The Net as a Lifeline

As The us stood still in the wake of the September 11 attacks, casino and
hotel operator Harrah’s Entertainment faced a sharp downturn in business. The
country was in no mood for a party, and few people were willing to hop a flight
to Las Vegas.

Occupancy rates at Harrah’s flagship hotel soon dropped by
more than 25%. So on September 14, Harrah’s launched a small counteroffensive:
The company sent out targeted e-mails to thousands of customers it thought might
want to take a trip to the tables and slots. The gambit worked, helping to fill
nearly 4,000 rooms that otherwise would have gone empty. By September 30, the
hotel was back near 100% occupancy. “We were able to get our message out
immediately over the Internet,” says Harrah’s chairman Philip Satre.

The key to Harrah’s success: This summer, the company
linked its database of 24 million gamblers to its website and e-mail marketing
system. Earlier, reaching those players with targeted pitches required bulk
mailings via snail mail. Now, when a customer clicks to Harrah’s website from
an e-mailed pitch, the company knows how much the player spends and can offer a
tailored deal. The customer can then immediately book the room and a flight to
get there, and reserve a seat for a show.

Suddenly, the Internet has become a lifeline. Companies in a
sales squeeze are looking to the Net as a tool for cutting costs, generating new
revenue streams, trimming inventories, and serving customers and employees more
efficiently. Sure, this was happening before the attacks. Today, though, those
efforts are no longer just an advantage–they’re urgent.

Scientific UK
The most
sophisticated e-businesses still grapple with vestiges of the past.
Consider Fisher Scientific UK, Britain’s largest seller of laboratory
supplies and a unit of $2.6 billion US-based Fisher Scientific
International. Like its parent, the British company makes extensive use of
the Web, distributing electronic catalogs every month to its 40,000
customers and selling 75,000 products online. Still, it sends and receives
more than half a million paper bills every year. For B2B sales, paper
still rules.

Enter a cheap solution. Starting last
month, Fisher Scientific became the second customer for a new
Web-invoicing system from London startup Open Business Exchange (OBE). The
technology promises to slash Fisher’s payment-processing costs by 80%
within two years. The OBE system, which launched last July in the US and
Britain, acts as an electronic hub between buyers and sellers, converting
digital invoices from suppliers
into a common template and then zapping the same directly into purchasing
companies’ accounting systems.

The savings already are showing up for
Fisher Scientific. The company spent less than $50,000 to sign up with OBE
and tweak its computers to talk to the network. A pilot test this summer
generated high accuracy rates and positive responses from suppliers. Now,
says project manager Paul Owen, Fisher expects to pare its cost of
handling incoming invoices–already a slim $4.35 per bill–by 25% within
a few months. Before using OBE, Fisher spent $370,000 a year processing
bills from suppliers. The OBE system will pay for itself in six months. As
more suppliers join up, the results will get even better.

Fisher’s suppliers are making the
switch because it will save them big bucks, too. If Fisher Scientific
later persuades its customers to accept electronic invoices as well, the
savings could pile on, and paper bills would be a thing of the past.

Andy Reinhardt in Paris–BusinessWeek

Still, jittery executives only want to fund projects that
promise to pay off fast. With the military on the move in Afghanistan, consumer
confidence flagging, and further terrorist attacks an ever-present threat,
corporations fear the economy may be heading into a recession. So they are
carefully choosing the Net projects they go ahead with based on hard-nosed
calculations of return on investment. Vague Web initiatives that cost millions
to simply build the brand are out, the residue of giddier dot-com days.
“There’s going to be a search for more short-term payback,” says Hal
Sirkin, e-commerce practice leader at Boston Consulting Group. “People are
still thinking how to reinvent the company, but they may not take the big leaps
that they would have a few months ago.”

The projects getting the green light are those with proven
track records for delivering results. Companies are putting human resources and
customer service online so they can reduce the number of call-center employees.
They’re pressing ahead with SCM initiatives–although often in smaller pieces
than two years ago. And they’re moving all aspects of purchasing to the Web,
allowing them to slash internal costs or wring deeper discounts from suppliers.
DuPont expects to save $400 million a year buying supplies online. The
initiative’s total cost: just $15 million over three years.

