Dancing with dinosaurs

INET 2001, conference of the Internet Society, Stockholm 3-5 June 2001

Greg Adamson (greg.adamson@icl.com)

Greg Adamson is a Scotland based Principal Consultant with ICL (a Fujitsu company), and a graduate student with the School of Applied Communication, RMIT University (Australia).

 

Abstract

Bricks and mortar enterprises in traditional industrial sectors face factors more important than unfamiliar technology limiting their uptake of e-business. In general these enterprises have a clear understanding of the range of business impacts that technological change can bring. To provide useful advice to business, technologists need to understand the business benefits that their technologies can provide to these enterprises. In addition, the current complexity surrounding e-business technology is disguising a more important complexity in relation to e-business: the issue of how consumers relate to and use the Internet, primarily a new communication medium. An examination of the difference between the evolution of technology and communication media leads to consideration of the difficulties for e-business and pay-per-view models. In conclusion several positive lessons of bricks and mortar e-business experiences are identified.

1. Introduction

Think of yourself as a traditional enterprise, a large bricks and mortar company. If I proposed to build your next office block, factory or processing centre in a particular location, how would you respond? If you had the time and inclination you would listen to what I have to say, take a high-level look at what I have proposed, match that up against some internal criteria, and then make a decision to investigate further if my proposal appeared reasonable and in line with your current investment plans.

Suppose instead that my suggestion involved selling you an extranet. You don't currently have one and you don't know exactly what it would do for you.

There are two separate problems here. One is that I have proposed something unknown. This makes comparison with existing and previous investment difficult. The second and larger problem is that in the e-business area I have actually suggested something fundamentally new. Take this extranet as an example. It allows an enterprise to communicate both with its far-flung staff and with its business partners in a completely new way. Suddenly the enterprise can be the centre of a large amount of activity, facilitating business and building critical business links. That may work well, or it may run into problems, but either way it is going to change the way that the enterprise works.

In this paper I propose that the difficulty in taking e-business solutions into traditional bricks and mortar companies is due to more than just a culture of conservatism in the face of technology change. These firms often have a much clearer idea than e-business technology companies of the impact that new technologies will have, if not the specific detail.

While technologists champion the benefits of new technological development, their communications with business often include a series of misunderstandings:

  • Technology vendors not understanding what a company wants;
  • Technology vendors not understanding how their products would impact bricks and mortar companies;
  • Bricks and mortar companies having no way of predicting the relationship between the technology offerings and how they service their customers.

2. Companies included in this study

The companies included as the basis for this paper represent an arbitrary cross-section of 26 bricks and mortar enterprises facing the challenges of e-business today. Most are in the £1billion per year turnover or larger range, all are typical of their respective industries, all studies are less than three years old. Each was dealt with in the course of professional e-business consulting activity. In 20 of the 26 cases I had a direct relationship with the company. In the other six cases I had indirect involvement in activities related to the companies. In all 26 cases insights were gained into company management’s response to Internet e-business based technological change.

Table 1 shows the number of companies according to industrial sector.

Table 1. Companies considered in this study by industrial sector.

 

Financial services

4

Media

3

Transport/travel

3

Manufacturing

3

Utilities

5

Health services

3

Government sector

5

The purpose of this paper is to present some of these insights as a basis for an understanding of issues facing bricks and mortar companies generally today, rather than a quantitative analysis of these organisations and their e-business policies and practices. This paper draws on empirical evidence of the range of issues that can impact business decision making in a technology marketplace.

The focus of this paper is an examination of e-business opportunity take-up and problems. Before looking at that it is worth considering that there are attitudes and events within organisations that can hinder progress before the question of e-business implementation is even considered.

These attitudes include:

  • Priority: Businesses generally have more pressing problems than fathoming technologies and identifying their possible relevance. These may include a global corporate reorganisation; who they are about to acquire or who is trying to acquire them; and whether the world economy is on the verge of a contraction or expansion phase.
  • Interest: Enterprises are interested in the development of their own business opportunities, not in a vision of a technologically perfect world. At times this leads them to support industry standards in new technologies, while at other times they seek to maximise market advantage through proprietary systems.
  • Complacence: While fearing unknown implications of new technology, many companies are confident that they can survive because some time in the past two decades they have been at the technological forefront of their industry.

