In the current economic environment, companies ranging from start-ups to large corporations face the reality of the "R" words -- retrenchment, restructuring, right-sizing and recession -- as they struggle to survive and prosper. Many face the gut-wrenching decision of whether to continue to invest in technologies and develop processes that leverage the Internet. Yet, precisely at times like this, companies that continue to invest for the future will find themselves at the forefront of an economic recovery when one does happen.
With the bursting of the dot-com bubble, Internet-related investments have come under attack -- often rightfully so. But amid the rubble of failed start-ups, there's a clear lesson: The Internet is here to stay, and it will continue to transform how both small and large companies conduct business.
Getting More From the Net
Traditional brick-and-mortar companies had been reacting to the Internet cattle prod, feeling they needed to emulate others by investing in Internet technologies. But now, many are congratulating themselves, amid sighs of relief, that they were fortunate to have avoided the expense altogether. A few, however, are recognizing that Internet technologies can help dramatically improve how they serve customers by using new technology to instigate changes the old-fashioned way. That means improving business processes, servicing customers better, improving supply chains, etc. -- in other words, transforming e-business into mainstream business. Vendors of Internet technologies would be well served to tailor their pitches to demonstrate distinct business benefits with measurable and near-term return on their customers' investments.
Spending on technology to leverage the Internet is not a panacea to extract the true value of corporate transformation. Indeed, when the cost of capital was close to zero, dot-coms and others squandered billions in Net initiatives. For example,
missed its earnings forecast earlier this year, citing a $100 million revenue shortfall partly because of a snafu in its technology-related supply-chain initiative. In order to enhance a company's shareholder value, investments in Internet technologies need to be supplemented by a companywide rethinking of existing infrastructure and processes.
One example is
. With about $2 billion in annual sales, this office furniture manufacturer, known for its stylish, ergonomic Aeron chair, launched a line of lower-priced office products called Red. Targeted at smaller, fast-growing businesses, the line was offered entirely on the Web, whereas traditional furniture lines were sold almost entirely to corporate customers through retail stores. While the application of Internet technologies played a key role in driving orders through the company's Web-based system, the company underwent a more fundamental rethinking of the end-to-end processes that were appropriate for this customer segment, which valued self-service and speed over customization and personal selling.
But the true transformational effect at Herman Miller was the reduction in its normal lead time of five to six weeks to same-day manufacturing and delivery via
in less than five days. In order to achieve this, the company had to rethink the workflow within its plant from one based on products to one based on customer order. It thereby forced the manufacturing and customer-fulfillment processes to adapt to a key customer requirement: quick delivery of the
order. Even in this Net-based scenario, the installation and maintenance were still handled by the dealer. Not only was Herman Miller able to leverage the Internet to tap into new customers and service them through a hybrid channel strategy, but it is also now leveraging the learning gleaned from this experience to other product lines.
Embracing the Strategy
Other companies have also seized the initiative and are leveraging the Internet to make e-business an intrinsic part of their businesses.
, former CEO Jack Welch created cross-functional Destroy Your Business (DYB) teams within every business unit, directing unit managers to seek new ways to reach and service new and existing customers. GE committed to deliver an additional $1.6 billion of earnings before interest and taxes from its e-business initiatives this year. While challenging in the current economic environment, anything remotely close to those savings would be impressive.
Despite the glut in the PC market,
, the poster child of Internet commerce, continues to leverage the Net's power to enhance the value of its direct model, while its cross-state rival
( CPQ) is forced to sell out to
, which repeated the pattern of directly reaching out to consumers, albeit in a different industry, while behemoth rivals look to the government for bailouts.
( ENE) has been using Enron Online to expand its commodity trading across oil, gas and electricity as well as steel, credit and bandwidth, while lowering costs per trade by 75%.
Forrester Research estimates the top 500 companies in the world will carry out as much as 30% of their transactions online by 2004. But alongside that impressive projection rests a rather disturbing revelation: Few seem to want to change their internal structures in the course of that transformation.
It's truly a tough economic climate --- rendered even uglier since the events of Sept. 11. With companies struggling to meet lowered earnings expectations, the counterintuitive strategy would be to continue investing in Net-related initiatives. Companies that do so smartly should find themselves in an enviable position of further leapfrogging their competitors when the economy turns.
Rakesh Sood is a general partner of the Sprout Group, Credit Suisse First Boston's venture capital affiliate. Prior to that, he was a leading Internet/E-Commerce analyst at Goldman Sachs. At the time of publication, Sood held no positions in any of the securities mentioned in this column, although holdings can change at any time. Sprout has no venture investments in any of the private companies mentioned in the article. CSFB, its affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in the securities mentioned herein or have a corporate finance relationships with any companies mentioned herein. Opinions expressed are solely those of the author and do not necessarily reflect and may differ from the opinions of CSFB, its affiliates and subsidiaries. Under no circumstances does the information in this column represent a recommendation or solicitation to buy or sell any security. Sood appreciates your feedback at