Size still counts says e-business expert

By Karyn Scherer

In the latest internet lingo, they are known as "clicks and mortar" businesses: that marriage between traditional "bricks and mortar" companies and the latest computer technology which is being touted as the future of commerce.

At least that is the latest received wisdom, and American management consultant Christopher Dallas-Feeney is not about to disagree.

As New York-based vice-president of BoozAllen & Hamilton's electronic business consulting group, it is his job to advise some of the world's biggest companies on their e-business strategy. And for what it's worth, he is convinced the future does not necessarily belong to the little guys.

Mr Dallas-Feeney was in Auckland this week to brief the company's local clients on trends in e-business.

His message - you need to jump on the e-business bandwagon and you need to jump on now - is hardly new.

But he has some reassuring advice for big companies which fear being outsmarted by smaller, swifter start-ups. Size can still matter in the e-world.

If the advertisements being placed by consultants are any guide, he says, a major change in attitude towards the internet taking place.

A year ago, companies were terrified by the internet. Now, they are simply wary. Until recently, most consultants were happy to play on managers' fears about what their competitors were up to. Now, they are telling companies to be on the offensive rather than the defensive.

"I think a lot of the incumbents need to take on a lot of the characteristics of the dot.com culture, like the entrepreneurial culture, but they don't have to be dot.com companies to succeed. In fact most of our customers want an offline and online presence."

Mr Dallas-Feeney says those who doubt his message need only look at the failure of internet-only banks to capture more than 15 per cent of the US market.

Companies which have invested in their brands have invested wisely. However, established banks cannot simply get away with a "me too" version of their smaller competitors' offerings.

"For scale-based businesses like retail banking, maybe even the consumer brands business, your economics can be trashed fast even if only 10 per cent of your customers walk.

"We've proven that case in retail banking. It doesn't take a lot of your best customers to be pulled away before 50 to 80 per cent of your profit is gone and that is frightening."

He has little sympathy for consumers upset by banks closing branches, saying US and British banks have not been nearly aggressive enough in closing branches.

"It might sound a little cruel but banks are not a government organisation. You're missing a great opportunity for value creation if you don't rationalise your branch network and then fill it in with a radically low-cost, richer customer experience. My sense is customers wouldn't complain as much about the disappearance of branches if there was a suitable alternative."

Mr Dallas-Feeney says it is not yet clear whether net-only companies will also eventually establish physical stores.

While some like to point to Amazon.com's own deliberation over the issue, his personal belief is that it is not necessarily the right strategy for the online books, music and video retailer to follow.

Amazon might be chalking up ever-increasing losses, but the hype surrounding the company is justified. He is convinced it will turn a profit once it is more established and reduces its marketing spend.

Although most companies he deals with are becoming more daring with their strategies, few are planning more than 18 months ahead.

His advice to those still feeling their way is to try several strategies and see which ones work.

"There is still a fear of being fundamentally wrong. But that's okay. You'll do 10 things to figure out whether two or three are right."

It is interesting, for example, that mail order catalogues have been largely unaffected by the internet in the United States. Mr Dallas-Feeney says the reason is that many mail order businesses still offer a much better service than many websites.

The problem, he believes, is that to some degree the internet has so far been "a tempest in a teapot." Many web sites are still largely experimental and most companies are still not using the technology to its full advantage.

"The internet has huge potential that remains untapped because of unwillingness to take on some of the thornier end-to-end business problems, like channel conflict and distribution and so on."

He also agrees that it is business-to-business transactions rather than business-to-consumer transactions that will mostly revolutionise the way business is conducted over the next few years.

However, that is no excuse for anyone to procrastinate.

"I think [business-to-business transactions are] going to be huge, but I don't think anyone can take their eye off the consumer."