Companies Must Adapt to the Internet to Survive

By Eugene F. DeMark and Robert R. Harcourt

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In a short time span, the Internet has rendered many business models obsolete. Despite highly publicized setbacks for many Internet-related companies, the broad category of web-enabled business models continues to advance.

The success or failure of local and global businesses may be determined by how well they adapt to the new electronic business paradigm. Factors such as time-to-market, customer retention, and operational efficiency will define the chances for survival, and customers will control the value chain for just about every product and service.

The emergence of electronic commerce will lead to the convergence of technology and products, less-predictable customer demand, shortened product life cycles, and price transparency. To meet these challenges, businesses must improve operational efficiency, report channel activity on a real-time basis, and build strategic partnerships and alliances.

The process by which a company implements these changes and acquires e-business capability is often called a digital transformation. On one level, digital transformation encompasses the conversion of all information—text, images, audio, and video—into digital formats that can be exchanged, stored, and indexed. Digital transformation also means profound changes in the very structure of business operations.

The transformation process involves the four Cs:

Commerce: how businesses conduct transactions;
Content: the information businesses use;
Community: the people that businesses interact with; and
Collaboration: how a business interacts with those communities.

The process also encompasses two small Cs: cost and culture.

To fully realize the benefits of speed and efficiency that Internet-enabled operations offer, companies must integrate their value-added partners and suppliers into an e-business system (community and collaboration), while the customer-support system moves information (content) online. As this happens, the enterprise should expect to sell more goods and services via the Internet.

Embracing Technology

Many companies are concerned that a transformation into an e-business means having to replace their entire employee base. In fact, if employees are willing to embrace change, they may be trained to handle the new operating modes, and management can decide how to implement that changeover. For example, does management consider digital transformation a disruptive technology, or a sustaining one?

Disruptive technologies refer to advances such as online procurement and sales systems that may be beneficial to the company in the long term, but currently have limited or no appeal to the company’s customer base. This condition may pose a problem for managers accustomed to extrapolating product sales from certain indicators, including total available markets, price/performance targets, and predictable applications. This resistance can delay a business’ migration to an e-business format.

Companies that view the digital transformation as a sustaining technology, however, will tend to have an identified market that readily accepts an online approach to commerce, and may already have systems in place to enable it. These and other issues may determine whether the company should keep the e-commerce segment in-house or spin it off. While each case must be considered on its own merits, it’s generally best to spin off or launch a new entity when e-business would be disruptive to the company. When a digital transformation is sustaining and consistent with a company’s cost and culture, however, it may be preferable to keep it within the existing company.

Many businesses are still in the early stages of e-commerce or have not yet migrated to an electronic format. The stunning growth of the global Internet-user population, however, has motivated both start-ups and existing companies to include the web in their growth models. With e-commerce on the path to a $100 billion market, the ability to become competitive now is more than a pathway to expanded profits—it is also a strategy for long-term survival.

Eugene F. DeMark, CPA, is the northeast partner in charge of KPMG’s information communications and entertainment practice, New York, N.Y. He can be reached at (212) 872-5578 or
Robert R. Harcourt is the northeast relationship partner in KPMG’s assurance practice, New York, N.Y. He can be reached at (212) 872-5874 or




















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