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| Planning a big e-commerce project? Ask for a guarantee |
May 6, 2002 |
Peter Wolchak
Small and medium enterprises (SMES) in this country are reluctant to invest in e-commerce projects, according to a report from an influential Canadian think tank. A troublesome economy is causing companies to question investment in even those online initiatives that are likely to generate revenue or savings.
If this is true in your company, consider this antidote: ask the implementation vendor to share your risk. That way, if your dollars don’t generate the anticipated return on investment, the vendor owes you some money.
That Canadian SMEs are dragging their feet on ecommerce projects was highlighted in the recent Report of the E-Business Opportunities Roundtable, a research group composed of more than 100 Canadian public and private sector business leaders. The report cited IDC Canada stats from 2000 that found small businesses, those with less than 100 employees, in this country generated about two per cent of their revenue from e-commerce sources.
The result for the same sector in the U.S. was more than 10 per cent.
“Canadian SMEs tend to be more reluctant to embrace e-business for sophisticated applications such as supply chain management or order processing and fulfillment,” the report found.“Many of them have not yet recognized that having a Web site is not enough to gain ground in the global Internet economy.They must exploit the power of the Internet to reach new customers, suppliers and employees that they could not otherwise reach. They must also overcome…uncertainty over return on their e-business investment.”
That’s easier said than done, of course. Adding basic payment processing to your corporate Web site may only ding you for $1,000, but a sophisticated customer relationship management or inventory tracking system could run into millions of dollars.
And while companies are still investing in technology initiatives, they are subjected to more rigorous assessments. “We’re seeing a much greater demand being placed on cost equations, given the sensitivity of the economy,” said Jeffrey Green, vice-president of solutions and alliances at business intelligence vendor SAS Institute (Canada).
So when your dollars are on the line ask the technology vendor or consultant partner to partially underwrite the project. Under certain conditions, many are willing to do so, including SAS.
Once a project’s scope, cost, timeline and ROI parameters are delineated, Green is willing to consider accepting a portion of the bottom-line risk. “In some situations we see the value of a risk-sharing arrangement.
That is an option.”
Joe Redman is a senior manager in the risk advisory services at KPMG LLP in Toronto. He has seen vendors accept a certain level of accountability within projects, and he said the best of these agreements make companies more willing to implement new systems.
“These deals should help overcome ROI concerns,” Redman said. “If you can remove a significant component of the risk and enhance the likelihood of getting a good return on investment, then why would you not do this?”
That’s an important question, as long-term success for Canadian businesses relies to a great extent on the aggressive adoption of e-commerce practices. As the EBusiness Roundtable concluded: “The importance of ebusiness has not diminished over the past year. Despite headlines proclaiming the death of dot-coms and the cooling of over-heated technology markets, e-business matters more than ever, because the New Economy has become the whole economy.”
Peter Wolchak, editor pwolchak@backbonemag.com
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