Performance Excellence: Caught in the Web

By: Stephen Flatt and Dan Cooper

Introduction

Since its inception in 1987, the Malcolm Baldrige National Quality Award (MBNQA) has made a significant impact on US industries. The MBNQA criteria are widely used as a self-assessment tool by businesses of all industries and sizes for performance improvement. Through a process of refinement and evolution, the criteria remain current and relevant. The criteria framework and the core values are pertinent in any business and economic system. Because of its adaptability, the Baldrige framework will continue to play a vital role in ensuring performance excellence in the new economy.

The Internet is transforming the traditional business landscape in a profound manner. The Internet and e-commerce are extremely powerful business tools that no company can afford to ignore. “E-commerce will reshape all existing industries and markets, and the entire economy.”[i] Andy Grove, the chairman of Intel, blatantly states: “In five years’ time all companies will be Internet companies, or they won’t be companies at all.” As these rapid transformations occur, it cannot be forgotten that the basic principles of business, which are emphasized in the MBNQA core values and criteria, will still apply. Meeting customer needs quickly, with quality products, is still the key to generating revenue while efficient production and delivery processes are the keys to controlling costs. Only through these means can shareholder wealth be increased. Advances in technology will not eliminate quality concepts and values; these advances will make quality and performance concepts even more important.

The following is a study in how the MBNQA criteria can be used to address a company’s approach to e-commerce. Not every aspect of the seven Baldrige categories will pertain specifically to e-commerce, but there are areas to address in each category that are particularly relevant.

Leadership

Strong leadership is essential for success in any industry, and it is no coincidence that leadership is the first category of the MBNQA criteria. Companies competing in the new economy must be guided by visionary leaders with a zest for innovation. An organization's senior leaders must communicate clear values, create an appropriate culture, set direction, evaluate organizational performance, and seek future opportunities. Bill Gates, Michael Dell, Steve Case of America Online, Charles Schwab, Jeff Bezos of Amazon, John Chambers of Cisco, and Tim Koogle of Yahoo are among the notable pioneers of the new economy. These admired leaders all possess a strong corporate vision, and they have executed successful strategies.

Business leaders of the new economy must thoroughly grasp one important word - change. The Internet and e-commerce are rapidly transforming existing business models, and leaders must embrace change management techniques in order to survive and prosper. Conventional business leaders are being replaced by pioneering leaders who are capable of developing a value proposition and an e-business model to create and deliver value that ultimately transforms a bricks-and-mortar business into a bricks-and-clicks business. In a recent study, the Yankee Group, a technology consultancy, found that an increasing number of executives realize the need for a well developed, comprehensive web strategy, but three-quarters did not have web sites that would support online transactions or that integrated customer and supplier databases. Many executives have been slow to move online due to the complexity of reorganizing business processes around the Internet. Others find that organizational culture and internal communication are barriers to implementing an e-commerce strategy. Leaders must adopt business models that help the organization thrive in a volatile environment while balancing the interests of stakeholders. They must also use performance measures that are appropriate to the e-commerce environment.

Innovation is a core value of the MBNQA, and innovation must also become a core value for business leaders of the new economy. E-businesses must innovate or face corporate death. Many e-businesses that have directly copied other online businesses are failing miserably. Only the organizations that continually innovate their products and services will survive. Company leaders must be advocates for innovation and make innovation a central element of a company's culture.

Strategic Planning

Category 2 addresses how an organization develops and deploys its strategy and the action plans that support it. In the old economy, companies were unable to reach all potential customers due to high marketing costs. Companies were ultimately forced to make a trade off between reach and richness.ii Companies had to choose between providing rich information to only a limited market or providing limited information to a wider customer base. The Internet has significantly changed this trade-off by placing access to world markets at one's fingertips. Companies can now offer a larger selection and richer information content about its products and services while reaching all available markets. Companies in the new economy will be able to develop strategies that incorporate both reach and richness. Further, anything that can be digitized can be personalized. All this will in turn make mass customization an order qualifier. Thus a sound strategy involving the Internet and e-commerce capabilities is vital to a company's growth and survival.

