join the unstoppable surge in their established formats. The latter work for the present, but not the future.

Multinationals in particular have reached a Rubicon. On one bank of the river sits a vast, habit-ridden national corpocracy with affiliates abroad. On the other beckons a truly global, lithe organisation which knows no frontiers and no obstacles. Can the former cross the river and transform itself into the latter? Their managements are certainly trying to make the journey. But their progress towards the future almost always reflects, and is restrained by, the lumber of the past.

This is not a theoretical issue. The boom in e-commerce is a reality, wonderful for some, harsh for others. In Virtual Finance, meaningfully subtitled 'A Survivor's Guide', consultant John Ginarlis observes that the costs of virtual e-commerce are falling fast while phsyical branches are becoming ever more expensive. This produces 'a scissor effect'. You could also call it a squeeze, but the impact is the same: irresistible.

Technology is the main blockage that has kept down e-commerce penetration in the US, easily the most developed of consumer markets, to below 10%. But the finishing touches are being swiftly applied. When mobile phones connect to the Net, to be joined by ordinary TV sets, the gates to cyberspace will be flung wide open. Ginarlis's prediction, that this will happen within five to 10 years, seems highly conservative to us. But he is absolutely right in saying that the triumph of virtuality is inevitable.

Ginarlis is referring specifically to the finance sector, but no business is immune. Writing in the Financial Times, Barry Riley observed that: 'Anxious straegic planners in all kinds of businesses...are grappling with the challenges of keeping up with the e-commerce revolution'. In his view, stock markets, even when there is a speculative bubble in Internet stocks, are reflecting the underlying realities of the changing world. He cites the threefold rise in British Telecom shares as an example:

'The stock market now perceives that BT is well plugged into both of today's phenomenal growth sectors, mobile telephones and the Internet, and has become an international growth stock'.

As Riley notes, the growth action will not be in Internet portals, 'surely not an activity that in itself will make huge profits. But somewhere, in a linked business, somebody will'. To become that somebody, a great company remaking itself for the new world order has to scrap its old business model and build a new one - or new ones, because it will almost certainly be operating in many markets. Yet, if you believe the 1999 report on 'The Competitiveness of Global Firms' (FT Management), the old, US-dominated order is still good enough.

THE 'BEST' GLOBALISTS
Twenty-three of 'the best' globalists are incorporated in the US, followed by nine from the UK - a list which includes some eyebrow-raisers: two brewers in Bass and Whitbread, a manufacturer in GEC, finance house 3i and household goods conglomerate Reckitt & Colman. GEC, long excoriated for its lack of innovatory zeal, has used its cash resources instead, paying over $6 billion for what Riley describes as 'a modest pile of all-American communications wizardry'.

As for Reckitt & Colman, it's strategy had just come apart at the seams, despite some expensive consultancy designed to turn the group into a truly European powerhouse. The same kind of disappointment has affected several other 'Competitiveness' stars, including one-time cynosure Hewlett-Packard and Electronic Data Systems, the computer services firm originally established by H.Ross Perot. In April 1999 EDS reported dismal figures as it struggled, under new, imported leadership, to perform more effectively in a high-growth marketplace. The company had fired 5,200 employees, abandoning 'underperforming' businesses, and losing $20.6 million in a single quarter.

HP, still more dramatically, had recently decided on bifurcating in a belated effort to exploit cyberspace. These traumas shows how violently the Internet has changed a global game which is evidently moving too fast for the calculations of INSEAD's Jean-Claude Larréché and his competitiveness team. In an amazing omission, the report's key measure, Overall Market Effectiveness Capability (OMEC), does not specify information and communications technology among a dozen 'global dashboard' dials, ranging from 'mission and vision' (of course) to 'planning and intelligence'.

Nor do any dashboard features, save 'international', distinguish global from local firms. In the age of the Internet, that distinction is dying. True globalism makes similar brands available in similar ways in markets world-wide, managed by an organisation that sees no difference between home and away. On that definition, Amazon.com out-globals the OMEC champion, Unilever: thanks to the formula described above, the Web is spawning similar revolutionary globalists every day.

