The Net as a Lifeline

DQI Bureau
New Update

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