Track or crack - assess your Internet projects

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The big Internet party is over - those extravagant events of huge buffets and all-you-can-drink for free, so symptomatic of the early Internet days, no longer exist. Guests today have to buy their own drinks. Most revolutionaries who went out to challenge the somewhat slow traditional industry players armed with chunks of cash and some vague ideas, finally had to bow to reality and financial basics. Many went out of business and, all-in-all, the Internet industry "destroyed" an enormous amount of money - some speak of trillions of pounds worldwide.

Nurtured by a favourable economic climate, the tempting dream of becoming instant millionaires conjured up an amazing amount of energy, resources, creativity and movement. Only slowly did the market dynamics cut through this collective irrational exuberance. The initial insatiable demand and hunger to participate in this Internet revolution turned into an over supply of yet another investment opportunity, pushing share prices deep into Wall Street's cellar. Most of us got caught left footed - private individuals, business angels, venture capitalists, banks, funds and also companies.

In the craze of exploiting the IPO (initial public offering) window of opportunity many companies hastily set-up independent e-units (or dot.corps) and well-funded independent Internet start-ups (dot.coms). In 1999 and at least part of 2000 the shareholders and stakeholders at annual general meetings were not so much interested in the financial figures and performance than a company's great and detailed Internet strategy battle plan. Today companies are faced with a complete change in direction of their investors and stakeholders who now criticise their Internet investments. Many have to report considerable losses, all too often linked to deep write-offs on companies' Internet investment adventures. A telling example can be seen with Trammell Crow, the big property service firm that lately took a charge of over GBP 25 million for bad and non-core Internet investments. Others, like Laing, Skanska, Bovis Lend Lease, Balfour Beatty and Amec, shelved some of their projects (e.g., for a joint construction portal Arrideo) because of a re-evaluation of the market risks and a re-consideration of what their true core business is.

Reality dawns

Internally the e-Business balance sheets often look similarly bleak. Despite rosy top and bottom line improvement promises, millions, even billions, of direct and indirect investments and an abundance of ideas, the overall sentiment is that Internet projects have up until today only cost money - it is rare that they show a positive return on investment (ROI) in any justifiable manner. Many companies feel disappointed by their market research organisations, e-consultants, systems integrators, software providers, etc., who charged millions of pounds but too often failed to deliver on their promises.

However, the Internet avalanche meanwhile slowed to a halt. In fact the whole IT industry went into a deep and painful recession that has continued into 2002. Most incumbent companies, who were under constant and scaring Internet attack for at least 24 months - remember some industry analysts were betting when new economy players would squeeze traditional players out of the market - gladly taken advantage of today's rebound and have often quite simply stopped all their Internet projects. The comfortable and tempting argument that the Internet was a fad has been quick at hand - maybe too quick. As Alvin Toffler puts it: "Anyone who thinks that the Internet economy is over because of the dot-com crash is either defining it too narrowly or being naïve. It's like saying the industrial revolution was over because some London textile plants shut down in the 1830s."

What went wrong?

Mistakes are catalysts for drawing important lessons for the future. No doubt the last 24 months has been rich in mistakes. First of all people today understand that the world confused change with disruption. Disruption means that the action that is causing the disruption invalidates or at least substantially reduces the importance of the traditional advantages of incumbents. People missed out in differentiating between a revolution and an evolution and understanding that Internet technology is foremost an enabler to build competitive advantage. Nobody disagrees that the Internet will have a remarkable effect on operational effectiveness, improving process efficiency, reducing transaction costs, and reducing inventory. In a cyclical industry such as construction, characterized by paper-thin margins and high fragmentation, IT and Internet technology enabled strategies will sooner or later make the difference (probably sooner than most think). Of course they won't pound a nail any faster or dry concrete more quickly, but both will be at the heart of improving today's poor communication and working relationships between designers and contractors and the co-ordination between the design and construction phases. This somewhat technology-averse industry will have to learn to adapt to the new possibilities such as collaborative project management and commerce, bidding platforms, simulation, etc., in order to cut into the potential time (market analysts expect a 15 per cent reduction) and cost savings (estimated to be 20 per cent and 30 per cent for materials) soon to be demanded by the end-clients.

Secondly, in the haste to jump onto the gold-rush-train and a lust to grab market share, sales pitches and the selling of dreams were often more important than the delivery of facts and results. With the bankruptcies of some big players the world has started to get a frightening (and painful) insight into the offered solutions and services - behind the facades people familiar with the industry encounter the bleak and shocking realities. A market place in the construction space that was unable to integrate processes and had to hire quick fix manual support is certainly not a unique example of ineffective immature first generation Internet services and systems. The downturn and with it the increased competitive pressure quickly sort out good from bad and understandably put much needed emphasis on the delivery of facts and results.

Thirdly, companies are currently in a deep penny-pinching mode today bringing them back to business fundamentals. In the past, pushed by the world's digital expectations and stormed by a confusing avalanche of new Internet solution and service providers, companies too often lost sight of best-practice business principles or put aside the basics of proper project management. The pressure seemed to be too high and the subject too new and revolutionary to allow the development of proper business cases. Big Internet projects have failed on basics, such as not ensuring that the staff have been properly tooled-up - simply not Net savvy enough to carry smart Internet projects. Needless to say that, looking back, it is clear that there was never enough time spent carefully defining the key performance indicators to measure mid- and long-term project successes. Today, too many companies have no clue about their true Internet investment levels, the current ROI or the expected future payback, and are thus seriously limiting the navigability and manageability of any future on-line efforts.

So now we have a clearer understanding of the problem what is the solution? The second part of Nick Fuchs' article will present a tried and tested clear and pragmatic methodology giving you some insights into how to tackle your Internet investments and come out with a transparent view of your future.

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