As it happens, global champion Unilever also reported disappointing resuls in April 1999. Almost every business must be touched, and many damaged, by developments such as the rise of the 'infomediaries', database sites which act as exchanges for purchases on an ever-widening front. Because they offer total information and complete price comparison, these sites offer a stark choice to companies in the affected industries: you either join the infomediaries or cede them your profits.

If you simply continue with business as usual, the infomediaries will take over your customers one by one, or hundreds by hundreds. If there is a real possibility of adding value to the purchase, by significant elements of service or consultancy, that route may protect your custom and profits. Even then, the low-cost, low-price Web rivals will be a continual threat, especially if the infomediaries get above themselves and offer value-adding options in turn. Your better option is to become an e-commerce force yourself - like Dixon's, the UK electronics retailer, which attracted 1.3 million users in seven months with a free Internet access service.

Established corporations had best get their global retaliation in first. The first necessity is to get wired - fully. The whole organisation, and everybody within, must be linked by networks that make maximum information universally available in real time. The expense of doing that is not prohibitive: the cost of doing nothing may be lethal. The network cannot become globally effective, however, without revolutionary changes in the way the organisation is managed.

The Catch 22 is that the traditional organisation goes about its revolutionary purposes in the traditional way. A typical multinational giant, deciding to connect all its people and businesses worldwide, spills forth documents and presentations about going on....

'a transformation journey which will require each and everyone of us, (you), to commit to and take individual ownership for the Business Principles and the Values in order to achieve the breakthrough performance that will be required'.

FIVE FATAL FAULTS
This 'breakthrough performance' will be accomplished by 'working in innovative new ways, combining the expertise of our highly talented staff to develop and implement world class best practices, serving our cross border customers more effectively, sharing and valuing diverse ideas across the globe'. The company had identified Five Fatal Faults of the 'current reality':

• excessive internal focus
• excessive bureaucracy
• limited sharing of information
• information is power culture
• limited sharing of resources

Given this certainly accurate analysis, you can see the inherent difficulty in moving to a 'future reality' of sharing best practices through 'virtual distributed teams' in a 'culture committed to learning' in which common activities would 'cluster', and which would feature 'partnering wih customers and suppliers'. The company (or its directors) clearly wanted to move in the directions urged in this book. But the apparatus being asked to make the move was the very machine exhibiting those Five Fatal Faults.

The actual substantial programme surrounded by all this verbiage was the installation of a global information and communications system. But the would-be revolutionaries were anxious to downplay the significance of the IT. It was 'the enabling component for enhanced communication, collaboration and working in new ways. However, it cannot be over-emphasise [sic] that this is not an IT project'. The project leaders sounded almost apologetic when saying that the project 'does however need a common infrastructure'.

None of the 'mandatory' equipment changes were particularly challenging: local and wide area networks, a global Intranet, e-mail, and a standardised desktop. But a sprawling, elaborate training and 'coaching' programme had been devised, complete with a large range of communications 'designed to inform and educate everyone who will be effected [sic]'. There was no mention of specific applications of IT or of the precise business results required - although 'local business representatives' were told that they...

'...should network with other business representatives to share best practices for working in new ways and to identify opportunities to deliver faster to market, more effectively to market, or identifying new venture opportunities which are common across lines of business'.

On being introduced to this apparently ambitious programme, we were distinctly underwhelmed. The prognosis for a noble attempt to cure the giant's self-confessed Five Fatal Faults seemed very poor. A lumbering process is hardly the way to speed up and reform a lumbering giant- and its subsequent financial results have in fact been terrible. The leaders had not understood that an information and communication system that, like the Web, is shared around the world of itself creates wholly new norms.

The truly global system doesn't just inform and communicate: just as the above programme wanted, it engenders collaborative action, which, because of the transparency and universality of the medium, can be initiated anywhere on earth. That means more than, say, having a common platform for all cars produced round the world. The Holy Grail is to have a common platform for management.