The events that can block e-business development include:

  • Fragmentation: With the rise of new technologies that overlap previously separate organisational functions, intra-organisation competition usually results in duplication of new initiatives within large enterprises.
  • Traditional challenges: e-Business is forcing the evolution of traditional areas of business management, including the cross-industry exchange of management practice. For example, characteristics of Internet investment require the use of risk management tools, which are well established in the financial sector but relatively unknown in media industry.
  • Restructure: Specific e-business programmes established by bricks and mortar companies to take advantage of e-business opportunities often disappear with little or no notice according to senior management planning requirements. This may occur independently of the actual progress of the programme.

3. Three sets of motives

In e-business at the simplest level we have three key components: consumers, technology and business (operating within a regulatory environment). Building a common understanding of e-business among the various players has to start from a recognition of the different motives in the e-business area:

  • Business is interested in making profits;
  • Consumers are primarily interested in living their lives;
  • Engineers are focused on problem solving.

Business: According a December 2000 UK survey, the mean savings target for an e-procurement project is 4 per cent on purchasing prices and 7 per cent on processing costs. One reason for the small size of these hoped for benefits is an underestimation of the savings that can be achieved by an effective "non-e" procurement department. In a large enterprise a several-percentage saving may be substantial. However, a company board will recognise the complexity of completely overhauling a purchasing approach and may ask whether this possible saving is worth the pain, effort and risk. For this reason many e-procurement projects are based on additional identified benefits.

These companies are users, not necessarily pioneers, of technology. Their success in general is based on the products and services they provide, not on the technology they adopt.

They are skeptical of New Economy claims in the current dotcom economic climate. To play it safe they have appointed e-business managers with larger or smaller departments, but often with little weight in the boardroom.

They aspire to world's best practice in their business, but that may or may not be near the cutting edge of technology, depending on the industry. They want to continue working with existing technology partners, but want confidence that whoever is leading them in a particular area is also an expert in the business implementation of the technology.

Having been burned by long-term strategies that failed to deliver in a rapidly changing world, their focus is on business benefits from short term strategy which can cope with rapidly changing demands and provide measurable success. They understand that benefits mean doing something in a more cost effective manner, doing something new that gets more customers, or both. Once they adopt a technology they have a clear eye on realising the benefits, and that means cutting costs on staff or other inputs, or increasing income with no comparable increase in costs. When it comes to selling they understand that there are very few new products, and recognise the difficulty of moving in on someone else's market space.

Technologists: The traditional declaration of engineers that they are problem solvers comes across as arrogant. While it is true, from a business perspective technology often solves the wrong problem. Even when an IT product or service is an exact fit for what an enterprise needs it is unlikely that the effect on the business of the technology is what the business would expect from reading a product brochure.

Information technologists don't have much that is useful to say to business people about information technology. It is only when technologists begin to understand business needs that they provide a message that is useful to business. Try explaining extranet security options to a business manager in terms of where each sits in the OSI seven-layer model (Layer 2 and Layer 3 tunneling).

On the other hand, it is impossible to appreciate the business risks of a B2B or B2C solution without an intimate understanding of the underlying technologies. A business manager needs to hear about those technological risks from someone who understands them, not about the technology itself.

Consumers: Then comes the consumer. Take the example of a company that purchases an intranet solution for use by its staff. Intranets today are a high risk venture. It isn't because of the technological risk that the intranet will fail or perform badly. It isn't the business danger that the project is over time and budget. These shouldn't commonly occur with such a well known and proven solution. The greatest danger, which I have seen on several occasions, is that once the intranet has been implemented, it is little used. The business world is littered with under-utilised intranets, designed with the best business planning and engineering expertise available.

Convincing a consumer by changing or reinforcing their habits is the field of marketing, and there is no necessary correlation between marketing spend and effect. In some cases such as the spread of Internet e-mail, chat sessions and music exchange, a small initiative followed by word of mouth brings massive global change. In other cases such as videophones, repeated marketing efforts over more than three decades have failed to spark interest.

While it is possible to argue the relative importance of business and engineering, and to attempt to influence the consumer with marketing, at the end of the day consumer acceptance is the court of final appeal.

4. The actual basis of e-business complexity

This raises a question: from a mainstream consumer point of view what makes the Internet real? The Internet can be described in many different ways. I suggest its most important characteristic is as a new communication medium. While the Internet has and will have an important impact on education, medicine, housing, transport, agriculture, information and much more, the Internet itself is about communication. Following on from the previous section I suggest that the unnecessary technological complexity that business faces actually hides the real complexity of the Internet’s communication aspects.

