Acquisition: Outsourcing topics: Specific examples: Outsourcing e-business

Outsourcing e-business

There are several steps that you should take to make outsourcing your e-business successful. The following two steps should help you to avoid most of the mistakes. As usual, there are other tasks that you will need to do for a full implementation. The two initial steps are

Understand your needs

Many people assume that they understand their needs and move into outsourced e-business with a belief that any early mistakes can be corrected later. One of the ways of approaching traditional IS developments is based on getting "something" to work and then fine-tuning it later. This usually won't work with e-business outsourcing. You need a clear, written statement of your current situation and the future situation that you are trying to achieve. There should be nothing "up in the air" about this: the future you want should be expressed in terms of money and value (where "value" can be expressed in terms of money, anyway).

Target customers should be defined, and it certainly helps if your marketing people have developed profiles of the customers that they wish to target. If the purpose of your e-business is to win new customers, then it should be clear who these customers are, what they will be buying and why e-business is the way to reach them. If the purpose of your e-business is to work with existing customers, then this should be justified on one or both of the standard criteria of:

increasing revenues, either by selling more of the same or by selling something else,
decreasing costs, by managing customers and their orders better.

For existing customers, there should be a clear projection of increased margins through one or both of these. Also, these margins must more than offset the initial and ongoing costs of the e-business service. There is no point in setting up outsourced e-business if it will reduce the bottom line. Business cannot afford "vanity" sites.

Understand the environment

You also need to understand the competitive environment in which your e-business outsourcing will work. Some drivers for using e-business are:

your competitors are already using e-business, or
your competitors are about to use e-business, or
your competitors will not use e-business in the short term.

These will influence you in different ways.

Competitors doing it already

You should avoid being misled into believing that you necessarily have to follow your competitors. There may be other ways in which you can compete that use your current abilities better. Let's look at the example of selling books. Some online booksellers work especially well because many people buy a book because of a good review or because they like the author's work or because the contents list includes the topics that they are looking for. These conditions can be set up on-line and books can be sold through e-business in enormous quantities. Despite this, many of us in New Zealand shop in

Bennett's, for hard copies of legislation that we can annotate,
Dymock's, because we feel that we can select some books easier in a large bookshop than on a web site, and
Techbooks, because we are looking for specialist books that must cover narrow topics in great detail.

You should apply some thought to your future, if your competitors are embracing e-business. You should ask yourself whether you could not compete better with them offering something that they do not, or by offering a broader range of products, or by specializing more. It may be that e-business will be the best way of supporting your competitive differentiation, which is good, because your e-business approach is likely to be better planned and better focused than theirs.

Competitors about to do it

When your competitors are about to move into e-business, you should ask yourself what the impact upon the total market will be.

If your competitors intend to use e-business to reduce the costs of selling to existing customers without reducing revenue through lowering their prices to those customers, then you have little to fear.

If they intend to use e-business more aggressively, then you should be concerned. "Aggressive" moves are:

to increase the size of the market and to capture the new customers, or
to increase their share of the current market, or
to lower prices to customers, possibly combined with a reduction in costs, so that their margins are either unaffected or higher.

Any of these scenarios can mean trouble. You should not rush into e-business simply to compete with them.

You should also consider that other changes will also be needed for a move to e-business, and that you may be able to implement these in other ways.

For example, if a New Zealand competitor decides to expand beyond New Zealand by offering products air-mailed and delivered by courier, you may be able to achieve the same effect by direct marketing in a number of target countries. E-business is global, and this can be as much of a disadvantage in some respects as it can be an advantage in others. Your "global" competitor will have probably have to ship from New Zealand, as e-business sales will be from Andorra as well as Australia and from the United Arab Emirates as well as the United States of America. You may be able to focus marketing into Australia and the US through partnerships, or through warehousing in those countries to reduce air freight costs and times, or through some other innovative means. Whatever you choose to do to respond to a competitor's e-business moves, it does not necessarily have to be an e-business approach. Certainly not a totally e-business approach.

Competitors not doing it

If your competitors are not planning to move to outsourced e-business, there can be a number of reasons for their decision.

They may not be aware of it. This may give you an opportunity to increase your bottom line by getting into e-business ahead of them. Before you do, you should consider the following.
First, you should apply all the arguments in this Topic paper, to ensure that e-business will actually meet your needs.
Second, if your e-business efforts are successful, then your competitors may follow. And they will be able to learn from some of your mistakes. Or apply the principles described above to get ahead of you.
They may be doing it in-house. This also gives you tremendous opportunities. Unless you are a specialist e-business company, such as Amazon, then you should mange your e-business through outsourcing. Individual companies cannot achieve the economies of scale possible for outsourcers, and they will probably not want to be involved with warehousing, logistics, distribution (which will be international) and payment handling credit cards and direct web-based payment systems. Early web sites did some of these things a few years ago, but e-business has become a more complex business process.
They may have analysed e-business and rejected it. This is a dangerous scenario for you, as you do not know the content of their analysis nor whether it was accurate nor whether it remains accurate: e-business is evolving and is being done in a number of different ways. This should prompt you to ensure that your own analysis is minute, accurate and objective.