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How To Jump Start Your E Strategy


Business Week e.biz -- Management

How to Jump-Start Your E-Strategy

CEOs must be believers--and take radical action--to make companies Web-centric

You've sent out the memos. You've slapped up e-business propaganda all over the lunchroom. You've even hired a carrot-haired kid as chief Webmeister. But admit it--beyond all the talk, nothing's really happening that deserves putting an "e" in front of it. Instead, your best managers are blithely mouthing all the platitudes they learned at that last Internet convention in Las Vegas--but they still aren't offering up any bright new ideas. Your new hires stand around, slack-jawed and restless. Worse, many of your senior managers are still dictating letters to Blanche in the outer office instead of typing their own e-mail. And good luck finding anyone at work much before 9 or after 5.

Chances are, if you're like many CEOs in these early days of the e-biz revolution, you've started talking the talk, but nobody's walking the walk--or at least, not very fast. Who's to blame? Look in the mirror. The deer-frozen-in-the-headlights responses you're seeing around the office might mean your corporate culture is still too mired in the Old Economy to be able to accommodate the new one. The truth is: You're just not doing enough to change it.

Most companies are still e-culture-challenged. According to International Data Corp., 60% of American companies have in-house Web sites, but only about 25% of companies actually sell anything over the Web. And just a handful have overhauled their cultures enough to start cashing in on the changes.

It's not too late. But don't dawdle. According to a new study by Mercer Management Consulting Inc., the No.1 requirement for harnessing the Net successfully is overhauling a company's culture. Companies that fail to do so will probably be roadkill in five years. "The role of the CEO is exceptionally important to making all of this happen," says Irving Wladawsky-Berger, vice-president for technology and strategy for IBM. "Bottom line, you have to make people really understand, emotionally and psychologically, that this is different than anything that came before."

So if those memos and rah-rah staff- meeting speeches have been falling a little short of the inspirational mark, it may be time for radical action. Hand out rewards. Tear down some walls. And if all else fails, don't be afraid of taking the organization by the lapels and giving it a fearsome shake. "Sometimes," says Adrian Slywotzsky, a vice-president at Mercer Management Consulting, "it takes the cultural equivalent of a neutron bomb to get change started."

Just ask David S. Pottruck, the co-CEO of Charles Schwab Corp. in San Francisco. Faced with employee resistance to his efforts to take more of the discount brokerage's orders over the Net, Pottruck did something dramatic: He assembled nearly 100 of his senior managers at the base of the Golden Gate Bridge, handed them jackets emblazoned with the phrase, "Crossing the Chasm," then led them in a march across the bridge--and, symbolically, into the Internet Age. "We wanted to do something dramatic to help people understand what a big deal this was," Pottruck says, looking back on that day in October, 1997. "This was not a new product or a new Web site. This was the beginning of the reinvention of our company. There was no turning back."

Since that day on the bridge, Schwab's Net strategy has paid off big-time, with customers' online assets up 31%--representing 51% of the company's total customer assets. It ranks No.1 among online trading outfits in trading volume, with a 21.4% share of the first quarter's average 1.4 million daily trades.

If bridge-crossing isn't your style, you might consider bridge-burning. Scott D. Cook, chairman of the executive committee at finance-software maker Intuit Inc., got change rolling when he issued a press release stating flatly that the company would no longer develop new products in the traditional software mode. Instead, all the new stuff would be delivered as services over the Web. In the past, a shift like that might have been phased in over time, and there might have been a lot of managerial handholding. Not this time. The payoff: Intuit expects about 25% of its revenues this year to come from advertising and fees racked up on its Web sites.

