E-Commerce: How CFOs Can Seize the Initiative.

EMERGING

technologies and practices give CFOs unprecedented opportunities to exert leadership, but they need to understand and manage the changes affecting their companies.

Today's chief financial officer has a multitude of broad and rewarding responsibilities, most geared toward value-added business growth programs, raising money or building business management infrastructure. However, the CFO's role has also become more creative in assessing today's ubiquitous electronic commerce challenges.

When you consider the frequency of problems stemming from flawed strategies or technology snafus, you realize how important it is for the CFO to have an active role in information technology implementations. This is also an opportunity to help CEOs and peers who traditionally focus on production, product development, marketing, etc., with an understanding of these business opportunities and challenges. CFOs also need to help the chief information officers work with user departments to manage major initiatives.

In addition, we've all read the startling statistics, published in well-known studies, indicating that information technology (IT) projects have a lot in common with mergers and acquisitions - more than half fail to meet expectations. The risk of failure may be even greater as we progress into the e-commerce world, where the pace of change is even faster than with traditional IT systems such as enterprise resource planning (ERP).

There is commonality between the risks created by so many M&A and IT initiatives:

* Today's business environment is complex and changing more rapidly than ever before.

* Shareholder expectations continue to ratchet up, which magnifies the rewards and penalties associated with business/technology decisions.

* The growing scope and scale of IT investments and their impact on the enterprise continues to grow.

* Most technology life cycles are becoming shorter, even as technology alternatives become more varied.

With system life cycles getting shorter and increasingly sophisticated, the opportunity/risk tradeoff is greater than ever.

How do you assess the risks and opportunities created by these technology shifts? Recent changes -- from mainframes to client-server architecture, from host computing to the Internet and Web-based technologies for workflow distribution and supply chain management have shifted the paradigms we previously used.

Nowhere is a CFO's understanding of IT more critical than in the area of acquisitions. Given the confidential nature of most acquisition discussions, the CFO who knows IT issues is in a unique position to assess the opportunities and risks of merging the back-office operations. If the systems and processes of the acquiring company or the target are weak or incompatible, acquisition synergy may be jeopardized. As the person who signs off on the fore casts and provides guidance to analysts, you probably will have a higher confidence level and be in a better position to execute the plan by being on top of the situation.

Planning E-Commerce

Given the high degree of risk for successful integration, the CFO can view this as an opportunity to take a leadership position. The key tool to help ensure e-commerce success is a well-defined plan. If the details are not rigorously prepared and rehearsed before execution, the likelihood of failure increases. Plans that specify tasks, responsibilities and due dates for each major activity may seem bureaucratic to some participants, but, at least in my experience, such plans have been vital for keeping a project on track. The plans also need to provide for reaching meaningful milestones every three to four months to keep employees, including executives, interested. There simply are too many alternatives competing for their time.

Such a plan encourages participants to think through the process and develop a well-defined set of deliverables. What doesn't get measured doesn't seem to get done. It also encourages "buy-in" by the departments involved.

There is a high degree of hype surrounding e-commerce. EC is not new, but Internet technology and other digital channels are substantially widening its appeal. Electronic funds transfer (EFT) and electronic data interchange (EDI) have been around for the past 20 years. EDI allows information to be exchanged electronically in standardized formats. EDI has proven to be costly and complex for a company and its suppliers to establish, however, because it has been conducted across private communication channels and requires unique programming with each trading partner transaction.

Internet technologies are changing all that. The Internet is a public channel with a low cost of entry. It allows different systems to communicate by using standard, accessible Web-based technologies that provide common methods to search for and view information, as well as common standards and functionality. As a result, the Internet is revolutionizing the way the business community delivers services, goods, information and knowledge.

While many e-commerce stories relate to business-to-consumer sites like Amazon.com and eBay, the business-to-business (B2B) arena holds the most growth potential. B2B e commerce represents an enormous economic shift, creating unprecedented opportunities for leading companies to reshape business practices. Forrester Research predicts that the value of B2B transactions on the Internet will grow from $43 billion in 1998 to $1.3 trillion by 2003. But before it becomes widespread, businesses will need to figure out how to create links between their enterprise or legacy systems.

Many companies currently using EDI realize the level of detailed programming that needs to be done for each transaction set, such as a purchase order (PO), to be sent from one company to another. It is cumbersome, and any changes require programming; hence, it is done only when there are high enough transaction volumes to justify the expense.

