Welcome to the second edition of Strategic Visions!   

In this month’s issue, Christopher Bates shares highlights of a workshop he led at the Hi-Tech Branding conference held in Kuala Lumpur September.  The topic of the three-hour workshop was “Evolving Corporate Strategy in Sync with the Internet”.  The Internet environment is rapidly evolving, and all companies are trying to understand the implications of this on their business models.   It is misguided, however, to pursue an Internet strategy per se, but rather pursue a strategy for one’s corporation recognizing what value can be exchanged between the company and the various publics with which it interfaces in an online environment.  These values are not the same for different industries and business types.  This issue presents an original and informative matrix within which to understand your own company or industry’s current state of “web-volution” and determine a likely strategic direction.

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The Three Dimensions of an Internet Strategy Space

Of all of man’s creations, the Internet is probably the most complex and adaptive yet and it embraces some of our greatest contradictions.  The breadth, depth, bandwidth, content and mobility are all evolving extremely rapidly, yet so far this world exists for us only in images and sound.  As we surf, identities and purposes change flexibly from buyer to seller to student to teacher to supporter to detractor to male to female and we are never entirely sure if we are interacting with human or machine.  The surfer can go anywhere while going nowhere.   Commercially, it also embraces contradictions.  On the one hand the commercial landscape within which some industries navigate has been significantly altered by dis-intermediation; the power of the Internet to seamlessly join geographically remote sellers and buyers where geographical and social remoteness required intermediaries in the past.  This was expected to cull out middlemen.   We see, though, the growth of hyper-mediation within the Internet; multiple intermediaries feeding off of a volume of transactions enhanced by the Internet’s breadth.  New intermediaries benefit in “minutely massive” ways; making a steady income stream from pennies.   

 Companies that attempt to create an “internet strategy” separate from their corporate strategy invite implementation problems.  These fall into several categories:

 Technical- Legacy systems vs. Needs of integrated Internet strategy

Finance – The old side of the company looks for opportunities to shut the implementation down.  “Wow! This costs allot!  Lets pull the plug on this now”.  The effort starves.

Customer- In the Barnes and Noble experience, the Internet expression of the company was financially separate from the brick and mortar stores, but customers recognized them as the same entity resulting in embarrassment when they showed up in person to return or exchange books.

Culture - The brick culture hits out at the click culture.  If there is not a corporate embrace of how the Internet is to be included in the growth strategy of the company, “Not Invented Here” and divisional backstabbing are more likely to impede progress.

Branding – Unnecessary dilution of the image may occur.

 Even in a “Dot.Com” company, the “internet strategy” is a part of the overall strategy, and there should be a reflexive relationship.   I believe it was Michael Dell who remarked, “We would no more think of having a VP-Internet than we would have a VP- Mail Delivery”.

 The positioning of all companies participating on the net can be identified relative to other companies in the same or different industries.  Internet strategy space is defined along 3 primary axes.   Different industries will find varying utility of the web and these three axes define the primary, repeatable areas to be used to craft strategy, participation, competitive advantage and value creation.  The three areas are:

Potential to realize sales on or through the web

Volume and nature of information and data interchange

Need or desirability for End-to End integration

Potential to realize sales on or through the web – Some industries and product areas naturally lend themselves to online sales.  "Sales" means exactly that.  The consumer searches for, finds, decides and buys on the web.   Software, music and books come immediately to mind.  The products can either be delivered through the web, or are sufficiently well defined and distinct that the consumer, using search tools, can pinpoint exactly what is wanted and order it for delivery.   Some products do not lend themselves to online sales.  High touch consulting and soft drinks come to mind at two ends of a spectrum.  A company like McKinsey may deliver promotional tools such as infozines online or receive inquiries from prospects via the web, but it is doubtful that high paying clients will buy original ad hoc management consulting online until virtual reality allows the web to replicate human interaction.  Part of what customers are paying for is the handholding and physical backup.  Though consumers are already buying Coca-Cola through web based grocers and fast food delivery, it is unlikely that they would derive a benefit for their immediate refreshment needs by ordering the same online from the bottler, much less from Coca-Cola themselves.  In between these two extremes are a variety of products and industries that can realistically generate a varying level of sales online.

Volume and nature of information and data interchange with consumers- The wonderful strength of the Internet is its ability to serve as a massive conduit for the exchange of information.  To what extent will the online exchange of information with consumers create value for a company?  Industries like banking create significant value for themselves by driving as much business online as possible.  This is enabled by robust and coherent links with the consumer of the service.  To the extent the consumer has access to the net and can locate their information needs they will use the service.  When the consumer no longer needs to bank at a branch, the branch need no longer exist.  Overheads are reduced commensurately with a hoped for improvement in service to the consumer.   On the other hand, a fast food company requires a relatively more modest level of information exchange with consumers of its product.  Menus are limited and increases of orders online might allow them to reduce, but not eliminate, branches.

Need or Desirability for End-to End integration- So-called “E2E” is the use of web based information technology for sharing information from the supplier through the manufacturer to the marketing intermediaries (distributors, franchisees, outlets etc.) and possibly to the purchaser of the product.   A printed circuit board manufacturer allowing its online customers to see into its current inventory and scheduled delivery of components from suppliers might benefit more from offering this level of integration than would a builder of hand crafted yachts. 

Different industries can find their own strategic fit in the matrix.  Some examples are shown below:

Though consulting companies like Ernst & Young and McKinsey can benefit both from increased exchange of information with potential customers and throughout their web of affiliates and employees via the web, it is doubtful that paying clients will hire them for ad-hoc projects solely based on the face they show on the internet.

In the fast food industry, neither the customers nor the company will benefit from more than a moderate exchange of information through the Internet.  McDonalds for example includes a mapping page to indicate where its restaurants are for people planning a journey.  It also has information about its collectible items, which are traded and sold by consumers. The company can, however, benefit greatly by E2E integration of sales information from the cash register, back through the kitchen freezer to headquarters and to the suppliers.  For all that, it is unlikely that significant sales will result online due to the nature of the demand.

Banks and brokerage firms routinely expend considerable effort and expense on the management of their relations with their customers and the information about them.  To the extent that consumers find it beneficial (efficient, accurate and pleasant) to tap the information they need online without human intervention, the institution will benefit.  The institution also benefits from a high degree of E2E integration to the extent that they can improve cash flow and the management of the financial resources entrusted to them.  Finally, a high degree of service fulfillment or share transactions can be anticipated and are desirable for the institution as they are more efficient.

Over time, we see that industry is migrating from the lower left portion of the matrix with a low level of information availability, a low level of integration with its business network and a low level of online sales capability.  In 1995, all companies were virtually in the same situation.  Some have raced ahead or pioneered new levels of service and sales, but generally industry is migrating toward the upper right hand corner of the strategy space.

Already we can compare the extent of migration along this path by plotting various companies’ levels of e-integration on the matrix.

nDell demands increasing level of web sales, increasingly more robust E2E linkage, consumer/ company level of data exchange is high

nFox Entertainment integrates high degree of consumer data with E2E linkage, but most sales fulfilled off-line

nCoke has an information site with some promotional tie-ins but does not realize sales online

nErnst and Young has sophisticated E2E database and information resources important for clients, but sales realized on line are not significant versus total sales

  Where does your company fit in?  We encourage companies trying to determine how they should integrate the opportunities offered by the web to first do some soul searching about what their company truly represents to its customers and then try to understand what that may mean to their customers when online.  The table and matrix can be used to compare a company’s current situation relative to where it wants to be or relative to competition.  

      
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