At Enron Corp., President Jeffrey K. Skilling tried the jackhammer approach--literally. He convinced everyone that the Net was the future when he ripped out elevators in the company's Houston headquarters and replaced them with stairways between floors and workstations. The message: Speed is Job One. "I can't tell you how much time and momentum people lost waiting for elevators," Skilling says. In the process, he also blasted away at Enron's old "hierarchy mindset"--left over from the days when Enron and other energy firms were regulated. Upstairs, executives sequestered themselves in top-drawer suites. Downstairs, middle managers slaved away in cubicles. Today, Enron's top brass and middle managers work side-by-side on new projects. "The Net changes everything," Skilling says. "You've got to look different--flatter, less elite, more teamwork-prone--or there's no way you can take full advantage of e-business."

And it has worked. During the first quarter, Enron sold $27 billion in excess gas and electricity capacity to utilities over the Web. Now the company is about to use the Internet to sell speedy communications--in the form of excess broadband network capacity.

GE Aircraft Engines division CEO Jim McNerney took the interior decorating route as well, to goose his people and their thinking. McNerney decided a year ago that one of the ways to help stem losses, boost morale, and embrace the Net--fast--was to signal to engineers that they were no longer "the geeky guys in the basement." So he converted an old warehouse across the street from a factory in Cincinnati, called it an idea lab, and plopped the engineers down there. McNerney's hope was that it would look and feel like a startup, from the brightly colored clusters of electrical wires suspended from tall ceilings to the pink, green, and orange workstations and funky "E" logo emblazoned on the wall.

That did the trick. GE Aircraft expects to rack up $100 million in productivity gains this year from Web-related cost-cutting in purchasing and in administrative costs, including travel. And he's just getting started. Change agents recruited by McNerney are creating teams in each piece of his organization called "e-belts"--after karate-style black belts--to kick-start Web thinking further down into the business units. "We're all jumping into the pool now, and we're the better for it," says McNerney.

O.K., you say, you've tried all that, but it's still not working. Then it may be time for the Terror Tactic. In Japan, where employees are usually treated with kid gloves, Sega Enterprises Ltd. Chairman Isao Okawa shocked his staff by announcing, after months of trying to implement a new Net product strategy, that those who continued to resist it would be fired. Sega's management team had been dead set against adding a modem to Sega's Dreamcast game product, because it would tack an extra $15 onto the cost of each machine. But Okawa's threat got him the cooperation he sought--almost overnight--without having to fire anyone.

And if you work it right, people who still don't "get" the Web might just fire themselves--saving you the trouble. For example, when 2Bridge CEO Mansoor Zakaria abruptly turned his software company into a Net-based service firm last summer, one-third of the sales force quit--including the vice-president for sales. "There was some eyeball-rolling" when Zakaria announced the move, recalled Eileen Arbues, then the vice-president for operations, who later left to start her own company. But the CEO's boldness paid off. The company was able to raise $20 million from venture capitalists who had balked before, and its new strategy caught on with customers. Plus, Arbues says the salespeople's resignations "saved me the trouble of having to move them out."

So what happens if all these efforts fail? When Oracle Corp. CEO Lawrence J. Ellison couldn't get his sales managers to go along with his decision to ship Web-only versions of the company's corporate software programs, he got downright Machiavellian. "I lied," he says. "I told them, `You're right. I'm wrong."' But Ellison had no intention of backing down. Immediately after that sales meeting, he directed the company's Net product engineers to push forward, full speed ahead. And he stalled development on older software until the new Web stuff proved popular. The result: Oracle has emerged as one of the bedrock suppliers of software for e-business, and its stock has soared more than 500% in the past year.

The lesson: Do something, at least. According to author and management guru Gary Hamel, only about 15% of U.S. CEOs are taking advantage of the Web to reinvent their companies. About half have dipped a toe into the water and are experimenting. And one-third know they should start doing something about the Net, but haven't. "Even now, most change inside companies involves getting the CEO dragged, kicking and screaming," says Hamel. "At some point, the CEO has to stop kicking and start leading." Don't worry too much about making a mistake. In today's e-business world, it's better to be unsafe than sorry.e.biz online

Check out a Q & A with James McNerney, CEO of GE Aircraft Engines at ebiz.businessweek.comBy Marcia Stepanek; Contributing: Steve Hamm in New YorkReturn to top


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