Articles

In trying to bring about e-business transformation, companies have paid too much attention to technology & #8212; as if adding the right software or hardware could, on its own, bring about miracles. But systems do not work in a vacuum, and senior managers would do well to recognize the complementary nature of technology, business processes and e-business readiness throughout the value chain, from their suppliers to their customers. By taking a more holistic view, executives can turn these facets of a company’s operations into the drivers of e-business excellence. To help company leaders see the bigger picture, authors Anitesh Barua, Prabhudev Konana, Andrew B. Whinston and Fang Yin of the University of Texas at Austin’s McCombs School of Business developed a research-backed model of e-business value creation. The model’s premise is deceptively simple: that proper development of e-business drivers will lead to operational excellence, which will, in turn, generate improved financial performance. The authors explain that if managers are to lead a successful digital transformation, they must carefully track such e-business operational measures as the percentage of goods purchased online from suppliers and the percentage of customer-service requests handled through the Web site. Companies that scored high on those (and other) measures in the authors’ study also enjoyed significant increases in revenue per employee, gross profit margin, return on assets and return on investments. Once managers understand their company’s relative degree of e-business operational excellence, they can develop the drivers that will raise those scores. The authors guide readers through the eight drivers their research uncovered, from mastering supplier-related processes to optimizing IT applications aimed at customers.

Companies that heavily invested in Internet technologies are having second thoughts. They are realizing that the IT structure must mesh with business goals and be flexible enough to launch applications in months, sometimes weeks. Traditional IT models that emphasize back-office functions, yearlong development cycles and a separation of tasks are outmoded. Michael Earl and Bushra Khan of the London School of Business surveyed 24 companies engaged in e-commerce in the United States and United Kingdom and found that IT perceptions and practices are evolving rapidly. They also discovered marked differences in the way established brick-and-mortar companies, dot-com startups, and e-commerce boutique companies and spinoffs see the IT function. Today, companies recognize that IT can make or break the business. The separation between IT and “the business” is disappearing. Past IT models that focused on engineering, best practices and disciplined processes have given way to an enhanced spirit of freedom. Another shift relates to cost. Companies that once installed detailed IT cost metrics now perceive time, not cost, as the currency. The speed of decision making, applications development, design changes, implementation and technology adoption drives today’s IT function. Those changing perceptions manifest themselves in new practices. Short-term, rolling plans are replacing long-term strategies. Uniform technology platforms are ceding place to three-tier architecture: two tiers connected by middleware (for translating data messages between the two layers, for storing processing logic and data-handling subroutines, and for establishing a gateway between ephemeral systems and more-permanent ones). A new-venture outlook is widespread & #8212; and an aggressive use of short time spans. Some companies reported that they would not undertake any project likely to last more than three months. Also, companies are simplifying project management & #8212; even eliminating the use of project managers. Of those practices, rolling plans, new-venture development, three-tier architecture and multidisciplinary teams are key: the first two addressing faster development; the second two, the tensions between technological excellence and business value.

Although identifying and hiring the most appropriate CEO is critical to an organization’s success, the succession practices of many large corporations often result in poor outcomes, as recent brief CEO tenures at Coca-Cola, Gillette and Xerox testify. To better understand the dynamics affecting such a complex selection process, from 1995 to 2000 Harvard Business School professor Rakesh Khurana interviewed scores of directors, executive-search consultants and job candidates about the methods that large corporations use when hiring a CEO. In the process, he discovered several common pitfalls that derail efforts to find the right CEO. He observes that a variety of practices are nearly institutionalized in many companies, and he explains ways to avoid them. Khurana also contends that boards can actively manage the following aspects of a CEO search and greatly improve the likelihood that the survivor who emerges is best suited for the challenges of the job. Search-committee composition. Khurana recommends that the search committee consist of a diverse group, not only in terms of age and functional background but also concerning knowledge of the company and its culture. The “CEO as panacea” syndrome. Boards must be sure to consider the contributions of other executives in company success; failure to do so will raise expectations about the performance of the incoming CEO to an unsustainable level. Adoption of outcome-oriented practices. According to Khurana, the practices most relevant to a successful outcome are discussing the company’s strategic direction explicitly and early in the process; recognizing and defining search participants’ roles and responsibilities (in particular, limiting the roles of the outgoing CEO and the executive-search firm); and evaluating candidates in light of the position’s requirements, rather than in relation to one another.

