Reflections on e-business and enlightenment with Mohan Sawhney, McCormick Tribune Professor of Electronic Commerce and Technology -- and director of the Center for Research on Technology, Innovation and E-Commerce -- at Northwestern University's Kellogg Graduate School of Management.
UBIQUITY: The name of your new book is The Seven Steps to Nirvana. Why Nirvana and why seven steps?
SAWHNEY: The purpose of the title was to get people to ask exactly those questions. The idea is to get them to pick up the book from the bookshelf, and if the title was, "E-business, blah, blah, blah," it would be lost in a sea of books. In marketing, they teach that you have to be distinct and you have to make a statement, which The Seven Steps to Nirvana does. They also teach that it has to be a relevant statement. So let me comment on both of those aspects. First of all, the concept of Nirvana, which obviously comes from Eastern mysticism, is the idea of enlightenment, of self-realization, of cumulative inner work -- getting to know yourself and progressing to the path of self-development until you achieve realization. Nirvana is a state of enlightenment that is achieved through a progressive path of self-development.
UBIQUITY: How does the concept relate to e-business?
SAWHNEY: What I'm urging e-businesses to do -- which is not unlike what I'm urging large established companies to do -- is to start on the journey of e-business transformation. I see it as a journey that is cumulative, that is incremental, that takes a long time -- and whose ultimate goal is business transformation just like the goal of self-development is self-transformation. It's an apt metaphor for the progressive stages that large companies need to go through to achieve business transformation through e-business.
UBIQUITY: What about the seven steps? Why seven?
SAWHNEY: Steps evoke the idea that it's not going to be a single shot or a one-step journey. It will be progressive and incremental. There are a number of facets and stages that you need to think through. As far as the number seven is concerned, seven is kind of the industry standard in self-help. Since it is a self-help book for e-business, we figured why not go with the industry standard? And if people confuse us for a self-help book, and some of Steven Cahill or Deepak Chopra's people pick up the book, well, I could use that. The number seven just illustrates that you needed N steps. And N = 7 is the industry standard. Hence the title.
UBIQUITY: That's very amusing. Okay, then. So how does one begin the journey?
SAWHNEY: As we say in the book, a Chinese proverb said the journey of 1,000 miles begins with a single step. We're trying to evoke the prospect that it's a multi-faceted and a multi-step process. Large businesses need to think through all of the issues, which are very different, conceptually, from the challenges that a start-up company or a dot-com company faces. That is very central to what the book is about.
UBIQUITY: Talk more about what the book is specifically about?
SAWHNEY: First I'll say what it's NOT about. It is not about the new economy. It is not about dot-com. It is not about e-commerce, as we've traditionally come to understand it. It's closer, philosophically, to considering e-business transformation as a total quality exercise. It talks about looking at all aspects of your business and then gradually thinking about how you can improve, enhance and transform them all in pursuit of a superior value proposition for your customer. It's also about becoming easier to do business with for your trading partners and finding new ways to create revenues.
UBIQUITY: So, in your book, you're also talking to people in traditional companies?
SAWHNEY: Absolutely. That is a very strong statement to make. This is a book for real people in real businesses. It has real insights.
UBIQUITY: When you discuss your ideas with people, either in speaking or consulting engagements, what do you find them most mystified about? What is their big block toward enlightenment?
SAWHNEY: The first thing that I find is that they perceive all this talk about the new economy and e-business to be some kind of a black box. And this black box was not something that they're privy to -- that it is actually the domain of some 23-year-old green-haired guy with nose rings who has it all figured out and who is going to come and kill them. There is a sort fear of the unknown that I see very often.
UBIQUITY: What other misconceptions do you see?
SAWHNEY: Related to that is the myth that e-business is all about technology, and once we figure out the technology we are done. And the myth that this is something that only start-up or technology companies should be looking at. And the myth that e-commerce or e-business is just about buying and selling stuff on the Internet or about putting up a Web site. There are a number of misconceptions, myths and fears that I see. As I go through two-hour or three-hour exercises with the companies that I have worked with -- like Dow Chemical, Rockwell International or McDonald's -- at the end of the sessions the most significant thing I hear from the managers is, "This is about business. This is common sense stuff." I find that very heartening because it's exactly right. The fundamentals never change and never did. The focus of business has never changed. Peter Drucker talked about this years ago. Business exists to create value for its customers and to sustain and produce a return for its shareholders. Those ends have never changed and never will.
