A not-so-silent revolution is stirring up the rules of business, challenging every assumption and turning many conclusions on their heads. The new economy is breaking long-held axioms and conventions concerning interactions with customers, suppliers, and partners. While, the new “e-conomy” is redefining many business traditions, there are ways to find your place within the Internet void.
In an attempt to help your enterprise’s bid for space on the Web, here are eight new realities and their corollaries for the e-conomy.
Rule 1. Either you eat your own children or someone else will.
When dealing with e-commerce, you’re dealing with change. With that change comes the introduction of new technologies and business solutions every six to nine months, when the e-conomy collapses the product life cycle. There’s no more waiting for models to mature before introducing the next one. These days, new models arrive while the previous models are still selling briskly, and the next generation is ready to ship. Will you have to cannibalize your value chain and risk alienating your established trading partners? If you do it right, you will! You cannot take advantage of new electronic linkages and restructure the foundations of creating new value without destroying old ones.
Columbus, OH-based Bank One, for instance, is banking on its conviction that if it doesn’t eat its own young, someone else will. Despite having an existing online property it has spent millions developing, Bank One launched a completely standalone Internet entity called Wingspanbank.com. Wingspanbank.com, whose slogan is “If your bank could start over, this is what it would be,” competes with Bankone.com. The risk is that the strategy unnecessarily creates channel conflict and sets up existing customers to buy less lucrative banking products than those offered by either the physical bank or its Net channel. Bank One hopes multiple online banking brands will attract more technology-savvy customers, even at the risk of cannibalizing some of its base. Bank One’s gutsy strategy should be applauded. The Web bank should help Bank One extend its franchise to new customers and opportunities outside its existing profile.
Rule 2. Be opportunistic: Initiatives must be continuously questioned, improved, and explained to the customer
When value propositions shift quickly, you can’t wait for customers to figure out what your product or service can offer. In the e-conomy, change is happening so fast, you need to be out in front. You can’t wait for the customer to educate you; you have to educate the customer. You need to be out in front of the customer with new technology so that you can customize to meet customer desires as those desires are created.
The e-conomy is incredibly opportunistic. Unless you are very opportunistic yourself, you’ll find lean and hungry new competitors forcing themselves into your value chain and extracting critical value that you counted on. As recently as 1997, MerrillLynch dismissed discount brokerages by saying that the full-service brokerage offers “wisdom” that the Internet brokers, who are interested in “opportunistic trading,” can’t meet. We know that discount brokers E*trade and Schwab cleaned Merrill Lynch’s clock by disaggregating two decisions Merrill Lynch thought were inextricably linked. It turns out that the steps to decide to buy or sell a security (that’s where the wisdom comes in) and the step of actually buying or selling a security are two very different things. Many of its customers recognized the difference, even if Merrill Lynch did not. Clients of full-service brokerages were happy to accept the wisdom and even happier to execute the transaction through a discount broker. Merrill Lynch finally smelled the cappuccino and embraced discount trading, causing a mini-revolution among its full-service brokers (see previous rule), who suddenly had to accept that opportunism is what Internet trading is all about.
Rule 3. Focus on what’s in motion rather than on what’s standing still
We need a new mental model to succeed in the e-conomy. That means we focus on what’s changing, not the status quo. The traditional economy waited for events to slow down. In the e-conomy, we need to focus on individual elements in the merry-go-round while it is in motion. We need a biological mindset to replace a physical framework. Physical algorithms that treat everything as if it were inactive and sequential dominate the worldview of the traditional economy. A biological mind-set treats data, bits, thoughts, markets, and organizations as if they were inherently capable of change and growth. Other required focus shifts include focusing on:
- The top line, not the bottom line
- Relationships, not things
- Processes, not outcomes
- Optimization, not maximization
- Transformation, not equilibrium
Rule 4: No one can go it alone
It’s a paradox. Customers demand best-of-breed products and services and seamless integration of those products and services from the organizations that serve them. At the same time, each customer demands flexibility and the sense that he or she is being treated as an individual. These values are in perpetual tension in the e-conomy. Companies dedicated to giving customers a blanket of options often decide they have to be large and all-encompassing. But that very size creates hierarchies and processes that are inflexible and detract from individual response.
To compete effectively, the expanding e-conomy requires companies to form relationships. It has no tolerance for the arrogant and will punish the greedy who believe a single seller can serve customers better than a partnership. There is no way around it, and the evidence is already persuasive. The expanded e-conomy requires enterprises to form relationships to compete.
