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BusinessWeek

APRIL 15, 2002

SPECIAL REPORT: THE CORPORATE NET

Business' Killer App: The Web

No, this isn't Dot-Com Delusion Act II. It means adding a couple of points to profit margins -- and that's nothing to deride these days

About 3,000 years ago, civilizations situated around the Mediterranean created some of the first trading customs. In those days, a Phoenician merchant who was shipping a cargo of olives from Tyre in Lebanon to Alexandria in Egypt would have drawn up a paper bill of lading listing the goods and the name of the ship's captain. On the date of departure, the merchant would tear the bill in two, keeping half and giving the other half to the captain.

A similar ritual still endures, with multiple copies of bills of lading going to the various parties involved in shipments. At last, though, a sea change is on the way. Hans Hickler has tackled the job of turning this routine into a quaint memory. The chief information officer of Singapore-based Neptune Orient Lines, Hickler is in the forefront of the effort to move the paper-based shipping business onto the Internet. Since 1995, when he established the first Web site for NOL's American President Lines, he and his cohorts have steadily transferred to the Web the transactions required to ship cargo via APL's 80-odd vessels.

The company now uses electronic bills of lading, online versions of the letters of credit required for insurance, and real-time rate quotes for specialized cargoes. Today, 38% of APL's customers conduct their business via online transactions, up from 8% in 1999. And 25% of APL's North American customers never see a paper bill of lading.

"JUST BUSINESS."  The reduction of paper-pushing means APL employees suffer less tedium and do more problem-solving or sales support. "Over the past two years, we have seen close to a double-digit increase in our shipment volume, but a 20% reduction in the cost of processing bills of lading," says Hickler. Now, he adds, "I can't think of one thing we're building that doesn't sit on top of our Web. We don't think of it as e-business anymore -- just business."

As the economy has slowed, many companies have come to the same conclusion as Hickler: The Web is business' killer app. That may sound like the same disingenuous boosterism that inflated the dot-com bubble of the late 1990s. But in the current environment, killer app doesn't mean taking the world by storm -- it means adding a couple of points to profit margins -- or, in APL's case, narrowing losses. Executives have learned not to expect miracles from the Web, even as they integrate it into every phase of their business.

They've also learned to think of it as any other tool that has to justify its expense. According to an April study by Forrester Research, budgets for one element of the corporate Net -- e-business technologies -- should shrink by 14% in 2002 at 900 large and midsize companies. Other analysts think e-business initiatives may get funding increases of 5% to 10%, but that would still be modest compared with the high double-digit annual spending increases seen as recently as 2000, when getting "Amazoned" (left in the dust by dot-com startups) was the executive-suite fear du jour.

"NO-BRAINERS" FLY.  With the dot-com threat having dissipated, any corporate Web initiative that "doesn't save money this calendar year, doesn't get money this calendar year," says Brad Rucker, executive director of digital enablement at systems integrator Electronic Data Systems (EDS ). "If it can't displace effort or expense, it doesn't get funding." In other words, only "no-brainers" fly, and plenty are taking flight.

For companies that have traditionally encouraged education for their staffs, for example, moving courses to the Web has proven to be quick, easy, and effective. Take the case of tech behemoth IBM (IBM ), which has 319,000 employees. "The first area where we have experienced incredibly high rates of return is e-learning," says Ralph Senst, vice-president for dynamic workplaces at Big Blue.

The company claims to have put 40% of its internal educational offerings on the Web, up from 5% two to three years ago. IBM says using the Web saved it $300 million in 2001, on everything from travel costs and accommodations to maintaining office space for educational work.

And pushing education online is saving IBM money in other ways. "Now we can keep track of the skill sets of our employees," an exercise that used to involve manually putting flags in personnel files, says Senst. The push into e-learning has also fostered online collaboration at Big Blue, which has long sought more inclusion for the 60,000 employees who work in so-called nontraditional settings (either at home or at the office part-time). Senst says setting up specially equipped online team rooms with virtual white boards and document-sharing systems makes travel unnecessary, since it connects geographically separated parties with a minimum of hassle.

Another no-brainer is redesigning Web sites to make it easier for customers to place orders or interact with a company. "In my mind, there's no excuse these days for not having a transaction Web site, and it's surprising how many companies still don't have one," says Hans Hwang, a partner at consultancy and systems integrator Accenture (ACN ). With many companies on their second or even third Web-site iterations, designers have begun to learn from their mistakes and are moving away from "brochure-ware" to sites where customers can do something useful.

FOUR-FOLD INCREASE.  Verizon (VZ ), the nation's largest local-phone company, last year spent $10 million to revamp a site many customers had found confusing and buggy. Launched last October, the redesigned site has enjoyed a four-fold increase in traffic.

While the previous version couldn't accept orders, the new one lets customers sign up for new phone service or change their existing service. About 1,400 customers submit repair requests via the Web site each month. In fact, the site is already handling 2% of all inquiries and sales at Verizon, says Maria Malicka, an executive director at the company. Verizon hopes to recoup its $10 million initial investment by 2003, as a more customers place orders online.