The key is putting the money in the right place. While
spending on Net initiatives isn’t climbing as fast as it did a year ago, it’s
still going to rise by 9% over the next 12 months, according to AMR Research.
That’s down from a predicted 11% increase before September 11, but better than
the 3.7% increase in overall spending on technology. Supply-chain projects are
now expected to grow by 9%, AMR says. Customer-focused initiatives, such as
projects that let clients help themselves to info online, are going to see 6%
growth. Product-development programs will grow by 5%. Indeed, most managers are
keeping the Internet faith: An Accenture study this summer found 57% of 840
execs worldwide say e-commerce initiatives are fundamental to their company’s

What might endanger that survival is too much emphasis on
short-term results. With the economy slipping into a recession, key longer-range
projects could be put on hold. Most at risk: Squishier initiatives that don’t
show an immediate RoI, says Erik Brynjolfsson, co-director of the Center for
e-Business at Massachusetts Institute of Technology. One example: knowledge
management projects, which help companies better tap into and share the
information their employees possess. “Firms that focus too much on cost
savings may miss out on the productivity gains down the road,” says

Getting those gains requires more than just a technology fix.
Simply grafting computers and software onto existing business processes will do
little to give a company the productivity boost the Web-savviest companies are
seeing. The real payoff comes when companies change the way they interact with
customers and suppliers, organize their factories, and move products around the
world. PC giant Dell Computer has been honing its Web operations for years, so
today it knows what parts it has and what it’s going to need as orders stream
in. Dell can do this because it requires key suppliers to be linked over the
Web. The Net makes all of this work faster, but long ago Dell built its entire
business around super-tight integration with both customers and suppliers.
“The Web expanded Dell’s capabilities, but much of the architecture of
its success was in place before the Net,” says David Mowery, a professor at
the Haas School of Business at the University of California at Berkeley.

Dell’s Web smarts allowed it to react quickly after
September 11. While its efficiency put Dell at risk as borders were closed and
air travel was shut down, it also helped the company make it through the
disaster without a hitch. When the attacks began, Dell instantly sized up its
operations and figured out where supplies might be disrupted. It quickly ramped
up production in factories in Europe and Asia and filled orders from there. And
with the Web giving it a real-time view into orders pending, it prioritized
orders and filled the most important first. At the same time, Dell salespeople
were able to look online to see the configurations that could be assembled and
shipped quickly despite the disruption–and then steer customers
accordingly. “The company with the most efficient supply chain was able to
weather this the best,” says Dell Chairman Michael Dell.

Indeed, companies that lost computers in the attacks were
asking for thousands of replacements. The upshot: Dell expects a profit of $410
million for its third quarter ending November 2, while competitors Compaq
Computer and Gateway have told Wall Street to expect losses. Compaq was unable
to ship $300 million worth of computers due to supply-chain disruptions after
the attack.

These days there’s a lot less experimentation in Web
projects. For example, two years ago Otis Elevator thought it could goose its
revenues by placing screens linked to the Web in elevator cars. These would
present a constant feed of news–liberally salted with ads. Problem was, during
the Internet boom years Otis faced upstarts with oodles of venture-capital
funding that were giving away similar screen systems for free, making up the
difference in ad sales. “The business model doesn’t work with free
screens,” says Ron Beaver, Otis’ vice-president for information
systems. A year ago, Otis jettisoned the initiative.

You might think that was the end of Otis spending another
penny on Internet projects. Wrong! This year, it more than doubled its Internet
budget and expects a 50% increase in 2002. The bulk of the new money will go to
an effort linking Otis with its suppliers and customers via the Web to
streamline the way parts move in and out of its factories. Beaver estimates that
half the elevator parts Otis sends out to construction sites arrive before they’re
needed, and end up sitting around for weeks or months, meaning the company
carries them as inventory much longer than necessary. The new Web system should
help the company better monitor whether a cable, a cab, or a carton of call
buttons is ready to ship, because it will be in constant contact with its
suppliers. And with progress reports available online, Otis will know what stage
the builder has reached and when it’s ready for each part.

