Looking For Light

Line56 Media and A.T. Kearney have just released their e-business outlook for the rest of the year and 2003. The title of this, "Looking for Light," has a dual meaning. While enterprises continue to await a turn in the economy, budget planners have plenty more to worry about than a clear inflection point. There is much to be learned from their behavior. The "light" shed in this research comes in the form of a "big picture" overview of the state of e-business strategy, priorities and spending, and also addresses two specific subsets, Web services, and in a separate study, customer relationship management (CRM). A total of 758 executives came forward in August, 2002 with priorities for the rest of this year and 2003. In the case of Web services, (a 'new' technology), we appear to be a good bit farther down the adoption curve than the "no commercial daylight this year" prognosticators saw. As for CRM, (an 'older' technology and still an e-business imperative), failures and priorities are being addressed, though a deep gap remains between deployment, the definition of expectations, and accompanying measurements. E-Business: The Big Picture Just a year after analysts began breaking it out into its own IT category, e-business spending is set to increase to 26.8 percent of IT budgets in 2003, a 49 percent jump from 2002. Overall, e-business budgets will grow at a moderate 4.4 percent next year, compared to 10.6 percent the year previous. Fully two-thirds of companies plan between one and five new projects in 2003, while just 6 percent predict no new undertakings. While return on investment (ROI) is still the linchpin for new projects, companies appear to be less 'hell-bent-for-leather' than depicted when it comes to time to benefit. Forty-three percent expect rewards to arrive within 6-12 months of project completion; 24 percent in 3-6 months; and just 9 percent in 90 days or less. As for met expectations, 56 percent of respondents say their projects met or exceeded the bar in the last two years; 32 percent said expectations were not met; and a surprising 12 percent did not set expectations for their projects. When it comes to priorities, business intelligence/analytics displaced CRM in the top spot for 2003. CRM held onto second place, followed by Web services, content management, and strategic sourcing/procurement. Falling below the radar are public and private exchanges, ERP, and a still-flagging interest in electronic payment and settlement. Mike Gorsage, who leads the global customer solutions practice at A.T. Kearney, says the analytics emphasis fits with his current view of companies aiming to leverage existing investments. "They're not sure what problem they were trying to solve so now they're going to use analytics to tell them how to make the tool effective," he says. "In many cases, it looks like they should have bought the analytics before they bought the tools." Driving these priorities is a clear focus on sales/revenues and competitive advantage. Lowered operating costs came in third. Keeping with the customer-facing theme, customer demand far outstripped supplier demand when developing strategy. Sixty-two percent of companies have either fully aligned or directly referenced corporate and e-business strategies, compared to 55 percent last year. Internal business units are the dominant force behind e-business initiatives, while internal IT departments are ranked below corporate strategy and committees. External consultants were found to be the least influential. Web Services: The Waking Giant If there is a dark horse coming up on the outer rail, it's Web services and their associated uptake. Twenty-one percent of companies are currently in enterprise-wide or multi-enterprise integrations of one kind or another; 8 percent are in business unit-wide implementations; and another 41 percent are in incremental rollouts or pilots. Though 20 percent of companies are still thinking about Web services, just 10 percent show no interest. While many had predicted that Web services would remain mostly within the four walls initially, the fastest adoption will take place with business customers, followed in order by internal operations; suppliers and trading partners; and consumer customers. A clear majority of companies say Web services will be used to complement current infrastructure, while 6 percent say it will be used separately, and 12 percent will use services to replace previous integrations. Companies have a variety of plans for Web services, but most (69 percent) say "existing Web-based applications" have the highest appeal. "In the short term, companies clearly view Web Services as an innovation that will complement, rather than replace, their current infrastructure," says Gary Clare, head of A.T. Kearney's Technology Strategy and Cost Effectiveness portfolio. "Encouragingly, we have confirmation that adoption of Web Services will be more rapid in companies having a strong vision and an understanding of the benefits it can deliver," he says. There's also a clear grass-roots uptake when it comes to development. Sixty-four percent of development is currently taking place in-house or on a custom basis, while the rest is coming from off-the-shelf solutions. Business partner involvement in adoption is generally low and confined to defining desired features and functionality. Again, improved customer relationships are the goal of Web service adoption, followed by streamlining internal operations and lowering integration costs. Budget restrictions are presently the main roadblock to service implementations. CRM: Toward Customer Centricity Compared to Web services, CRM is relatively advanced, with 50 percent of companies responding that they have completed or executed some CRM implementations. But a stark finding was that many companies had not thought through the implications of the problems they were trying to solve, nor had they set expectations. Fifty-three percent say they have a strategic level plan for CRM, while 44 percent don't know. The latter is disturbing to A.T Kearney's Gorsage, and lays blame in the user, not the vendor community. "It kind of screamed to me that people aren't sitting back and defining the problem they wanted to solve. They didn't put metrics in place and measure the hell out of it," he says. "That's terribly odd." At least incrementally, 60 percent of companies claim their CRM initiatives met or exceeded expectations. Of the rest, 25 percent did not set expectations. As for time to return after project completion, most of those surveyed were split between 6-12 months, and more than one year. CRM returns, however, don't reflect the incremental met expectations of rollouts. Just 37 percent cite improved customer satisfaction and 33 percent see increased loyalty and retention. Only 27 percent perceived an increase in sales, by an average of 12 percent. Of the 28 percent who saw lowered costs, the average savings was 7.2 percent. ROI was the dominant metric used to measure returns, though customer-based metrics like profitability and retention also rank highly. Again, notably, 21 percent of respondents did not know how their companies measured return. In a reflection of the times, vendor financial viability tops the list of concerns when addressing solution providers. This is followed closely by ROI and total cost of ownership (TCO) metrics, which are slightly ahead of functional comparisons and customer references. Overall though, several factors are of concern and rank highly, suggesting that an integrated approach to vendor selection is important. Improving key customer metrics -- customer loyalty and retention, and customer profitability -- are the major drivers of companies' CRM strategies, while decreasing costs, (both sales and customer service), rank near the bottom of the list. The current level of investment is focused first on customer analytics and content, followed by sales automation and call/contact centers. This is the CRM echo of Gorsage's general view of leveraged existing investments. Mobile CRM applications still rate the lowest in terms of spending. Consistent with this, customer analytics and content, along with sales automation, are again the highest priorities for 2003. However, marketing automation is poised to make a leap from seventh to third in spending importance. In a 'house in order' statement, executive sponsorship and effective employee/end user communication dominate the key factors for CRM returns, while technology functionality ranked poorly. Obstacles to CRM success were mostly lack of a strategic plan and/or executive sponsorship. The actual costs of software and implementation were considered relatively minor hurdles. (Editor's note: This article is a companion piece to Line56 and A.T. Kearney's "E-Business Outlook: 2003 -- Looking for Light." The complete survey results and accompanying demographics can be downloaded in PDF format at no cost.) Download E-Business Outlook 2003