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Rule 5. Upside down: Suppliers and customers must cooperate as never before
The e-conomy is turning conventional wisdom on its head. Only a few years ago, sharing pricing information between suppliers and customers was grounds for firing. An organization’s procurement officer had an almost adversarial relationship with its suppliers. People felt procurement was a zero sum game: If they win, we lose. As a result, corporate procurement of commodities was almost a clerical activity, a process driven by the lowest cost. Totally lost was any opportunity to build on the common interests of suppliers and customers for the benefit of both.
The e-conomy makes online procurement possible and, in so doing, changes the rules between companies and their suppliers, elevating the long-overlooked and barely automated purchasing function to a more strategic activity. One of the rules was that a company never, ever shared demand or production information with suppliers because that gave them an unfair advantage in negotiations. If you follow that rule now, you’ll be finished.
Watch the e-conomy kill another stupid rule. Enron Corp ., Occidental Chemical Corp ., and five other petrochemical companies have established a Web site to coordinate procurement of maintenance, repair, and operations products. The goal is collaboration with materials suppliers rather than an adversarial relationship based solely on price. The fruits of collaboration are a streamlined buying process to improve productivity and deliver better customer service.
Rule 6: Smart-size the offer
”Smart offers” learn by extracting information from every encounter with the customer. Make sure that no transaction is completed without some exchange of intelligence between seller and buyer. Amazon does this well. Every time you express an interest in a book, Amazon will suggest another book that its software agents believe will also appeal to you. These agents are governed by the intelligence derived from tracking the browsing and book-buying habits of millions of customer encounters. Amazon gets smarter with each transaction.
Blockbuster Entertainment has the same idea but increases the stakes. Blockbuster.com provides subscribers with weekly personalized messages regarding new video, game, and CD releases, plus streaming video clips, reviews, special offers, and coupons. Users register at Blockbuster's Web site, where they fill out an online form and check off the categories of videos, games, or CDs they enjoy. They can download special software that places a white exclamation point in the bottom right-hand corner of the screen. The exclamation point flashes red when an update has been received and gives the user the ability to view streaming video clips. The revenue opportunities may justify the investment in the Web site, but it’s the relationships that are built and the information extracted that will make the program a success.
Rule 7: From brand equity to channel equity
Brand matters in the e-conomy. One of the most pervasive myths of the e-conomy is that the Web levels the playing field, negating the advantages of established brands and economies of scale. There’s even a fancy word—disaggregation—for the separation of masses into their component parts. One myth of disaggregation is that the e-conomy operates as a great commercial equalizer where any Johnny-come-lately can appear to be as qualified as the most established enterprises. In the age of narrowcasting, this particular myth goes, where every consumer becomes a market segment of one, brands become irrelevant.
Don’t believe it. The reality is that with so many choices, customers will seek the comfort of what they know or at least think they know. Brand names suddenly take on a stunning new importance in the e-conomy. A carefully cultivated brand name will become perhaps the most prized intangible value that an enterprise has to offer. Think Intel. Think Nike. Think Starbucks. Think Martha Stewart . These are brand names that drive value. Their owners consider the brands their most valuable asset. Why? Because a brand is something customers will pay extra for even if it’s on a product or service identical to a competitor’s.
Channel equity represents the value an organization has in its ability to deliver value. For example, 7-11 has amassed great channel equity by virtue of its 5000 stores networked together. 7-11 harnesses this channel equity to expand the notion of convenience beyond bread and milk to create a whole array of financial services. Consumers trust 7-11’s channel equity to buy money orders, make cash transfers, and accept a growing number of financial services. There are no limits to how 7-11 can leverage this channel equity. In Japan, for example, 7-11 has partnered with a company that allows consumers to print books on demand at convenience stores. In e-conomy terms, both Yahoo and AOL have established strong channel equities.
Rule 8: Planning is critical. Don’t do it.
We’re just being a little facetious. Linear planning, the kind most of us have been trained for, is perfectly useless in the e-conomy. Net-readiness calls for speed and migration. Success requires holistic thinking of a kind that embraces the connectivity, simultaneity, and unpredictability of the e-conomy. Leading e-business storefronts must be able to identify opportunities and be agile enough to move quickly, partner quickly, and execute flawlessly. Net-ready enterprises will use many of these principles to guide them:
- Prioritize ruthlessly.
- Execute ruthlessly.
- New competitors emerge from unlikely corners of the e-conomy.
- New entrants into e-conomy frustrate long-range planning.
- The expanded e-conomy requires a shift from hierarchical, linear thinking to a more holistic approach characterized by multi-disciplinary rigor and dynamic planning.
- Proactive attitude must replace reactive stance.
- Discontinuous change, not orderly processes, is the order of the day.
- E-conomy realities require simultaneous execution and nimbleness to permit real-time shifts in resources and direction.