EUROPE: Net reprioritises companies’ role

The much publicised dot-com failures and recent plunge by the Nasdaq stock market should not blind us to the fact that the networked economy is definitely here to stay.

Research by BT shows that 75 per cent of major European companies currently use the Internet while half of them say they will triple their e-commerce budget in the next three years. BT also forecasts that 69 million computers in Europe will be on the Web by 2002 and that European e-commerce will exceed $30bn (&£21.4bn) in that year.

As might be expected from the particular nature of the dot-com problems – namely attracting profitable customers – most companies see the initial benefits in terms of economies of scale that make their business operations and dealings with suppliers more cost-effective, rather than as a revolutionary way of connecting with consumers.

One study in the US showed that using the Net cuts unit purchasing costs on average from $45 to $6 (&£32 to &£4). It is no wonder that even traditional rivals Ford and General Motors were so convinced of the potential savings that they set up a joint Internet purchasing company.

As more customers decide to come online, further efficiencies will be generated and the Internet will eventually turn into a channel for links all the way through a company.

Initially, Web customers will carry out much of the sales and marketing work currently being done by the companies themselves. By actively spending time researching markets, identifying what they want to buy and then making the orders, customers will save companies considerable overheads and staff costs. It will be a form of self-service, with markets moving – in traditional marketing terms – from the channel-push model to a channel-pull one.

Through setting up efficient easy-to-use channels that link customers with sales, distribution and finance functions, companies will further cut their overheads. Much of the work now done by humans in fulfilling orders will be carried out electronically.

Ultimately, and this is a long way in the future, more fundamental restructuring will enable companies to take manufacturing, finance and human resources out of the core company completely. The Internet will allow these functions to be outsourced or operated in a partnership to specifications required by the essential nature of the business. For the core company, the focus will be on “attention”, “the brand” and “relationships” – in other words, its links with its customers.

Companies will be able to concentrate on the brand in its purest sense, and indeed will have to, since this will be the main discriminator for consumers. The whole brand, meaning its image, quality and service to the customer, will be the concern of everyone in the company. They will all be given the prime objective of nurturing and developing the brand’s image and relationship with customers, which means that marketing techniques, and advertising in particular, will be more important than ever before.

John Shannon is president of Grey International