Lesson From E-Business Leaders: Results Matter

By BOB VIOLINO

CHARTS How much is your company's Internet revenue expected to grow during the current fiscal year? What is your company's level of involvement/to what degree are you helping to create an electronic marketplace in your industry? How much has your company been able to expand its customer base as a result of its Internet and e-business capabilities?

As the distinction between e-business and everyday business blurs, a company's success on the Internet is measured more in terms of perfor- mance--revenue generated, customers acquired, relationships improved, costs cut--than on the sheer size of its Internet investments. It's the difference between results and ambitions, between leading and catching up.

The businesses honored in the first installation of the InternetWeek 100 are those companies wringing the most out of their e-business investments. The list, based on a performance-focused questionnaire of major U.S. companies conducted in March and April by InternetWeek and Benchmarking Partners, identifies the leading e-businesses in 10 major industry sectors (see Methodology).

The companies were evaluated in several critical areas, including improved relationships with customers and suppliers, extent of involvement in electronic marketplaces and the impact Internet investments and e-business processes are having on overall corporate revenue.

The companies profiled in this report scored highest among their industry peers in their use of the Internet. It's a diverse group that includes Bristol-Myers Squibb in chemicals and pharmaceuticals, Avon Products in consumer products, Charles Schwab in financial services, Microsoft in high technology, Hilton in travel and hospitality, and Sears in retail and distribution. But not every InternetWeek 100 industry leader is a household name. AMFM won in media and services, for instance, while Danzas/Air Express International took the honors in transportation. In the only online-specific industry category--Internet marketplaces--VerticalNet came out on top.

General Electric, the winner in the general manufacturing category, was selected as the leading e-business overall, mainly because GE has moved billions of dollars in sales and spending to the Internet at lightning speed, aided by a corporate culture that rewards the sharing of ideas among its 20 business units.

In fact, the selection of GE as InternetWeek E-Business Of The Year is in part a testament to the company's ability to create an Internet strategy that makes as much sense for plastics and lighting manufacturing as it does for financial services and broadcasting.

That's not to say the other companies on the 100 list aren't thriving on the Internet. Every InternetWeek 100 honoree is leveraging the Internet to transform at least some aspect of its business. Each of the company's particular strengths are highlighted in the industry listings included with each of the profiles.

Some active e-businesses, such as Boeing, Dell, Merrill Lynch and Wal-Mart, are conspicuously absent from the list. These companies declined to answer the questionnaire and, therefore, were not included in the evaluation.

Leading By Example
Even within the InternetWeek 100, some industries are way ahead of others in their strategic use and understanding of the Internet. High-tech companies, including some major hardware and software suppliers, were at or near the top of many of the categories measured.

Travel and hospitality companies lead the way in expanding their customer base via the Internet, with an average increase of 15 percent since they became active on the Web. Next in this category are high-tech companies, which on average have increased their customer base by 10 percent because of Internet efforts.

Retailers and travel companies scored above average in the category of perfect Internet orders--percentage of orders fulfilled accurately, on time and in the right quantity. Travel and high-tech companies are the best at converting Web site visits into sales, according to the questionnaire.

High-tech companies scored highest in the amount of purchase orders conducted over the Internet, nearly 19 percent, more than twice the average for all industries. Next were general manufacturing and travel companies. High-tech companies also scored highest in the percentage of strategic suppliers sourced via the Internet--more than three times the average for all companies. General manufacturers were a distant second.

Financial services, high-tech, transportation, travel and manufacturing companies are the furthest along in using e-marketplaces to buy and sell products. High-tech companies are also benefiting the most from cost cutting in materials procurement, customer management and fulfillment and delivery.

The technology companies dominate when it comes to Internet contributions to overall revenue. On average, 20 percent of their annual revenue is achieved through Internet initiatives, compared with 8 percent for all industries. And they're receiving about one-fifth of their sales orders online, also well above the average for all industries.

Travel and hospitality companies (39 percent), retailers and distributors (39 percent) and high-tech companies (34 percent) expect the highest growth in Internet revenue in the current fiscal year. But one thing all the industries have in common is that they're forecasting significant increases in Internet revenue--which shows how critical Internet technology has become in forging growth.

Tangible Benefits
An area where the Internet is yielding very significant and tangible business benefits is in customer acquisition. InternetWeek 100 companies say they've expanded their customer bases by an average of 8 percent because of their Internet capabilities. About one-quarter of the companies say they have expanded their customer bases by more than 10 percent.

Raytheon Co., the $19.8 billion aerospace and defense company, has expanded its customer base through Web sites and expects to gain more customers through participation in an online marketplace it created with competitors BAE Systems, Boeing and Lockheed Martin, says CIO Jim Infinger. The aerospace exchange will give Raytheon access to competitors' customers as well as its own, Infinger says.

The company's Raytheon Marine subsidiary, which makes boating equipment, recently launched a Web site that has attracted many smaller boating retailers that Raytheon Marine had never reached before, Infinger says. These retailers connect to the Web site to order products they will sell in their stores.

"In the traditional brick-and-mortar world, we were dependent on our sales force to bring in customers," Infinger says. "With the Internet, we don't need a physical presence to gain customers. It opens the door for us to have a global customer base."