Strategy development, a key component of Category 2, involves making strategic choices concerning a firm's brand identity and value chain affiliation. Strategic issues made salient by e-commerce include among others: channel conflict, cannibalization, owning vs. leveraging outside resources, and collaborating with competitors to develop common standards. A firm participating in e-commerce must quickly and authoritatively establish a brand identity. Many traditional brick-and-mortar businesses already have an established name, however it can be rather challenging for an Internet-only company to achieve this goal. Many Internet brokerages, for instance, spent over $300 million in advertising during 1999 with the single goal of establishing a deep-rooted brand identity. As a function of the strategic planning process, a firm must decide on a specific value chain and design strategies to meet the varied requirements of the business-to-business (B2B), business-to-consumer (B2C), consumer-to-business (C2B), or the consumer-to-consumer (C2C) markets that the firm has chosen to compete in. Although the Internet was initially viewed as a consumer-oriented marketplace, business-to-business sales figures have exploded. International Data Corporation estimates that business-to-business sales account for over 75% of the $425 billion US Internet commerce market.

The rapid changes to the value chain also drastically increase the importance of agility and speed. Companies of the new economy must be nimble and capable of rapidly developing and deploying strategic action plans. A company must be willing to change strategies rapidly or face extinction. In the late 1990s, Netscape was slow reacting to Microsoft's increasing dominance in the browser software sector. Netscape eventually decided to offer its software for free over the Internet. Although this choice might have been the correct one, Netscape perhaps waited too long to change strategies. Netscape never fully recovered, and the company was ultimately bought-out by America Online.

Customer and Market Focus

In the new economy, the power in the marketplace is shifting towards the buyer. A strong customer focus is therefore vital for future survival. Category 3 recognizes the need to appropriately segment markets, listen and learn from customers, and provide superior customer service. As competition has increased, the relationship built with customers through their interaction with a company has increasingly become an order winner or loser. A large number of organizations are now reorganizing around customers. This creates a focus on customers and allows customer problems, the highest priority problems, to be addressed and solved first.

With the absence of human interaction, the web can be an impersonal medium. This increases the need for web sites to be hospitable and for a company to create a feeling of community among customers to help build lasting relationships. Customers and potential customers worldwide now have access to a company's website. Websites offer companies a means of obtaining information about customers and obtaining feedback related to products. However, it is essential for customers to know that their input and questions will be answered promptly. The importance of rapid response is magnified on the web but is easily facilitated by the immediacy of e-mail. Additionally, the new standard for website accessibility is anytime, anywhere, and anyplace.

A superb website is vital in providing rich information to the global market. Websites, above all, must provide value to the customer. In the early stages of the Internet, web pages were static; they were no more than electronic brochures. “Successful companies, have developed dynamic, information-rich sites that create an informal, often whimsical atmosphere that consumers enjoy searching whether they purchase products or not, and that take advantage of the Internet's unique attributes.”iii Amazon is a company that has adopted true mass customization in order to provide value to customers. Amazon founders spent a year learning the online marketplace before posting their web site. Industry professionals have since branded Amazon the leader of online retailing. Amazon devotes a page for each product it offers and provides valuable information such as reviews by both professional critics and other customers. When querying music selections, Amazon displays a list of similar artists and a list of albums that other customers have most frequently bought along with the current selection. Though Amazon is yet to turn a profit, it is positioning itself to be profitable in the future by building its customer base now through aggressive marketing, branding, and superior customer service.iv Amazon has successfully exploited economies of scale enabled by the reach of the Internet to become the first online mass retailer.

The Internet is also a tool that, if used properly, can help companies address segmentation and customization and truly connect with customers. One-to-one marketing has become an immediate industry buzzword as companies push to build customer relationships. Websites can be used to gather preferences and profiles of customers, helping businesses meet their needs in the most efficient manner. Despite the improved efforts, meeting the needs of customers is becoming increasingly more difficult. The new generation of consumers "thrives on choice, collaboration, quality of information, immediacy, customization, and the ability to change their minds. They want to customize everything and imbue products and services with their knowledge because they can.”v This demand for mass customization is creating markets of one where each individual customer is a different segment. Because of the challenges to provide value-added services and mass customization, Customer Relationship Management systems (CRM) have recently gained great attention in the corporate world. With the help of the Internet and major databases, CRM systems help companies ensure rapid responses to all customer inquiries. CRM systems are designed to boost sales and demonstrate a company's active concern for customer satisfaction. Though detailed information about customers can be used to better serve them, it is important that information is collected in an honest manner with the customer’s knowledge.

