Europe's largest organisations realise the long-term potential of e-business but are not investing sufficiently to realise that potential. This is one of the conclusions in a report published today by PricewaterhouseCoopers entitled "Competing in the Internet Age - Challenges for Incumbents".
The research was carried out by UK research agency Simpson Carpenter during October 1999. A total of 100 Times top 1,000 UK-based companies were questioned (50 in the UK, 16 in continental Europe, 5 in Asia, 29 in the US). The respondent was the Chief Information Officer or person responsible for e-business implementation. Those organisations with no plans to develop e-business were excluded from the survey -- this group represented 5.6% of the total number of organisations approached.
The report highlights that while 26 per cent of respondents would like to migrate more than 90 per cent of existing customers to e-business, only one per cent of businesses have achieved this to date. Moreover, only 11 per cent have fully implemented e-business solutions and as many as 48 per cent are only at the early web site development stage. The aims of existing e-business strategies tend to be defensive with only seven per cent using e-business to strike into a new sector. More worryingly, more than a third admitted they do not have the necessary skills to implement e-business solutions.
Just four per cent of organisations are investing more than 10 per cent of revenues in e-business development although this is expected to grow to 15 per cent in three years time. This level of investment is reflected by only 12 per cent reporting more than 10 per cent of revenues transacted via the internet, although the proportion was higher in business-to-consumer (18 per cent) versus business-to-business organisations (six per cent).
Greater Recognition Needed
The reluctance to invest in e-business may be driven by a lack of recognition from the capital market. More than half of those questioned felt the market does not recognise or reward e-business activity and 72 per cent have no intention of creating internet capital.
Most respondents did not think that the "dot.com" businesses are over-valued. However, amongst those believing them to be over-valued, many thought there was a major over-valuation: 37 per cent (14 per cent of total sample) saying by over 50 per cent and two thirds of them expected a correction in the next 12 months.
A New Divide -- Business-to-Business versus Business-to-Consumer
A significant difference in approach is emerging between business-to-business and business-to-consumer organisations. Investment in organisations with consumer applications is double that of companies who have a business-to-business focus.
Not surprisingly, business-to-consumer organisations consider increasing customer satisfaction and loyalty through the web and creating an appropriate brand strategy as the most significant challenge in creating value through e-business. In contrast, business-to-business organisations considered achieving operational and cost efficiency improvement through the web as the greatest challenge.
The Brand Takes Centre Stage
Of the top 50 US business-to-consumer brands on the web, no less than 45 are internet-only brands or I-brands. It seems unlikely that Europe will follow this trend. Very few organisations questioned (just four per cent) are looking to create a new I-brand. Many (44 per cent) will rely entirely on their existing brand and a further 42 per cent will adapt their existing brand.
Security is Still an Issue
Regulatory bodies and the technology providers clearly have work to do in convincing business of the safety of internet transactions. Security continues to be a concern and was cited spontaneously by 28 per cent of business-to-consumer and 10 per cent of business-to-business as the most significant challenge to successful e-business implementation.
Where the Threat is Perceived
Almost half (45 per cent) agreed that traditional, mainstream competitors, trading through traditional channels posed the greatest threat while only 25 per cent saw these competitors trading through e-business as the greatest threat. Surprisingly the "dot.coms" were ranked as most of a threat by only 15 per cent and least of a threat by 60 per cent. Although, in three years time it was felt they would be more of a threat, respondents predicted a business environment where there would be an even split between traditional competitors, established organisations entering your market and the "dot.coms", with no one group dominating the market.
A Five Point Plan for Incumbents
Bill Bound, European leader, E-Business, PricewaterhouseCoopers Management Consulting said:
"This research proves that European businesses do not lag behind their US counterparts in their ambition for e-business. However, it indicates that most are taking a defensive stance that pays lip service to the internet and fails to maximise its full potential. Few of the businesses we spoke to are making significant investments in e-business, many admit they lack the necessary skills and most are seriously underestimating the impact of the new 'dot.com' entrants.
European businesses have reached a point of no return -- they must embrace a new business model centred round an offensive e-business strategy. Only by doing so will they realise their e-business ambitions."
PricewaterhouseCoopers has identified five key elements to e-business agility that current business leaders must take into account if they are to survive into the early years of the 21st century. The five elements are:
- Managing customer experiences: In the electronic world, styles of service are diverging, businesses have to decide on what basis they are going to attract and retain clients. Businesses have to decide whether their web will offer an experience or a service.
- Adopting the right business model: A strong divergence between business-to-consumer and business-to-business models is emerging. Businesses must decide which route to take -- this will fundamentally affect their competitive position.
- Building market recognition: The extraordinary stock prices of many "dot.coms" defy standard valuations, such as price/earnings ratios. This is because the markets are not measuring them in the same way as traditional companies. Businesses have to understand and take part in how their markets will be rewarded in the future.
- Harnessing the power of the brand: Should business create an I-brand? Where are relevant and where are the opportunities in keeping to a single-brand strategy?
- Addressing the people problem: Last year, 30 per cent of Harvard MBA graduates joined high technology or venture capital organisations, up from 12 per cent in 1995. Many high profile chief executives of major corporations have left to join "dot.coms". The reasons are simple -- money and opportunity to forge new markets. Incumbents companies have to find new ways of competing.