ANALYSIS: The Rush to Justify

By Bob Diefenbacher

As Y2K activities and consulting costs tail off, pressure to find replacement revenue sources builds within the lucrative sub-industry that developed around Y2K consulting.

Without a market, where will these businesses turn? How about helping develop e-commerce sites? This is a large, attractive market that is growing rapidly. Developing such a site is a major project. Therefore, in-house IT staffs probably will lack the manpower to tackle the job without help. Look for the Y2K firms to transform themselves into e-commerce experts and begin a major advertising campaign for business. It is essential to their survival.

But is an e-commerce site essential to your survival? The answer is a qualified "yes." A more relevant question is when should you develop your e-commerce business, and how should it be designed?

Company executives, influenced by the stories they read in the business press and by conversations on the golf course, can be expected to push for an e-commerce site. If they have kids who are putting up home pages and fooling around with the Web, non-IT executives may have a misguided opinion that setting up an e-commerce site is not much harder. IT managers may think the same thing. But spend a couple of hours sketching out a system design for the site, and then add the trappings of data security and integrity to it. Without even considering the impact an e-commerce site can have on present systems and data, the scale of the project quickly grows by an order of magnitude.

And it can be insidious. Once the site is up, it is only the beginning. Keeping it fresh, adding function, and maintaining a competitive edge make the whole thing an ongoing business activity. Development and support money will continue to flow into an e-commerce site as long as it is operating.

A better approach to the e-commerce decision is to treat it like any other major business enterprise. That means developing a business plan and justifying the concept. You can leave this task to an outside firm, such as the one that will later come back to implement the site for you. Or you can develop the justification yourself. The later way is better, even though it means climbing a steep learning curve faster than you may have planned.

A successful business plan for an e-commerce site will identify the new business opportunities it presents as well as the costs to be incurred and the profits it will generate. While the stock market has made the notion of earning profits from a Web business almost an archaic concept, nevertheless you need to be convinced that an e-commerce site is, at the very least, necessary as a defensive measure. In other words, if the investment needed to build and run your e-commerce site doesn't meet your corporate ROI goals, do you still need to create a site simply to survive as a business?

These are serious questions. Major bookstores have had to create sites to compete with, and many other kinds of retail stores are adding a Web presence simply to "be there." Starting these ventures consumes millions of dollars and so far has yielded little in real returns. If the result of e-commerce is going to be that all products sold on the Web are treated as commodities (i.e. only price and delivery differentiate one supplier's goods from another's), then companies that are unprepared for price competition are in deep trouble.

On the other hand, there is something that will make a difference and that can turn any commodity into a unique product. This is the concept of added value. A good e-commerce site will create a new product-a product that includes more than the goods being sold. A winning e-commerce site will offer a product that includes a relationship between buyer and seller that has value to the buyer.

One other thing: in calculating the development costs of the e-commerce site, use a dull pencil. If justifying the business plan requires "using a sharp pencil" on development costs, resist the urge. Likewise, if it requires overly aggressive sales projections and includes only minimal site promotion costs, watch out. Maybe e-commerce is not a "bleeding edge" application these days, but there are plenty of businesses that are finding hidden expenses and an unplanned need to rework poorly designed sites to make them competitive.

Yes, e-commerce is probably in your company's future. But exactly how and when is not always readily apparent. This is an exciting time in our industry. At last networks of computers are living up to their potential. But it is only the beginning. While we will know the results of our Y2K efforts in less than a year, we are only beginning to learn about e-commerce. The best advice: take your time, but look out for your competition.

After 18 years in marketing and sales at IBM, Bob Diefenbacher founded Denbrook Systems Associates, an IT consulting firm based in Malvern, Pa.

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