Why e-business fails

B.K.Khaitan

e-business is not all about doing the business electronically the way we have been doing manually. In fact e-business requires developing new business models, forge new business relationships and re-engineer business processess. It requires monetary commitments to develop IT infrastructure, networks and applications. Any attempt to replicate business process on Internet using older methods of conducting business is dangerous and bound to be outperformed by other virtual e-business models.

Traditional business models are product centric. The focus is on ownership of assets while maximising ROI, ROCE and asset/inventory turns. Human capital is considered a factor of production and the operational mantra is "Sell what we make". e-business model is customer centric. It depends less on physical capital and more on brand building, customer service, network management etc.

Emphasis is more on the value-added activities than on the product as the product is commoditised. It adopts strategy of outsourcing non core activities including support activities and concentrating more on core business issues. Since e-business model is customer centric, it requires improving customer service by moving up the value chain by not only optimising internal business processes but also working in tandem with other business partners across the supply chain. Any weak link in the supply chain is going to impact the customer in some way or the other. Our sales forecast is dependent on our customer demand. Likewise, our supplier's sales forecast is dependent on our demand of the material and so on and so forth.

The dependency of business continues from one end of the supply chain to the other end. If customer demand changes at one end of the supply chain, it will have a cascading effect on the sales forecasts of dealers, distributors, manufacturers in the entire supply chain which in turn will impact production planning, purchase etc of the business partners. The faster the response to the change in demand, the better the customer service. This requires complete visibility of information across the supply chain. Internet helps in making it possible. To leverage the maximum benefit from e-business, more than the technology, it is the mindset of the business community, which needs to be changed.

Business community in India has developed an attitude of mistrust and suspicion towards each other in a closed market economy in the last five decades. Rather than resorting to price war and other cutthroat competition, business partners need to trust each other and learn to collaborate and work towards improving customer service. For example, buyers can create consortium and make purchases collectively through B2B private exchange to avail of price discounts from suppliers, which will help in lowering the sales price ultimately.

e-business helps in reducing cost of infrastructure. Office buildings, furnitures and fixtures occupy large chunk of fixed cost, which can be totally eliminated. The office staff can have access to information at any place at any time and they can communicate within and outside the company using VoIP, chat etc which will reduce communication cost. There will be savings in manpower cost too. For example, retail shops don't need to employ salesmen at the counter as the sales will be done entirely on Internet. There will be tremendous savings in other operating expenses as well. These savings can be passed on to the customers thereby becoming more competitive in the marketplace. According to the survey conducted by Gartner, the cost per transaction of companies doing business on Internet is one tenth of the cost per transaction of companies doing business traditionally.

Security in e-business is an area of concern. Threat of hacking of sensitive business data looms large. Cyberlaw has been passed by the Indian Parliament but how effectively it will be implemented in India, only time will tell us.

Lack of road infrastructure is another area, which need special attention. Customer service starts with enquiry received and ends with the delivery of goods within committed date. Delivery date accounts for the elapsed time between the time the truck leaves the factory premises and the time at which it reaches the destination. Depending on the location of the destination, this time may vary from one to seven days. No amount of technology can help in reducing this time. This can only be reduced with proper road infrastructure. Better road condition will consume less fuel, which will impact transportation cost. Freight charges in most corporates occupy large chunk of operating expenses, which can be minimised with improved road condition. Government plays a vital role in improving road infrastructure.

The future of Indian economy lies in re-engineering new ways of doing business through collaboration and value engineering. There is no place for complacency in a highly competitive environment. The initial shake out of dotcom companies is an indicator that only serious players in e-business are going to survive. It should not be mis-interpreted as a failed model.

(The author is the Chief Manger for IT at RPG Cables Ltd. Views expressed here is those of the author and CIOL does not necessarily subscribe to the same.)