A new, easy-to-use procedure can help marketers determine customers' willingness to pay.

Whether you’re a startup taking on industry giants or a giant moving into markets dominated by powerful incumbents, how do you compete with opponents that have size, strength and history on their side? To prevent opponents from bringing their full strength into play, successful challengers use what authors David B. Yoffie and Mary Kwak of Harvard Business School call judo strategy. Judo strategists avoid head-to-head struggles and other trials of strength, which they are likely to lose. Instead, by relying on speed, agility and creative thinking, they develop strategies that make it difficult for stronger rivals to compete. Judo strategy is most effective when three core principles & #8212; movement, balance and leverage & #8212; are used in combination. But at different stages of competition, a single principle may play a particularly important role. In the early days of a business, for example, before the contours of the competitive landscape have been fully defined, movement typically takes center stage. The authors use Palm Computing (now Palm Inc.) to illustrate judo strategy’s core principle of movement at work. The company dominated the handheld computing market less than a year after shipping its first electronic organizer in early 1996, despite competition from the most powerful software company in the world. Microsoft marshaled masses of money, manpower and marketing muscle behind its own handheld operating system. But year after year, Palm remained far ahead. By mastering the principles of judo strategy and learning to implement them through specific techniques, other companies can emulate the way Palm competed with a stronger opponent. The authors came to that conclusion after studying companies as varied as Juniper Networks, Intuit, Frontier Airlines and Charles Schwab. They caution, however, that judo strategy is not a rigid formula to be followed step by step. Depending on the nature of their competition, companies will combine and implement the principles in different ways. But the basic tenets hold: Stay out of competitors’ sights by deliberately acting harmless (like a puppy dog), define the competitive space to establish the game, and follow through fast to build a big lead before competitors learn how to respond.

All companies would like to offer custom products that delight their customers. For many, the challenges seem overwhelming, and they settle for manufacturing standard products in bulk, guided by long-term forecasts. Because demand is rarely forecast correctly, companies miss potential sales and must pay to store and manage excess product. In an effort to purge inventory, they offer discounts and other incentives. Profits erode, and the companies lose sight of what customers really want. Some companies attempt to offset those effects by optimizing pieces of the value chain. They create island solutions, such as lean factories, believing that such initiatives will make them more responsive. The authors argue that those efforts ultimately fail because they are not customer- centered. Citing results from their research, sponsored by the 3DayCar Programme at Cardiff Business School in Wales and the International Motor Vehicle Program at MIT, they show that island solutions sometimes backfire because they degrade other parts of the value chain. Instead, they urge companies to aim for a true build-to-order strategy, in which managers systematically improve the value chain’s flexibility in three areas: process, product and volume. Because the emphasis at each stage is on how to meet customer demands efficiently, optimization becomes more holistic and ultimately more profitable. To improve process flexibility, companies can link customer requirements directly to production, synchronizing customer-oriented production schedules in real time with suppliers. To improve product flexibility, they can push customization closer to the customer and can use common support structures to reduce the impact of product variety. To improve volume flexibility, the authors suggest ways companies can reduce reliance on full capacity or use differentiated pricing to reward customers for ordering products well in advance. The authors urge managers not to settle for halfhearted transitions to build to order. They recommend two critical first steps: First, understand key aspects of customer demand; second, adjust all processes accordingly. Only then can companies truly implement responsiveness across the value chain.