As you review IT projects to link businesses, be sure to ask about how transactions will be sent between trading partners. For example:

* Whose part number, customer, supplier or both will be used, and how will they be cross-referenced?

* How will the customer's PO link to the supplier's order-entry system?

* How will changes in quantities, dates, etc. be communicated and confirmed?

Fortunately, there are solutions on the horizon to provide these links, using a new language called eXtensible Markup Language (XML) -- a specification finalized in 1998 -- to dynamically tie together legacy systems over the Internet.

One solution, Rosetta Net, was formed in 1998 as an independent consortium dedicated to the development of standard electronic commerce interfaces that would align the processes between IT supply chain partners on a global basis. Supported by virtually all the major technology corporations, Rosetta Net is developing XML dialects for moving data along information-technology supply chains connecting component manufacturers, distributors, resellers and purchasers. The key benefit is that companies will no longer need a customized data exchange interface such as EDI for each supplier or customer.

If all goes well, say its supporters, XML will become the "Rosetta stone" of the next century, bridging the language gap among scores of incompatible computer systems. This revolution will remain invisible to Web users, while allowing an explosion in the power of the Internet akin to that caused by HTML and the original development of the Web.

While HTML simply describes a document's format, XML allows documents to be treated as data. With it, computer programs will be able to read and manipulate the information in an XML document. XML is a very general standard, but Microsoft and many other companies have identified B2B interchange as its first major application.

By allowing buyers and sellers to exchange data electronically, XML can automate many supply-chain transactions for companies and reduce costs of sales and purchasing. Although this automation may reach all the way to consumer sites on the Web, its real impact will be in wholesale dealings between companies. Not coincidentally, it is this B2B market that will likely be the first broadly profitable area of electronic commerce.

Other B2B opportunities exist with product procurement through auction processes. A number of exchanges have sprung up, including paperexchange.com in the printing paper industry, Tradeout.com for buying and selling surplus assets and NetBuy.com for electronic components.

Change Equals Challenge

To move forward, having set the tone that detailed planning will be a standard practice and developing a basic understanding of the technologies involved, the CFO also needs sensitivity to the impact of change. Some IT initiatives fail because people may not be willing to change or don't feel comfortable with change. The word "legacy" applies to people as well as systems. The irony of this entire process is that the hard topics, technology, become easy and the soft topics, involving change, become hard.

Behaviorally people need to be able to cope with the losses that inevitably accompany gains. The losses are manifested in habits that need to be broken in order to adopt new ones.

Try to help people let go of past practices. If you need an example of how these can hurt, visit your mailrooms and computer printing centers. Are the high-volume reports/mailings that were to be eliminated with tools like e-mail and PC down loads still being printed and distributed? Until each functional area completely changes, you may find yourself using both old and new methods for long periods. Part of the plan involves eliminating the old methods. The CFO may need to continually push to make sure the deliverables are on track.

Detailed planning and constant awareness of change management, which accompany successful e-commerce initiatives, will make you and your CEO more comfortable that the management team is buying in to generating the returns associated with these major expenditures.

The rate of change in this electronically interconnected world is not likely to slow down. The CFO has the ability to do a better job for his or her shareholders by seizing the opportunity these changes present.

Mark Zorko is a partner with Tatum CFO Partners LLP in Chicago, Ill, a national partnership of career chief financial officers. He's a former CFO of several public and private high tech companies, as well as a CIO.

E-Commerce Implementation Ideas

Suggestions that CFOs may want to consider to successfully implement e-commerce systems:

* Ensure the IT vision in place complements the business plan and the corporate culture. Be astute about who provides and who needs information.

* Be involved in recruiting IT people. Learn what makes them tick and what motivates them. Seek out those with a business orientation.

* Foster a climate in which people from IT and user departments work together, eat lunch together, etc.

* Develop an understanding or sixth sense of whether a project is on track. Participate in status reviews.

* Be aware of excessive consultant involvement. You can delegate, but don't abdicate responsibility completely.

* Become aware of the opportunities and risks of using application service providers (ASPs).

* Develop a comfort level about what a system cannot do. A project's scope often becomes unmanageable as people customize requirements.

* Insist on open architecture solutions that are Internet-based.

* Get personally involved, as you do with corporate finance, investor relations and other more traditional financial activities.