Almost three-quarters of the executives surveyed by A.T. Kearney said their companies are extremely or moderately active in creating or maintaining an e-business strategy and 57 percent said e-business has changed the way they conduct business, but only 4 percent said e-business is the biggest challenge facing them today.
The study, based on interviews with 251 CEOs from 26 nations and 10 industry segments, points to the elusive nature of the digital revolution, according to Doug Aldrich, a vice president at A.T. Kearney. It reveals that executives recognize the significance of e-business to the future success of their companies, but are careful not to characterize it as the sole determinant of success. When given a list of options, 37 percent of the surveyed executives said that “technology alignment with business strategy and integrating existing technology” is the strategic issue of most concern to them and 29 percent named “e-commerce initiatives.”
Of the companies actively pursuing an e-business strategy, 57 percent reported that their e-business strategy is extremely or moderately integrated with their company’s overall business strategy. However, only 1 percent viewed e-business as a critical success factor today, and only 5 percent identified it as critical in the next three years.
Despite that, nearly 75 percent believe that e-business will have either an extremely or moderately significant impact on future product offerings, compared with 41 percent who characterize the impact on current product offerings as such.
CEOs appear to view some of their most significant e-business impediments as internal ones. The top two challenges to managing and implementing their e-business initiatives cited by CEOs were organizational structure/existing business processes (26 percent) and lack of properly trained personnel (18 percent). The study also found that despite the rapid and highly publicized rise of business-to-business trading exchanges, fewer than half (44 percent) of responding executives said they are serious about participating in such ventures.
“Almost overnight, the Internet has changed the rules of engagement that previously guided the interaction of businesses with their customers, suppliers, and alliance partners,” Aldrich said. “It’s not surprising that the e-revolution is causing confusion in the business community, but what is startling is the extent of it.”
North American CEOs reported a higher level of e-business activity for their firms — 81 percent compared with 72 percent in Europe, and 65 percent in both Asia and Central and South America. In North America, 78 percent of executives said the Internet has changed the way they do business, compared with 64 percent of Asian executives, 46 percent of European executives, and 29 percent of Central and South American executives. In Europe, 79 percent of executives predicted e-business would have a significant impact on future product offerings, compared with 71 percent for Central and South America, 67 percent for Asia, and only 59 percent for North America.
More than half the North American executives cited the impact of technology and of e-business as their main challenge over the next three years. This compares to 25 percent for European executives, 20 percent for Asia, and 18 percent for Central and South America.
Seventy-eight percent of the CEOs interviewed said the role of technology is extremely important to the future success of their companies and 77 percent said their company’s investment in information technology will increase over the next three years.
“An expected increase in technology investment is not surprising,” said Mike Grant, the VP of A.T. Kearney’s Strategic Information Technology group. “The surprise is the expected size of the increase: Respondents foresee technology investments increasing by an average of 53 percent, and a third said investments will increase by more than 100 percent between now and 2003. Clearly, corporate IT investment shows no signs of abating.”
According to a study by Roland Berger Strategy Consultants, leading consumer goods companies in the US view the Internet primarily as just another marketing channel and are overlooking major opportunities for sweeping improvements in structure, service and logistics.
Roland Berger’s study polled 100 consumer goods companies in the US with sales of more than $100 million. Respondents included CEOs, Directors of E-commerce, Directors of Strategic Planning, and Directors of Marketing. When asked to identify their primary e-commerce objective, almost half (47 percent) of these respondents said “top line growth,” while fewer than one-third (30 percent) cited “improved business efficiency and cost reduction” and fewer than one-quarter (23 percent) mentioned “improved supply chain logistics.”
Similarly, while more than three-quarters (77 percent) of the respondents believe that they must change their sales and marketing processes to become strong e-commerce competitors, fewer than half see a need to adapt their organizational structure (45 percent) or management style (47 percent). Only 56 percent, moreover, believe that they need to reassess their company strategy.
“Consumer goods companies are viewing the Internet largely as a marketing play,” said Jacob Jensen, a Senior Project Manager at Roland Berger and a co-author of the report. “To survive in the new digital economy, they need to make fundamental changes in strategy, structure and management style. The consumer goods sector is locked in a downward spiral — due to product commodotization and plummeting retail prices. To break out, companies need to transform themselves to compete efficiently and nimbly in an e-business environment.”
The survey also found that almost half (47 percent) of the consumer goods companies surveyed expect e-commerce initiatives to make a measurable, positive impact on their bottom line in one year or less, and 20 percent anticipate returns in less than six months. Nearly all (85 percent) expect a positive ROI within two years or less. “That’s naive optimism,” said John Furth, a co-author of the report. “It’s evidence that these companies don’t really understand what it takes to integrate the Internet into their offline operations. Of course, the marketing impact will be fairly rapid. But customer satisfaction, business retention and overall profitability will suffer unless service, logistics, culture and structure are addressed.”
Fewer than half (37 percent) of the respondents to Roland Berger’s survey have separated out their e-commerce activities and — among those that have — 27 percent have created separate business units with their own profit and loss statements. The study also predicts that consumer goods companies will be able to increase — and, in fact, almost double — their net profit before taxes from an average of 7.1 percent to 13.3 percent.
“Once e-transformation has been completely embraced by a company — from its procurement and logistics to sales and marketing — significant savings can be seen,” Jensen said. “However, change on this level does not happen overnight. Complete savings won’t be seen for 3 to 5 years down the road.”
Over the next three years, 54 percent of respondents expect marketing to remain their primary e-commerce objective. Only 25 percent expect “efficiency and cost reduction” to be the primary goal, and even fewer (21 percent) expect “supply chain logistics” to take center stage.
“Consumer goods companies haven’t learned from the mistakes of first-wave Internet start-ups, many of whom are failing due to back-end logistics and service delivery problems,” Furth said. “To succeed, the consumer goods sector needs to focus on front- and back-end capabilities — especially over a three-year horizon.”
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