By Kenneth Liss, Editor, HBS Working Knowledge
Dot.coms and traditional companies ("dot.corps") can learn a lot from each other. But in the end, according to a group of IS2K panelists, the differences between them may be less important than a common goal: staying focused on the customer experience.
"The real issue is to recognize that the momentum that you're trying to look for in a successful as opposed to a probably unsuccessful retailer is not the momentum of investment or the momentum of press coverage," said Mary Modahl, vice president of research at Forrester Research. "It is the momentum of consumer service.
"You need to look at whether the company is providing, consistently, value to customers and whether the experience that consumers have is good."
Stephen A. Scullen III, executive vice president for eBusiness Retail Development at Fidelity Investments, agreed. "Fidelity has traditionally approached our customers from a customer service, customer centric point of view," he said. "We're not just about pushing product, pushing mutual funds, pushing trades, but really, what's the customer experience, what do we really need to have our customers look at us as a trusted provider for what they're trying to get done.
"And we're constantly reinventing that experience. So today, we're very interested in the Internet; tomorrow we'll be very interested in wireless. How will that affect customer expectation? How do we integrate wireless back to the Internet? Back to the phones? Back to the [sales] rep? We think that's the challenge."
Modahl and Scullen were joined on the panel by John Payne, chairman & CEO of Stamps.com, and Bill Bass, senior vice president for e-commerce and international at Lands' End. Nicholas Carr, senior editor of the Harvard Busines Review, was the moderator.
Integrating Old and New
Scullen and Bass, both of whom run online operations within traditional companies, stressed the need for integrating old and new. "The key to us really is to integrate the different channels through which our customers talk to us," said Scullen. "We have automated phone services, we have phone reps, we have branches, we have the Internet today.
"If you come into us through the Internet, we want that experience to reflect the same feel and culture and trust we're projecting through our branch systems, our phone reps, or our automated phones."
Bass agreed: "When the customer comes in and shops, the Web site experience is really a small part of the experience they're looking for. What they really want is, whatever it is they really want to buy. If they have a problem with it, they want to be able to return it. A lot of people focus on what you do on the Web site, but that's not what the customer wants. The customer needs the whole experience to kind of work together.
"People don't see themselves differently when they call up on the phone and are using the catalog and all of a sudden they decide to go online and they're dealing with us online. It's the same customer, the same company, and they expect to have the same experience. They'll be slightly different because there are things you can do online that you can't do in a catalog and there are things you can do in a catalog that you can't do online, but they expect to have that same type of service."
Stamps.com's Payne talked about the advantages a company has when it takes advantage of the Internet to move from a product-based to a service-based business. "The massive difference when a product becomes a service and when things scale in this direction, is, number one, of course, you get the benefits of scale. If you look at the big advantage that every Internet company has over bricks and mortar people, it's that it can scale fast, it can scale at low cost, and it can scale at perpetually declining costs as you add more customers to the mix.
Invention and 'Just Work'
But at the same time, said Payne, that kind of growth brings up one of the key challenges for dot.coms as they move toward the scale of more established firms. "When you have any kind of a scale, when you have customers who number in the hundreds of thousands to millions, you simultaneously have two things you have to accomplish if you're going to be a successful Internet company. One, you have to continue to invent things; and, two, you have to do what we call in our company 'just work.'
"Everyone wants to do the inventing, and nobody wants to 'just work.' One of the great challenges we face inside the company is to be able to manage around those processes. That's a very difficult balance to find, and if you can't offer inventive work, it's very hard to attract the very best people who really know what the cutting edge is like."
Scullen and Bass said they faced similar challenges in their businesses.
"We spend a lot of time looking at the culture of how we define my group," said Fidelity's Scullen. "People don't have defined hours, we don't have dress codes, we give out a lot of food, we pay very well. But what we found is that people really stay and come to us because they do good work and they have an opportunity to grow in terms of what they know and the ideas that they can push, not necessarily on pure compensation.
"But we're constantly pushing that idea, to make sure that the culture within this group is very fluid and very accommodating, because we're competing with everyone else for these people and there's a lot of opportunities that they can leave for."
At Land's End, said Bass, they have built a matrixed organization that he said is absolutely critical for traditional companies that want to "infuse the dot.com DNA throughout the rest of the company without squashing the freedom that you need in a dot.com."
Similarities and Differences
Both Bass and Modahl talked about how differences between dot.coms and dot.corps have been overemphasized.
"I come to these things and hear that e-commerce doesn't work," said Bass. "Actually, e-commerce is great if you have the right business model. If you don't have a good business model, it doesn't work, but that's no different from any other business.
"For some reason, people started to think that profits, revenues, expenses didn't matter online. They matter online just as much as anyplace else."
There are three things, he said, that you need to succeed in online commerce: a trusted brand; a direct-to-consumer infrastructure; and a proprietary product. A company can get by without one of the three, he said, citing Amazon.com, which has a brand and the infrastructure but not a proprietary product, as an example. "But most of the dot.coms that come along don't have any of those things. That's why you're seeing a bunch of dot.com carcasses floating around out there."
Modahl brought her own list of three: three myths of the early e-commerce marketplace. "The first real myth," she said, "is that it's all about eyeballs, that just generating traffic and eyeballs would be the key to success." That brought about enormous investments in advertising, investments that, despite their size, underestimated what it takes to establish a brand.
"Anybody who is going to the consumer space who thinks it is going to be much less than $100 million is probably far off base in terms of establishing even a basic kind of recognition," she said.
The second myth, said Modahl, is the myth of the virtual company: "the idea that we can pull together a company and don't have to deal with inventory or get our hands dirty, that this is a completely leveragable model because of the Internet."
Myth #3, she said, is the idea "that anyone can do it, that you don't need to know anything about business because all the old rules are gone; you can just be somebody that invents new rules. In fact, you don't even have to have taken Economics 101, you don't have to know anything about supply and demand, or P&L or accounting or anything. You just get in there and because the rules are new, you just write the rules, and because you wrote 'em, you know them.
"That's turning out to be completely false. What we're finding is it takes real business people with real experience."
Unrealistic Expectations
At the same time, said Modahl, people need to keep the example of traditional business in mind when looking at the downside of the dot.com model as well. "People may be suffering from unrealistic expectations. We act like, 'Oh, a dot.com went under. The prospects are over for any dot.com.' But step away from the Internet and take a look at all new business formation. The failure rate in all new business is high. Should we expect dot.coms on average to succeed more than any other kind of business?
"The demise of a number of dot.coms—even half the dot.coms that you know about and read about—should not make you think the Internet is not a tremendous opportunity for the ones that succeed."
And while she conceded that, "from a business process, operational point of view I think they [dot.coms and dot.corps] will become less and less distinguishable from each other," Modahl emphasized the historic nature of the present time in the business world.
"Even 50 years from now," she said, "we'll look back and say this company or that company was formed in the Internet era, just as General Motors was formed in the industrial era."