STRATEGY ONLINE

Ladies and Gentlemen, Start Your Engines

"If everything is under control, you're going too slow."
- Mario Andretti

"A pattern emphasized in the cases in this study is the degree to which powerful competitors not only resist innovative threats, but actually resist all efforts to understand them, preferring to further entrench their positions in the older products. This results in a surge of productivity and performance that may take the old technology to unheard-of heights. But in most cases, this is a sign of impending death."
- Jim Utterback, Mastering the Dynamics of Innovation

GET MOVIN'

In looking at business strategy and the vast implications of the Internet, it is amazing how speed is becoming a more critical variable in e-strategy models. I am not referring to the speed at which data is transferred or the fact that we can talk to someone instantaneously on the other side of the planet, but rather the speed of adopting the ways of the Internet in all aspects of an organization. Implementing an e-business strategy requires much more than a few incremental changes or getting new computers - it means completely redefining a Company's fundamental business model. The faster a Company can implement an e-business strategy the better off it tends to be. The Internet waits for no one.

THE RACE IS ON

A good analogy to developing an e-strategy is competing in an auto race. In an auto race the objective, whether you are a member of the pit crews or the driver, is to move as fast as possible. Nevertheless, sheer speed alone does not win the race. During a race, drivers are constantly adjusting their direction to avoid walls, obstacles, and other cars, and adjusting their cars' settings such as tire pressure, the chassis, and other key components for peak performance. In order to win the race, the team cannot set the car up once and let it go. Constant monitoring and modification must occur throughout the race to not only remain competitive, but also to keep the car on the track. Raw speed without control always results in a less than desirable outcome. On the other hand, spending too much time in the pits places the car at the back of the pack playing catch-up.

CHARIOKEY CLOTHING CORP.

Chariokey Clothing Corp., a multi-generation family business manufacturing high quality designer and private label apparel, had never used sophisticated information systems. According to the CEO, "the business has worked well all these years without all those fancy computers, why do we need them now? Besides, no machine can replace a handshake." The CEO was even opposed to a company web page, thinking the Internet was just another fad.

Meanwhile, the industry was going through massive consolidation. Larger companies were achieving efficiencies through foreign production and enhanced technology, and many of Chariokey's competitors were beginning to establish their own web presence with e-business strategies. As a result of these changes in the industry, products increasingly became viewed as commodities and prices plummeted. Chariokey started to struggle financially.

One of Chariokey's distributors, TOT Inc., dealt the crushing blow. TOT revamped its business from a traditional passer of goods, to an online apparel auction house that dramatically increased competition among manufacturers by removing geographic, information, and switching cost barriers. Customers soon realized that TOT's online auction gave them a near perfect market, which allowed them to purchase goods at lower prices than the traditional means. Chariokey's customers quickly started moving to this new system of buying, pushing Chariokey further into the red.

E-SUNDRIES.COM

Bill founded E-Sundries.com with a desire to get a piece of the Internet action. He observed that there was no "Wal-Mart" of the Internet and decided that his company would be the first discount web retailer. Believing that E-Sundries.com would have an advantage over large retail establishments due to its lack of physical stores, he invested heavily in the latest technology and started selling everyday consumer products over the web. He figured that with a website and some advertising, his new business would flourish.

Bill rarely said "no" to any vendor wanting to sell on his site. Before long, he was selling everything from socks to barbecue grills. The site seemed to have an eclectic variety of products - there was no common theme or target customer. E-Sundries.com was trying to be everything to everybody.

Running an online business was not what Bill had imagined. Going online did not bring automatic success. Bill was having trouble acquiring products at competitive prices and finding reliable, affordable shipping; and as a result, E-Sundries.com was performing below original expectations. In addition, the company had no clearly defined mission or strategic goals, causing employees to feel confused and anxious about the future.

Bill raced into establishing a web-based e-business, but he had failed to develop a plausible e-business strategy.

ALPHA OMEGA PIPING, INC.

Since the piping industry had traditionally been highly fragmented and geographically dispersed, the CEO of Alpha Omega thought an e-business model would be very successful. He had a vision of using the Internet to sell direct to end users or contractors, cutting out all of the middlemen, and allowing for greater distribution at lower prices.

The CEO hired a special e-business consulting team to research and advise the Company on its new course of action. With input from the consultants, the CEO realized that more resources had to be devoted to the development of the e-strategy than he had anticipated.

Able to communicate with the right people at the right time at very high speed, Construction Solutions began its transformation from manufacturer of commonly available products with mediocre margins, to forward and horizontally integrated problem solver creating economic value for stakeholders.

After focus groups and industry analyses, it became apparent that the CEO's original strategy would not work. The distributors could not be removed from the distribution chain because of their close relationships with end-users and their ability to "black ball" the Company within the industry. Furthermore, the focus groups uncovered that most end-users and contractors were not technologically savvy enough to purchase and run their businesses through the Internet.

Instead of scrapping the entire project, the CEO worked with the consultant to arrive at a different solution. They concluded that instead of making the distributor the enemy, they should utilize a strategy which would make them an ally. Since the Internet eliminated geographical barriers, Alpha Omega could create joint ventures with distributors all over the nation, using the Internet to share pertinent information in real time. This new e-strategy not only positioned Alpha Omega to become a market leader, but also resolved possible channel conflicts.

HIT IT

The green flag is out and it is time to start the race. Be sure that your business is on the track and ready to compete, or you may be left in the dust like Chariokey Clothing. Developing and competing with an e-strategy, however, is not easy. As evidenced by E-Sundries.com speed alone does not ensure success. Rather companies must be able to shift gears and re-direct their strategies to accommodate an ever-changing landscape, as did Alpha Omega Piping.

When developing an e-business strategy, the path does not have to be straight in order to win the race; you just need to avoid the fatal crashes. Mistakes are inevitable, but a good e-strategy will detect errors, compensate, and drive you to victory.

The three vignettes are fictionalized adaptations of real situations.


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Ladies and Gentleman, Start Your Engines

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