Process Management

Category 6 addresses the importance of effectively managing processes. A business must have sound processes to support the transactions that occur on a web site. “Putting a Web site in front of a flawed process merely advertises its flaws.”vi In such a fiercely competitive environment, flawless execution of transactions over the Internet is crucial if businesses expect customer retention. During last year’s holiday season, many online B2C firms faced difficulties in fulfilling customer orders. Process design also has to address the reliability and privacy concerns. Both are crucial for instance, in many online transactions like trading of stocks.

Linking processes to the web can also increase efficiency by streamlining communication and removing human interaction from mundane tasks. Cisco has realized considerable savings by putting all its training materials, expense reporting, and customer support materials on the web. Ford, through a dealer website, provides its dealers with customer viewpoint reports, recall information, technical service bulletins, dealer-to-dealer message boards, and the capability to track parts orders and request technical information. They are currently building a system to give access to suppliers regarding consumer preferences that will dramatically reduce production cycle time.vii

Dell has used the Internet to create a fully integrated value chain. Dell’s suppliers have real time access to customer order information so they can more accurately schedule production and delivery while minimizing inventory holding. Additionally, Dell’s customers can use its web site to track their order from the factory to their doorstep. “The company's founder and boss, Michael Dell, agrees that the Internet gives customers unprecedented power to seek out the lowest prices, but argues that it can also be used to deepen relationships and ultimately build far greater customer loyalty than before. If you don't create an integrated value chain, he says, don't expect to survive.”iii

Electronic Data Exchange (EDI) has been effective in coordinating the interaction between suppliers and customers, but it has several disadvantages. Its use is limited, it is expensive, and suppliers and customers are locked together due to its inflexibility. The Internet is everything that EDI is not. The Internet is a powerful tool that, if used properly, lets data that has traditionally been confined to particular functions within organizations be shared with stakeholders, internal and external, to increase efficiency and improve customer service.iii

Conclusion

“The Internet is turning business upside down and inside out. It is fundamentally changing the way companies operate, whether in high-tech or metal bashing. This goes far beyond buying and selling over the Internet, or e-commerce, and deep into the processes and culture of an enterprise. It has the capacity to change everything--the way we work and the way we learn and play. What is more, it is doing so at far greater speed than the other great disruptive technologies of the 20th century, such as electricity, the telephone and the car.”viii Many believe that the businesses that do not transform into e-businesses will cease to exist in a short time because competitors that become e-businesses will destroy them.

Companies may be left behind if they underestimate the transition to the information age, just as many were left behind with the emergence of the industrial age. The MBNQA criteria provide comprehensive and proven guidelines for such companies as they face the challenges of transforming to an e-business. While its core values addresses the important aspects of any successful business, its lack of prescription ensures its continuing utility.


[i] Andersen Consulting, “What is the Value of e-commerce?” www.ac.com/sh…commerce/ecom_whats_the_value.html.
ii Phillip Evans and Thomas Wurster, "Blown to Bits: How the New Economics of Information Transforms Strategy," Harvard Business School Press, November 1999.
iii "You'll Never Walk Alone, " The Economist June 26, 1999, pp11-21
iv Mark Hodges, "Commerce on the Web: Is Web Business Good Business?," Technology Review, August/September 1997, pp 22-32.
v Randy Harris, “Rethink Value to Win – and Keep – Great Customers,” Harvard Business Review, November/December 1999, p 14.
vi Michael Hammer and Steven Stanton, "How Process Enterprise Really Works," Harvard Business Review, November/December 1999, p 108.
vii "Ford Enters New Era of E-Communication; New Web Sites Connect Dealers, Consumers, and Suppliers," PR Newswire Association, January 24, 2000, p.7433.
vii "The Net Imperative," The Economist, June 26, 1999, pp 5-11.

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