Otis also is tapping the Net to slash repair bills. The
company has a system that allows technicians at 10 centers around the globe to
monitor elevators via a Net link. When a door sticks or the car doesn’t stop
at floor level, the elevator zips off a signal alerting Otis to send someone to
fix it. Today, some 20% of elevators Otis maintains worldwide use the system–a
number it hopes to nearly double by the end of next year. The payoff is huge:
Since Otis no longer has to dispatch repair staff as often to check for
problems, elevators with remote monitoring require only one-third the number of
visits as those without the system. That has helped Otis keep its North American
repair staff steady while increasing the number of elevators it services by 10%,
to 120,000, over the last year.

for a Changed World
corporate profits fall and companies adapt to a more sober reality in the
wake of the terrorist attacks, spending on e-biz initiatives is getting
more focused–with renewed emphasis on projects that promise quick
returns. Internet outlays are expected to rise by 9% this year, compared
with 3.7% for tech spending overall. Here’s what’s still getting
Up Production
problem: For years, Casino operator Harrah’s has had a database of
customers it woos with cheap hotel rooms. But getting promotions out meant
using snail-mail. The info wasn’t connected to the Web, so it was hard
to craft timely offers.
problem: With the chemical industry in a slump and DuPont’s earnings
expected to slide by half this year, the company needed to cut costs.
problem: Getting results of building inspections in Miami-Dade County was
too slow. Inspectors schlepped to construction sites with pen and paper,
then submitted reports to data-entry clerks. Results were available 48
hours later.
problem: Dealers for office furniture maker Herman Miller had to phone
company reps to track orders, get shipping dates, or product information–waiting
up to a week to make final arrangements.
problem: Mexican steelmaker Hylsa’s Bar & Rod needed to improve
customer satisfaction and lower inventory costs at its two plants.
problem: Bank of America was spending nearly $100 million annually on
human resources paperwork such as enrollment for its retirement programs.
Simple changes often required weeks to complete.
The solution: Harrah’s linked the
database to its website, allowing customers to go online and book rooms at
discount prices based on their past spending habits.
The solution: One $15 million initiative
will streamline DuPont’s purchasing of everything from software to
sulphur dioxide. The project eliminates faxes and purchase orders, moving
procurement online, where employees can order goods from suppliers that
sell to DuPont at a discount.
The solution: Today, inspectors fill out
their reports on a wireless handheld computer, then zap them off to a
website where they’re posted minutes later for builders to see.
The solution: This summer, Miller
completed a $1 million project that links it to its 400 dealers via the
Web, giving them easy access to info.
The solution: Hylsa spent $800,000 on
software, computers, and consulting to automate the process of planning
production, managing inventories, and scheduling deliveries.
The solution: The company moved those
programs to the Web. Managers now log on to record promotions and raises.
And all 140,000 employees can change doctors, monitor retirement accounts,
and submit travel expenses online.
The payoff: After September 11,
occupancy at Harrah’s flagship Las Vegas hotel fell by 25%. The chain
sent e-mails with bargain offers, filling 4,000 rooms that otherwise would
have stayed empty and bringing the hotel back to near-100% occupancy by
September 30.
The payoff: The company has cut
procurement costs by $200 million–a 5% reduction–this year, and
expects another $200 million in annual savings by 2003. Now, a typical
order is processed in one day instead of five.
The payoff: The county estimates the
$880,000 project saves at least $175,000 in payroll and other expenses
annually and frees the data-entry clerks to field inquiries about permits
and other matters.
The payoff: Dealers say it helps them
better serve customers by giving them instant access to order and shipping
info without having to call. The company says facilitating access by
dealers will encourage them to recommend its products over those of other
The payoff: The new system helped
improve on-time deliveries from 70% to 88%, and boosted inventory turns–a
measure of efficiency–from 2.2 to 2.8 times monthly. Next, the division
plans to hook up electronically with its suppliers to coordinate
production schedules.
The payoff: The bank is saving with the
system. Some processes,
such as benefits enrollment, now take just minutes to process because they’re
done online. That’s down from months under the old system.

The payoff from some simple initiatives such as moving
procurement online can be so huge you wonder why they didn’t happen years ago.
At DuPont, for example, purchasing on the Web has cut the cost of buying
supplies by $200 million–a 5% reduction in the first year of the $15 million
project. Better yet, the chemical giant expects another $200 million in annual
savings by 2003–numbers that sound pretty good at DuPont, where analysts
expect to see profits slide by half this year. Before the system was in place,
employees ordered supplies using phone calls, faxes, or by simply running out
and picking stuff up. Now, they log onto a website to buy virtually everything.
DuPont can better control what gets bought–and can funnel orders to vendors
who promise price breaks.

Corporate chieftains are figuring out that the Net can help
them better weather tough times. No doubt, the terrorist attacks made a bad
situation worse. But economic turmoil also creates opportunities for those who
place their chips right. The smart money is betting that getting Web smart is
like having an ace in the hole.

By David Rocks; contributing: Andrew Park, Aixa Pascual,

Darnell Little
, and Jeanette Brown in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

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