E-commerce strategy: Dealing with uncertainty
In the ever-changing world of the Internet, it's nearly impossible to predict your goals for the next three years. Although many run to gurus for advice on the distant future, it may be better not to lock yourself into a long-term strategy.
These are perhaps the most frequently asked questions of the Internet industry. In the ever-changing world of the Internet, it's nearly impossible to predict your goals for the next three years. Although many run to gurus for advice on the distant future, it may be better not to lock yourself into a long-term strategy.
In the past few years, we've seen companies deal with the uncertainty of the Net by trying to predict the future while disregarding inescapable--and important--uncertainties.
Some companies have simply copied whatever business model was in vogue, regardless of what business they were in themselves. All kinds of companies started online lifestyle magazines. Remember Sprint's now-defunct Cyber Diner?
Other companies hired others to predict their future and then invested heavily in that vision. Some of these businesses further engaged in wish fulfillment by backing those predictions with the false security of research companies' revenue estimates.
Corel gambled heavily on Java in 1996, back when Java hype reached its peak. But last August, the company stopped working on its Office for Java suite after a beta version proved slow and buggy. It had to rethink its strategy and is now focused on a Java toolkit. Sara Lee's coffee division opened an online store when online retailing was all the rage. But Sara Lee figured out pretty quickly that it takes more than a storefront to be a good retailer.
What's wrong with these guru-inspired, hit-or-miss strategies?
Managers typically lean toward the extremes in assessing uncertainties. They either don't account for uncertainty in their equation and put their eggs in one basket or largely overestimate the risk and ignore the Web altogether. Placing all your bets on a particular scenario can pay off. If you're lucky, you win big. But chances are that you may lose big as well. Gurus and research companies can't account for all unknown factors. On top of that, companies usually aren't able to create new business models overnight, let alone execute them successfully.
For a company that produces consumer goods, such as Procter & Gamble, the e-commerce scenario over the next three years is impossible to predict.
Will it sell directly to consumers online by then? Will it sell through storefronts of current retailers? Through affiliate programs? Will it hold inventory itself or will the retailer do that? All of these questions are very important for determining an e-commerce strategy, but none can be reliably answered today.
What strategy works in this situation? Realize that it isn't possible to predict which one scenario will materialize. Despite this uncertainty, you can formulate a strategy. Instead of betting on one single scenario, devise a strategy compatible with a range of likely outcomes. In time, the number of uncertainties will decrease and your strategy can focus on one scenario.
In practice, that means devising a strategy step by step. To be able to choose a strategy later, identify and list the indicators that signal a movement toward one or another scenario. Monitor these indicators while getting ready for the whole range of possibilities. The goal of this phase is to position yourself to have the power and flexibility to focus your strategy on one plan in the next phase. Meanwhile, the market will slowly point to the scenario most likely to materialize.
Companies can prepare for multiple scenarios by getting IP-ready and using Internet technology to optimize their processes. These investments carry low risk and don't require committing to one particular scenario because the business model stays the same, although the execution of the model is optimized.
Procter & Gamble, for example, should get its system ready to communicate with buyers and suppliers over IP networks. Doing so would save costs in the short run while preparing for e-commerce in the long run. In the meantime, it should monitor, among other things, the breakdown of products sold online and offline and whether products will be sold through the company or through another party.
Optimizing your current business will eliminate inefficiencies, and going through the phases of optimization and transformation gives a company time to develop the skills needed to create new business models.
During the transformation phase, experiences and market data start to point to the likelihood of a particular scenario. When indicators point in one direction and the probability of a scenario increases, you can focus your strategy.
If 1994 through 1997 were the years of experimentation, 1998 is the year to get serious about your e-commerce strategy. Build a strategy step by step all the way from optimization to transformation to creation. Uncertainty will decrease as you progress. But don't place your bets on a single outcome just yet.
Stefan Verkerk is a founding partner at Caspers Hosman Verkerk Consultants, a consultancy firm specializing in e-commerce strategy. He is a regular speaker at e-commerce conferences and has written numerous articles and columns on the subject.