Communication is a research discipline with its own theory and history. To give an example of the difference between a communication view and a technological view, take traditional commercial television. From a technological view this could be described as a ground based unidirectional, primarily analogue, broadcast medium for distributing information over prescribed frequency channels through the atmosphere. One communication theory description of the same service describes television as an "instrument for mediating the production of mass audiences for sale to manufacturers advertising their mass-produced consumer goods and services".

Technology and communication media evolve very differently. The development of technology over thousands of years is typified by energy sources. Manual power was replaced by animal driven systems, then water mills and finally electrical systems fed by power grids based on several sophisticated electricity generating designs. The replacement of canals by railroad and trucking is another of the multitude of examples of technological evolution.

What happens when we extend the technology evolution analogy into media, and seek to trace the development from the less to the more sophisticated? Beginning with still photography we got cinema, which combined with sound recordings gave us modern films. Yet unlike technology it is hard to find examples of media disappearing, although the mix of use changes. Printed newssheets replaced handwritten notices, and are still here today as newspapers. Cinema replaced the music halls and theatres (to a large extent). Radio and television emerged without precedents. But predictions of the death of newspapers, radio, cinema and the novel have all failed to be borne out. Even the current craze in texting recalls the telegram.

Colour photography and cinematography have replaced their monochrome cousins in mainstream use, but in general newer, more sophisticated, higher bandwidth applications haven't eliminated their chronological predecessors. We simply have more and more media. And at a certain point, higher tech becomes less interesting, such as the failure of 3D films in the early 1950s. For the Internet, from an engineering and even business perspective we may expect to see some sort of Mazlow's hierarchy of needs, beginning with monochrome text e-mail and gradually rising to a self-actualised user with colour networked interactive digital television with quadraphonic sound. In practice most Internet users are still happiest sending e-mails.

An analogy from the history of typography hints at this more complex relationship between communication and technology. The rise of modern typography in the early decades of the 20th century was in part a reaction to clutter in late 19th century publishing. This movement emphasised simplicity over complexity, space over density. The rules it developed still guide good design today, including of web sites. I am unaware of any study that links the complexity of an e-business web site as measured by, for example, its bandwidth requirements, to the commercial success of that site. Anecdotal evidence appears to say the opposite.

5. Impact of the Internet’s non-business origins

If technologists have contributed to business confusion with a technocentric approach to new business opportunities, they have also created significant misunderstanding by failing to explain to business the limitations of the Internet’s non-business origins.

Describing the Internet as primarily a communication medium raises the question, if this is so, why is it so much harder to make money out of the Internet than from other media? I suggest that there are three separate answers here. First, unlike the photocopier, fax and mobile phone, the Internet wasn't designed to do a particular, single function. The photocopier and the fax were able to cost effectively achieve particular business functions (reproduction of paper documentation and its delivery over distance). The mobile phone met a growing business demand for roaming connectivity before creating a new consumer habit of constant remote connectivity.

Second, the Internet is a young media. Other media such as film and television had similarly tumultuous beginnings in their early decades, before settling down as the stable and highly profitable businesses we see today. The way in which the Internet stabilises cannot be predicted from film and television, however. Many of the early years of television and film were dominated by legal battles over patents. In contrast, the initial character of much of the Internet's design has allowed it to spread as a global standard. Nevertheless, there is no doubt that we are in the early days of the Internet's development, and we shouldn't expect stability for some years.

Third, at no critical point in the history of the Internet's development has the requirement to facilitate business transactions been a determining consideration. That is not to say that there haven't been many initiatives to restructure the Internet along these lines, most importantly with IPv6. However, none of these have yet joined the Internet's defining characteristics.

The Internet as it exists today was designed as a "best effort" (as opposed to reliable) network, without security or Quality of Service. The Internet's origins have been clearly recorded. Histories of the Internet describing its gradual rise to mass popularity from the late 1960s to the 1990s, such as Hafner and Lyon, generally fail to capture the actual business and consumer ignorance of the Internet even as late as 1995. Technology aware business observers of the early 1990s "understood" that the Internet was an old networking technology which had been superseded by the Information Superhighway based on Asynchronous Transfer Mode (ATM) technology, with reliability, security and Quality of Service designed in. The business case for this Information Superhighway would be proven when consumers started paying for video-on-demand delivered over their high speed data connection. Today consumers think of an ATM as where they withdraw cash, and wonder why the Internet despite all the hype runs so slowly as they head out to rent a video.