Another smart idea is on the desktop PC of EDS's Rucker, who uses a homegrown application that his boss, an auto-racing fan, dubbed Pole Position (no relation to the best-selling 1980s Atari video game of the same name). The application's automobile graphics represent the data flowing in from an automated sales-force program used by EDS to track where revenues come from.

RACE CAR OR CLUNKER?  Pole Position is a four-quadrant chart, with one axis representing total sales revenue and the other the win percentage of Rucker's unit. In the top right quadrant is a Formula One racer, representing Rucker's service offerings that frequently prevail over fierce competitors, in such areas as Web design or database consulting. There's a dump truck in the top left quadrant, representing wins against easy competition. In the bottom right quadrant, Rucker watches a sporty roadster, representing wins against good competition but not a lot of revenue generated. And in the bottom left quadrant, there's a clunker with its hood up, which needs no explanation.

Each vehicle is color-coded for profitability. Rucker calls these types of overlays "dashboards." He says they're cheap, easy to build, and often make it much easier for employees to grasp the key data bottled up in complex systems without having to understand the programming behind them.

Dashboards are frequently found on so-called corporate portals: single Web sites into which big companies are increasingly integrating their multiple commerce or intranet sites. Such sites highlight an effort to collect information from disparate computer systems across a company -- an indication that the Web is eliminating the boundaries between once-distinct fiefdoms such as customer relationship management (CRM), enterprise resource planning, systems integration, and e-mail.

"SINGLE VIEW."  It's a key effort, since companies that want to take their use of the Web to the next level are looking for better ways to get their employees the best information. This is the basic philosophy behind CRM: to collect in one place every piece of information about a customer and make it easier to keep clients happy. "CRM gives everyone in an organization a single view of the customer," says Marc Benioff, chairman and CEO of online CRM vendor SalesForce.com.

Corporate portals also help companies better control the way their data is presented to employees and the public. With every employee looking at the same page, it's easier to communicate clearly on such matters as human resources and payroll. "Whether you are a Hewlett-Packard (HP ) employee in Paris or Bangkok, you get the same look and feel on your Web page," says George Bailey, a partner in the technology practice at consultancy PricewaterhouseCoopers, who helped HP build its companywide portal.

Combining Web operations into a single site can save more money than you might think. Glenn Kelman, vice-president for marketing at corporate portal software and integration specialist Plumtree, claims that one of his customers, Eli Lilly (LLY ), hopes to save $27 million a year as a result of increased productivity. Among other benefits, the new portal lets staff scientists use an electronic molecule library through a Web browser, making it easier for them to integrate this activity with other tasks.

A BANE NO MORE.  "A lot of companies are doing layoffs and can't afford to run every Web site in the company separately, so they consolidate on a portal," says Kelman. "Instead of launching and managing 100 different internal Web sites, they manage one. This drove the portal deployment at Merrill Lynch (MLC ) and Solectron (SLR )."

Most interesting, however, are the glimpses of the new capabilities the Web can give a company that puts enough of its operations online. Take Verizon's new initiative. The company was able to add a feature that allows roommates to easily divvy up phone charges on a single line, solving a problem that has been the bane of college dorms since the dawn of phones on campus.

Or witness the efforts by Mentor Graphics (MENT ), a Wilsonville (Ore.) maker of design software for electronics companies. When its engineers get a complex query from a partner, they first consult an internal Web-based knowledge database that contains answers to customers' most frequent queries. Putting the answers in an easily digestible form cuts the engineers' workload by as much as 15%, says Tom Floodeen, general manager of worldwide customer support. Once Mentor Graphics makes the database available to clients via the Web next month, its customer-service workload should fall further.

Jet-engine maker Pratt & Whitney, a subsidiary of United Technologies (UTC ), already uses this approach to get incredibly detailed performance records from customers. It allows customers to use the company's portal almost daily to input key performance data, such as how hot an engine burns and how many revolutions per second a turbine spins -- valuable information for determining when engine service is required.

Pratt also has embraced reverse auctions, registering dozens of vendors on its site and sending out requests for parts to the entire group rather than having to call each one, according to Dave Brantner, director of e-business. Shipper APL, meanwhile, has set up a Web interface that allows customers to view the status of their cargo shipments and request notification when a shipment is delayed or a problem arises. "That's a complete shift from how our customers used to manage their business with us," says Hickler. "They used to pick up the phone."

Most likely, such steps are only the beginning. As companies lurch toward using the Web more aggressively, they're likely to find wider applications for information that has been locked inside their aging computer systems. With global economic growth expected to remain sluggish for some time, executives will need every edge they can get to squeeze out more profits. That's where the merger of e-business and traditional business could yield impressive results.


By Alex Salkever and Olga Kharif, with Amy Tsao and David Polek

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