Getting to Know You.

Customer-driven, market-driven, and customer-oriented are some of the phrases used by companies to tout their customer responsiveness. But our research, which spans more than 300 companies in the auto, energy, financial services, hi-tech, and travel industries, tells a different story. The business models and the organizational structures of many of these companies are actually very distanced from their customers in today's rapidly changing e-business environment.

Companies are often caught in a product trap; they're organized primarily around products rather than customers. They have product managers driving strategies and sales executives implementing the product strategies. They talk about customer value instead of customized value. And they fail to understand that there's a significant difference between the two: customer value is about delivering value to a general customer, but customized value is about creating and delivering value solutions for each customer or customer group.

The advent of the Internet and e-business has spawned new companies with a different mindset. These nimble firms have created new customer experiences and customized value via Customer Relationship Management programs, vibrant e-chat customer communities, and even collaboration with customers in product design and customization through collaboration tools.

Of course, some of these dot-com companies are no longer the darlings of Wall Street. Still, the environment has been altered in such a way that bricks-and-mortar companies must rethink their own enterprises. As a result, many bricks-and-mortar companies are now attempting to reshape themselves as "hybrid" clicks-and-mortar organizations.

Bricks Become Clicks?

In response to the dot-com challenge, most of the bricks-and-mortar companies we interviewed for our study view customer-centric e-business as their top priority and see it as potentially changing their business models in a radical way. Yet, these firms spend much less on e-business initiatives and assess their e-business capabilities to be inadequate.

Some believe that the Internet is another medium of communication or channel, but many view end-to-end Web-based integration of business processes focused on customized value as essential. Still, they have done little to prepare themselves to be continually customer-centric in the digital environment. For example, most traditional companies' e-initiatives are directed at cost control measures such as procurement, but competitors quickly catch up on such mechanisms offered by the Internet.

Not all bricks-and-mortar companies are laggards, however. Although a majority of the firms score low on customer-centric e-business, some are further along this continuum than others, reflecting traits of customer centric ebusiness--transparent, democratic, experimental, highly networked, fast, and malleable:

Ford Motor Co. has teamed up with portals to identify customer preferences, offers customers a wide selection of cars through BuyerConnection and CarPoint, has Web-enabled the Auto loan process, and is working on new cars with digital dashboards that provide Internet access and GPS services. These customer-centric e-initiatives have led to the creation of a customer solution-based organization structure that's expected to boost profits by 15 percent.

Enron has refashioned itself to be a one-stop energy shop for electricity, gas, and telecom bandwidth. Its Enrononline, a global e-marketplace for wholesale energy and other commodities, enables participants to view prices and transact real-time with Enron over the Internet, free of commission. It has done more than $80 billion worth of transactions in only 10 months since launch, which accounts for more than half of the company's transactions. With 800-plus customer-structured solutions offered--such as an option to buy gas in December and sell electricity in March--it's truly customer-centric.

Charles Schwab has aligned itself around customer needs because it treats the Internet, phone, and bricks-and-mortar entity as multiple touch points with the customer. The business processes are built around these multiple touch points to deliver the highest customized value. Today, Charles Schwab boasts of a market capitalization of $43 billion on a revenue base of $5.3 billion with a P/E multiple of 57. In contrast, Merrill Lynch--the established "blue chip" in the space with a revenue base seven times that of Schwab--has a market capitalization of $49 billion with a P/E ratio of 16.

The E-invention Plan

What can bricks-and-mortar companies do to ensure a continually customer-centric model as they evolve into "hybrid" clicks-and-mortar organizations? Our analysis suggests an e-invention plan that includes the following steps:

* Perform a customer-centric e-business audit of the business unit. Companies should identify and assess their customer solution-driven activities and business processes; how much of their organizations are centered around customer solutions vis-a-vis products; the importance of these activities for a favorable competitive position; the extent to which they are Web-enabled; the current customer outcomes; and the problems encountered in implementation.

* Set revised e-business vision, goals, and measures. To do this, companies should benchmark their activities with respect to competitors, similar firms, and those that are "best-in-class." Look for metrics in the revenue growth areas of customer-facing applications.

* Do a customer-centric e-business gap analysis. In this phase, companies would determine the gap or difference between the identified customer solution-based e-business models and their current product-based business models. They should identify the e-business applications that need substantial improvement and prioritize their efforts.

* Formulate revised e-strategy, e-initiatives, and e-implementation steps. Companies must come up with a sound revised customer-centric e-business strategy based on the gap analysis. This strategy should lead to a prioritized set of e-initiatives, each with a well-coordinated action plan.

* Set up revised e-partnership initiatives. In addition to partnerships on the buy-side, companies should form strategic alliances on the sell-side with technology firms for customer relationship initiatives or with service providers for offering customized bundles.

* Design and monitor a customer-centric e-business scorecard. All e-initiatives and action plans need to be tracked on a customer-centric e-business scorecard. Adequate intermediate metrics--both qualitative and quantitative--should be in place for critical dimensions such as e-vision, e-strategy, e-initiative, and e-implementation. Speed of implementation and response to competitive actions are key, so aggressive timelines should be followed.

* Revise organizational culture, and the hiring and retention process. Create an organizational culture where all employees' activities are linked to delivering superior customized value. Such a culture should embrace change and speed, and hire and reward fast acting and growth-oriented employees. It should create a new venture mindset, consistent with the revised e-business strategy and implementation plan.

Ultimately, successful clicks-and-mortar companies should see the forest ahead of the trees with respect to e-business. They need to realize that the Internet is not just a new medium or channel. It's a transformation vehicle best used to organize the business around customers' multiple touch points with companies and to continuously grow customized value and shareholder value through a bona fide revenue-enhancing strategy.

PROF. VENKATESH SHANKAR is a Ralph J. Tyser Fellow and Associate Professor of Marketing at the University of Maryland's Robert H. Smith School of Business.