Study: Execs Are Missing the E-BoatExecutives at leading consumer goods companies view the Internet primarily as just another marketing channel and are missing e-business opportunities, a new study said.
Nearly half the 100 executives surveyed said their primary e-commerce objective is "top line growth," while 30 percent cited improved business efficiency and cost reduction. Twenty-three percent noted improved supply-chain logistics. Roland Berger Strategy Consultants surveyed CEOs, directors of e-commerce, directors of strategic planning and directors of marketing at companies with sales more than $100 million.
Only 45 percent thought they needed to adapt their organizational structure to become strong e-commerce competitors and only 56 percent believed they needed to reassess their company strategy.
"Consumer goods companies are viewing the Internet largely as a marketing play," said Jacob Jensen, senior project manager at Roland Berger. The firm warns that the companies need to make major changes in management and strategy to compete in the digital economy.
"The consumer goods sector is locked in a downward spiral, due to product commoditization and plummeting retail prices. To break out, companies need to transform themselves to compete efficiently and nimbly in an e-business environment," Jensen said.
Companies need to transform physical connections into digital links along the entire value chain, adds John Furth, director at Roland Berger's New York office. "It's hard to look at these results without concluding that most of the companies in this sector don't know what they need to succeed in e-commerce," he said.
Furth also criticized the executives' "naïve optimism" about e-commerce profitability. Forty-seven percent of the executives expect e-commerce initiatives to make a measurable impact on their bottom line within a year, while 20 percent expect returns in six months. "It's evidence that these companies don't really understand what it takes to integrate the Internet into their offline operations," Furth said.
The firms must address service, logistics, culture and structure to achieve the customer satisfaction and overall profitability they are seeking.
Although Roland Berger recognizes the pitfalls in the "marketing only" Web strategy, 54 percent of the executives said marketing will remain their primary e-commerce objective over the next three years. Only 25 percent expect efficiency and cost reduction to be a primary goal, and only 21 percent expect supply-chain logistics to take center stage.
"Consumer goods companies haven't learned from the mistakes of first-wave Internet start-ups, many of whom are failing due to back-end logistics and service-delivery problems," Furth said.
In addition, few executives clearly identified what their vision is for e-commerce activities, or exactly what needs to change in their companies. Furth warned about the pitfalls of the manufacturers' void of action plans. "Tentativeness ... can mean being cut out of markets either by traditional competitors or companies that did not even exist 24 months ago," he said.
Over the next three years, consumer goods makers should focus on both their front- and back-end operations, he added.
The study also found only 37 percent of the companies have separated their e-commerce activities from their regular traditional business. Of those, 27 percent have created separate business units with their own profit and loss statements.
Sixty-five percent said they have created new markets or business through e-commerce initiatives.