That cannot be provided by a structure founded on national head offices staffed by omnipotent (but by no means omnicompetent) chief executives and their cohorts. The essence of true globalism is the dissipation of central power and its replacement by widely dispersed, shared responsibility. The giant multinationals are having real trouble in groping towards this formula. One response (viz, Hewlett-Packard) is to contract, to spin off businesses or sell them (which 'global champion' Unilever has done). That in no way joins or rides the revolution.

Another response, diametrically opposed to contraction, and which Unilever has specifically rejected, is to swell, via the ever bigger (but not necessarily better) merger or acquisition. Neither in itself does nothing to improve, and may retard, 'Overall Marketing Effectiveness'. Both demerging and merging put off the evil day of adopting radical change - not in the structure, but in the management. The evil day is really far from evil. But it demands changing behaviour, abandoning 'the way things are done round here' for new ways of doing things - round the world.

FROM AWARENESS TO ACTION
The problem is not awareness. To judge by that, the information revolution is gathering pace in awesome style. An IDC survey of 50 senior directors in Britain showed that 96% of companies were making or planning to make changes in their businesses and technology. Two-thirds had already done so. But you have to question the extent of the changes. The real pace is being set, not by awareness but action. As the coaches coach and the trainers train, the e-commerce innovators are changing global business.

Consider the wider implications of a phenomenon like e-Bay, the Internet auction house which became a Wall Street sensation after going public in 1998, with the share price multiplying ten times in ten weeks (a process that took Microsoft ten years). The site brings together buyers and sellers for over 900,000 products in 1086 catalogues: and it gets 140 million hits a week. Merely between October and December 1998 its registered users rose by half to 1.8 million.

Other sites mediate between airlines and passengers, like Priceline.com, whose stock market debut was another sensation. It rapidly rose to a market value higher than that of American Airlines, making its founder worth $4 billion on paper. There's no reason why the auction and intermediary principle shouldn't spread to other markets - perhaps to all markets. The customers will pay precisely what they are prepared to pay. The oligopolists will no longer be able to control prices, and their profits will depend, not on their control over markets, but on their efficiencies.

As the external forces of the unstoppable surge come to bear, internal forces should also drive managements in a revolutionary direction. Marketing, finance, production, R&D, human resources and innovation must be linked in real time to achieve leading-edge performance. The leaders of the Triple Revolution consciously function within wider business systems, to which Extranets hold the key. Intranets (spreading fast) likewise provide vital internal linkages. Treating these as 'infrastructure' misses the whole point. They are developing, powerful tools for action and interaction.

Regarded as infrastructure, the systems simply add an electronic layer to the bureaucracy. Indeed, the systems can separate the company from its own people. According to Fortune, in the course of the doomed Levi Strauss 'Customer Service Supply Initiative' (a two-year, $850 million failed attempt to increase speed to market and speed of delivery), 'all over the company people had to reapply for their own positions'. The handbook 'Individual Readiness for a Changing Environment' (all 145 pages of it) can't have eased the pain of inhuman resources management, applied, what's worse, by a company dedicated to 'aspirational' management and values.

Applying the digital revolution to the supply chain is not enough. You have to change behaviours radically, from the top to the bottom. Otherwise you get unhappy staff and unhappy outcomes in actual performance. The latter holds the key. That doesn't mean just financials, which come in after, sometimes long after, the damage has been done. Against a revolutionary background, it's easy to lose touch with customers even while making determined efforts to serve them better. They are not interested in 'Business Principles and Values'. They will vote with their business (and their credit cards) to join the e-commerce boom.

If people have access to information, they will expect to use it, whether they are inside or outside the company. The leaders of that giant's would-be, over-elaborate reformation were right. Since information is power, senior managers have tended to cling to the stuff. But since information is also the prime competitive tool, the clutching is self-defeating. Intranets and Extranets cannot thrive on secrecy. Anyway, they defeat it - just as the unstoppable surge will defeat any company, however great, that cannot find an escape from the past into this all-embracing future.