UBIQUITY: If the ends have never changed, has anything else changed with e-business?
SAWHNEY: Oh, yes. What has changed are the means at your disposal. What you have now is a more comprehensive and powerful set of tools. But e-business is just that -- a set of tools. It is a means, not an end. I think we confused the means for the ends for a while in the dot-com frenzy where technology and the Internet became businesses in themselves. The Internet is not business. The Internet is simply a blackboard, simply technology, simply a channel. The Internet is a lot of things but it is not a substitute for good old fundamental business thinking. In the book I quote a bumper sticker that says, "If technology is the answer, what is the question?"
UBIQUITY: How did you sharpen your focus as you developed The Seven Steps to Nirvana?
SAWHNEY: What I tried to do in the book, given my training in marketing, was to refocus the e-business dialogue onto the customer. I always regard the customer as the true anchor and the customer value proposition as your true guide or compass as you sail the waters of e-business. Technology is a means to an end, the end being how do we do business better? How do we improve what we do? How do we sustain competitive advantage? How do we add value?
UBIQUITY: In your book there is an interesting passage talking about problems and solutions in the problem space and in the solution space. Why don't you expand on that a little bit?
SAWHNEY: Now I'm speaking like an engineer. If you look at the dimensionality of the problem space versus the dimensionality of the solution space you will always find that the problem space is more parsimonious. Pardon me for using jargon here -- I'm an engineer by training. There are far fewer problems than there are solutions. If you think about customer needs on the one hand and the number of products available to serve or fulfill those needs on the other, it becomes obvious that our needs are relatively few. But the number of ways that we have to satisfy those needs -- the number of products and services that can be created -- are phenomenally diverse. If you want to gain insight, it is much better to focus in on the problem space first, as opposed to focusing on the solution space. Problems are more fundamental. Solutions would not exist without problems. When we talk about business infrastructure, if we listed all of the technologies, all of the windows and all of the software applications, we would need eight volumes just to write about the different technologies. Instead, we say, let's look at the problems that you're trying to solve.
UBIQUITY: Can call the various problems be characterized in some generic way?
SAWHNEY: The generic problem is how do business and e-enterprise connect with key consequences and the key audiences. We identify four: customers, suppliers, partners and employees. We discuss the different problems involved in connecting with these people or consequences, and then talk about the solution approaches, or the technology that could be brought to bear on the problem. We use this distinction between the problem space and the solution space in the context of discussing e-business infrastructure and different technologies. The more general insight is that it's the marketing concept: first focus on the customer problem or the customer need, then focus on the solution. The customer problem is the horse while the solution is the cart. We tend to place the cart in front of the horse when we think of technologies and solutions before we talk about customer problems.
UBIQUITY: Though many of the problems seem to be common to businesses of every kind, are there differences between companies? For example, you mentioned McDonald's and Rockwell and so forth. They are quite different businesses.
SAWHNEY: Absolutely. One of the things that we talk about in the book in Chapter Two of The Seven Steps to Nirvana is the $64-million question, which is: Where do you begin? Which end of this elephant do you tackle? Now that you understand these different consequences, should you start with the customer interface? Should you start with the supply chain? Should you start with knowledge management? There are 20,000 things you can do with e-business. Where do you begin? As I say to my students when I teach marketing, the right answer to every question in marketing is... "It depends." And so the right answer to where do you begin is, it depends. The insight we offer in the book is one from Socrates, who said to begin by knowing thyself. So, know yourself first. The e-business priorities and solutions for every business will be unique and different.
UBIQUITY: How does a business start getting to know what your priorities should be?
SAWHNEY: The first place to figure out what your e-business priorities are is to figure out what your business looks like. What are the key drivers of cost? What are the key drivers of differentiation? How do you make money? What are the most important business processes? What are the most important drivers of cost? If you're a manufacturing company -- let's say you're US Steel -- you look at your profit-and-loss statement and you realize that an important part of your cost is raw materials, be it coal or iron ore or whatever. Obviously, one very important area for you to focus on is direct materials procurement. A valuable place to start would be to look at supply chain initiatives that allow you to procure more effectively, increase efficiency and reduce the cost of procurement through, for instance, a reverse auction technique . . . . On the other hand, if you are, let's say, a consulting firm, what is your raw material? People. You're not buying any direct raw materials except people. The most important e-business priority is recruiting the best possible people and then training them to manage knowledge within the firm.