6. Challenges for pay-per-view

As the availability of advertising to sponsor information sites is falling, many businesses are wondering whether the Internet is moving to a pay-per-view model for information. Two separate issues here are agreement to pay and mechanisms to pay. The early commercialised World Wide Web approach was modeled on print media advertising. Press organisations often state that the cover price of a publication only covers printing and distribution, that is, the marginal cost of producing each copy, while they depend on advertising to meet other production costs and profit. There is a certain logic for the Internet consumer to believe that since the marginal cost of producing every "copy" of a web site for consumers is virtually zero, and since they are looking at advertising as they view the site, it should be free. After all, the consumer has invested a significant amount of money in their PC, modem, and the Internet access itself, compared to the cost of a magazine. This is currently the status quo. While the Wall Street Journal charges a subscription for on-line access, it appears to be the only major daily around the world that does. Others have tried and then gone back to registered but free access.

What about paid telephone information services? When phone companies began providing paid services in the final decades of the 20th century, these were based on a simple model: a three way split between phone company, information provider and information service host. The predominance of horoscopes and the sex industry indicates that this is a marginal, if highly profitable, section of the information industry. Similarly, while the sex and gaming industries appear to have profitable Internet e-business models, pay-per-view for more mundane information is difficult. This is in contrast to data services of the late 1980s, such as the Reuters Monitor service, which were able to charge comparatively large sums for information delivered rapidly over private lines to dedicated terminals.

A commonly used technological scapegoat for the absence of pay-per-view is the lack of a broad and uniform micropayments system. A particular problem faced by the multitude of micropayment solutions is that the business demands they are trying to meet are diverse and even mutually exclusive. For example, the idea of adding small payments for Internet information to a user's telephone bill makes sense. But in an era of proliferating telephone companies, and global distribution of information, the challenges are non-trivial. Even if telcos can legitimise the use of micropayments by giving mobile phone owners the opportunity to purchase soft drinks from dispensing machines with their Bluetooth enabled handsets, this is still very much in the physical world. An on-line information provider is much further from the consumer than the drink machine, and a provider of free equivalent music or other information is only a click away. The alternative to paying for a can of Coca-Cola isn’t to pick up a free can of no-brand soft drink sitting alongside. Turning mobile handsets into stored cash devices also increases the threat to the owner, especially a child, from robbery.

7. The change is here

Examination of these bricks and mortar companies within the context of this analysis has been able to provide insights into the direction that these companies can usefully take.

  1. Viewing the Internet as primarily another communication medium can help to demystify its "cyber" aspect. When a bricks and mortar company offering goods or services advertises through commercial television, and takes phone or mail orders, there are some very specific requirements that have to be met. Regulations regarding repudiation of credit card purchases are slightly different for example. Loss risks may be different (fraud versus shoplifting). The Internet extends this somewhat, as taxation and regulations is affected by the multi-jurisdictional legal environment, but we still have actual transactions occurring in a commercial environment. The business challenge is to integrate this new business channel and existing business processes. (While from such a service point of view little has changed, from a consumer perception that may not be the case. The fantasy excitement that a consumer had when playing Multi-User Dungeons and Dragons a few years ago is not the experience that they want when doing their banking on-line.)
  2. Removing the technological complexity of e-business solutions and focussing on business benefits often leads an enterprise to an understanding that all their actual immediate e-business needs can be met by currently existing technology.
  3. As with all information technology projects, the introduction of e-business technology into an inefficient business process generally provides no business benefit. It may achieve the opposite, entrenching processes that could have been eliminated as part of an e-business project.
  4. Particular actions can help bricks and mortar companies along this path.

    1. The critical importance of senior management buy-in to e-business plans is found in both positive and negative examples. Specifically, a strong link between senior management is able to overcome a range of often unexpected difficulties faced by e-business programmes. On the other hand, in no case was an e-business program without senior management buy-in able to deliver significant business benefits to an enterprise.
    2. A closely related issue is that of the location of e-business strategy and management. Where this is located within an IT department there is an often overwhelming tendency for e-business solutions to focus on technology rather than business. Even where this is resisted, e-business strategies emanating from an IT department are less likely to achieve business buy-in from the business units that should be their strongest supporters.
    3. The persistence of communication media mentioned above has immediate relevance in the area of multi-channel content management. To date this has focused on simplifying content delivery to multiple browser, mobile and interactive television environments to overcome the lack of standards. The preceding points indicate that there will be an ongoing value for multi-channel delivery due to the broad range of consumer media interests, even if common standards simplify the technological requirements for content delivery.

Finally, even in those organisations least interested in developing a range of e-business possibilities, and most cynical about the promises of the New Economy, e-mail has become a firmly entrenched part of daily business life. This is perhaps the clearest indication that the e-business change is already irreversible.