It's one thing to attract customers over the Internet; it's another to hold on to them. And fulfilling their online orders correctly is job one. On average, 84 percent of the Internet sales orders handled by InternetWeek 100 e-businesses are perfect orders. Half the companies say their percentage of perfect orders over the Net is greater than 90 percent. But even 90 percent isn't good enough for some of these companies.

"We view order fulfillment as being much more critical in the business-to-business world than in the business-to-consumer world," says Stephen Kaufman, chairman and CEO of Arrow Electronics, a $9.3 billion electronics distributor in Melville, N.Y. While companies that slip up in delivering goods to consumers have to deal with irate customers, "when we miss a shipment, we risk shutting down a factory and leaving hundreds of workers with nothing to do for the day," Kaufman says.

Kaufman, who says he spends 30 percent to 35 percent of his time dealing with Internet-related issues, says Arrow designed its Web site and links to its order-processing systems so that an order placed on the site immediately becomes a live order and inventory is selected. "It's treated like every other order," he says. "The warehouse doesn't know it's an Internet order." Kaufman says Arrow's Web order accuracy rate is 99.99 percent.

Improving Processes
InternetWeek 100 companies increasingly are using the Internet to improve processes and speed transactions. On average, 9 percent of their purchase orders are conducted over the Web, and they're buying materials and goods from about 10 percent of their strategic suppliers over the Internet.

Increasingly, supplies are bought and sold through new breed e-marketplaces such as ChemConnect in the chemicals industry and PaperExchange for the pulp and paper supply chain. Of those companies whose industries have an e-marketplace, a large majority are either participating in one or plan to be involved. Nearly half of InternetWeek 100 e-businesses expect to be in on the ground floor of an electronic exchange in their industry.

InternetWeek 100 companies say they will conduct 9 percent of their sales and purchase orders through an electronic marketplace during the current fiscal year.

The most ambitious e-marketplace in the works is the one jointly owned by automakers DaimlerChrysler, Ford Motor and General Motors, which are awaiting federal government approval for their venture.

Susan Unger, senior vice president and CIO at DaimlerChrysler, says the global portal is expected to be especially beneficial for buying production goods--auto parts, glass, metal, etc.--from smaller companies. Up to now, the $151 billion manufacturer has been able to electronically share information such as production schedules, parts tracking and financial information only with its largest, "tier one" suppliers.

"We were wired to tier one suppliers but not to tier two, three and so on because you need fairly expensive communications channels, and they couldn't afford it," Unger says. "The hope with the exchange is that all of the tiers will be able to quickly share information, which will be a great advantage for all of us."

Revenue Boost
InternetWeek 100 companies, nearly all of which have revenue of at least $1 billion, are also boosting their revenue on the Net. They attribute 8 percent of their revenue growth in their past fiscal year to the use of Internet channels, and they receive an average 8 percent of all their sales orders online. About one-quarter say they're deriving more than 10 percent of total revenue from Internet transactions.

Internet revenue is expected to grow an average 19 percent at InternetWeek 100 companies this year, and nearly one-third of the e-businesses expect Internet-generated revenue to rise more than 40 percent. These higher revenues mean a much higher profile for Internet efforts.

"We're becoming an increasingly important part of the corporate mix," says Dan Finnigan, president of KnightRidder.com, the Internet subsidiary of the $3.2 billion newspaper publisher. "Our revenue is still small relative to Knight Ridder's overall revenue, but it's starting to approach that of our smaller newspapers. If it continues to grow the way we expect it to, we'll be a sizable business unit within Knight Ridder in a year or two."

In addition to boosting sales, Internet activities are helping companies cut costs in areas such as direct and indirect materials procurement, customer management (record maintenance, buying history, sales targeting) and fulfillment and delivery (logistics, distribution and warehousing).

Air Products & Chemicals Inc., a $5 billion producer of industrial gas and chemicals, is saving millions of dollars each year by procuring MRO supplies over the Web, says Dave Ashworth, director of e-business.

Many of its suppliers' sites are set up so that Air Products' procurement employees just click on items listed on catalogs and the materials are automatically delivered to their site and billed at predetermined prices, Ashworth says. The process eliminates the transaction costs associated with paper-based ordering, he says, and gives Air Products more purchasing leverage, because the company is making large purchases from the same suppliers from hundreds of plants worldwide.

Who's In Charge?
A large majority of InternetWeek 100 companies have an executive whose full-time responsibility is to develop and oversee e-business projects, such as launching electronic marketplaces and creating customized services on the Web. Putting someone in charge of Internet/e-business efforts may sound like a no-brainer, but for many companies, e-business is still a part-time IT management function or spread among executives in different departments.

Arrow Electronics not only has a dedicated Internet chief, but it also has created a separate Internet Business Group to coordinate its online activities worldwide. Tom Hallan, president of the Internet group, says he works closely with Arrow's CIO to ensure smooth integration between Arrow's traditional IT operations and its Web efforts.

The Internet group has its own IT team that develops Internet-specific tools, including both hardware and software, says Hallan, who reports directly to chairman Kaufman.

Arrow's move to create a separate Internet unit may provide a glimpse of what's to come at many companies, as e-business becomes the business.