UBIQUITY: Compare these to some other industries.
SAWHNEY: Suppose you are a movie studio or a pharmaceutical company. What is so different about these two industries? The movie business relies very heavily on new product development. With the exception of Disney, in the movie business 100 percent of revenue comes from products released within the year. It's the same with pharmaceutical companies that rely very heavily on new product development. They spend up to $500 million bringing a new drug to market. In the case of a pharmaceutical company, it could be managing the clinical trials process and approved drugs for clinical trials, accelerating the discovery process and collaborating better with import suppliers as they get closer to launch. That would be a critical area, similar with the movie companies being able to test concepts, designing marketing strategies, testing different positioning, and forecasting the attendance or box office returns. Using the Internet would be a very important e-business priority.
UBIQUITY: How might you describe or explain what you just did when you targeted e-business priorities?
SAWHNEY: What becomes obvious is that the first thing you have to do, before you understand e-business priorities, is to understand business priorities! Which, by the way, makes sense because in the end there is no "e-business." The "e" is only temporary; it will go away. It will all be "business." Therefore, the right place to start your e-business initiative is where the most leverage is within the context of your business. While the problem space is parsimonious, in that there are fewer problems than there are solutions, the problem space is definitely specific to a company and is dictated by the context. The structure of the industry, the different cost drivers, what is core business, what is non-core -- these are questions that companies need to ask in the process of knowing themselves in order to discover what their priorities should be as they embark on their e-business initiatives.
UBIQUITY: Pursuing that just a little bit more, would you expect companies in the same business -- let's say, McDonald's and Burger King -- to end up with e-business strategies that are similar?
SAWHNEY: Absolutely not. Stepping back one level, would we expect companies in similar business to end up with business strategies that are identical? No. In fact, if they do, as in the domestic airline industry, if you look at all the metrics and fly the planes and look at the financial performances -- setting aside Southwest Airlines and Midwest Express -- you could change one plane for another and you wouldn't even notice, because it's all the same lousy service at the same lousy prices, since there is a tremendous amount of strategy convergence in the airline industry. The results speak for themselves. In contrast, Southwest has shown that if you play a different game you can distinguish yourself. Similarly, as you think about e-business strategies, I think different firms will take very different approaches because their approaches to doing business are very different.
SAWHNEY: Let me give you an example from the computer industry. Dell has followed the direct model and has always prided itself on cutting out the middle man and going directly to customers without using resellers, while Compaq and Hewlett-Packard have traditionally used resellers. As you think about the business-to-business consortia that are being created within the computer industry-- there is one called Converge that was founded by Hewlett-Packard and some of its partners and there's another one called e-2 Open -- you'll notice one interesting thing. Dell does not participate in any of these consortia while Hewlett-Packard is actively championing the consortia. I had a conversation about this with Michael Dell, who I happen to know, and said, "Michael, why aren't you in a consortium?" He told me, "We're a supply chain management company. So how do we win? We win with execution of the direct model. If I join a consortium, I have a lot to teach my competitors but I have not a whole lot to learn from them. So we see our supply chain management capability and our direct model as a proprietary competitive advantage. There is no reason for us to participate in the consortium." On the other hand, Hewlett-Packard and Compaq can't win on the supply chain game because they go through common resellers, so they become very active supporters and founders of consortia. You can see how the e-market strategies might vary across the industry.
UBIQUITY: What are you general thoughts on convergence between the strategies of different organizations?
SAWHNEY: Well, first, let me acknowledge that there will obviously be some similarities. For instance, I talked about the importance of knowledge management for professional services companies. Clearly, every professional service company will need to have a knowledge management initiative -- in the same way every manufacturing company installed ERP. But just because everyone installed ERP and SAP has a very large market share, do the strategies converge? Not really. You may even use the same platform or the same software but your implementation of it gives you avenues to create different and proprietary advantages that prevent convergence in strategies, which can actually be a very dangerous thing.
UBIQUITY: Let's end on this first of two discussions on that note of danger.
SAWHNEY: Ah. Good show business!